i.

DUE PROCESS

existing by virtue of the laws of the Republic of the Philippines,

x x x.

SECOND DIVISION
G.R. No. 185371

December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.

METRO STAR SUPERAMA, INC., Respondent.

On January 26, 2001, the Regional Director of Revenue

Region No. 10, Legazpi City, issued Letter of Authority No.
00006561 for Revenue Officer Daisy G. Justiniana to examine
petitioners books of accounts and other accounting records for
income tax and other internal revenue taxes for the taxable
year 1999. Said Letter of Authority was revalidated on August
10, 2001 by Regional Director Leonardo Sacamos.

DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules
of Court filed by the petitioner Commissioner of Internal
Revenue (CIR) seeks to reverse and set aside the 1]
September 16, 2008 Decision1 of the Court of Tax Appeals En
Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its
November 18, 2008 Resolution2 denying petitioners motion for
reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second
Division (CTA-Second Division) in CTA Case No. 7169
reversing the February 8, 2005 Decision of the CIR which
assessed respondent Metro Star Superama, Inc. (Metro Star)
of deficiency value-added tax and withholding tax for the
taxable year 1999.

For petitioners failure to comply with several requests for the

presentation of records and Subpoena Duces Tecum, [the] OIC
of BIR Legal Division issued an Indorsement dated September
26, 2001 informing Revenue District Officer of Revenue Region
No. 67, Legazpi City to proceed with the investigation based on
the best evidence obtainable preparatory to the issuance of
assessment notice.
On November 8, 2001, Revenue District Officer Socorro O.
Ramos-Lafuente issued a Preliminary 15-day Letter, which
petitioner received on November 9, 2001. The said letter stated
that a post audit review was held and it was ascertained that
there was deficiency value-added and withholding taxes due
from petitioner in the amount of P 292,874.16.

Based on a Joint Stipulation of Facts and Issues 3 of the

parties, the CTA Second Division summarized the factual and
procedural antecedents of the case, the pertinent portions of
which read:

On April 11, 2002, petitioner received a Formal Letter of

Demand dated April 3, 2002 from Revenue District No. 67,
Legazpi City, assessing petitioner the amount of Two Hundred
Ninety Two Thousand Eight Hundred Seventy Four Pesos and
Sixteen Centavos (P292,874.16.) for deficiency value-added
and withholding taxes for the taxable year 1999, computed as
follows:

Petitioner is a domestic corporation duly organized and

ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX

Gross Sales

P1,697,718.90

Output Tax

P 154,338.08

Less: Input Tax

_____________

VAT Payable

P 154,338.08

Add: 25% Surcharge

P 38,584.54

20% Interest

79,746.49

Compromise Penalty
Late Payment

P16,000.00

Failure to File VAT returns

2,400.00

TOTAL

18,400.00

136,731.01
P 291,069.09

WITHHOLDING TAX
Compensation

2,772.91

Expanded

110,103.92

Total Tax Due

P 112,876.83

Less: Tax Withheld

111,848.27

Deficiency Withholding Tax

P 1,028.56

Add: 20% Interest p.a.

576.51

Compromise Penalty

200.00

TOTAL

P 1,805.07

*Expanded Withholding Tax

P1,949,334.25

x 5%

97,466.71

Film Rental

10,000.25

x 10%

1,000.00

Audit Fee

193,261.20

x 5%

9,663.00

Rental Expense

41,272.73

x 1%

412.73

Security Service

156,142.01

x 1%

1,561.42

Service Contractor

P 110,103.92

Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX

P 291,069.09

WITHHOLDING TAX

1,805.07

TOTAL

P 292,874.16

Subsequently, Revenue District Office No. 67 sent a copy of

the Final Notice of Seizure dated May 12, 2003, which
petitioner received on May 15, 2003, giving the latter last
opportunity to settle its deficiency tax liabilities within ten (10)
[days] from receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of Distraint
and/or Levy and Garnishment to enforce collection.
On February 6, 2004, petitioner received from Revenue District
Office No. 67 a Warrant of Distraint and/or Levy No. 67-002923 dated May 12, 2003 demanding payment of deficiency
value-added tax and withholding tax payment in the amount of
P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration pursuant to
Section 3.1.5 of Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its
authorized representative, Revenue Regional Director of
Revenue Region 10, Legaspi City, issued a Decision denying
petitioners Motion for Reconsideration. Petitioner, through
counsel received said Decision on February 18, 2005.
x x x.
Denying that it received a Preliminary Assessment Notice
(PAN) and claiming that it was not accorded due process,
Metro Star filed a petition for review 4 with the CTA. The parties
then stipulated on the following issues to be decided by the tax
court:
1. Whether the respondent complied with the due process
requirement as provided under the National Internal Revenue
Code and Revenue Regulations No. 12-99 with regard to the

issuance of a deficiency tax assessment;

