G.R. No.

L-22734

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.
BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom
is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No.
71129) wherein the surviving widow was appointed administratrix. The estate was divided among and awarded to
the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the
estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not
filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the basis
of information and data obtained from the aforesaid estate proceedings and issued an assessment for the following:
1. Deficiency income tax
1945
P135.83
1946
436.95
1947
1,206.91
Add: 5% surcharge
1% monthly interest
from November 30,
1953 to April 15, 1957
Compromise for late
filing
Compromise for late
payment
Total amount due

P1,779.69
88.98
720.77
80.00
40.00
P2,707.44
===========
P14.50
===========

Additional residence tax for

1945
3. Real Estate dealer's tax for
the fourth quarter of 1946 and
P207.50
the whole year of 1947
===========
2.

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of
Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the
heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner
on the ground that his right to assess and collect the tax has prescribed. The Commissioner appealed and this Court
affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held that the
right to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed
on August 24, 1953; assessments for both taxable years were made within five years therefrom or on October 19,
1953; and the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For taxable
year 1947, however, the return was filed on March 1, 1948; the assessment was made on October 19, 1953, more
than five years from the date the return was filed; hence, the right to assess income tax for 1947 had prescribed.
Accordingly, We remanded the case to the Tax Court for further appropriate proceedings. 1

In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the
payment corresponding to his share of the following taxes:
Deficiency income tax
1945
1946
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947

P135.83
436.95

P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda liable for
the payment of all the taxes found by the Tax Court to be due from the estate in the total amount of P760.28 instead
of only for the amount of taxes corresponding to his share in the estate.
1awphl.nt

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the
estate only up to the extent of and in proportion to any share he received. He relies on Government of the Philippine
Islands v. Pamintuan2 where We held that "after the partition of an estate, heirs and distributees are liable
individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of
the property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he
received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his
possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his
share in the inheritance, for unpaid income taxes4a for which said estate is liable, pursuant to the last paragraph of
Section 315 of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition
thereto upon all property and rights to property belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the
P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right
of contribution from his co-heirs,5 to achieve an adjustment of the proper share of each heir in the distributable
estate.
All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax proportionate to the inheritance received. This remedy was
adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an action
against all the heirs for the collection of the tax. This action rests on the concept that hereditary property consists
only of that part which remains after the settlement of all lawful claims against the estate, for the settlement of which
the entire estate is first liable.6 The reason why in case suit is filed against all the heirs the tax due from the estate is
levied proportionately against them is to achieve thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property
belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of

an heir or transferee to the payment of the tax due, the estate. This second remedy is the very avenue the
Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like
the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be
envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government
and their prompt and certain availability is an imperious need.7 And as afore-stated in this case the suit seeks to
achieve only one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the Government
recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate
dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. L-28896 February 17, 1988 FIRST DIVISION

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other
hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The
corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal
Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a
letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the
petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its
counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest
in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon
Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not
taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may
be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of
distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9being
"tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed
its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued;
indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR
a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant
was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was based
on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started
running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the
said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of
the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with
Algue, it held that the said amount had been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in
the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal
holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact,
as the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It
has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as
agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to
the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and
paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining the evidence, that no
distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of the same
family in control of Algue. It is argued that no indication was made as to how such payments were made, whether by
check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax
dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara,
and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically
and in different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation
where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the
end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or
her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction.
The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was
the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual

purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision
of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as
deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid
or incurred in carrying on any trade or business may be included a reasonable allowance for salaries
or other compensation for personal services actually rendered. The test of deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical application may
be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of
whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted
by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and
involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's
hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of
the government. The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not
been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private
respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the
petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Commissioner vs. Algue GRL-28890, 17 February 1988 First Division, Cruz (J); 4 concur
Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its
agent, authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil
Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a
commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers
of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the
Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for
years 1958 amd 1959. Algue filed a protest or request for reconsideration which was not acted
upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of
distrant and levy. Algue, however, filed a petition for review with the Coourt of Tax Appeals.
Issue: Whether the assessment was reasonable.
Held: Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. Every person who is able to pay must contribute his share in the running of the
government. The Government, for his part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that is an arbitrary method of exaction by those in the seat of power. Tax
collection, however, should be made in accordance with law as any arbitrariness will negate the
very reason for government itself. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate that the law has not been observed.
Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1]
of Revenue Regulation 2: as to compensation for personal services) had been legitimately by
Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light
of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an
experimental enterprise or a business requiring millions of pesos. The assessment was not
reasonable.
G.R. Nos. 89898-99 October 1, 1990 THIRD DIVISION
MUNICIPALITY OF MAKATI, petitioner, vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge RTC of Makati,
Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and SHERIFF SILVINO R.
PASTRANA,respondents.
Defante & Elegado for petitioner.
Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.
RESOLUTION

CORTS, J.:
The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner Municipality of
Makati against private respondent Admiral Finance Creditors Consortium, Inc., Home Building System & Realty
Corporation and one Arceli P. Jo, involving a parcel of land and improvements thereon located at Mayapis St., San
Antonio Village, Makati and registered in the name of Arceli P. Jo under TCT No. S-5499.
It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case No. 13699.
Attached to petitioner's complaint was a certification that a bank account (Account No. S/A 265-537154-3) had been
opened with the PNB Buendia Branch under petitioner's name containing the sum of P417,510.00, made pursuant
to the provisions of Pres. Decree No. 42. After due hearing where the parties presented their respective appraisal
reports regarding the value of the property, respondent RTC judge rendered a decision on June 4, 1987, fixing the
appraised value of the property at P5,291,666.00, and ordering petitioner to pay this amount minus the advanced
payment of P338,160.00 which was earlier released to private respondent.
After this decision became final and executory, private respondent moved for the issuance of a writ of execution.
This motion was granted by respondent RTC judge. After issuance of the writ of execution, a Notice of Garnishment
dated January 14, 1988 was served by respondent sheriff Silvino R. Pastrana upon the manager of the PNB
Buendia Branch. However, respondent sheriff was informed that a "hold code" was placed on the account of
petitioner. As a result of this, private respondent filed a motion dated January 27, 1988 praying that an order be
issued directing the bank to deliver to respondent sheriff the amount equivalent to the unpaid balance due under the
RTC decision dated June 4, 1987.
Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the expropriation
amount should be done in installments which the respondent RTC judge failed to state in his decision. Private
respondent filed its opposition to the motion.
Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation" informing the court that
private respondent was no longer the true and lawful owner of the subject property because a new title over the
property had been registered in the name of Philippine Savings Bank, Inc. (PSB) Respondent RTC judge issued an
order requiring PSB to make available the documents pertaining to its transactions over the subject property, and
the PNB Buendia Branch to reveal the amount in petitioner's account which was garnished by respondent sheriff. In
compliance with this order, PSB filed a manifestation informing the court that it had consolidated its ownership over
the property as mortgagee/purchaser at an extrajudicial foreclosure sale held on April 20, 1987. After several
conferences, PSB and private respondent entered into a compromise agreement whereby they agreed to divide
between themselves the compensation due from the expropriation proceedings.
Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1) approved the compromise
agreement; (2) ordered PNB Buendia Branch to immediately release to PSB the sum of P4,953,506.45 which
corresponds to the balance of the appraised value of the subject property under the RTC decision dated June 4,
1987, from the garnished account of petitioner; and, (3) ordered PSB and private respondent to execute the
necessary deed of conveyance over the subject property in favor of petitioner. Petitioner's motion to lift the
garnishment was denied.
Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On the other hand, for
failure of the manager of the PNB Buendia Branch to comply with the order dated September 8, 1988, private
respondent filed two succeeding motions to require the bank manager to show cause why he should not be held in
contempt of court. During the hearings conducted for the above motions, the general manager of the PNB Buendia
Branch, a Mr. Antonio Bautista, informed the court that he was still waiting for proper authorization from the PNB
head office enabling him to make a disbursement for the amount so ordered. For its part, petitioner contended that
its funds at the PNB Buendia Branch could neither be garnished nor levied upon execution, for to do so would result
in the disbursement of public funds without the proper appropriation required under the law, citing the case
of Republic of the Philippines v. Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899].
Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for reconsideration on
the ground that the doctrine enunciated in Republic v. Palacio did not apply to the case because petitioner's PNB
Account No. S/A 265-537154-3 was an account specifically opened for the expropriation proceedings of the subject
property pursuant to Pres. Decree No. 42. Respondent RTC judge likewise declared Mr. Antonio Bautista guilty of

contempt of court for his inexcusable refusal to obey the order dated September 8, 1988, and thus ordered his
arrest and detention until his compliance with the said order.
Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions for certiorari with the Court of
Appeals, which were eventually consolidated. In a decision promulgated on June 28, 1989, the Court of Appeals
dismissed both petitions for lack of merit, sustained the jurisdiction of respondent RTC judge over the funds
contained in petitioner's PNB Account No. 265-537154-3, and affirmed his authority to levy on such funds.
Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the present petition
for review with prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining respondent RTC judge,
respondent sheriff, and their representatives, from enforcing and/or carrying out the RTC order dated December 21,
1988 and the writ of garnishment issued pursuant thereto. Private respondent then filed its comment to the petition,
while petitioner filed its reply.
Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals, but also alleges for
the first time that it has actually two accounts with the PNB Buendia Branch, to wit:
xxx xxx xxx
(1) Account No. S/A 265-537154-3 exclusively for the expropriation of the subject property, with
an outstanding balance of P99,743.94.
(2) Account No. S/A 263-530850-7 for statutory obligations and other purposes of the municipal
government, with a balance of P170,098,421.72, as of July 12, 1989.
xxx xxx xxx
[Petition, pp. 6-7; Rollo, pp. 11-12.]
Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts, it may fairly be
asked whether the second account was opened only for the purpose of undermining the legal basis of the assailed
orders of respondent RTC judge and the decision of the Court of Appeals, and strengthening its reliance on the
doctrine that public funds are exempted from garnishment or execution as enunciated in Republic v. Palacio [supra.]
At any rate, the Court will give petitioner the benefit of the doubt, and proceed to resolve the principal issues
presented based on the factual circumstances thus alleged by petitioner.
Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation proceedings it had
initiated over the subject property, petitioner poses no objection to the garnishment or the levy under execution of
the funds deposited therein amounting to P99,743.94. However, it is petitioner's main contention that inasmuch as
the assailed orders of respondent RTC judge involved the net amount of P4,965,506.45, the funds garnished by
respondent sheriff in excess of P99,743.94, which are public funds earmarked for the municipal government's other
statutory obligations, are exempted from execution without the proper appropriation required under the law.
There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-530850-7 are public
funds of the municipal government. In this jurisdiction, well-settled is the rule that public funds are not subject to levy
and execution, unless otherwise provided for by statute [Republic v. Palacio, supra.; The Commissioner of Public
Highways v. San Diego, G.R. No. L-30098, February 18, 1970, 31 SCRA 616]. More particularly, the properties of a
municipality, whether real or personal, which are necessary for public use cannot be attached and sold at execution
sale to satisfy a money judgment against the municipality. Municipal revenues derived from taxes, licenses and
market fees, and which are intended primarily and exclusively for the purpose of financing the governmental
activities and functions of the municipality, are exempt from execution [See Viuda De Tan Toco v. The Municipal
Council of Iloilo, 49 Phil. 52 (1926): The Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629 (1950);
Municipality of San Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984, 130 SCRA 56]. The foregoing
rule finds application in the case at bar. Absent a showing that the municipal council of Makati has passed an
ordinance appropriating from its public funds an amount corresponding to the balance due under the RTC decision

dated June 4, 1987, less the sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under
execution may be validly effected on the public funds of petitioner deposited in Account No. S/A 263-530850-7.
Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse. Where a
municipality fails or refuses, without justifiable reason, to effect payment of a final money judgment rendered against
it, the claimant may avail of the remedy of mandamus in order to compel the enactment and approval of the
necessary appropriation ordinance, and the corresponding disbursement of municipal funds therefor [SeeViuda De
Tan Toco v. The Municipal Council of Iloilo, supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales,
108 Phil. 247 (1960)].
In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by petitioner. No appeal was
taken therefrom. For three years now, petitioner has enjoyed possession and use of the subject property
notwithstanding its inexcusable failure to comply with its legal obligation to pay just compensation. Petitioner has
benefited from its possession of the property since the same has been the site of Makati West High School since the
school year 1986-1987. This Court will not condone petitioner's blatant refusal to settle its legal obligation arising
from expropriation proceedings it had in fact initiated. It cannot be over-emphasized that, within the context of the
State's inherent power of eminent domain,
. . . [j]ust compensation means not only the correct determination of the amount to be paid to the
owner of the land but also the payment of the land within a reasonable time from its taking. Without
prompt payment, compensation cannot be considered "just" for the property owner is made to suffer
the consequence of being immediately deprived of his land while being made to wait for a decade or
more before actually receiving the amount necessary to cope with his loss [Cosculluela v. The
Honorable Court of Appeals, G.R. No. 77765, August 15, 1988, 164 SCRA 393, 400. See also
Provincial Government of Sorsogon v. Vda. de Villaroya, G.R. No. 64037, August 27, 1987, 153
SCRA 291].
The State's power of eminent domain should be exercised within the bounds of fair play and justice. In the case at
bar, considering that valuable property has been taken, the compensation to be paid fixed and the municipality is in
full possession and utilizing the property for public purpose, for three (3) years, the Court finds that the municipality
has had more than reasonable time to pay full compensation.
WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay Philippine
Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is hereby required to submit to
this Court a report of its compliance with the foregoing order within a non-extendible period of SIXTY (60) DAYS
from the date of receipt of this resolution.
The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case No. 13699, is SET
ASIDE and the temporary restraining order issued by the Court on November 20, 1989 is MADE PERMANENT.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Municipality of Makati v. Court of Appeals GR # 89898-9 10/01/90

Facts: An expropriation proceeding for a piece of land filed by the Municipality of Makati against Admiral
Financial and Credit Corp resulted with the Municipality having to pay P 5,291,666.00 less initial payments by
the municipality. After that, private respondent filed a writ for execution for the balance. Regional Trial Court
granted the motion and directed the bank to deliver the said balance. Subsequent motions for reconsideration
and appeal to the respondent Court of Appeals by the municipality in order to stop the garnishment.

Issues: Whether or not the court can validly subject government accounts/property to garnishment. Whether
or not the the court erred with the decision of assessing the higher amount as to how much the municipality is
willing to pay.
Held: The court ruled that the Municipality of Makati's accounts or property cannot be held for garnishment
as government's fund, held for public use, cannot be held for garnishment. However, the court still held the
Municipality liable for the assessed value of the land and improvements because the private respondent should
be entitled to just compensation.
G.R. No. L-59431 July 25, 1984 EN BANC
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit,
and CESAR E. A. VIRATA, Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding

1 on the validity of Section I of

Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National Internal
Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements,
(e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3as taxpayer alleges that

by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income
arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual
taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in
character 5 For petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the
Constitution as well as of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice.
Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28,
1982.8 The facts as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or
conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative
Defenses."9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the
dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth
by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and
which the government was called upon to enter optionally, and only 'because it was better equipped to administer
for the public welfare than is any private individual or group of individuals,' continue to lose their well-defined
boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is
to meet the increasing social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has
to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the
lifeblood of the government, their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all
the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all

petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that
"the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate
remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to
emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it
is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or
executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged
statutory provision as petitioner here alleges fails to abide by its command, then this Court must so declare
and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on
taxable net income derived from business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not
suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would
condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc
not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property.
That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum.
It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process
grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to
demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then
that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in
terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws
benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the
very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The
equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the
equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but
are expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they
were the same." 21 Hence the constant reiteration of the view that classification if rational in character is allowable. As a
matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at
any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation
shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be
found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine years later,
when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is

therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the tax
"applies equally to all persons, firms and corporations placed in similar situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified
into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that
make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the,
discernible basis of classification is the susceptibility of the income to the application of generalized rules removing
all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead
expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the
same situation more or less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just
then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the
same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt
the gross system of income taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation
and taxable net income of professionals and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas,
JJ., concur.
Teehankee, J., concurs in the result.
Plana, J., took no part.