1.1 Whether petitioner is liable for the respective amounts of
P291,069.09 and P1,805.07 as deficiency VAT and withholding
tax for the year 1999;
1.2. Whether the assessment has become final and executory
and demandable for failure of petitioner to protest the same
within 30 days from its receipt thereof on April 11, 2002,
pursuant to Section 228 of the National Internal Revenue
Code;
2. Whether the deficiency assessments issued by the
respondent are void for failure to state the law and/or facts
upon which they are based.
2.2 Whether petitioner was informed of the law and facts on
which the assessment is made in compliance with Section 228
of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a
movie/cinema house, is subject to VAT on sales of services
under Section 108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best
evidence obtainable pursuant to Section 6(b) of the National
Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro
Star and, on March 21, 2007, rendered a decision, the decretal
portion of which reads:
WHEREFORE, premises considered, the Petition for Review is
hereby GRANTED. Accordingly, the assailed Decision dated
February 8, 2005 is hereby REVERSED and SET ASIDE and

respondent is ORDERED TO DESIST from collecting the

subject taxes against petitioner.

On the matter of service of a tax assessment, a further perusal

of our ruling in Barcelon is instructive, viz:

The CTA-Second Division opined that "[w]hile there [is] a

disputable presumption that a mailed letter [is] deemed
received by the addressee in the ordinary course of mail, a
direct denial of the receipt of mail shifts the burden upon the
party favored by the presumption to prove that the mailed letter
was indeed received by the addressee."5 It also found that
there was no clear showing that Metro Star actually received
the alleged PAN, dated January 16, 2002. It, accordingly, ruled
that the Formal Letter of Demand dated April 3, 2002, as well
as the Warrant of Distraint and/or Levy dated May 12, 2003
were void, as Metro Star was denied due process.6

Jurisprudence is replete with cases holding that if the taxpayer

denies ever having received an assessment from the BIR, it is
incumbent upon the latter to prove by competent evidence that
such notice was indeed received by the addressee. The onus
probandi was shifted to respondent to prove by contrary
evidence that the Petitioner received the assessment in the
due course of mail. The Supreme Court has consistently held
that while a mailed letter is deemed received by the addressee
in the course of mail, this is merely a disputable presumption
subject to controversion and a direct denial thereof shifts the
burden to the party favored by the presumption to prove that
the mailed letter was indeed received by the addressee
(Republic vs. Court of Appeals, 149 SCRA 351). Thus as held
by the Supreme Court in Gonzalo P. Nava vs. Commissioner of
Internal Revenue, 13 SCRA 104, January 30, 1965:

The CIR sought reconsideration7 of the decision of the CTASecond Division, but the motion was denied in the latters July
24, 2007 Resolution.8
Aggrieved, the CIR filed a petition for review9 with the CTA-En
Banc, but the petition was dismissed after a determination that
no new matters were raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby
DENIED DUE COURSE and DISMISSED for lack of merit.
Accordingly, the March 21, 2007 Decision and July 27, 2007
Resolution of the CTA Second Division in CTA Case No. 7169
entitled, "Metro Star Superama, Inc., petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby
AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise
denied by the CTA-En Banc in its November 18, 2008
Resolution.11
The CIR, insisting that Metro Star received the PAN, dated
January 16, 2002, and that due process was served
nonetheless because the latter received the Final Assessment
Notice (FAN), comes now before this Court with the sole issue
of whether or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the
conclusions reached by the CTA which, by the very nature of
its functions, has accordingly developed an exclusive expertise
on the resolution unless there has been an abuse or
improvident exercise of authority.12 In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue,13 the Court wrote:
Jurisprudence has consistently shown that this Court accords
the findings of fact by the CTA with the highest respect. In SeaLand Service Inc. v. Court of Appeals [G.R. No. 122605, 30
April 2001, 357 SCRA 441, 445-446], this Court recognizes
that the Court of Tax Appeals, which by the very nature of its
function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there
has been an abuse or improvident exercise of authority. Such
findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of
gross error or abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, this
Court must presume that the CTA rendered a decision which is
valid in every respect.

"The facts to be proved to raise this presumption are (a) that

the letter was properly addressed with postage prepaid, and
(b) that it was mailed. Once these facts are proved, the
presumption is that the letter was received by the addressee
as soon as it could have been transmitted to him in the
ordinary course of the mail. But if one of the said facts fails to
appear, the presumption does not lie. (VI, Moran, Comments
on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs.
Sunlife Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the
registry receipt issued by the Bureau of Posts or the Registry
return card which would have been signed by the Petitioner or
its authorized representative. And if said documents cannot be
located, Respondent at the very least, should have submitted
to the Court a certification issued by the Bureau of Posts and
any other pertinent document which is executed with the
intervention of the Bureau of Posts. This Court does not put
much credence to the self serving documentations made by
the BIR personnel especially if they are unsupported by
substantial evidence establishing the fact of mailing. Thus:
"While we have held that an assessment is made when sent
within the prescribed period, even if received by the taxpayer
after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and
L-12259, May 27, 1959), this ruling makes it the more
imperative that the release, mailing or sending of the notice be
clearly and satisfactorily proved. Mere notations made without
the taxpayers intervention, notice or control, without adequate
supporting evidence cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate
protection or defense." (Nava vs. CIR, 13 SCRA 104, January
30, 1965).
x x x.
The failure of the respondent to prove receipt of the
assessment by the Petitioner leads to the conclusion that no
assessment was issued. Consequently, the governments right
to issue an assessment for the said period has already
prescribed. (Industrial Textile Manufacturing Co. of the Phils.,
Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases
supplied.)
The Court agrees with the CTA that the CIR failed to discharge
its duty and present any evidence to show that Metro Star
indeed received the PAN dated January 16, 2002. It could
have simply presented the registry receipt or the certification

from the postmaster that it mailed the PAN, but failed. Neither
did it offer any explanation on why it failed to comply with the
requirement of service of the PAN. It merely accepted the letter
of Metro Stars chairman dated April 29, 2002, that stated that
he had received the FAN dated April 3, 2002, but not the PAN;
that he was willing to pay the tax as computed by the CIR; and
that he just wanted to clarify some matters with the hope of
lessening its tax liability.
This now leads to the question: Is the failure to strictly comply
with notice requirements prescribed under Section 228 of the
National Internal Revenue Code of 1997 and Revenue
Regulations (R.R.) No. 12-99 tantamount to a denial of due
process? Specifically, are the requirements of due process
satisfied if only the FAN stating the computation of tax liabilities
and a demand to pay within the prescribed period was sent to
the taxpayer?
The answer to these questions require an examination of
Section 228 of the Tax Code which reads:
SEC. 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the
taxpayer of his findings: provided, however, that a
preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing
on the face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(c) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year;
or
(d) When the excise tax due on exciseable articles has not
been paid; or
(e) When the article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form and manner
as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise,
the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse of
one hundred eighty (180)-day period; otherwise, the decision
shall become final, executory and demandable. (Emphasis
supplied).
Indeed, Section 228 of the Tax Code clearly requires that the
taxpayer must first be informed that he is liable for deficiency
taxes through the sending of a PAN. He must be informed of
the facts and the law upon which the assessment is made. The
law imposes a substantive, not merely a formal, requirement.
To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the
cardinal principle in administrative investigations - that
taxpayers should be able to present their case and adduce
supporting evidence.14
This is confirmed under the provisions R.R. No. 12-99 of the
BIR which pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a
Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax
assessment:
3.1.1 Notice for informal conference. The Revenue Officer
who audited the taxpayer's records shall, among others, state
in his report whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency tax or taxes. If
the taxpayer is not amenable, based on the said Officer's
submitted report of investigation, the taxpayer shall be
informed, in writing, by the Revenue District Office or by the
Special Investigation Division, as the case may be (in the case
Revenue Regional Offices) or by the Chief of Division
concerned (in the case of the BIR National Office) of the
discrepancy or discrepancies in the taxpayer's payment of his
internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity
to present his side of the case. If the taxpayer fails to respond
within fifteen (15) days from date of receipt of the notice for
informal conference, he shall be considered in default, in which
case, the Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional Office, or the
Chief of Division in the National Office, as the case may be,
shall endorse the case with the least possible delay to the
Assessment Division of the Revenue Regional Office or to the
Commissioner or his duly authorized representative, as the
case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review
and evaluation by the Assessment Division or by the
Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis
to assess the taxpayer for any deficiency tax or taxes, the said
Office shall issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed
assessment, showing in detail, the facts and the law, rules and
regulations, or jurisprudence on which the proposed

assessment is based (see illustration in ANNEX A hereof). If

the taxpayer fails to respond within fifteen (15) days from date
of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice
shall be caused to be issued by the said Office, calling for
payment of the taxpayer's deficiency tax liability, inclusive of
the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The
notice for informal conference and the preliminary assessment
notice shall not be required in any of the following cases, in
which case, issuance of the formal assessment notice for the
payment of the taxpayer's deficiency tax liability shall be
sufficient:
(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax appearing on
the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding
agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year;
or
(iv) When the excise tax due on excisable articles has not been
paid; or
(v) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. The
formal letter of demand and assessment notice shall be issued
by the Commissioner or his duly authorized representative.
The letter of demand calling for payment of the taxpayer's
deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is
based, otherwise, the formal letter of demand and assessment
notice shall be void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail
or by personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized
representative shall acknowledge receipt thereof in the
duplicate copy of the letter of demand, showing the following:
(a) His name; (b) signature; (c) designation and authority to act
for and in behalf of the taxpayer, if acknowledged received by a
person other than the taxpayer himself; and (d) date of receipt
thereof.
x x x.
From the provision quoted above, it is clear that the sending of
a PAN to taxpayer to inform him of the assessment made is but
part of the "due process requirement in the issuance of a
deficiency tax assessment," the absence of which renders
nugatory any assessment made by the tax authorities. The use