Sison vs. Ancheta GR L-59431, 25 July 1984 En Banc, Fernando (J): 9 concur, 2 concur in
result, 1 concur in separate opinion, 1 took no part
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly discriminated against him by the imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity in
taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.
Held: There is a need for proof of such persuasive character as would lead to a conclusion that
there was a violation of the due process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation. Where
the differentitation conforms to the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within the meaning of the clause and is
therefore uniform. Taxpayers may be classified into different categories, such as recipients of
compensation income as against professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as there is no practically no overhead
expense, while professionals and businessmen have no uniform costs or expenses necessaryh to

produce their income. There is ample justification to adopt the gross system of income taxation
to compensation income, while continuing the system of net income taxation as regards
professional and business income.

G.R. No. L-10405

December 29, 1960 EN BANC

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant,

vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.
CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the
above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds
for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00
"for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen.
Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar
Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing
but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at .
. . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far
away from the intersection between the latter and Highway 54), which projected feeder roads "do not connect any
government property or any important premises to the main highway"; that the aforementioned Antonio Subdivision
(as well as the lands on which said feeder roads were to be construed) were private properties of respondent Jose
C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the
Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal,
offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer
was accepted by the council, subject to the condition "that the donor would submit a plan of the said roads and
agree to change the names of two of them"; that no deed of donation in favor of the municipality of Pasig was,
however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention
to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction of the
projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to
the District Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the
projected feeder roads in question were private property at the time of the passage and approval of Republic Act
No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of
P85,000.00 was made by Congress because its members were made to believe that the projected feeder roads in
question were "public roads and not private streets of a private subdivision"'; that, "in order to give a semblance of
legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed on
December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donation copy
of which is annexed to the petition of the four (4) parcels of land constituting said projected feeder roads, in favor
of the Government of the Republic of the Philippines; that said alleged deed of donation was, on the same date,
accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of the
nature of a contract; that, such, said donation violated the provision of our fundamental law prohibiting members of
Congress from being directly or indirectly financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads in question with
public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta,
"aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that
the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and
that, unless restrained by the court, the respondents would continue to execute, comply with, follow and implement

the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a
writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the Bureau
of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the abovementioned feeder roads project, and from making and securing any new and further releases on the aforementioned
item of Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways from
making any further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing
on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from
making and securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making
any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that
the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial
Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the
Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of
public funds for the improvements of . . . private property"; and that, the constitutional provision invoked by petitioner
is inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in question because "there is no
actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has
not shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will
cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial
fiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of the
disputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for anything
but a public purpose", that the instructions and improvement of the feeder roads in question, if such roads where
private property, would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic of the
Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes
whatsoever; it being expressly understood that should the Government of the Republic of the Philippines
violate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such violation,
ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the
Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence
and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public
policy"; that the legality of said donation may not be contested, however, by petitioner herein, because his "interest
are not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the
case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to
dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of
appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential land
situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the
projected feeder roads aforementioned, which, admittedly, were private property of said respondent when Republic
Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of
said roads, was passed by Congress, as well as when it was approved by the President on June 20, 1953. The
petition further alleges that the construction of said roads, to be undertaken with the aforementioned appropriation of
P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his subdivision
streets or roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of said
respondent. The lower court held that under these circumstances, the appropriation in question was "clearly for a
private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta
contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because Congress is the
source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the
appropriation of public funds for the improvement of what we, in the meantime, may assume as private
property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government
established under the Constitution of the Republic of the Philippines and the system of checks and balances
underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative
enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling
Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for anything but a
public purpose. . . . It is the essential character of the direct object of the expenditure which must determine
its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the promotion of private interest and the
prosperity of private enterprises or business, does not justify their aid by the use public money. (25 R.L.C.
pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussedsupra sec. 14, money raised by taxation can be expended only for public purposes and not for the
advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be used only for
public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for
one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for
other than for a public purpose.
xxx

xxx

xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is
designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis
supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a
necessary corollary to our democratic system of government, which, as such, exists primarily for the promotion of
the general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whose
constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our
own constitutional law.
lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that
petitioner may not contest the legality of the donation above referred to because the same does not affect him
directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said donation
cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulled without
a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the
Civil Code is absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon
events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Referring to
the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether
said roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or
on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and
hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity
of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the
appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance,
the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise
the rights and actions of the latter, except only those which are inherent in his person, including therefore, his right
to the annulment of said contract, even though such creditors are not affected by the same, except indirectly, in the
manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an officer of
the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which
may be enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing
view in the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but alsotaxpayers,
have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore
question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis
supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447),
insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal
Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under
the composite system of government existing in the U.S., the states of the Union are integral part of the Federation
from an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the
limitations imposed by the Federal Constitution. In fact, the same was made by representatives ofeach state of the
Union, not of the people of the U.S., except insofar as the former represented the people of the respective States,
and the people of each State has, independently of that of the others, ratified said Constitution. In other words, the
Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of
an act of, and, in this sense, through the respective states of the Union of which they are citizens. The peculiar
nature of the relation between said people and the Federal Government of the U.S. is reflected in the election of its
President, who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in such
manner as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).
lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its
Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of
each state and the government thereof, except that the authority of the Republic of the Philippines over the people
of the Philippines is more fully direct than that of the states of the Union, insofar as the simple and unitarytype of our
national government is not subject to limitations analogous to those imposed by the Federal Constitution upon the
states of the Union, and those imposed upon the Federal Government in the interest of the Union. For this reason,
the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state
public funds which has been upheld by the Federal Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) has
greater application in the Philippines than that adopted with respect to acts of Congress of the United States
appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of
Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to
the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a
taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for
backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers
impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason that
impelled this Court to take such position in said two (2) cases the importance of the issues therein raised is
present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not
merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most
populated political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action
in contesting the appropriation and donation in question; that this action should not have been dismissed by the
lower court; and that the writ of preliminary injunction should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for
further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C.
Zulueta. It is so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and
Dizon, JJ., concur.

Pascual vs. Secretary of Public Works and Communications GR L-10405, 29 December

1960 En Banc, Concepcion (J): 10 concur
Facts: RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item
(Section 1 c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig
feeder road terminals (the projected and planned subdivision roads, which were not yet
constructed, within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta donated
said parcels of land to the Government 5 months after the enactment of RA 920, on the condition
that if the Government violates such condition the lands would revert to Zulueta. The provincial
governor of Rizal, Wenceslao Pascual, questioned the validity of the donation and the
Constitutionality of the item in RA 920, it being not for a public purpose.
Issue: Whether the item in the appropriation is valid.
Held: The right of the legislature to appropriate funds is correlative with its right to tax, under
constitutional provisions against taxation except for public purposes and prohibiting the
collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation
of state funds can be made for other than a public purpose. The validity of a statute depends
upon the powers of Congress at the time of its passage or approval, not upon events occupying,
or acts performed, subsequently thereto, unless the latter consist of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation infringed by said
statute. Herein, inasmuch as the land on which the projected feeder roads were to be
constructed belonged to Senator Zulueta at the time RA 920 was passed by Congress, or
approved by the President, and the disbursement of said sum became effective on 20 June 1953
pursuant to Section 13 of the Act, the result is that the appropriating sough a private purpose
and hence, null and void.
G.R. No. L-7859

December 22, 1955 EN BANC

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,

vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor
Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our
industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the
"eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed
"to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and
"to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the
United States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a
graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of
lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be
known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the
following purposes or to attain any or all of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial
position of the Philippine sugar in the United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of meeting competition in the free
markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof
the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so
that all might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and working
conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular
session of the National Assembly, make the necessary disbursements from the fund herein created (1) for
the establishment and operation of sugar experiment station or stations and the undertaking of researchers
(a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different
district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying
quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the
utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and
stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar
plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure
and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the

disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void,
being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public
purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First
Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is
a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will
show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar
occupying a leading position among its export products; that it gives employment to thousands of laborers in fields
and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange
needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent
for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and
in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain
(Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy
Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to
such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern,
it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no
relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally
valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S.
412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint;
indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the
expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke
Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization
Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is
being protected. It may be that other industries are also in need of similar protection; that the legislature is not
required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate
Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have been applied;" and that "the legislative
authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones &
Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of
allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without
any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private
purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Lutz vs. Araneta GR L-7859, 22 December 1955 First Division, Reyes JBL (J): 8 concur
Facts: AWalter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
sought to recover the sum of P14,6666.40 paid by the estate as taxes from the Commissioner
under Section e of Commonwealth Act 567 (the Sugar Adjustment Act), alleging that such tax is
unconstitutional as it levied for the aid and support of the sugar industry exclusively, which is in
his opinion not a public purpose.
Issue: Whether the tax is valid in supporting an industry.
Held: The tax is levied with a regulatory prupose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power,
and is not a pure exercise of taxing power. As sugar production is one of the great industries of
the Philippines; and that its promotion, protection and advancement redounds greatly to the
general welfare, the legislature found that the general welfare demanded that the industry
should be stabilized, and provided that the distribution of benefits therefrom be readjusted
among its component to enable it to resist the added strain of the increase in tax that it had to
sustain. Further, it cannot be said that the devotion of tax money to experimental stations to
seek increase of efficiency in sugar production, utilization of by-products, etc., as well as to the
improvement of living and working conditions in sugar mills and plantations, without any part of
such money being channeled diectly to private persons, constitute expenditure of tax money for
private purposes. The tax is valid.
G.R. No. L-4060

August 29, 1952 EN BANC

DR. ESTEBAN MEDINA, DR. JOSE DE LA ROSA, MR. ENRIQUE SANTAMARIA, and BENGUET
DEVELOPMENT CO., INC., plaintiffs-appellants,
vs.
CITY OF BAGUIO, defendant-appellee.
Francisco A. Reyes for appellants.
Acting City Atty. Santiago C. Gregorio for appellee.
BAUTISTA ANGELO, J.:
Plaintiffs brought this action in the Court of First Instance of Baguio seeking to nullify Ordinances Nos. 62, 99 and
100 of the City Council of Baguio on the ground that they were enacted without authority or power, and are
oppressive, unjust and unreasonable, and to recover the taxes and fees they had paid as itemized in the complaint.
Esteban Medina is the owner and operator of Pines Theater, a duly licensed movie houses in the City of Baguio.
Jose Y. de la Rosa is the owner and operator of Plaza Theater, another duly licensed movie house in the city.
Enrique Santamaria is the owner and operator under a contract of lease of Session Theater, also a duly licensed
movie houses in said city, while Benguet Development Co., Inc., is an operator of a gasoline station engaged in
selling gasoline, petroleum and imported oil products within the city.

Under Ordinance No. 99, Esteban Medina paid under protest a municipal license for 1949 for two quarters in the
amount of P1,200, and Jose Y. de la Rosa paid under protest a municipal license for the same year in the amount of
P1,800 for three quarters. Under Ordinance No. 62, Esteban Medina paid an additional tax of P4,896.60 during the
months of July, August, September and November, 1949. Enrique Santamaria also paid an additional tax of
P1,855.05 during the months of July and August of the same year. The Benguet Development Co., Inc., on the other
hand, paid under Ordinance No. 100 the amount of P3,554.44 as specific tax for gasoline and oil sold from
September 20, 1948, to November 17, 1949.
After trial, the court rendered decision declaring Ordinances Nos. 99 and 100 valid and legal but rendering
Ordinance No. 62 null and void while denying the claim of the plaintiffs for reimbursement of the different amounts
paid by them under protest to the City of Baguio, without special pronouncement as to costs. From this decision only
the plaintiffs appealed assigning from errors as committed by the lower court.
The first question to be determined refers to the validity of Ordinance No. 99 which fixes the license fees to be paid
by persons, entities or corporations which may engage in business within the city of Baguio. This ordinance fixes a
license fee of P120 a year for every gasoline station installed in the city, and a fee of P2,400 for theaters which
come under class "A", P1,800 for those coming under class "B", and P1,200 for those coming under class "C".
Plaintiffs paid the fees required by this Ordinance, but now dispute the power of the city to enact it, contending that it
only has the power to impose a license fee but not to levy a tax upon theaters and gasoline stations which are
operated within its limits. They contend that, while this ordinance expressly recites that its purpose is to fix ore
impose a license fee on the business or trade therein specified, in fact its purpose is to levy a tax for purposes of
revenue under the guise of a license fee. This, they contend, defendants cannot do.
This contention has no merit. Appellants apparently have in mind section 2553, paragraph (c) of the revised
Administrative Code, which empowers the city of Baguio merely to impose a license fee for purpose of regulating
the business that may be established in the city. The power as thus conferred is indeed limited, as it does not
include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter of
said city and adding to its power to license the power to tax and to regulate. And it is precisely having in view this
amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for
purposes of revenue, more on when in amending section 2553(b), the phrase "as provided by law" has been
removed by section 2 of Republic Act No. 329. The city council of Baguio therefore, has now the power to tax, to
license and to regulate provided that the subjects affected be one of those included in the charter, In this sense, the
ordinance under consideration cannot be considered ultra vires whether its purpose to be levy a tax or impose a
license fee. The terminology used as if no consequence.
Coming now to Ordinance No. 100, we find that its validity is assailed not only because of lack of power to enact it
but also because of lack of power to enact it but also because it impose a specific tax on some articles which, it is
claimed, is not contemplated by law.
We have already stated that under its charter, as amended, the city of Baguio has now the power not only to levy it
also a specific tax on items or articles covered by the business of the taxpayer? After an examination of section
2553 of the revised Administrative Code, as amended by Republic Act No. 329, we are inclined to uphold the
negative view.
It is settled that a municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. The
charter or statue must plainly show an intent to confer that power or the municipality cannot assume it. And the
power when granted is to be construed strictissimi juris. Any doubt or ambiguity arising out of the term used in
granting that power must be resolved against the municipality. Inferences, implications, deductions all these
have no place in the interpretation of the taxing power of a municipal corporation (Joseph Icard vs. City Council of
Baguio and the City of Baguio, 83 Phil., 870).
An examination of section 2553 (c), of the revised Administrative Code, as amended, will reveal that the power
given to the city of Baguio to tax, to license and to regulate only refers to the business of the taxpayer and not to the
articles used in said business. This is clearly inferred from a reading of said section and from the concluding
sentence appearing therein, to wit, "and such other businesses, trade and occupations as may be established or
practised in the city". One reason for this undoubtedly is the fact that under section 142 of the Internal Revenue
Code (Commonwealth Act No. 466, as amended by Republic Act No. 39), most of the products mentioned in the

charter, particularly gasoline and oil, are already specifically taxed, and under section 361 of said code, the city of
Baguio gets a share of 20 per cent of the amount of specific tax collected. At any rate, the charter of the city of
Baguio does not show plainly an intent to confer that power upon the city of Baguio and, following the rule already
adverted to, this doubt or ambiguity must be resolved against the city. An indication of the legislative intent on this
matter is Commonwealth Act No. 472 which confers general authority upon municipal councils to levy taxes,
subjects to certain limitations, wherein it was specifically provided that the general authority so conferred shall not
include "percentage taxes and taxes on specified articles". In other words, the power to levy a percentage tax or a
specific tax has been expressly withheld. It is, therefore, our considered opinion that Ordinance No. 100 is ultra
vires and has no force and effect.
With respect to Ordinance No. 62, the lower court declared it null and void and from this part of the decision no
appeal has been taken. That finding should be left undisturbed. As to whether appellants can collect the additional
amounts they charged the public under the ordinance, the lower court said: "The amount collected from the theater
goers as additional price of admission tickets is not the property of plaintiffs or any of them. It is paid by the public. If
anybody has the right to claim it, it is those who paid it. Only owners of property has the right to claim said property.
The cine owners acted as mere against agent of the city in collecting the additional price charged in the sale of
admission tickets." Consequently, the court denied the claim of appellants for reimbursement. We find no error in
this respect.
Wherefore, the decision appealed from is hereby affirmed, with the only modification as to Ordinance No. 100, which
is hereby declared null and void. Defendant is hereby ordered to return to the Benguet Development Co., Inc., the
amount of P3,544.44 it has paid as specific tax. No pronouncement as to costs.
Pablo, Bengzon, Padilla, Jugo and Labrador, JJ., concur.
RESOLUTION

November 28, 1952

BAUTISTA ANGELO, J.:

This concerns the motion reconsideration filed by the City of Baguio in which it seeks to modify the decision
rendered in this case on August 29, 1952.
It is reiterated that Ordinance No. 100 is valid under the provisions of section 2553(c), as amended by Republic Act
No. 329, of the Revised Administrative Code, and that, granting arguendo that it is invalid, there is no point to order
the City of Baguio to return the taxes paid under said ordinance to appellant Benguet Development Co., Inc., for the
reason that said taxes were not paid by said company but by the car owners who bought the gasoline and oil
subject of the tax.
The first claim is not well taken. We already held that section 2553(c), as amended by Republic Act No. 329, merely
empowers the City of Baguio to impose a tax on business and not on the articles used therein. This is clear in said
section and in the other authorities we cited in the main opinion. The case of Eastern Theatrical Co., Inc., et al. vs.
Victor Alfonso, et al.1 (46 Off. Gaz., [Supp. 11] p. 303), can not be cited as a precedent in this case because the tax
therein imposed by the City of Manila is amusement tax. this is not a specific tax but a tax on business. A municipal
corporation, unlike a sovereign state, is clothed with no inherent power of taxation. The intent to confer such power
must be resolved against the corporation (Icard vs. City Council of Baguio and the City of Baguio, 2 (46 Off. Gaz.,
[Supp. 11] p. 320).
The second claim is disputed. It involves a question of fact. It does not appear in the record that the appellant
corporation has collected the tax from the car owners as agent of the City of Baguio. Counsel for the city of Baguio
sustains the affirmative and pleads that the ruling applied in the case of the theater-owners wherein it was declared
that the tax should be returned to the persons from whom it was collected, should also guide the determination of

this case. But counsel for the appellant corporation maintains the contrary and attempted to show that the tax was
collected directly from said corporation and not from the car owners.
The view of the Court on this point is to leave it pending and remand the case to the lower court in order that it may
be clarified with the presentation of the necessary evidence considering the precedent already set on this matter.
Wherefore, the Court holds in abeyance that portion of the decision relative to the return of the specific tax paid by
the Benguet Development Co., Inc., pending determination of the question of fact pointed out above, and orders the
remand of this case to the lower court for the presentation of necessary evidence. After the presentation of
evidence, the lower court may render judgment in line with the decision of this Court relative to the theater-owners.
The decision of this Court is maintained in all other respects.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo and Labrador, JJ., concur.

G.R. No. L-23645

October 29, 1968 EN BANC

BENJAMIN P. GOMEZ, petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity as
Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting
Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act 2631,2 which
provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period
from August nineteen to September thirty every year the printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage charge plus the additional amount of five
centavos for the said purpose, and during the said period, no mail matter shall be accepted in the mails
unless it bears such semi-postal stamps: Provided, That no such additional charge of five centavos shall be
imposed on newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall
constitute a special fund and be deposited with the National Treasury to be expended by the Philippine
Tuberculosis Society in carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative orders
numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to September 30,
1957, for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at
"10 + 5" centavos, will soon be released for use by the public on their mails to be posted during the same
period starting with the year 1958.
xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever
class, and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in
this country or abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage
meters, each piece of such mail shall bear at least one such semi-postal stamp if posted during the period
above stated starting with the year 1958, in addition to being charged the usual postage prescribed by
existing regulations. In the case of business reply envelopes and cards mailed during said period, such
stamp should be collected from the addressees at the time of delivery. Mails entitled to franking privilege like
those from the office of the President, members of Congress, and other offices to which such privilege has
been granted, shall each also bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes
without the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for
the affixing of such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and
forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra
charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead
of affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five centavos
for the Philippine Tuberculosis Society shall be collected on each separately-addressed piece of secondclass mail matter, and the total sum thus collected shall be entered in the same official receipt to be issued
for the postage at the second-class rate. In making such entry, the total number of pieces of second-class
mail posted shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall
be entered separate from the postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits
issued by this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge
intended for said society. The total extra charge thus received shall be entered in the same official receipt to
be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit
issued by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an
official receipt issued for the total sum thus received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to holders
of business reply permits, the five-centavo charge intended for said society shall be collected in cash on
each reply card or envelope delivered, in addition to the required postage which may also be paid in cash.
An official receipt shall be issued for the total postage and total extra charge received, in the manner shown
in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the
franking privilege under existing laws may pay in cash such extra charge intended for said society, instead of
affixing the semi-postal stamps to their mails, provided that such mails are presented at the post-office
window, where the five-centavo extra charge for said society shall be collected on each piece of such mail
matter. In such case, an official receipt shall be issued for the total sum thus collected, in the manner stated
in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed
with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in
the same way as herein provided for other mails.

Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and Instrumentalities
Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended, exempts "copies of
periodical publications received for mailing under any class of mail matter, including newspapers and magazines
admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and
equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory relief is
unavailing because this suit was filed after the petitioner had committed a breach of the statute. While conceding
that the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of Republic Act 1635,
as amended, the trial court nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64
of the Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ... should take
place, the action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of the
statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the court to
treat an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs after the filing
of the action but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action, then
indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an ordinary
action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach of
the statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in terms
provides that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It does not
follow, however, that only postal authorities can be guilty of violating it by accepting mails without the payment of the
anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are people who use the mails
without paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the law, so
in the matter of the anti-TB stamp the mere attempt to use the mails without the stamp constitutes a violation of the
statute. It is not required that the mail be accepted by postal authorities. That requirement is relevant only for the
purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not only
with respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that he
might send in the future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails
without the semi-postal stamps which he may deliver for mailing ... if any, during the period covered by Republic Act
1635, as amended, as well as other mails hereafter to be sent by or to other mailers which bear the required
postage, without collection of additional charge of five centavos prescribed by the same Republic Act." As one
whose mail was returned, the petitioner is certainly interested in a ruling on the validity of the statute requiring the
use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.

1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the claim
is made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the
population and that even among postal patrons the statute discriminatorily grants exemption to newspapers while
Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices performing
governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to grant
exemptions.4 This power has aptly been described as "of wide range and flexibility." 5 Indeed, it is said that in the field
of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. 6 The reason
for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in
order to achieve an equitable distribution of the tax burden. 7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some reasonable relationship to the end sought to be attained, and
that absent such relationship the selection of mail users is constitutionally impermissible. This is altogether a
different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the
legislation and its purpose is undoubtedly true in some contexts, it has no application to a measure whose
sole purpose is to raise revenue ... So long as the classification imposed is based upon some standard
capable of reasonable comprehension, be that standard based upon ability to produce revenue or some
other legitimate distinction, equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v.
Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S.
56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation must
be sought in the legislature. Now, the classification of mail users is not without any reason. It is based on ability to
pay, let alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden,
Congress must have concluded that the contribution to the anti-TB fund can be assured by those whose who can
afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled principle
of law that "consideration of practical administrative convenience and cost in the administration of tax laws afford
adequate ground for imposing a tax on a well recognized and defined class." 9 In the case of the anti-TB stamps,
undoubtedly, the single most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenienceof collecting the tax through the post offices. The small
amount of five centavos does not justify the great expense and inconvenience of collecting through the regular
means of collection. On the other hand, by placing the duty of collection on postal authorities the tax was made
almost self-enforcing, with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were
already a class by themselves even before the enactment of the statue and all that the legislature did was merely to
select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a
distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living law;
to disregard [them] and concentrate on some abstract identities is lifeless logic." 10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be conceded
as a necessary corollary. Tax exemptions are too common in the law; they have never been thought of as raising
issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law and
administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The application of

the lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable in the light of
differences in status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to foster
what it conceives to be a beneficent enterprise. 11 This is the case of newspapers which, under the amendment
introduced by Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from
taxation. The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty, is
to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General, which lists the various
offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a restatement
of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal protection
that all evils of the same genus be eradicated or none at all. 13 As this Court has had occasion to say, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it
might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public purpose as
no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of uniformity in
taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a
taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized society,
established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude the levying
of taxes except as they are used to compensate for the burden on those who pay them and would involve the
abandonment of the most fundamental principle of government that it exists primarily to provide for the common
good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a graduated
tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We have said that
considerations of administrative convenience and cost afford an adequate ground for classification. The same
considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction,
operating equally on all persons within the class regardless of the amount involved. 16 As Mr. Justice Holmes said in
sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100 face value of stock
transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the
tax, so far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to
practical considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp
tax. In another sense, moreover, there is equality. When the taxes on two sales are equal, the same number
of shares is sold in each case; that is to say, the same privilege is used to the same extent. Valuation is not
the only thing to be considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents
on checks, irrespective of income or earning capacity, and many others, illustrate the necessity and practice
of sometimes substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General
points out, the Society is not really the beneficiary but only the agency through which the State acts in carrying out
what is essentially a public function. The money is treated as a special fund and as such need not be appropriated
by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court
invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.

Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in
cash instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period August 19
to September 30 of each year in mail boxes without the stamp should be returned to the sender, if known, otherwise
they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-TB
stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the undertaking.
The authority given to the Postmaster General to raise funds through the mails must be liberally construed,
consistent with the principle that where the end is required the appropriate means are given. 19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but
also that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require mailers
to affix the anti-TB stamp on their cards would be to make them pay much more because the cards likewise bear the
amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB stamp,
but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamp"
is a declaration that such mail matter is nonmailable within the meaning of section 1952 of the Administrative Code.
Administrative Order 7 of the Postmaster General is but a restatement of the law for the guidance of postal officials
and employees. As for Administrative Order 9, we have already said that in listing the offices and entities of the
Government exempt from the payment of the stamp, the respondent Postmaster General merely observed an
established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to
costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.
Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended by Republic Act
No. 2631 and the majority opinion expounded with Justice Castro's usual vigor and lucidity subject to one
qualification. With all due recognition of its inherently persuasive character, it would seem to me that the same result
could be achieved if reliance be had on police power rather than the attribute of taxation, as the constitutional basis
for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the performance of the public
service. I refer of course to the government postal function, one of respectable and ancient lineage. The United
States Constitution of 1787 vests in the federal government acting through Congress the power to establish post
offices.1 The first act providing for the organization of government departments in the Philippines, approved Sept. 6,
1901, provided for the Bureau of Post Offices in the Department of Commerce and Police. 2 Its creation is thus a
manifestation of one of the many services in which the government may engage for public convenience and public
interest. Such being the case, it seems that any legislation that in effect would require increase cost of postage is
well within the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of the mails, the broad
discretion that it enjoys is undeniable. In that sense, the principle announced in Esteban v. Cabanatuan City,3 in an
opinion by our Chief Justice, while not precisely controlling furnishes for me more than ample support for the validity
of the challenged legislation. Thus: "Certain exactions, imposable under an authority other than police power, are
not subject, however, to qualification as to the amount chargeable, unless the Constitution or the pertinent laws
provide otherwise. For instance, the rates of taxes, whether national or municipal, need not be reasonable, in the
absence of such constitutional or statutory limitation. Similarly, when a municipal corporation fixes the fees for the
use of its properties, such as public markets, it does not wield the police power, or even the power of taxation.

Neither does it assert governmental authority. It exercises merely a proprietary function. And, like any private owner,
it is in the absence of the aforementioned limitation, which does not exist in the Charter of Cabanatuan City
(Republic Act No. 526) free to charge such sums as it may deem best, regardless of the reasonableness of the
amount fixed, for the prospective lessees are free to enter into the corresponding contract of lease, if they are
agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to the attitude and awareness that
must be displayed by inferior tribunals when the "delicate and awesome" power of passing on the validity of a
statute would not be inappropriate. "The Constitution is the supreme law, and statutes are written and enforced in
submission to its commands."4 It is likewise common place in constitutional law that a party adversely affected
could, again to quote from Cardozo, "invoke, when constitutional immunities are threatened, the judgment of the
courts."5
Since the power of judicial review flows logically from the judicial function of ascertaining the facts and applying the
law and since obviously the Constitution is the highest law before which statutes must bend, then inferior tribunals
can, in the discharge of their judicial functions, nullify legislative acts. As a matter of fact, in clear cases, such is not
only their power but their duty. In the language of the present Chief Justice: "In fact, whenever the conflicting claims
of the parties to a litigation cannot properly be settled without inquiring into the validity of an act of Congress or of
either House thereof, the courts have, not only jurisdiction to pass upon said issue but, also, theduty to do so, which
cannot be evaded without violating the fundamental law and paving the way to its eventual destruction." 6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be kept in mind. Thus: "It
must be evident to any one that the power to declare a legislative enactment void is one which the judge, conscious
of the fallibility of the human judgment, will shrink from exercising in any case where he can conscientiously and with
due regard to duty and official oath decline the responsibility." 7
There must be a caveat however to the above Cooley pronouncement. Such should not be the case, to paraphrase
Freund, when the challenged legislation imperils freedom of the mind and of the person, for given such an
undesirable situation, "it is freedom that commands a momentum of respect." Here then, fidelity to the great ideal of
liberty enshrined in the Constitution may require the judiciary to take an uncompromising and militant stand. As
phrased by us in a recent decision, "if the liberty involved were freedom of the mind or the person, the standard of
its validity of governmental acts is much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the controlling constitutional
doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as found in the majority
opinion. It may not be amiss to recall to mind, however, the language of Justice Laurel in the leading case ofPeople
v. Vera,9 to the effect that the basic individual right of equal protection "is a restraint on all the three grand
departments of our government and on the subordinate instrumentalities and subdivisions thereof, and on many
constitutional powers, like the police power, taxation and eminent domain." 10 Nonetheless, no jurist was more careful
in avoiding the dire consequences to what the legislative body might have deemed necessary to promote the ends
of public welfare if the equal protection guaranty were made to constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident from the various
citations from his pen found in the majority opinion. For him, it would be a misreading of the equal protection clause
to ignore actual conditions and settled practices. Not for him the at times academic and sterile approach to
constitutional problems of this sort. Thus: "It would be a narrow conception of jurisprudence to confine the notion of
'laws' to what is found written on the statute books, and to disregard the gloss which life has written upon it. Settled
state practice cannot supplant constitutional guaranties, but it can establish what is state law. The Equal Protection
Clause did not write an empty formalism into the Constitution. Deeply embedded traditional ways of carrying out
state policy, such as those of which petitioner complains, are often tougher and truer law than the dead words of the
written text."11 This too, from the same distinguished jurist: "The Constitution does not require things which are
different in fact or opinion to be treated in law as though they were the same." 12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative power at times
occasions difficulties. Its strict view has been announced by Justice Laurel in the aforecited case of People v. Verain
this language. Thus: "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. .... InUnited
States v. Ang Tang Ho ..., this court adhered to the foregoing rule; it held an act of the legislature void in so far as it
undertook to authorize the Governor-General, in his discretion, to issue a proclamation fixing the price of rice and to
make the sale of it in violation of the proclamation a crime." 13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor General,14 specially where the
delegation deals not with an administrative function but one essentially and eminently legislative in character. What
could properly be stigmatized though to quote Justice Cardozo, is delegation of authority that is "unconfined and
vagrant, one not canalized within banks which keep it from overflowing." 15
This is not the situation as it presents itself to us. What was delegated was power not legislative in character. Justice
Laurel himself, in a later case, People v. Rosenthal,16 admitted that within certain limits, there being a need for
coping with the more intricate problems of society, the principle of "subordinate legislation" has been accepted, not
only in the United States and England, but in practically all modern governments. This view was reiterated by him in
a 1940 decision, Pangasinan Transportation Co., Inc. v. Public Service Commission.17 Thus: "Accordingly, with the
growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a constantly growing tendency toward the delegation of greater powers
by the legislature, and toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in character, of both the equal protection clause and
the non-delegation principle, it is apparent how far the lower court departed from the path of constitutional orthodoxy
in nullifying Republic Act No. 1635 as amended. Fortunately, the matter has been set right with the reversal of its
decision, the opinion of the Court, manifesting its fealty to constitutional law precepts, which have been reiterated
time and time again and for the soundest of reasons.
G.R. No. L-75697 June 18, 1987 EN BANC
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner, vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR
and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An
Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry
(hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on
April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready
for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured
or imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that
their "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly
prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in
theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of
sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses
estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability
of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the
country, and occasioned industry-wide displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including the
movie industry which has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the
dire financial condition of the movie industry upon which more than 75,000 families and 500,000
workers depend for their livelihood, but also provide an additional source of revenue for the
Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a
clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate
of the Constitution for the State to support the rearing of the youth for civic efficiency and the
development of moral character and promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these
blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation
of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred
upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title
thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary
that the title express each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An act having