of the word "shall" in subsection 3.1.2 describes the mandatory

nature of the service of a PAN. The persuasiveness of the right
to due process reaches both substantial and procedural rights
and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of
Metro Stars right to due process.15 Thus, for its failure to send
the PAN stating the facts and the law on which the assessment
was made as required by Section 228 of R.A. No. 8424, the
assessment made by the CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its
argument that only the non-service of the FAN is fatal to the
validity of an assessment, cannot apply to this case because
the issue therein was the non-compliance with the provisions
of R. R. No. 12-85 which sought to interpret Section 229 of the
old tax law. RA No. 8424 has already amended the provision of
Section 229 on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIRs findings was
changed in 1998 to informing the taxpayer of not only the law,
but also of the facts on which an assessment would be made.
Otherwise, the assessment itself would be invalid.17 The
regulation then, on the other hand, simply provided that a
notice be sent to the respondent in the form prescribed, and
that no consequence would ensue for failure to comply with
that form.1avvphi1
The Court need not belabor to discuss the matter of Metro
Stars failure to file its protest, for it is well-settled that a void
assessment bears no fruit.18
It is an elementary rule enshrined in the 1987 Constitution that
no person shall be deprived of property without due process of
law.19 In balancing the scales between the power of the State
to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional
rights of a citizen to due process of law and the equal
protection of the laws on the other, the scales must tilt in favor
of the individual, for a citizens right is amply protected by the
Bill of Rights under the Constitution. Thus, while "taxes are the
lifeblood of the government," the power to tax has its limits, in
spite of all its plenitude. Hence in Commissioner of Internal
Revenue v. Algue, Inc.,20 it was said
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.
xxx

xxx

xxx

It is said that taxes are what we pay for civilized society.

Without taxes, the government would be paralyzed for the lack
of the motive power to activate and operate it. Hence, despite
the natural reluctance to surrender part of ones hard-earned
income to 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 x x x that the law
has not been observed.21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.
ii. EQUAL PROTECTION
iii. UNIFORMITY AND EQUITY IN TAXATION

EN BANC
G.R. No. L-59431 July 25, 1984
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 3 as
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 visa-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.

EN BANC

G.R. No. 127410 January 20, 1999

CONRADO L. TIU, JUAN T. MONTELIBANO JR. and
ISAGANI M. JUNGCO, petitioners, vs.
COURT OF APPEALS, HON. TEOFISTO T. GUINGONA JR.,
BASES CONVERSION AND DEVELOPMENT AUTHORITY,
SUBIC BAY METROPOLITAN AUTHORITY, BUREAU OF
INTERNAL REVENUE, CITY TREASURER OF OLONGAPO
and MUNICIPAL TREASURER OF SUBIC, ZAMBALES,
respondents.

PANGANIBAN, J.:
The constituttional rights to equal protection of the law is not
violated by an executive order, issued pursuant to law, granting
tax and duty incentives only to the bussiness and residents
within the "secured area" of the Subic Special Econimic Zone
and denying them to those who live within the Zone but outside
such "fenced-in" territory. The Constitution does not require
absolute equality among residents. It is enough that all persons
under like circumstances or conditions are given the same
privileges and required to follow the same obligations. In short,
a classification based on valid and reasonable standards does
not violate the equal protection clause.
The Case
Before us is a petition for review under Rule 45 of the Rules of
Court, seeking the reversal of the Court of Appeals' Decision 1
promulgated on August 29, 1996, and Resolution 2 dated
November 13, 1996, in CA-GR SP No. 37788. 3 The
challenged Decision upheld the constitutionality and validity of
Executive Order No. 97-A (EO 97-A), according to which the
grant and enjoyment of the tax and duty incentives authorized
under Republic Act No. 7227 (RA 7227) were limited to the
business enterprises and residents within the fenced-in area of
the Subic Special Economic Zone (SSEZ).
The assailed Resolution denied the petitioners' motion for
reconsideration.
On March 13, 1992, Congress, with the approval of the
President, passed into law RA 7227 entitled "An Act
Accelerating the Conversion of Military Reservations Into Other
Productive Uses, Creating the Bases Conversion and
Development Authority for this Purpose, Providing Funds
Therefor and for Other Purposes." Section 12 thereof created
the Subic Special Economic Zone and granted there to special
privileges, as follows:
Sec. 12. Subic Special Economic Zone. Subject to the
concurrence by resolution of the sangguniang panlungsod of
the City of Olongapo and the sangguniang bayan of the
Municipalities of Subic, Morong and Hermosa, there is hereby
created a Special Economic and Free-port Zone consisting of
the City of Olongapo and the Municipality of Subic, Province of