a
single general subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so
long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such
subject by providing for the method and means of carrying out the general object." 3 The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It
should be given practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of
law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the
tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be
shared equally by the City/Municipality and the Metropolitan Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title.
As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the DECREE.
The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the
motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram
Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all
its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the
DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so unlimited in
force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization
that earnings of videogram establishments of around P600 million per annum have not been subjected to tax,
thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for
every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by
the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly
on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang
Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in
his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The
grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and
units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a
conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is
between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and
conferring 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." 14 Besides, in the very language of the decree, the authority of the
BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control of the
BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one
which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after
the effectivity of this Decree within which to register with and secure a permit from the BOARD to
engage in the videogram business and to register with the BOARD all their inventories of
videograms, including videotapes, discs, cassettes or other technical improvements or variations
thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram found
in the possession of any person engaged in the videogram business without the required proof of
registration by the BOARD, shall be prima facie evidence of violation of the Decree, whether the
possession of such videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any
videogram cannot be presented and thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage of a law providing that
the presumption of innocence may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be sufficient to overcome such
presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact
that when certain facts have been proved that they shall be prima facie evidence of the existence of
the guilt of the accused and shift the burden of proof provided there be a rational connection

between the facts proved and the ultimate facts presumed so that the inference of the one from
proof of the others is not unreasonable and arbitrary because of lack of connection between the two
in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between the fact proved,
which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that
the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its
effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While
the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public
welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion
of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent sequences; and losses in government revenues due to
the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its jurisdiction to
such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left
to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence
to the rule of law, as there ought to be, the last offender should be courts of justice, to which rightly
litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and
prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no
clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento and Cortes, JJ., concur.
G.R. No. L-30232 July 29, 1988 SECOND DIVISION
LUZON STEVEDORING CORPORATION, petitioner-appellant,
vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondentsappellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.
PARAS, J.:

This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring
Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of
the same court denying the motion for reconsideration.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various
engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure
a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review (Rollo,
pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying among others, that it be
granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October
21, 1969 (Ibid., pp. 22-27), denied the various claims for tax refund. The decretal portion of the said decision reads:
WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without
sufficient legal justification, the said claims have to be, as they are hereby, denied. With costs
against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the same was
denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.
This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40). Petitioner-appellant
raised three (3) assignments of error, to wit:
I
The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore,
the work of unloading and loading of a vessel in port, contrary to the evidence on record.
II
The lower court erred in not holding that the business in which petitioner-appellant is engaged, is
part and parcel of the shipping industry.
III
The lower court erred in not allowing the refund sought by petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the term
"cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal Revenue
Code, as amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall
not apply to articles to be used by the importer himself in the manufacture or preparation of articles
subject to specific tax or those for consignment abroad and are to form part thereof or to articles to
be used by the importer himself as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption
provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal
contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and
unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and
equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax
(Rollo, p. 23).

On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel"
because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but
are mainly employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats in question
are used in carrying and transporting passengers or cargoes as a common carrier by water, either coastwise or
oceangoing and, therefore, not within the purview of Section 190 of the Tax Code, as amended by Republic Act No.
3176 (Brief for Respondents-Appellees, pp. 45).
This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must
be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be
applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that any claim for exemption from the
tax statute should be strictly construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co.
et al., 69 SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142
[1975]).
As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared
exempt from the compensating tax, it is indispensable that the requirements of the amendatory law be complied
with, namely: (1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo,
vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation
(Decision, CTA Case No. 1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax exemption
from the compensating tax to imported items to be used by the importer himself as operator of passenger and/or
cargo vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:
A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for
attendance on vessel. (Webster New International Dictionary, 2nd Ed.)
A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from
piers for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier,
Vol. 18, p. 256).
A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo,
p. 24).
Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or
cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks
categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify noncompliance. All that has to be done is to apply it in every case that falls within its terms (Allied Brokerage Corp. v.
Commissioner of Customs, L-27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that
statutes are to be construed in the light of purposes to be achieved and the evils sought to be remedied (People v.
Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in amending Section 190
of the Tax Code by Republic Act 3176, as appearing in the records, intended to provide incentives and inducements
to bolster the shipping industry and not the business of stevedoring, as manifested in the sponsorship speech of
Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was adduced by
petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an
independent business. On the contrary, petitioner-appellant's own evidence supports the view that it is engaged as a
stevedore, that is, the work of unloading and loading of a vessel in port; and towing of barges containing cargoes is
a part of petitioner's undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal
business is stevedoring and lighterage, taxed under Section 191 of the National Internal Revenue Code as a

contractor, and not an entity which transports passengers or freight for hire which is taxed under Section 192 of the
same Code as a common carrier by water (Decision, CTA Case No. 1484; Rollo, p. 25).
Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion of the
Court of Tax Appeals.
As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax
Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority (Reyes v. Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not
present in the instant case.
PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is
AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla and Sarmiento, JJ., concur.
G.R. No. 87479 June 4, 1990 EN BANC
NATIONAL POWER CORPORATION, petitioner, vs.
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA, and ALBAY PROVINCIAL
TREASURER ABUNDIO M. NUEZ, respondents.
Romulo L. Ricafort and Jesus R. Cornago for respondents.

SARMIENTO, J.:
The National Power Corporation (NAPOCOR) questions the power of the provincial government of Albay to collect
real property taxes on its properties located at Tiwi, Albay, amassed between June 11, 1984 up to March 10, 1987.
It appears that on March 14 and 15, 1989, the respondents caused the publication of a notice of auction sale
involving the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, machines, and
similar improvements standing on their offices at Tiwi, Albay. The amounts to be realized from this advertised
auction sale are supposed to be applied to the tax delinquencies claimed, as and for, as we said, real property
taxes. The back taxes NAPOCOR has supposedly accumulated were computed at P214,845,184.76.
NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the Fiscal Incentives
Review Board (FIRB), which provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the
National Power Corporation, including those pertaining to its domestic purchases of petroleum and
petroleum products, granted under the terms and conditions of Commonwealth Act No. 120
(Creating the National Power Corporation, defining its powers, objectives and functions, and for
other purposes), as amended, are restored effective March 10, 1987, subject to the following
conditions: 1
as well as the Memorandum of Executive Secretary Catalino Macaraig, which also states thus:
Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93, series of 1986, FIRB Resolution No.
17-87, series of 1987, restoring, subject to certain conditions prescribed therein, the tax and duty
exemption privileges of NPC as provided under Commonwealth Act No. 120, as amended, effective
March 10, 1987, is hereby confirmed and approved. 2

On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay provincial
government "to CEASE AND DESIST from selling and disposing of the NAPOCOR properties subject matter of this
petition. 3 It appears, however, that "the temporary restraining order failed to reach respondents before the scheduled
bidding at 10:00 a.m. on March 30, 1989 ... [h]ence, the respondents proceeded with the bidding wherein the Province of
Albay was the highest bidder. 4
The Court gathers from the records that:
(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No. 120 (charter of NAPOCOR):
Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities. 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. 5
(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating the Fiscal Incentives Review Board
(FIRB). Among other things, the Board was tasked as follows:
Section 2. A Fiscal Incentives Review Board is hereby created for the purpose of determining what
subsidies and tax exemptions should be modified, withdrawn, revoked or suspended, which shall be
composed of the following officials:
Chairman - Secretary of Finance
Members - Secretary of Industry
- Director General of the National Economic and
Development Authority
- Commissioner of Internal Revenue
- Commissioner of Customs
The Board may recommend to the President of the Philippines and for reasons of compatibility with
the declared economic policy, the withdrawal, modification, revocation or suspension of the
enforceability of any of the abovestated statutory subsidies or tax exemption grants, except those
granted by the Constitution. To attain its objectives, the Board may require the assistance of any
appropriate government agency or entity. The Board shall meet once a month, or oftener at the call
of the Secretary of Finance. 6
(3) On June 11, 1984, Presidential Decree No. 1931 was promulgated, prescribing, among other
things, that:
Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions
from the payment of duties, taxes, fees, impost and other charges heretofore granted in favor of
government-owned or controlled corporations including their subsidiaries are hereby withdrawn. 7
(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax exemption effective June 11,
1984 to June 30, 1985;
(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption privileges to NAPOCOR from July 1,
1985 and indefinitely thereafter;
(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax exemption privileges effective until
March 10, 1987; 8

(7) On December 17, 1986, Executive Order No. 93 was promulgated by President Corazon Aquino, providing,
among other things, as follows:
SECTION 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. 9
and
SECTION 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 or 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
commitments of the Philippines and the necessary precautions such that the grant of subsidies does
not become the basis for countervailing action. 10
(8) On October 5, 1987, the Office of the President issued the Memorandum, confirming NAPOCOR's tax exemption
aforesaid. 11
The provincial government of Albay now defends the auction sale in question on the theory that the various FIRB
issuances constitute an undue delegation of the taxing Power and hence, null and void, under the Constitution. It is
also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax exemptions, the same is of
no force and effect under the constitutional provision allowing the legislature alone to accord tax exemption
privileges.
It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to
the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal,
modification, revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax
exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke existing
ones, which, after all, under the Constitution, only the legislature may accomplish. 12 The question therefore is whether
or not the various tax exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and
constitutional.
We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we sustain the
provincial government of Albay.
As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to "recommend"
tax exemptions. By itself, it could not have validly prescribed exemptions or restore taxability. Hence, as of June 11,
1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy tax exemption privileges.
The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax and/or duty
exemptions withdrawn hereunder in whole or in part," 13 and "impose conditions for ... tax and/or duty exemption" 14is of
no moment. These provisions are prospective in character and can not affect the Board's past acts.
The Court is aware that in its preamble, Executive Order No. 93 states:

WHEREAS, a number of affected entities, government and private were able to get back their tax and duty
exemption privileges through the review mechanism implemented by the Fiscal Incentives Review Board
(FIRB);15 but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of FIRB's
powers under Presidential Decree No. 776 to say that it has. Apart from that, Section 2 of the Executive Order was clearly
intended to amend Presidential Decree No. 776, which means, mutatis mutandis, that FIRB did not have the right, in the
first place, to grant tax exemptions or withdraw existing ones.
Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed that the
provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-87 was affirmed by the
Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's exemption had been validly
restored. What it questions is NAPOCOR's liability in the interregnum between June 11, 1984, the date its tax
privileges were withdrawn, and March 10, 1987, the date they were purportedly restored. To be sure, it objects to
Executive Order No. 93 as alledgedly a delegation of legislative power, but only insofar as its (NAPOCOR's) June
11, 1984 to March 10, 1987 tax accumulation is concerned. We therefore leave the issue of "delegation" to the
future and its constitutionality when the proper case arises. For the nonce, we leave Executive Order No. 93 alone,
and so also, its validity as far as it grants tax exemptions (through the FIRB) beginning December 17, 1986, the date
of its promulgation.
NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held:
xxx xxx xxx
The last issue to be resolved is whether or not the private-respondent is liable for the fixed and
deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to
February 29, 1948) before the approval of its municipal franchises. As aforestated, the franchises
were approved by the President only on February 24,1948. Therefore, before the said date, the
private respondent was liable for the payment of percentage and fixed taxes as seller of light, heat,
and power which, as the petitioner claims, amounted to P3,025.96. The legislative franchise (R.A.
No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the
original franchise was granted. The exemption, therefore, did not cover the period before the
franchise was granted, i.e. before February 24, 1948. ... 16
Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property
taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in
development and nation-building, particularly in the local government level, Thus:
SEC. 86. Distribution of proceeds. (a) The proceeds of the real property tax, except as otherwise
provided in this Code, shall accrue to the province, city or municipality where the property subject to
the tax is situated and shall be applied by the respective local government unit for its own use and
benefit.
(b) Barrio shares in real property tax collections. The annual shares of the barrios in real property
tax collections shall be as follows:
(1) Five per cent of the real property tax collections of the province and another five percent of the
collections of the municipality shall accrue to the barrio where the property subject to the tax is
situated.
(2) In the case of the city, ten per cent of the collections of the tax shag likewise accrue to the barrio
where the property is situated.
Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the barrio officials
and other administrative expenses, while the remaining seventy per cent shall be utilized for development projects
approved by the Secretary of Local Government and Community Development or by such committee created, or
representatives designated, by him.

SEC. 87. Application of proceeds. (a) The proceeds of the real property tax pertaining to the city
and to the municipality shall accrue entirely to their respective general funds. In the case of the
province, one-fourth thereof shall accrue to its road and bridge fund and the remaining three-fourths,
to its general fund.
(b) The entire proceeds of the additional one per cent real property tax levied for the Special
Education Fund created under R.A. No. 5447 collected in the province or city on real property
situated in their respective territorial jurisdictions shall be distributed as follows:
(1) Collections in the provinces: Fifty per cent shall accrue to the municipality where the property
subject to the tax is situated; twenty per cent shall accrue to the province; and thirty per cent shall be
remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the Special
Education Fund in municipalities, cities and provinces in accordance with the provisions of Section
seven of R.A. No. 5447.
(2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per cent shall be
remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the special
education fund in municipalities, cities and provinces as provided under Section 7 of R.A. No. 5447.
However, any increase in the shares of provinces, cities and municipalities from said
additional tax accruing to their respective local school boards commencing with fiscal
year 1973-74 over what has been actually realized during the fiscal year 1971-72
which, for purposes of this Code, shall remain as the based year, shall be divided
equally between the general fund and the special education fund of the local
government units concerned. The Secretary of Finance may, however, at his
discretion, increase to not more than seventy-five per cent the amount that shall
accrue annually to the local general fund.
(c) The proceeds of all delinquent taxes and penalties, as well as the income realized from the use,
lease or other disposition of real property acquired by the province or city at a public auction in
accordance with the provisions of this Code, and the proceeds of the sale of the delinquent real
property or, of the redemption thereof shall accrue to the province, city or municipality in the same
manner and proportion as if the tax or taxes had been paid in regular course.
(d) The proceeds of the additional real property tax on Idle private lands shall accrue to the
respective general funds of the province, city and municipality where the land subject to the tax is
situated. 17
To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In
no measure can the Government be said to have lost anything.
As a rule finally, claims of tax exemption are construed strongly against the claimant.
exist clearly and categorically, and supported by clear legal provisions. 19

18

They must also be shown to

Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal.
WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer for real
estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared valid.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Padilla, Bidin, Cortes and Medialdea, JJ.,
concur.
Feliciano, J., concurs in the result.