Zambales, the lands occupied by the Subic Naval Base and its
contiguous extensions as embraced, covered, and defined by
the 1947 Military Bases Agreement between the Philippines
and the United States of America as amended, and within the
territorial jurisdiction of the Municipalities of Morong and
Hermosa, Province of Bataan, hereinafter referred to as the
Subic Special Economic Zone whose metes and bounds shall
be delineated in a proclamation to be issued by the President
of the Philippines. Within thirty (30) days after the approval of
this Act, each local government unit shall submit its resolution
of concurrence to join the Subic Special Economic Zone to the
Office of the President. Thereafter, the President of the
Philippines shall issue a proclamation defining the metes and
bounds of the zone as provided herein.
The abovementioned zone shall be subject to the following
policies:
(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of
the Local Government Code, the Subic Special Economic
Zone shall be developed into a self-sustaining, industrial,
commercial, financial and investment center to generate
employment opportunities in and around the zone and to
attract and promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations of raw
materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the
Philippines;
(c) The provision of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross income earned
by all businesses and enterprises within the Subic Special
Economic Zone shall be remitted to the National Government,
one percent (1%) each to the local government units affected
by the declaration of the zone in proportion to their population
area, and other factors. In addition, there is hereby established
a development fund of one percent (1%) of the gross income
earned by all businesses and enterprises within the Subic
Special Economic Zone to be utilized for the development of
municipalities outside the City of Olongapo and the
Municipality of Subic, and other municipalities contiguous to
the base areas.
In case of conflict between national and local laws with respect
to tax exemption privileges in the Subic Special Economic
Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free
markets for foreign exchange, gold, securities and future shall
be allowed and maintained in the Subic Special Economic
Zone;
(e) The Central Bank, through the Monetary Board, shall
supervise and regulate the operations of banks and other
financial institutions within the Subic Special Economic Zone;

(f) Banking and finance shall be liberalized with the

establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks
with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone
whose continuing investment shall not be less than two
hundred fifty thousand dollars ($250,000), his/her spouse and
dependent children under twenty-one (21) years of age, shall
be granted permanent resident status within the Subic Special
Economic Zone. They shall have the freedom of ingress and
egress to and from the Subic Special Economic Zone without
any need of special authorization form the Bureau of
Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue
working visas renewable every two (2) years to foreign
executives and other aliens possessing highly technical skills
which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and
Employment. The names of aliens granted permanent
residence status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after
issuance thereof;
(h) The defense of the zone and the security of its perimeters
shall be the responsibility of the National Government in
coordination with the Subic Bay Metropolitan Authority. The
Subic Bay Metropolitan Authority shall provide and establish its
own security and fire-fighting forces; and
(i) Except as herein provided, the local government units
comprising the Subic Special Economic Zone shall retain their
basic autonomy and identity. The cities shall be governed by
their respective charters and the municipalities shall operate
and function in accordance with Republic Act No. 7160,
otherwise known as the Local Government Code of 1991.

and duty-free area in the SSEFPZ [Subic Special Economic

and Free Port Zone]. Business enterprises and individuals
(Filipinos and foreigners) residing within the Secured Area are
free to import raw materials, capital goods, equipment, and
consumer items tax and duty-free. Consumption items,
however, must be consumed within the Secured Area.
Removal of raw materials, capital goods, equipment and
consumer items out of the Secured Area for sale to nonSSEFPZ registered enterprises shall be subject to the usual
taxes and duties, except as may be provided herein.
On October 26, 1994, the petitioners challenged before this
Court the constitutionality of EO 97-A for allegedly being
violative of their right to equal protection of the laws. In a
Resolution dated June 27, 1995, this Court referred the matter
to the Court of Appeals, pursuant to Revised Administrative
Circular No. 1-95.
Incidentally, on February 1, 1995, Proclamation No. 532 was
issued by President Ramos. It delineated the exact metes and
bounds of the Subic Special Economic and Free Port Zone,
pursuant to Section 12 of RA 7227.
Ruling of the Court of Appeals
Respondent Court held that "there is no substantial difference
between the provisions of EO 97-A and Section 12 of RA 7227.
In both, the 'Secured Area' is precise and well-defined as '. . .
the lands occupied by the Subic Naval Base and its contiguous
extensions as embraced, covered and defined by the 1947
Military Bases Agreement between the Philippines and the
United States of America, as amended . . .'" The appellate
court concluded that such being the case, petitioners could not
claim that EO 97-A is unconstitutional, while at the same time
maintaining the validity of RA 7227.

On June 10, 1993, then President Fidel V. Ramos issued

Executive Order No. 97 (EO 97), clarifying the application of
the tax and duty incentives thus:

The court a quo also explained that the intention of Congress

was to confine the coverage of the SSEZ to the "secured area"
and not to include the "entire Olongapo City and other areas
mentioned in Section 12 of the law." It relied on the following
deliberarions in the Senate:

Sec. 1. On Import Taxes and Duties. Tax and duty-free

importations shall apply only to raw materials, capital goods
and equipment brought in by business enterprises into the
SSEZ. Except for these items, importations of other goods into
the SSEZ, whether by business enterprises or resident
individuals, are subject to taxes and duties under relevant
Philippine laws.

Senator Paterno. Thank you, Mr. President. My first question is

the extent of the economic zone. Since this will be a free port,
in effect, I believe that it is important to delineate or make sure
that the delineation will be quite precise[. M]y question is: Is it
the intention that the entire of Olongapo City, the Municipality
of Subic and the Municipality of Dinalupihan will be covered by
the special economic zone or only portions thereof?

The exportation or removal of tax and duty-free goods from the

territory of the SSEZ to other parts of the Philippine territory
shall be subject to duties and taxes under relevant Philippine
laws.

Senator Shahani. Only portions, Mr. President. In other words,

where the actual operations of the free port will take place.

Sec. 2. On All Other Taxes. In lieu of all local and national

taxes (except import taxes and duties), all business enterprises
in the SSEZ shall be required to pay the tax specified in
Section 12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President issued
Executive Order No. 97-A (EO 97-A), specifying the area within
which the tax-and-duty-free privilege was operative, viz.:
Sec. 1.1. The Secured Area consisting of the presently fencedin former Subic Naval Base shall be the only completely tax

Senator Paterno. I see. So, we should say, "COVERING THE

DESIGNATED PORTIONS OR CERTAIN PORTIONS OF
OLONGAPO CITY, SUBIC AND DINALUPIHAN" to make it
clear that it is not supposed to cover the entire area of all of
these territories.
Senator Shahani. So, the Gentleman is proposing that the
words "CERTAIN AREAS". . .
The President. The Chair would want to invite the attention of
the Sponsor and Senator Paterno to letter "C," which says:
"THE PRESIDENT OF THE PHILIPPINES IS HEREBY
AUTHORIZED TO PROCLAIM, DELINEATE AND SPECIFY

THE METES AND BOUNDS OF OTHER SPECIAL

ECONOMIC ZONES WHICH MAY BE CREATED IN THE
CLARK MILITARY RESERVATIONS AND ITS EXTENSIONS."
Probably, this provision can be expanded since, apparently, the
intention is that what is referred to in Olongapo as Metro
Olongapo is not by itself ipso jure already a special economic
zone.

issuance fully complies with the requiretnents of a valid

classification.
We rule in favor of the constitutionality and validity of the
assailed EO. Said Order is not violative of the equal protection
clause; neither is it discriminatory. Rather, than we find real
and substantive distinctions between the circumstances
obtain;ng inside and those outside the Subic Naval Base,
thereby justifying a valid and reasonable classification.

Senator Paterno. That is correct.

The President. Someone, some authority must declare which
portions of the same shall be the economic zone. Is it the
intention of the author that it is the President of the Philippines
who will make such delineation?
Senator Shahani. Yes Mr. President.
The Court of Appeals further justified the limited application of
the tax incentives as being within the prerogative of the
legislature, pursuant to its "avowed purpose [of serving] some
public benefit or interest." It ruled that "EO 97-A merely
implements the legislative purpose of [RA 7227]."
Disagreeing, petitioners now seek before us a review of the
aforecited Court of Appeals Decision and Resolution.
The Issue
Petitioners submit the following issue for the resolution of the
Court:
[W]hether or not Executive Order No. 97-A violates the equal
protection clause of the Constitution. Specifically the issue is
whether the provisions of Executive Order No. 97-A confining
the application of R.A. 7227 within the secured area and
excluding the residents of the zone outside of the secured area
is discriminatory or not. 4
The Court's Ruling
The petition 5 is bereft of merit.
Main Issue:
The Constitionality of EO 37-A
Citing Section 12 of RA 7227, petitioners contend that the
SSEZ encompasses (1) the City of Olongapo, (2) the
Municipality of Subic in Zambales, and (3) the area formerly
occupied by the Subic Naval Base. However, EO 97-A,
according to them, narrowed down the area within which the
special privileges granted to the entire zone would apply to the
present "fenced-in former Subic Naval Base" only. It has
thereby excluded the residents of the first two components of
the zone from enjoying the benefits granted by the law. It has
effectively discriminated against them without reasonable or
valid standards, in contravention of the equal protection
guarantee.
On the other hand, the solicitor general defends, on behalf of
respondents, the validity of EO 97-A, arguing that Section 12 of
RA 7227 clearly vests in the President the authority to
delineate the metes and bounds of the SSEZ. He adds that the