Regalado, J., took no part.

Gancayco and Grio-Aquino, JJ., are on leave.

G.R. No. 90776 June 3, 1991 SECOND DIVISION

PHILIPPINE PETROLEUM CORPORATION, petitioner, vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR NICOMEDES F. PATENIA, respondent.
Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.
PARAS, J.:p
This is a petition for certiorari seeking to annul and set aside: (a) the March 17, 1989 decision * of the Regional Trial
Court, Branch 80, Tanay, Rizal in Civil Case No. 057-T entitled, "Municipality of Pililla, Rizal, represented by Mayor
Nicomedes F. Patenia vs. Philippine Petroleum Corporation", (PPC for short) upholding the legality of the taxes, fees
and charges being imposed in Pililla under Municipal Tax Ordinance No. 1 and directing the herein petitioner to pay
the amount of said taxes, fees and charges due the respondent: and (b) the November 2, 1989 resolution of the
same court denying petitioner's motion for reconsideration of the said decision.
The undisputed facts of the case are:
Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the manufacture of
lubricated oil basestock which is a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal,
conducting its business activities within the territorial jurisdiction of the Municipality of Pililla, Rizal and is in
continuous operation up to the present (Rollo p. 60). PPC owns and maintains an oil refinery including forty-nine
storage tanks for its petroleum products in Malaya, Pililla, Rizal (Rollo, p. 12).
Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other fuels are subject to
specific tax.
On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code was issued by former
President Ferdinand E. Marcos governing the exercise by provinces, cities, municipalities and barrios of their taxing
and other revenue-raising powers. Sections 19 and 19 (a) thereof, provide among others, that the municipality may
impose taxes on business, except on those for which fixed taxes are provided on manufacturers, importers or
producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers,
and compounders of liquors, distilled spirits and/or wines in accordance with the schedule listed therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973, directed to all provincial,
city and municipal treasurers to refrain from collecting any local tax imposed in old or new tax ordinances in the
business of manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under
the National Internal Revenue Code (Rollo, p. 76).
Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the Secretary of Finance instructing
all City Treasurers to refrain from collecting any local tax imposed in tax ordinances enacted before or after the
effectivity of the Local Tax Code on July 1, 1973, on the businesses of manufacturing, wholesaling, retailing, or
dealing in, petroleum products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25, S-1974 enacted Municipal
Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla Tax Code of 1974" on June 14, 1974, which took effect
on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance imposed a tax on business, except for
those for which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or producers of any
article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders

of liquors, distilled spirits and/or wines in accordance with the schedule found in the Local Tax Code, as well as
mayor's permit, sanitary inspection fee and storage permit fee for flammable, combustible or explosive substances
(Rollo, pp. 183-187), while Section 139 of the disputed ordinance imposed surcharges and interests on unpaid
taxes, fees or charges (Ibid., p. 193).
On March 30, 1974, Presidential Decree No. 426 was issued amending certain provisions of P.D. 231 but retaining
Sections 19 and 19 (a) with adjusted rates and 22(b).
On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline, bunker fuel oil,
diesel fuel oil and other similar petroleum products levied under Sections 142, 144 and 145 of the National Internal
Revenue Code, as amended, and granting provinces, cities and municipalities certain shares in the specific tax on
such products in lieu of local taxes imposed on petroleum products.
The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the Provincial Treasurer of Rizal on
January 13, 1975 (Rollo, p. 143), but was not implemented and/or enforced by the Municipality of Pililla because of
its having been suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73.
Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing all city and municipal treasurers to
refrain from collecting the so-called storage fee on flammable or combustible materials imposed under the local tax
ordinance of their respective locality, said fee partaking of the nature of a strictly revenue measure or service
charge.
On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was enacted, Section
153 of which specifically imposes specific tax on refined and manufactured mineral oils and motor fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint on April 4, 1986
docketed as Civil Case No. 057-T against PPC for the collection of the business tax from 1979 to 1986; storage
permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however, have
already paid the last-named fees starting 1985 (Rollo, p. 74).
After PPC filed its answer, a pre-trial conference was held on August 24, 1988 where the parties thru their respective
counsel, after coming up with certain admissions and stipulations agreed to the submission of the case for decision
based on documentary evidence offered with their respective comments (Rollo, p. 41).
On March 17, 1987, the trial court rendered a decision against the petitioner, the dispositive part of which reads as
follows:
WHEREFORE, premises considered, this Court hereby renders judgment in favor of the plaintiffs as
against the defendants thereby directing the defendants to 1) pay the plaintiffs the amount of
P5,301,385.00 representing the Tax on Business due from the defendants under Sec. 9 (A) of the
Municipal Tax Ordinance of the plaintiffs for the period from 1979 to 1983 inclusive plus such amount
of tax that may accrue until final determination of case; 2) to pay storage permit fee in the amount of
P3,321,730.00 due from the defendants under Sec. 10, par. z (13) (b) (1 C) of the Municipal Tax
Ordinance of the plaintiffs for the period from 1975 to 1986 inclusive plus such amount of fee that
may accrue until final determination of case; 3) to pay Mayor's Permit Fee due from the defendants
under Sec. 10, par. (P) (2) of the Municipal Tax Ordinance of the plaintiffs from 1975 to 1984
inclusive in the amount of P12,120.00 plus such amount of fee that may accrue until final
determination of the case; and 4) to pay sanitary inspection fee in the amount of P1,010.00 for the
period from 1975 to 1984 plus such amount that may accrue until final determination of case and 5)
to pay the costs of suit.
SO ORDERED. (Rollo, pp. 49-50)
PPC moved for reconsideration of the decision, but this was denied by the lower court in a resolution of November
2, 1989, hence, the instant petition.

The Court resolved to give due course to the petition and required both parties to submit simultaneous memoranda
(June 21, 1990 Resolution; Rollo, p. 305).
PPC assigns the following alleged errors:
1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE BUSINESS TAX UNDER SECTION 9
(A) OF THE TAX ORDINANCE IN THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26
A-73;.
2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE FOR THE PAYMENT OF
STORAGE PERMIT FEE UNDER SECTION 10 Z (13) (b) (1-c) OF THE TAX ORDINANCE
CONSIDERING THE ISSUANCE OF PROVINCIAL CIRCULAR NO. 6-77;
3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS COMPUTATION OF TAX
LIABILITY HAS ABSOLUTELY NO BASIS;
4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S PERMIT AND SANITARY
INSPECTION FEES CONSIDERING THAT THE SAME HAS BEEN VALIDLY AND LEGALLY
WAIVED BY THE MAYOR;
5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND DUTIES NOT COLLECTED
FROM PETITIONER PRIOR TO THE FIVE (5) YEAR PERIOD FROM THE FILING OF THIS CASE
ON APRIL 4, 1986 HAS ALREADY PRESCRIBED.
The crucial issue in this case is whether or not petitioner PPC whose oil products are subject to specific tax under
the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering Provincial Circular No. 6-77; and
mayor's permit and sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal
Ordinance No. 1.
Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to national economic policy the
imposition of local taxes on the manufacture of petroleum products as they are already subject to specific tax under
the National Internal Revenue Code; (b) the above declaration covers not only old tax ordinances but new ones, as
well as those which may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still
effective, hence, unless and until revoked, any effort on the part of the respondent to collect the suspended tax on
business from the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition
of local taxes on petroleum products.
PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances imposing a tax on business
under Section 19 (a) of the Local Tax Code (P.D. No. 231), with regard to manufacturers, retailers, wholesalers or
dealers in petroleum products subject to the specific tax under the National Internal Revenue Code NIRC, in view of
Section 22 (b) of the Code regarding non-imposition by municipalities of taxes on articles, subject to specific tax
under the provisions of the NIRC.
There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees and charges is
valid especially Section 9 (A) which according to the trial court "was lifted in toto and/or is a literal reproduction of
Section 19 (a) of the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of said law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circular Nos. 26-73 and 26
A-73 issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no
exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products.
Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of
discrepancy between the basic law and an implementing rule or regulation, the former prevails (Shell Philippines,
Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]). As aptly held by the court a quo:
Necessarily, there could not be any other logical conclusion than that the framers of P.D. No. 426
really and actually intended to terminate the effectivity and/or enforceability of Provincial Circulars

Nos. 26-73 and 26 A-73 inasmuch as clearly these circulars are in contravention with Sec. 19 (a) of
P.D. 426-the amendatory law to P.D. No. 231. That intention to terminate is very apparent and in fact
it is expressed in clear and unequivocal terms in the effectivity and repealing clause of P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree
did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the
right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind
or nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of tax on business of
manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly
stated in P.D. No. 436.
The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the
continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to
tax by mere administrative issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and
limitations that may be established by Congress can define and limit such power of local governments. Thus:
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 . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the so-called storage
fee on flammable or combustible materials imposed in the local tax ordinance of their respective locality frees
petitioner PPC from the payment of storage permit fee.
The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and keeping in storage of
any flammable, combustible or explosive substances. Inasmuch as said storage makes use of tanks owned not by
the municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any service rendered by the
municipality as what is envisioned in Section 37 of the same Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee allowed under
Section 36 of the amended Code.
As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection fees, the trial court
did not err in holding that "since the power to tax includes the power to exempt thereof which is essentially a
legislative prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally withdraw
such an expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an exemption. It is
an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]).
Tax exemptions are looked upon with disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124
SCRA 121 [1983]). Thus, in the absence of a clear and express exemption from the payment of said fees, the
waiver cannot be recognized. As already stated, it is the law-making body, and not an executive like the mayor, who
can make an exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be required
before any individual or juridical entity shall engage in any business or occupation under the provisions of the Code.
However, since the Local Tax Code does not provide the prescriptive period for collection of local taxes, Article 1143
of the Civil Code applies. Said law provides that an action upon an obligation created by law prescribes within ten
(10) years from the time the right of action accrues. The Municipality of Pililla can therefore enforce the collection of
the tax on business of petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued prior to 1976.
PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing PRIOR to 1976 are not to be
paid by PPC (because the same have prescribed) and that storage fees are not also to be paid by PPC (for the
storage tanks are owned by PPC and not by the municipality, and therefore cannot be a charge for service by the
municipality), the assailed DECISION is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla and Regalado, JJ., concur.

Sarmiento, J., is on leave.

EN BANC [G.R. Nos. 95203-05 : December 18, 1990.] 192 SCRA 363
SENATOR ERNESTO MACEDA, Petitioner, vs. ENERGY REGULATORY BOARD (ERB); MARCELO N.
FERNANDO, ALEJANDRO B. AFURONG; REX V. TANTIONGCO; and OSCAR E. ALA, in their
collective official capacities as Chairman and Members of the Board (ERB), respectively;
CATALINO MACARAIG, in his quadruple official capacities as Executive Secretary, Chairman of
Philippine National Oil Company; Office of the Energy Affairs, and with MANUEL ESTRELLA, in
their respective official capacities as Chairman and President of the Petron Corporation;
PILIPINAS SHELL PETROLEUM CORPORATION; with CESAR BUENAVENTURA and REY GAMBOA
as chairman and President, respectively; CALTEX PHILIPPINES with FRANCIS ABLAN, President
and Chief Executive Officer; and the Presidents of Philippine Petroleum Dealer's Association,
Caltex Dealer's Co., Petron Dealer's Asso., Shell Dealer's Asso. of the Phil., Liquefied Petroleum
Gas Institute of the Phils., any and all concerned gasoline and petrol dealers or stations; and
such other persons, officials, and parties, acting for and on their behalf; or in representation of
and/or under their authority, Respondents.
[G.R. Nos. 95119-21 : December 18, 1990.] 192 SCRA 363
OLIVER O. LOZANO, Petitioner, vs. ENERGY REGULATORY BOARD (ERB), PILIPINAS SHELL
PETROLEUM CORPORATION, CALTEX (PHIL.), INC., and PETRON CORPORATION, Respondents.
D E C I S I O N SARMIENTO, J.:

The petitioners pray for injunctive relief, to stop the Energy Regulatory Board (Board hereinafter) from
implementing its Order, dated September 21, 1990, mandating a provisional increase in the prices of
petroleum and petroleum products, as follows:
PRODUCTS IN PESOS PER LITER
OPSF
Premium Gasoline 1.7700
Regular Gasoline 1.7700
Avturbo 1.8664
Kerosene 1.2400
Diesel Oil 1.2400
Fuel Oil 1.4900
Feedstock 1.4900
LPG 0.8487
Asphalts 2.7160
Thinners 1.7121 1
It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum Corporation,
and Petron Corporation proferred separate applications with the Board for permission to increase the
wholesale posted prices of petroleum products, as follows:
Caltex P3.2697 per liter
Shell 2.0338 per liter
Petron 2.00 per liter 2

and meanwhile, for provisional authority to increase temporarily such wholesale posted prices pending
further proceedings.
:-cralaw

On September 21, 1990, the Board, in a joint (on three applications) Order granted provisional relief as
follows:
WHEREFORE, considering the foregoing, and pursuant to Section 8 of Executive Order No. 172, this Board
hereby grants herein applicants' prayer for provisional relief and, accordingly, authorizes said applicants a
weighted average provisional increase of ONE PESO AND FORTY-TWO CENTAVOS (P1.42) per liter in the
wholesale posted prices of their various petroleum products enumerated below, refined and/or marketed
by them locally. 3
The petitioners submit that the above Order had been issued with grave abuse of discretion, tantamount
to lack of jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, 4 also submits that the same was issued without proper notice
and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172; that the Board, in
decreeing an increase, had created a new source for the Oil Price Stabilization Fund (OPSF), or otherwise
that it had levied a tax, a power vested in the legislature, and/or that it had "re-collected", by an act of
taxation, ad valorem taxes on oil which Republic Act No. 6965 had abolished.
The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order was issued without notice and
hearing, and hence, without due process of law.
The intervenor, the Trade Union of the Philippines and Allied Services (TUPAS/FSM)-W.F.T.U., 6 argues on
the other hand, that the increase cannot be allowed since the respondents oil companies had not
exhausted their existing oil stock which they had bought at old prices and that they cannot be allowed to
charge new rates for stock purchased at such lower rates.
The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25, 1990, in which Senator
Maceda and his counsel, Atty. Alexander Padilla, argued. The Solicitor General, on behalf of the Board, also
presented his arguments, together with Board Commissioner Rex Tantiangco. Attys. Federico Alikpala, Jr.
and Joselia Poblador represented the oil firms (Petron and Caltex, respectively).
The parties were thereafter required to submit their memorandums after which, the Court considered the
cases submitted for resolution.
On November 20, 1990, the Court ordered these cases consolidated.
On November 27, 1990, we gave due course to both petitions.
The Court finds no merit in these petitions.
Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked the provisions of
Section 8 of Executive Order No. 172, which we quote:
"SECTION 8. Authority to Grant Provisional Relief . The Board may, upon the filing of an application,
petition or complaint or at any stage thereafter and without prior hearing, on the basis of supporting
papers duly verified or authenticated, grant provisional relief on motion of a party in the case or on its own
initiative, without prejudice to a final decision after hearing, should the Board find that the pleadings,
together with such affidavits, documents and other evidence which may be submitted in support of the
motion, substantially support the provisional order: Provided, That the Board shall immediately schedule
and conduct a hearing thereon within thirty (30) days thereafter, upon publication and notice to all
affected parties.
: nad

As the Order itself indicates, the authority for provisional increase falls within the above provision.
There is no merit in the Senator's contention that the "applicable" provision is Section 3, paragraph (e) of
the Executive Order, which we quote:
(e) Whenever the Board has determined that there is a shortage of any petroleum product, or when public
interest so requires, it may take such steps as it may consider necessary, including the temporary
adjustment of the levels of prices of petroleum products and the payment to the Oil Price Stabilization
Fund created under Presidential Decree No. 1956 by persons or entities engaged in the petroleum industry
of such amounts as may be determined by the Board, which will enable the importer to recover its cost of
importation.