The fundamental right of equal protection of the laws is not

absolute, but is subject to reasonable classification. If the
groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated
differently from another. 6 The classification must also be
germane to the purpose of the law and must apply to all those
belonging to the same class. Explaining the nature of the equal
protection guarantee, the Court in Ichong v. Hernandez 8 said:
The equal protection of the law clause is against undue favor
and individual or class privilege, as well as hostile
discrimination or the oppression of inequality. It is not intended
to prohibit legislation which is limited either [by] the object to
which it is directed or by [the] territory within which it is to
operate. It does not demand absolute equality among
residents; it merely requires that all persons shall be treated
alike, under like circumstances and conditions both as to
privileges conferred and liabilities enforced. The equal
protection clause is not infringed by legislation which applies
only to those persons falling within a specified class, if it
applies alike to all persons within such class, and reasonable.
grounds exist for making a distinction between those who fall
within such class and those who do not.
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law, (3) not
be limited to existing conditions only, and (4) apply equally to
all members of the same class. 9
We first determine the purpose of the law. From the very title
itself, it is clear that RA 7227 aims primarily to accelerate the
conversion of military reservations into productive uses.
Obviously, the "lands covered under the 1947 Military Bases
Agreement" are its object. Thus, the law avows this policy:
Sec. 2. Declaration of Policies. It is hereby declared the
policy of the Government to accelerate the sound and
balanced conversion into alternative productive uses of the
Clark and Subic military reservations and their extensions
(John Hay Station, Wallace Air Station, O'Donnell Transmitter
Station, San Miguel Naval Communications Station and Capas
Relay Station), to raise funds by the sale of portions of Metro
Manila military camps, and to apply said funds as provided
herein for the development and conversion to productive
civilian use of the lands covered under the 1947 Military Bases
Agreement between the Philippines and the United States of
America, as amended.
To undertake the above objectives, the same law created the
Bases Conversion and Development Authority, some of whose
relevant defined purposes are:
(b) To adopt, prepare and implement a comprehensive and
detailed development plan embodying a list of projects
including but not limited to those provided in the LegislativeExecutive Bases Council (LEBC) framework plan for the sound

and balanced conversion of the Clark and Subic military

reservations and their extensions consistent with ecological
and environmental standards, into other productive uses to
promote the economic and social development of Central
Luzon in particular and the country in general;
(c). To encourage the active participation of the private sector
in transforming the Clark and Subic military reservations and
their extensions into other productive uses;
Further, in creating the SSEZ, the law declared it a policy to
develop the zone into a "self-sustaining, industrial, commercial,
financial and investment center." 10
From the above provisions of the law, it can easily be deduced
that the real concern of RA 7227 is to convert the lands
formerly occupied by the US military bases into economic or
industrial areas. In furtherance of such objective, Congress
deemed it necessary to extend economic incentives to attract
and encourage investors, both local and foreign. Among such
enticements are: 11 (1) a separate customs territory within the
zone, (2) tax-and-duty-free importation's, (3) restructured
income tax rates on business enterprises within the zone, (4)
no foreign exchange control, (5) liberalized regulations on
banking and finance, and (6) the grant of resident status to
certain investors and of working visas to certain foreign
executives and workers .
We believe it was reasonable for the President to have
delimited the application of some incentives to the confines of
the former Subic military base. It is this specific area which the
government intends to transform and develop from its status
quo ante as an abandoned naval facility into a self-sustaining
industrial and commercial zone, particularly for big foreign and
local investors to use as operational bases for their businesses
and industries. Why the seeming bias for the big investors?
Undeniably, they are the ones who can pour huge investments
to spur economic growth in the country and to generate
employment opportunities for the Filipinos, the ultimate goals
of the government for such conversion. The classification is,
therefore, germane to the purposes of the law. And as the legal
maxim goes, "The intent of a statute is the law." 12

or her resources or business operations into the fenced-off free

port zone.
We believe that the classification set forth by the executive
issuance does not apply merely to existing conditions. As laid
down in RA 7227, the objective is to establish a "selfsustaining, industrial, commercial, financial and investment
center" in the area. There will, therefore, be a long-term
difference between such investment center and the areas
outside it.
Lastly, the classification applies equally to all the resident
individuals and businesses within the "secured area." The
residents, being in like circumstances or contributing directly to
the achievement of the end purpose of the law, are not
categorized further. Instead, they are all similarly treated, both
in privileges granted and in obligations required.
All told, the Court holds that no undue favor or privilege was
extended. The classification occasioned by EO 97-A was not
unreasonable, capricious or unfounded. To repeat, it was
based, rather, on fair and substantive considerations that were
germane to the legislative purpose.
WHEREFORE, the petition is DENIED for lack of merit. The
assailed Decision and Resolution are hereby AFFIRMED.
Costs against petitioners.1wphi1.nt
SO ORDERED.
EN BANC

G.R. No. 109289 October 3, 1994

RUFINO R. TAN, petitioner, vs.RAMON R. DEL ROSARIO,
JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994