What must be stressed is that while under Executive Order No. 172, a hearing is indispensable, it does not
preclude the Board from ordering, ex parte, a provisional increase, as it did here, subject to its final
disposition of whether or not: (1) to make it permanent; (2) to reduce or increase it further; or (3) to
deny the application. Section 37 paragraph (e) is akin to a temporary restraining order or a writ of
preliminary attachment issued by the courts, which are given ex parte, and which are subject to the
resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively of the
other, in that the Board may resort to one but not to both at the same time. Section 3(e) outlines the
jurisdiction of the Board and the grounds for which it may decree a price adjustment, subject to the
requirements of notice and hearing. Pending that, however, it may order, under Section 8, an authority to
increase provisionally, without need of a hearing, subject to the final outcome of the proceeding. The
Board, of course, is not prevented from conducting a hearing on the grant of provisional authority which
is of course, the better procedure however, it cannot be stigmatized later if it failed to conduct one. As
we held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7
In the light of Section 8 quoted above, public respondent Board need not even have conducted formal
hearings in these cases prior to issuance of its Order of 14 August 1987 granting a provisional increase of
prices. The Board, upon its own discretion and on the basis of documents and evidence submitted by
private respondents, could have issued an order granting provisional relief immediately upon filing by
private respondents of their respective applications. In this respect, the Court considers the evidence
presented by private respondents in support of their applications i.e., evidence showing that
importation costs of petroleum products had gone up; that the peso had depreciated in value; and that
the Oil Price Stabilization Fund (OPSF) had by then been depleted as substantial and hence constitutive
of at least prima facie basis for issuance by the Board of a provisional relief order granting an increase in
the prices of petroleum products. 8
We do not therefore find the challenged action of the Board to have been done in violation of the due
process clause. The petitioners may contest however, the applications at the hearings proper.
Senator Maceda's attack on the Order in question on premises that it constitutes an act of taxation or that
it negates the effects of Republic Act No. 6965, cannot prosper. Republic Act No. 6965 operated to lower
taxes on petroleum and petroleum products by imposing specific taxes rather than ad valorem taxes
thereon; it is, not, however, an insurance against an "oil hike", whenever warranted, or is it a price control
mechanism on petroleum and petroleum products. The statute had possibly forestalled a larger hike, but it
operated no more.
: nad

The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an
act of taxation. It is authorized by Presidential Decree No. 1956, as amended by Executive Order No. 137,
as follows:
SECTION 8. There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to
be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments and/or changes in world market prices of crude oil and
imported petroleum products. The Oil Price Stabilization Fund (OPSF) may be sourced from any of the
following:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products
subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the
Minister of Finance in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of government
corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund
through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or
companies engaged in the business of importing, manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the
importation of crude oil and petroleum products is less than the peso costs computed using the reference
foreign exchange rates as fixed by the Board of Energy.
Anent claims that oil companies cannot charge new prices for oil purchased at old rates, suffice it to say
that the increase in question was not prompted alone by the increase in world oil prices arising from

tension in the Persian Gulf. What the Court gathers from the pleadings as well as events of which it takes
judicial notice, is that: (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the
exchange rate has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to reach
$1 Billion; (4) our trade deficit is at $2.855 Billion as of the first nine months of the year.
Evidently, authorities have been unable to collect enough taxes necessary to replenish the OPSF as
provided by Presidential Decree No. 1956, and hence, there was no available alternative but to hike
existing prices.
The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a funding
designed to guarantee oil firms' profits although as a subsidy, or a trust account, the Court has no doubt
that oil firms make money from it. As we held there, however, the OPSF was established precisely to
protect the consuming public from the erratic movement of oil prices and to preclude oil companies from
taking advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes domestic
prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market.
In all likelihood, therefore, an oil hike would have probably been imminent, with or without trouble in the
Gulf, although trouble would have probably aggravated it.
: nad

The Court is not to be understood as having prejudged the justness of an oil price increase amid the above
premises. What the Court is saying is that it thinks that based thereon, the Government has made out a
prima facie case to justify the provisional increase in question. Let the Court therefore make clear that
these findings are not final; the burden, however, is on the petitioners' shoulders to demonstrate the fact
that the present economic picture does not warrant a permanent increase.
There is no doubt that the increase in oil prices in question (not to mention another one impending, which
the Court understands has been under consideration by policy-makers) spells hard(er) times for the
Filipino people. The Court can not, however, debate the wisdom of policy or the logic behind it (unless it is
otherwise arbitrary), not because the Court agrees with policy, but because the Court is not the suitable
forum for debate. It is a question best judged by the political leadership which after all, determines policy,
and ultimately, by the electorate, that stands to be better for it or worse off, either in the short or long
run.
At this point, the Court shares the indignation of the people over the conspiracy of events and regrets its
own powerlessness, if by this Decision it has been powerless. The constitutional scheme of things has
simply left it with no choice.
In fine, we find no grave abuse of discretion committed by the respondent Board in issuing its questioned
Order.
WHEREFORE, these petitions are DISMISSED. No costs.
SO ORDERED.
Narvasa, Gutierrez, Jr ., Cruz, Gancayco, Bidin, Grio Aquino, Medialdea and Regalado, JJ.,
concur.
Fernan, C.J., Melencio-Herrera and Padilla, JJ., no part.
Feliciano, J., is on leave.
Separate Opinions
PARAS, J., dissenting:
I dissent.
In fixing the oil prices complained of, the Energy Regulatory Board (ERB) gravely abused its discretion
(1) in approving the prices without due process of law, and
(2) in exercising the taxing power in gross violation of the 1987 Constitution which vests such power only
in Congress.
: nad

With respect to due process, it will be noted that it is Sec. 3(e) (and not Sec. 8) of Ex. Order No. 172
which should apply to the instant case (and therefore a hearing is essential) 1 for it is Sec. 3(e) that refers
to "the temporary adjustment of the levels of prices of petroleum products" or instances "when public

interest so requires." Sec. 8, which is relied upon by the majority opinion, does NOT speak of price
increases. Additionally it is clear that in the instant case, "public interest" [also mentioned in Sec. 3 (e)]
necessitated a prior hearing.
Anent the unconstitutional use of the taxing power, the decision of the majority says that "the Board Order
authorizing the proceeds generated by the increases" is "authorized by Presidential Decree No. 1456, as
amended by Executive Order No. 137" (See Decision, pp. 7-8). Assuming that such is authorized by law,
still a law, no matter how imperative, cannot prevail over the Constitution which grants only to Congress
the power to tax. And indeed, there can be no denying the fact that when revenue is earned by the
government from the consuming public (except when only licenses are concerned) there is an exercise of
the taxing power.
I am of course aware of the dangerous economic quagmire to which our country has been plunged by the
sadism precipitating the Middle East crisis, but certainly one error cannot be corrected by another error.
Besides there are more significant and clear-cut reasons for our economic crisis: namely, the intentional
depreciation (actually, a devaluation) of our already demeaned currency, our unfortunate liberalization of
imports, and our slavish subservience to the dictates of the IMF.
:-cralaw

G.R. No. 96266 July 18, 1991

EN BANC

ERNESTO M. MACEDA, petitioner, vs.

ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM
CORPORATION AND PETRON CORPORATION, respondents.
G.R. No. 96349 July 18, 1991
EUGENIO O. ORIGINAL, IRENEO N. AARON, JR., RENE LEDESMA, ROLANDO VALLE, ORLANDO
MONTANO, STEVE ABITANG, NERI JINON, WILFREDO DELEONIO, RENATO BORRO, RODRIGO DE VERA,
ALVIN BAYUANG, JESUS MELENDEZ, NUMERIANO CAJILIG JR., RUFINO DE LA CRUZ AND JOVELINO G.
TIPON, petitioners,
vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL PETROLEUM
CORPORATION AND PETRON CORPORATION, respondents.
G.R. No. 96284 July 18,1991
CEFERINO S. PAREDES, JR., petitioner, vs.
ENERGY REGULATORY BOARD, CALTEX (Philippines), INC., PILIPINAS SHELL, INC. AND PETROPHIL
CORPORATION, respondents.
RESOLUTION

MEDIALDEA, J.:p

In G.R. No. 96266, petitioner Maceda seeks nullification of the Energy Regulatory Board (ERB) Orders dated
December 5 and 6, 1990 on the ground that the hearings conducted on the second provisional increase in oil prices
did not allow him substantial cross-examination, in effect, allegedly, a denial of due process.
The facts of the case are as follows:
Upon the outbreak of the Persian Gulf conflict on August 2, 1990, private respondents oil companies filed with the
ERB their respective applications on oil price increases (docketed as ERB Case Nos. 90-106, 90-382 and 90-384,
respectively).
On September 21, 1990, the ERB issued an order granting a provisional increase of P1.42 per liter. Petitioner
Maceda filed a petition for Prohibition on September 26, 1990 (E. Maceda v. ERB, et al., G.R. No. 95203), seeking
to nullify the provisional increase. We dismissed the petition on December 18, 1990, reaffirming ERB's authority to
grant provisional increase even without prior hearing, pursuant to Sec. 8 of E.O. No. 172, clarifying as follows:

What must be stressed is that while under Executive Order No. 172, a hearing is indispensable, it
does not preclude the Board from ordering, ex-parte, a provisional increase, as it did here, subject to
its final disposition of whether or not: (1) to make it permanent; (2) to reduce or increase it further; or
(3) to deny the application. Section 3, paragraph (e) is akin to a temporary restraining order or a writ
of preliminary attachment issued by the courts, which are given ex-parte and which are subject to
the resolution of the main case.
Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively
of the other, in that the Board may resort to one but not to both at the same time. Section 3(e)
outlines the jurisdiction of the Board and the grounds for which it may decree a price adjustment,
subject to the requirements of notice and hearing. Pending that, however, it may order, under
Section 8, an authority to increase provisionally, without need of a hearing, subject to the final
outcome of the proceeding. The Board, of course, is not prevented from conducting a hearing on the
grant of provisional authority-which is of course, the better procedure however, it cannot be
stigmatized later if it failed to conduct one. (pp. 129-130, Rollo) (Emphasis supplied)
In the same order of September 21, 1990, authorizing provisional increase, the ERB set the applications for hearing
with due notice to all interested parties on October 16, 1990. Petitioner Maceda failed to appear at said hearing as
well as on the second hearing on October 17, 1990.
To afford registered oppositors the opportunity to cross-examine the witnesses, the ERB set the continuation of the
hearing to October 24, 1990. This was postponed to November 5, 1990, on written notice of petitioner Maceda.
On November 5, 1990, the three oil companies filed their respective motions for leave to file or admit
amended/supplemental applications to further increase the prices of petroleum products.
The ERB admitted the respective supplemental/amended petitions on November 6, 1990 at the same time requiring
applicants to publish the corresponding Notices of Public Hearing in two newspapers of general circulation (p.
4, Rollo and Annexes "F" and "G," pp. 60 and 62, Rollo).
Hearing for the presentation of the evidence-in-chief commenced on November 21, 1990 with ERB ruling that
testimonies of witnesses were to be in the form of Affidavits (p. 6, Rollo). ERB subsequently outlined the procedure
to be observed in the reception of evidence, as follows:
CHAIRMAN FERNANDO:
Well, at the last hearing, applicant Caltex presented its evidence-in-chief and there is an
understanding or it is the Board's wish that for purposes of good order in the presentation of the
evidence considering that these are being heard together, we will defer the cross-examination of
applicant Caltex's witness and ask the other applicants to present their evidence-in-chief so that the
oppositors win have a better Idea of what an of these will lead to because as I mentioned earlier, it
has been traditional and it is the intention of the Board to act on these applications on an industrywide basis, whether to accept, reject, modify or whatever, the Board win do it on an industry wide
basis, so, the best way to have (sic) the oppositors and the Board a clear picture of what the
applicants are asking for is to have all the evidence-in-chief to be placed on record first and then the
examination will come later, the cross-examination will come later. . . . (pp. 5-6, tsn., November 23,
1990, ERB Cases Nos. 90-106, 90382 and 90-384). (p. 162, Rollo)
Petitioner Maceda maintains that this order of proof deprived him of his right to finish his cross-examination
of Petron's witnesses and denied him his right to cross-examine each of the witnesses of Caltex and Shell.
He points out that this relaxed procedure resulted in the denial of due process.
We disagree. The Solicitor General has pointed out:
. . . The order of testimony both with respect to the examination of the particular witness and to the
general course of the trial is within the discretion of the court and the exercise of this discretion in

permitting to be introduced out of the order prescribed by the rules is not improper (88 C.J.S. 206207).
Such a relaxed procedure is especially true in administrative bodies, such as the ERB which in
matters of rate or price fixing is considered as exercising a quasi-legislative, not quasi-judicial,
function As such administrative agency, it is not bound by the strict or technical rules of evidence
governing court proceedings (Sec. 29, Public Service Act; Dickenson v. United States, 346, U.S.
389, 98 L. ed. 132, 74 S. St. 152). (Emphasis supplied)
In fact, Section 2, Rule I of the Rules of Practice and Procedure Governing Hearings Before the ERB
provides that
These Rules shall govern pleadings, practice and procedure before the Energy Regulatory Board in
all matters of inquiry, study, hearing, investigation and/or any other proceedings within the jurisdiction
of the Board. However, in the broader interest of justice, the Board may, in any particular matter,
except itself from these rules and apply such suitable procedure as shall promote the objectives of
the Order.
(pp. 163-164, Rollo)
Petitioner Maceda also claims that there is no substantial evidence on record to support the provisional relief.
We have, in G.R. Nos. 95203-05, previously taken judicial notice of matters and events related to the oil industry, as
follows:
. . . (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate
has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to reach $1 Billion;
(4) our trade deficit is at P2.855 Billion as of the first nine months of the year.
. . . (p. 150, Rollo)
The Solicitor General likewise commented:
Among the pieces of evidence considered by ERB in the grant of the contested provisional relief
were: (1) certified copies of bins of lading issued by crude oil suppliers to the private respondents;
(2) reports of the Bankers Association of the Philippines on the peso-dollar exchange rate at the BAP
oil pit; and (3) OPSF status reports of the Office of Energy Affairs. The ERB was likewise guided in
the determination of international crude oil prices by traditional authoritative sources of information
on crude oil and petroleum products, such as Platt's Oilgram and Petroleum Intelligence Weekly. (p.
158, Rollo)
Thus, We concede ERB's authority to grant the provisional increase in oil price, as We note that the Order of
December 5, 1990 explicitly stated:
in the light, therefore, of the rise in crude oil importation costs, which as earlier mentioned, reached
an average of $30.3318 per barrel at $25.551/US $ in September-October 1990; the huge OPSF
deficit which, as reported by the Office of Energy Affairs, has amounted to P5.7 Billion (based on
filed claims only and net of the P5 Billion OPSF) as of September 30, 1990, and is estimated to
further increase to over P10 Billion by end December 1990; the decision of the government to
discontinue subsidizing oil prices in view of inflationary pressures; the apparent inadequacy of the
proposed additional P5.1 Billion government appropriation for the OPSF and the sharp drop in the
value of the peso in relation to the US dollar to P28/US $, this Board is left with no other recourse
but to grant applicants oil companies further relief by increasing the prices of petroleum products
sold by them. (p. 161, Rollo)
Petitioner Maceda together with petitioner Original (G.R. No. 96349) also claim that the provisional increase
involved amounts over and above that sought by the petitioning oil companies.

The Solicitor General has pointed out that aside from the increase in crude oil prices, all the applications of the
respondent oil companies filed with the ERB covered claims from the OPSF.
We shall thus respect the ERB's Order of December 5, 1990 granting a provisional price increase on petroleum
products premised on the oil companies' OPSF claims, crude cost peso differentials, forex risk for a subsidy on sale
to NPC (p. 167, Rollo), since the oil companies are "entitled to as much relief as the fact alleged constituting the
course of action may warrant," (Javellana v. D.O. Plaza Enterprises, Inc., G.R. No. L-28297, March 30, 1970, 32
SCRA 261 citing Rosales v. Reyes, 25 Phil. 495; Aguilar v. Rubiato, 40 Phil. 470) as follows:
Per Liter
Weighted
Petron Shell Caltex Average
Crude Cost P3.11 P3.6047 P2.9248 P3.1523
Peso Cost
Diffn'l 2.1747 1.5203 1.5669 1.8123
Forex Risk
Fee -0.1089 -0,0719 -0.0790 -0.0896
Subsidy on
Sales to NPC 0.1955 0.0685 0.0590 0.1203
Total Price
Increase
Applied for P59.3713 P5.1216 P4.4717 P4.9954
Less: September 21 Price
Relief
Actual Price Increase P1.42
Actual Tax Reduction:
Ad Valorem Tax
(per Sept. 1, 1990
price build-up) P1.3333
Specific Tax (per
Oct. 5, 1990 price
build-up) .6264 .7069 2.1269

Net Price Increase

Applied for 2.8685
Nonetheless, it is relevant to point out that on December 10, 1990, the ERB, in response to the President's appeal,
brought back the increases in Premium and Regular gasoline to the levels mandated by the December 5, 1990
Order (P6.9600 and P6.3900, respectively), as follows:
Product In Pesos Per Liter
OPSF
Premium Gasoline 6.9600
Regular Gasoline 6.3900
Avturbo 4.9950
Kerosene 1.4100
Diesel Oil 1.4100
Fuel Oil/Feedstock 0.2405
LPG 1.2200
Asphalt 2.5000
Thinner 2.5000
In G.R. No. 96349, petitioner Original additionally claims that if the price increase will be used to augment the OPSF
this will constitute illegal taxation. In the Maceda case, (G.R. Nos. 95203-05, supra) this Court has already ruled that
"the Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of
taxation but is authorized by Presidential Decree No. 1956, as amended by Executive Order No. 137.
The petitions of E.O. Original et al. (G.R. No. 96349) and C.S. Povedas, Jr. (G.R. No. 96284), insofar as they
question the ERB's authority under Sec. 8 of E.O. 172, have become moot and academic.
We lament Our helplessness over this second provisional increase in oil price. We have stated that this "is a
question best judged by the political leadership" (G.R. Nos. 95203-05, G.R. Nos. 95119-21, supra). We wish to
reiterate Our previous pronouncements therein that while the government is able to justify a provisional increase,
these findings "are not final, and it is up to petitioners to demonstrate that the present economic picture does not
warrant a permanent increase."
In this regard, We also note the Solicitor General's comments that "the ERB is not averse to the idea of a
presidential review of its decision," except that there is no law at present authorizing the same. Perhaps, as pointed
out by Justice Padilla, our lawmakers may see the wisdom of allowing presidential review of the decisions of the
ERB since, despite its being a quasi-judicial body, it is still "an administrative body under the Office of the President
whose decisions should be appealed to the President under the established principle of exhaustion of administrative
remedies," especially on a matter as transcendental as oil price increases which affect the lives of almost an
Filipinos.
ACCORDINGLY, the petitions are hereby DISMISSED.
SO ORDERED.

Narvasa, Melencio-Herrera, Feliciano, Gancayco, Bidin, Grio-Aquino and Regalado, JJ., concur.
Davide, J., concurs in the result.
Fernan, C.J., took no part.
Separate Opinions
PARAS, J., dissenting:
I dissent. As I have long previously indicated, the ERB has absolutely no power to tax which is solely the prerogative
of Congress. This is what the ERB is precisely doing by getting money from the people to ultimatelysubsidize the
ravenous oil companies. Additionally, the stubborn refusal of the ERB to effectively rollback oil prices is a continuing
bestial insult to the intelligence of our countrymen, and a gross abandonment of the people in their hour of economic
misery. I therefore vote for a complete and effective rollback of all oil prices.
Cruz, J., concurs.
PADILLA, J., dissenting:
I regret that I can not concur in the majority opinion.
In the matter of price increases of oil products, which vitally affects the people, especially those in the middle and
low income groups, any increase, provisional or otherwise, should be allowed only after the Energy Regulatory
Board (ERB) shall have fully determined, through bona fide and full-dress hearings, that it is absolutely necessary
and by how much it shall be effected. The people, represented by reputable oppositors, deserve to be given full
opportunity to be heard in their opposition to any increase in the prices of fuel. The right to be heard includes not
only the right to present one's case and submit evidence in support thereof, but also the right to confront and crossexamine the witnesses of the adverse parties.
Because of the procedure adopted by the ERB in the reception of evidence leading to the price increases of 5 and 6
December 1990, petitioner Maceda was not able to finish his cross-examination of Petron's sole witness. And, even
before each of the witnesses of Shell and Caltex could be cross-examined by petitioners and before they could
present evidence in support of their opposition to the increase, the ERB had already issued its 5 December 1990
order allowing a "provisional increase" sought by the oil companies in their respective supplemental applications.
That there were postponements of scheduled hearings before the ERB, at the instance of oppositor Maceda, did not
justify a denial of the right of oppositors to be heard. The postponements were not intended to delay the
proceedings. In fact, the resetting of the scheduled hearings on November 14, 15 and 16 to a later date, upon
motion of petitioner Maceda, was to enable him to file a written opposition to the supplemental applications filed by
the oil companies.
The ERB acted hastily in granting the provisional increases sought by the oil companies even before the oppositors
could submit evidence in support of their opposition. The fact that the questioned orders merely allowed a
provisional increase is beside the point, for past experiences have shown that so-called provisional increases"
allowed by the ERB ultimately became permanent.
ERB's claim that the second provisional increase was duly supported by evidence, is belied by its own act of
modifying said order (of provisional increase) not only once but twice, upon the "request" of the President. First, the
ERB rolled back the prices of fuel just a day after it issued the questioned order, altering the allocation of the
increase. Second, on 10 December 1990, the ERB further modified the price of petroleum products resulting in
reduction of the weighted average provisional increase from P2.82 to P2.05 per liter, but only after the President had
announced that she would meet with the leaders of both Houses of Congress, to discuss the creation of a special
fund to be raised from additional taxes, to subsidize the prices of petroleum products. 1
These acts of the ERB ostensibly sparked by "presidential requests" clearly demonstrate that the evidence did not,
in the first place, justify the price increases it had ordered on 5 and 6 December 1990. Furthermore, the ERB never

came out with a categorical and official declaration of how much was the so-called deficit of the Oil Price
Stabilization Fund (OPSF) and how much of the oil price increases was intended to cover such deficit.
In the midst of a national crisis related to oil price increases, each and every one is called upon to assume his/its
share of continuing sacrifices. The public, the government, as well as the oil companies should work hand in hand in
solving the present problem that confronts us. We are not unmindful of the fact that the oil companies are profitoriented. However, profits should not be their only concern in times of deepening inability of the people to cope with
their prices with "built-in-margins". A reduction of profits during these crucial and trying times, is certainly in order
considering that in the past, the oil companies had unquestionably made tremendous profits.
In view of the foregoing, I vote to GRANT the petition for the nullification of the 5 and 6 December 1990 orders of the
ERB and for a roll-back of the prices of oil products to levels existing before 5 and 6 December 1990 until hearings
before the ERB are finally concluded.
Before closing, I also would like to submit for congressional consideration two (2) proposals in the public interest.
They are:
(1) to do away with the present scheme of allowing provisional price increases of oil products. This scheme, to my
mind, is misleading and serves as an excuse for unilateral and arbitrary ERB-action. As already noted, these
provisional price increases are, to all intents and purposes, permanent when fixed. To that extent, the scheme is a
fraud on the people.
(2) all decisions and orders of the ERB should be expressly made appealable by statute to the President of the
Philippines whose decisions shall be final, except in cases involving questions of law or grave abuse of discretion
which may be elevated to the Supreme Court in a special civil action for certiorari under Rule 65 of the Rules of
Court.
While at present, decisions and orders of the ERB are, in my considered opinion, appealable to the President under
the principle of "exhaustion of administrative remedies", it is nevertheless desirable that the appealability of ERB
decisions and orders to the President be placed beyond any and all doubts. In this way, the President of the
Philippines has to assume full responsibility for all price increases in oil products, which should be the case because
the matter involved is not only one of national interest but profoundly one of people's survival.
Gutierrez, Jr. and Cruz, JJ., concur.
SARMIENTO, J., separate opinion:
I would like to point out a few things in view of the majority's reliance on the first Maceda case. 1
The first Maceda case was a challenge on provisional oil price increases decreed by the Energy Regulatory Board
(ERB). This Court sustained the Board, as it is sustaining the Board in this case, on a few economic outputs,
namely, the Oil Price Stabilization Fund (OPSF) deficit, the deteriorating exchange rate, and the balance of
payments and trade gaps.
As I held in my dissent in yet another Maceda case, Maceda v. Macaraig, 2 the current oil price increases were (are)
also the result of the devaluation of the currency, since a devalued peso forced oil companies to pay more pesos for oil
worth in dollars.
I simply wish to state what has apparently been left unstated in the course of debate and perhaps, the real score
behind recurring oil price hikes and why the ERB has been very quick in granting them.
The truth is that petroleum prices have been dictated by the Government's economic maneuvers, and not rather the
vagaries of the world market. The truth is that the recent oil hikes have nothing to do with Saddam Hussein or the
Gulf crisis (during which oil prices in fact dropped) and are, rather, the natural consequences of calculated moves by
the Government in its effort to meet so-called International Monetary Fund (IMF) targets.

In 1989, the Government of the Republic of the Philippines submitted its letter of intent to the IMF outlining the
country's economic program from 1989 through 1992. In its paragraph 19, it states that:
The Government intends to continue with the floating exchange rate system established in October
1984 . . . 3
Since exchange control was abolished and the floating rate system was established, the Philippine peso has seen a
series of devaluations that have progressively pushed up prices, significantly, prices of petroleum. According to one
authority, devaluation has been a "standard prescription" to correct balance of payments (BOP) deficits. 4 It makes
dollars expensive, discourages import and encourages exports, and forces dollars conservation. 5
It is a matter of opinion whether or not devaluation has been good for the country and whether or not it has realized
these objectives. The truth is that, whatever it has accomplished, oil which is imported has been subject to the
effects of devaluation.
Early this year, Governor Jose Cuisia of the Central Bank, Secretary Jesus Estanislao of the Department of Finance,
and Secretary Guillermo Carague of the Budget and Management Department, wrote Mr. Michael Camdessus of the
International Monetary Fund (the letter of intent) and informed him of the country's "Economic Stabilization Plan,
1991-92". The Plan recognized certain economic imbalances that have supposedly inhibited growth, in particular,
inflation and an increasing balance of payments deficit, and drew a program centered on "a strong effort to bring
down the overall fiscal deficit "through, among other things, "the gradual elimination of the deficit of the Oil Price
Stabilization Fund." 6 It spelled out, among other things, a "[r]estoration of a sustainable external position requir[ing] the
continuation of a flexible exchange rate policy . . . " 7 and described in detail an "Oil Price and Energy Policy" focused on
wiping out the OPSF deficit, to wit:
xxx xxx xxx
A substantial erosion in the overall fiscal position occurred in 1989 and 1990 as a result of official
price support for oil products provided through the OPSF. Despite a lowering of the excise tax on oil
in September 1990 and average domestic oil price increases of about 30 percent in September and
32 percent in December 1990, the fund continued to incur a deficit during the second half of 1990.
The cumulative OPSF deficit (excluding unfiled claims) at end December 1990 is estimated at P8.8
billion, and this deficit will rise in the first part of 1991. However the cumulative OPSF deficit is to be
eliminated by the end of the third quarter of 1991. To this end, the Government intends to follow a
pricing policy that ensures attainment of zero balance within the specific time. In particular, the
Government will maintain present price levels despite projected world price declines. In addition, a
budgetary transfer of P5 billion will be provided in 1991 to settle outstanding claim of the OPSF.
15. Full deregulation of oil prices continues to be an important objective of the Government once
calm has been restored to world oil markets. Meanwhile the technical and legal groundwork is being
laid with a view to full deregulation as soon as practicable.
16. The principal objectives of the Government's policy in the energy sector are: (i) the development
of economically viable indigenous energy resources, mainly thermal, geothermal and hydro-electric
power, together with ensuring adequate maintenance of existing facilities; (ii) promoting more
efficient use of energy resources through various energy conservation measures; and (ii) the
elimination of distortions in every resource allocation through appropriate pricing policies. 8
xxx xxx xxx

As I said, Philippine oil prices today have nothing to do with the law on supply and demand, if they had anything to
do with it in recent years. (I also gather that the Government is intending to re-adjust the prices of gasoline and
diesel fuel soon since apparently, low diesel prices have reduced the demand for gasoline resulting in "distortions".)
As the Court held in the first Maceda v. Energy Regulatory Board, 9 oil pricing "is a question best judged by the political
leadership" and oil prices are (and have been apparently), political, rather than economic, decisions.

I am not to be mistaken as accepting the "letter of intent" as a correct prescription much less a necessary
medicine although I will be lacking in candor if I did not say that it is a bitter pill to swallow. What I must be
understood as saying is that "oil" is a political card to be played on a political board rather than the courts, so long,
of course, as nobody has done anything illegal.
The "politics of oil" as spelled out in the Government's letter of intent likewise bring to light the true nature of the
ERB Under the Memorandum on Philippine Economic Stabilization Plan:
xxx xxx xxx
In the past, energy prices had been set to broadly reflect the average cost of supply. However, the
lack of transparency of the pricing mechanism and subsidization of consumption have increasingly
become a cause for concern. To alleviate some of these problems, in mid-1987, the Government
established the Energy Regulatory Board ERB a quasi-judicial body empowered with the setting and
regulation of the pricing of petroleum products and electricity tariffs, the regulation of additions to oil
refining capacity, and the regulation of importing, transporting, processing and distributing all energy
resources. (Petroleum pricing policy is described in paragraphs 14 and 15.) In addition to the full
pass-through of changes in oil prices to power tariffs, the Government is committed to the adoption
of longrun marginal cost pricing for electricity. To this end, NPC intends to introduce a marginal cost
imported-has tariff structure to ensure that it meets its target of achieving a rate of return of eight
percent on its rate base. 10
it is apparent that the Board, in spite of its "independence" (from the Office of the President), is bound by the terms
of the program and that it has after all, no genuine discretion to deny requests for price adjustments by oil
companies. I seriously doubt whether or not it is possessed of that discretion judging, first, from its performance
since 1987 (in which it has not overruled the Government on "oil cases") and the fact that the exchange rate, the
balance of payment deficit, and the OPSF deficiency are matters of simple arithmetic.
And certainly, the Board can not possibly overrule the Government's "letter of intent."
The first Maceda case sustained the grant of provisional price increases ex parte not only because Section 8 of
Executive Order No. 172 authorized the grant of provisional relief without a hearing but because fluctuations in the
foreign exchange rates, for instance, were, and are, a matter of judicial notice, and a hearing thereafter was
necessary only to see whether or not the ERB determined the rates correctly.
This likewise brings to light the necessity for an ERB to fix rates since it does not, after all fix (meaning decide) rates
but merely announces their imminence on demonstrable figures of higher rates. The Court however can not
question the wisdom of a statute and after all, I suppose the Government can make use of an accountant.
I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price increase" as a
"scheme [to defraud] the people." I would like to go further. As I indicated the ERB does no more than to punch
calculators for the Government-which decides oil price increases. The comedy of December, 1990, when the Board
adjusted prices in a matter of days, is a confirmation of this point. As Justice Padilla noted, the re-adjustment of
December 10, 1990 was in fact prompted by "presidential requests" which does not speak well of the Board's
independence and which in fact bares the truth as to who really makes the decision. (The readjustment, consisting
in the reduction in diesel fuel and a corresponding increase in gasoline, sought to mollify the indignation of the
public.)
I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB can give them
a fair hearing, indeed, if it can do anything at all.
I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil companies
Justice Paras refers to, have not helped any. I submit however that we have not succeeded in fingering the real
villain the letter of intent. Saddam's Middle East folly has nothing to do with that.
Separate Opinions

PARAS, J., dissenting:

I dissent. As I have long previously indicated, the ERB has absolutely no power to tax which is solely the prerogative
of Congress. This is what the ERB is precisely doing by getting money from the people to ultimatelysubsidize the
ravenous oil companies. Additionally, the stubborn refusal of the ERB to effectively rollback oil prices is a continuing
bestial insult to the intelligence of our countrymen, and a gross abandonment of the people in their hour of economic
misery. I therefore vote for a complete and effective rollback of all oil prices.
Cruz, J., concurs.
PADILLA, J., dissenting:
I regret that I can not concur in the majority opinion.
In the matter of price increases of oil products, which vitally affects the people, especially those in the middle and
low income groups, any increase, provisional or otherwise, should be allowed only after the Energy Regulatory
Board (ERB) shall have fully determined, through bona fide and full-dress hearings, that it is absolutely necessary
and by how much it shall be effected. The people, represented by reputable oppositors, deserve to be given full
opportunity to be heard in their opposition to any increase in the prices of fuel. The right to be heard includes not
only the right to present one's case and submit evidence in support thereof, but also the right to confront and crossexamine the witnesses of the adverse parties.
Because of the procedure adopted by the ERB in the reception of evidence leading to the price increases of 5 and 6
December 1990, petitioner Maceda was not able to finish his cross-examination of Petron's sole witness. And, even
before each of the witnesses of Shell and Caltex could be cross-examined by petitioners and before they could
present evidence in support of their opposition to the increase, the ERB had already issued its 5 December 1990
order allowing a "provisional increase" sought by the oil companies in their respective supplemental applications.
That there were postponements of scheduled hearings before the ERB, at the instance of oppositor Maceda, did not
justify a denial of the right of oppositors to be heard. The postponements were not intended to delay the
proceedings. In fact, the resetting of the scheduled hearings on November 14, 15 and 16 to a later date, upon
motion of petitioner Maceda, was to enable him to file a written opposition to the supplemental applications filed by
the oil companies.
The ERB acted hastily in granting the provisional increases sought by the oil companies even before the oppositors
could submit evidence in support of their opposition. The fact that the questioned orders merely allowed a
provisional increase is beside the point, for past experiences have shown that so-called provisional increases"
allowed by the ERB ultimately became permanent.
ERB's claim that the second provisional increase was duly supported by evidence, is belied by its own act of
modifying said order (of provisional increase) not only once but twice, upon the "request" of the President. First, the
ERB rolled back the prices of fuel just a day after it issued the questioned order, altering the allocation of the
increase. Second, on 10 December 1990, the ERB further modified the price of petroleum products resulting in
reduction of the weighted average provisional increase from P2.82 to P2.05 per liter, but only after the President had
announced that she would meet with the leaders of both Houses of Congress, to discuss the creation of a special
fund to be raised from additional taxes, to subsidize the prices of petroleum products. 1
These acts of the ERB ostensibly sparked by "presidential requests" clearly demonstrate that the evidence did not,
in the first place, justify the price increases it had ordered on 5 and 6 December 1990. Furthermore, the ERB never
came out with a categorical and official declaration of how much was the so-called deficit of the Oil Price
Stabilization Fund (OPSF) and how much of the oil price increases was intended to cover such deficit.
In the midst of a national crisis related to oil price increases, each and every one is called upon to assume his/its
share of continuing sacrifices. The public, the government, as well as the oil companies should work hand in hand in
solving the present problem that confronts us. We are not unmindful of the fact that the oil companies are profitoriented. However, profits should not be their only concern in times of deepening inability of the people to cope with

their prices with "built-in-margins". A reduction of profits during these crucial and trying times, is certainly in order
considering that in the past, the oil companies had unquestionably made tremendous profits.
In view of the foregoing, I vote to GRANT the petition for the nullification of the 5 and 6 December 1990 orders of the
ERB and for a roll-back of the prices of oil products to levels existing before 5 and 6 December 1990 until hearings
before the ERB are finally concluded.
Before closing, I also would like to submit for congressional consideration two (2) proposals in the public interest.
They are:
(1) to do away with the present scheme of allowing provisional price increases of oil products. This scheme, to my
mind, is misleading and serves as an excuse for unilateral and arbitrary ERB-action. As already noted, these
provisional price increases are, to all intents and purposes, permanent when fixed. To that extent, the scheme is a
fraud on the people.
(2) all decisions and orders of the ERB should be expressly made appealable by statute to the President of the
Philippines whose decisions shall be final, except in cases involving questions of law or grave abuse of discretion
which may be elevated to the Supreme Court in a special civil action for certiorari under Rule 65 of the Rules of
Court.
While at present, decisions and orders of the ERB are, in my considered opinion, appealable to the President under
the principle of "exhaustion of administrative remedies", it is nevertheless desirable that the appealability of ERB
decisions and orders to the President be placed beyond any and all doubts. In this way, the President of the
Philippines has to assume full responsibility for all price increases in oil products, which should be the case because
the matter involved is not only one of national interest but profoundly one of people's survival.
Gutierrez, Jr. and Cruz, JJ., concur.
SARMIENTO, J., separate opinion:
I would like to point out a few things in view of the majority's reliance on the first Maceda case. 1
The first Maceda case was a challenge on provisional oil price increases decreed by the Energy Regulatory Board
(ERB). This Court sustained the Board, as it is sustaining the Board in this case, on a few economic outputs,
namely, the Oil Price Stabilization Fund (OPSF) deficit, the deteriorating exchange rate, and the balance of
payments and trade gaps.
As I held in my dissent in yet another Maceda case, Maceda v. Macaraig, 2 the current oil price increases were (are)
also the result of the devaluation of the currency, since a devalued peso forced oil companies to pay more pesos for oil
worth in dollars.
I simply wish to state what has apparently been left unstated in the course of debate and perhaps, the real score
behind recurring oil price hikes and why the ERB has been very quick in granting them.
The truth is that petroleum prices have been dictated by the Government's economic maneuvers, and not rather the
vagaries of the world market. The truth is that the recent oil hikes have nothing to do with Saddam Hussein or the
Gulf crisis (during which oil prices in fact dropped) and are, rather, the natural consequences of calculated moves by
the Government in its effort to meet so-called International Monetary Fund (IMF) targets.
In 1989, the Government of the Republic of the Philippines submitted its letter of intent to the IMF outlining the
country's economic program from 1989 through 1992. In its paragraph 19, it states that:
The Government intends to continue with the floating exchange rate system established in October
1984 . . . 3
Since exchange control was abolished and the floating rate system was established, the Philippine peso has seen a
series of devaluations that have progressively pushed up prices, significantly, prices of petroleum. According to one

authority, devaluation has been a "standard prescription" to correct balance of payments (BOP) deficits. 4 It makes
dollars expensive, discourages import and encourages exports, and forces dollars conservation. 5
It is a matter of opinion whether or not devaluation has been good for the country and whether or not it has realized
these objectives. The truth is that, whatever it has accomplished, oil which is imported has been subject to the
effects of devaluation.
Early this year, Governor Jose Cuisia of the Central Bank, Secretary Jesus Estanislao of the Department of Finance,
and Secretary Guillermo Carague of the Budget and Management Department, wrote Mr. Michael Camdessus of the
International Monetary Fund (the letter of intent) and informed him of the country's "Economic Stabilization Plan,
1991-92". The Plan recognized certain economic imbalances that have supposedly inhibited growth, in particular,
inflation and an increasing balance of payments deficit, and drew a program centered on "a strong effort to bring
down the overall fiscal deficit "through, among other things, "the gradual elimination of the deficit of the Oil Price
Stabilization Fund." 6 It spelled out, among other things, a "[r]estoration of a sustainable external position requir[ing] the
continuation of a flexible exchange rate policy . . . " 7 and described in detail an "Oil Price and Energy Policy" focused on
wiping out the OPSF deficit, to wit:
xxx xxx xxx
A substantial erosion in the overall fiscal position occurred in 1989 and 1990 as a result of official
price support for oil products provided through the OPSF. Despite a lowering of the excise tax on oil
in September 1990 and average domestic oil price increases of about 30 percent in September and
32 percent in December 1990, the fund continued to incur a deficit during the second half of 1990.
The cumulative OPSF deficit (excluding unfiled claims) at end December 1990 is estimated at P8.8
billion, and this deficit will rise in the first part of 1991. However the cumulative OPSF deficit is to be
eliminated by the end of the third quarter of 1991. To this end, the Government intends to follow a
pricing policy that ensures attainment of zero balance within the specific time. In particular, the
Government will maintain present price levels despite projected world price declines. In addition, a
budgetary transfer of P5 billion will be provided in 1991 to settle outstanding claim of the OPSF.
15. Full deregulation of oil prices continues to be an important objective of the Government once
calm has been restored to world oil markets. Meanwhile the technical and legal groundwork is being
laid with a view to full deregulation as soon as practicable.
16. The principal objectives of the Government's policy in the energy sector are: (i) the development
of economically viable indigenous energy resources, mainly thermal, geothermal and hydro-electric
power, together with ensuring adequate maintenance of existing facilities; (ii) promoting more
efficient use of energy resources through various energy conservation measures; and (ii) the
elimination of distortions in every resource allocation through appropriate pricing policies. 8
xxx xxx xxx

As I said, Philippine oil prices today have nothing to do with the law on supply and demand, if they had anything to
do with it in recent years. (I also gather that the Government is intending to re-adjust the prices of gasoline and
diesel fuel soon since apparently, low diesel prices have reduced the demand for gasoline resulting in "distortions".)
As the Court held in the first Maceda v. Energy Regulatory Board, 9 oil pricing "is a question best judged by the political
leadership" and oil prices are (and have been apparently), political, rather than economic, decisions.
I am not to be mistaken as accepting the "letter of intent" as a correct prescription much less a necessary
medicine although I will be lacking in candor if I did not say that it is a bitter pill to swallow. What I must be
understood as saying is that "oil" is a political card to be played on a political board rather than the courts, so long,
of course, as nobody has done anything illegal.
The "politics of oil" as spelled out in the Government's letter of intent likewise bring to light the true nature of the
ERB Under the Memorandum on Philippine Economic Stabilization Plan:

xxx xxx xxx

In the past, energy prices had been set to broadly reflect the average cost of supply. However, the
lack of transparency of the pricing mechanism and subsidization of consumption have increasingly
become a cause for concern. To alleviate some of these problems, in mid-1987, the Government
established the Energy Regulatory Board ERB a quasi-judicial body empowered with the setting and
regulation of the pricing of petroleum products and electricity tariffs, the regulation of additions to oil
refining capacity, and the regulation of importing, transporting, processing and distributing all energy
resources. (Petroleum pricing policy is described in paragraphs 14 and 15.) In addition to the full
pass-through of changes in oil prices to power tariffs, the Government is committed to the adoption
of longrun marginal cost pricing for electricity. To this end, NPC intends to introduce a marginal cost
imported-has tariff structure to ensure that it meets its target of achieving a rate of return of eight
percent on its rate base. 10
it is apparent that the Board, in spite of its "independence" (from the Office of the President), is bound by the terms
of the program and that it has after all, no genuine discretion to deny requests for price adjustments by oil
companies. I seriously doubt whether or not it is possessed of that discretion judging, first, from its performance
since 1987 (in which it has not overruled the Government on "oil cases") and the fact that the exchange rate, the
balance of payment deficit, and the OPSF deficiency are matters of simple arithmetic.
And certainly, the Board can not possibly overrule the Government's "letter of intent."
The first Maceda case sustained the grant of provisional price increases ex parte not only because Section 8 of
Executive Order No. 172 authorized the grant of provisional relief without a hearing but because fluctuations in the
foreign exchange rates, for instance, were, and are, a matter of judicial notice, and a hearing thereafter was
necessary only to see whether or not the ERB determined the rates correctly.
This likewise brings to light the necessity for an ERB to fix rates since it does not, after all fix (meaning decide) rates
but merely announces their imminence on demonstrable figures of higher rates. The Court however can not
question the wisdom of a statute and after all, I suppose the Government can make use of an accountant.
I agree with Justice Padilla insofar as he refers to the "present scheme of allowing provisional price increase" as a
"scheme [to defraud] the people." I would like to go further. As I indicated the ERB does no more than to punch
calculators for the Government-which decides oil price increases. The comedy of December, 1990, when the Board
adjusted prices in a matter of days, is a confirmation of this point. As Justice Padilla noted, the re-adjustment of
December 10, 1990 was in fact prompted by "presidential requests" which does not speak well of the Board's
independence and which in fact bares the truth as to who really makes the decision. (The readjustment, consisting
in the reduction in diesel fuel and a corresponding increase in gasoline, sought to mollify the indignation of the
public.)
I agree with Justice Padilla that it amounts to fraud on the people to make them believe that the ERB can give them
a fair hearing, indeed, if it can do anything at all.
I agree, finally, with Justice Padilla that the nation is one in crisis, and evidently, the "ravenous" oil companies
Justice Paras refers to, have not helped any. I submit however that we have not succeeded in fingering the real
villain the letter of intent. Saddam's Middle East folly has nothing to do with that.
Victorias Milling vs PPA (G.R. No. 73705 Aug 27, 1987)
Berthing charges against a vessel are collectible regardless of the fact that mooring or berthing is made from a private pier or wharf. This is
because the government maintains bodies of water in navigable condition and it is to support its operations in this regard that dues and charges are
imposed for the use of piers and wharves regardless of their ownership.

On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for short) wrote petitioner
Victorias Milling Co., requiring it to have its tugboats and barges undergo harbor formalities and pay entrance/
clearance fees as well as berthing fees effective May 1, 1981. PPA, likewise, requiring petitioner to secure a permit for
cargo handling operations at its Da-an Banua wharf and remit 10% of its gross income for said operations as the

government's share. To these demands, petitioner sent two (2) letters, both dated June 2, 1981, wherein it maintained
that it is exempt from paying PPA any fee or charge because: (1) the wharf and an its facilities were built and installed
in its land; (2) repair and maintenance thereof were and solely paid by it; (3) even the dredging and maintenance of
the Malijao River Channel from Guimaras Strait up to said private wharf are being done by petitioner's equipment and
personnel; and (4) at no time has the government ever spent a single centavo for such activities. Petitioner further
added that the wharf was being used mainly to handle sugar purchased from district planters pursuant to existing
milling agreements.

Issue: WON Victorias is exempted from the claimed fees and charges due to the fact that the port is privately owned

Held: No, as correctly stated by the Solicitor General, the fees and charges PPA collects are not for the use of the
wharf that petitioner owns but for the privilege of navigating in public waters, of entering and leaving public harbors
and berthing on public streams or waters. In Compaia General de Tabacos de Filipinas vs. Actg. Commissioner of
Customs (23 SCRA 600), this Court laid down the rule that berthing charges against a vessel are collectible regardless of
the fact that mooring or berthing is made from a private pier or wharf. This is because the government maintains
bodies of water in navigable condition and it is to support its operations in this regard that dues and charges are
imposed for the use of piers and wharves regardless of their ownership. As to the requirement to remit 10% of the
handling charges, Section 6B-(ix) of the Presidential Decree No. 857 authorized the PPA "To levy dues, rates, or charges
for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority, or
any organization concerned with port operations." This 10% government share of earnings of arrastre and stevedoring
operators is in the nature of contractual compensation to which a person desiring to operate arrastre service must
agree as a condition to the grant of the permit to operate.