Certainly, there are substantial differences between the big

investors who are being lured to establish and operate their
industries in the so-called "secured area" and the present
business operators outside the area. On the one hand, we are
talking of billion-peso investments and thousands of new, jobs.
On the other hand, definitely none of such magnitude. In the
first, the economic impact will be national; in the second, only
local. Even more important, at this time the business activities
outside the "secured area" are not likely to have any impact in
achieving the purpose of the law, which is to turn the former
military base to productive use for the benefit of the Philippine
economy. There is, then, hardly any reasonable basis to
extend to them the benefits and incentives accorded in RA
7227. Additionally, as the Court of Appeals pointed out, it will
be easier to manage and monitor the activities within the
"secured area," which is already fenced off, to prevent
"fraudulent importation of merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does not
require territorial uniformity of laws. 13 As long as there are
actual and material differences between territories, there is no
violation of the constitutional clause. And of course, anyone,
including the petitioners, possessing the requisite investment
capital can always avail of the same benefits by channeling his

CARAG, CABALLES, JAMORA AND SOMERA LAW

OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES,
ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR.,
petitioners, vs.RAMON R. DEL ROSARIO, in his capacity as
SECRETARY OF FINANCE and JOSE U. ONG, in his
capacity as COMMISSIONER OF INTERNAL REVENUE,
respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners
in G.R. 109446.

VITUG, J.:
These two consolidated special civil actions for prohibition
challenge, in G.R. No. 109289, the constitutionality of Republic
Act No. 7496, also commonly known as the Simplified Net
Income Taxation Scheme ("SNIT"), amending certain

provisions of the National Internal Revenue Code and, inG.R.

No. 109446, the validity of Section 6, Revenue Regulations No.
2-93, promulgated by public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the
continued implementation of the amendatory legislation.

sources, other than income covered by paragraphs (b), (c), (d)

and (e) of this section by every individual whethera citizen of
the Philippines or an alien residing in the Philippines who is
self-employed or practices his profession herein, determined in
accordance with the following schedule:
Not over P10,000 3%

In G.R. No. 109289, it is asserted that the enactment of

Republic ActNo. 7496 violates the following provisions of the
Constitution:
Article VI, Section 26(1) Every bill passed by the Congress
shall embrace only one subject which shall be expressed in the
title thereof.
Article VI, Section 28(1) The rule of taxation shall be uniform
and equitable. The Congress shall evolve a progressive
system of taxation.
Article III, Section 1 No person shall be deprived of . . .
property without due process of law, nor shall any person be
denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of
Revenue Regulations No. 2-93, argue that public respondents
have exceeded their rule-making authority in applying SNIT to
general professional partnerships.
The Solicitor General espouses the position taken by public
respondents.
The Court has given due course to both petitions. The parties,
in compliance with the Court's directive, have filed their
respective memoranda.

Over P10,000 P300 + 9%but not over P30,000 of excess over

P10,000
Over P30,000 P2,100 + 15%but not over P120,00 of excess
over P30,000
Over P120,000 P15,600 + 20%but not over P350,000 of
excess over P120,000
Over P350,000 P61,600 + 30%of excess over P350,000
Sec. 29. Deductions from gross income. In computing
taxable income subject to tax under Sections 21(a), 24(a), (b)
and (c); and 25 (a)(1), there shall be allowed as deductions the
items specified in paragraphs (a) to (i) of this section: Provided,
however, That in computing taxable income subject to tax
under Section 21 (f) in the case of individuals engaged in
business or practice of profession, only the following direct
costs shall be allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the
course of or pursuant to the business or practice of their
profession;
(c) Telecommunications, electricity, fuel, light and water;

G.R. No. 109289

(d) Business rentals;
Petitioner contends that the title of House Bill No. 34314,
progenitor of Republic Act No. 7496, is a misnomer or, at least,
deficient for being merely entitled, "Simplified Net Income
Taxation Scheme for the Self-Employedand Professionals
Engaged in the Practice of their Profession" (Petition in G.R.
No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme
For The Self-Employed and Professionals Engaged In The
Practice of Their Profession, Amending Sections 21 and 29 of
the National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to,
of the National Internal Revenue Code, as now amended,
provide:
Sec. 21. Tax on citizens or residents.
xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or
Professionals Engaged in the Practice of Profession. A tax
is hereby imposed upon the taxable net income as determined
in Section 27 received during each taxable year from all

(e) Depreciation;
(f) Contributions made to the Government and accredited relief
organizations for the rehabilitation of calamity stricken areas
declared by the President; and
(g) Interest paid or accrued within a taxable year on loans
contracted from accredited financial institutions which must be
proven to have been incurred in connection with the conduct of
a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are
difficult to determine, a maximum of forty per cent (40%) of
their gross receipts shall be allowed as deductions to answer
for business or professional expenses as the case may be.
On the basis of the above language of the law, it would be
difficult to accept petitioner's view that the amendatory law
should be considered as having now adopted a gross income,
instead of as having still retained the net income, taxation
scheme. The allowance for deductible items, it is true, may
have significantly been reduced by the questioned law in
comparison with that which has prevailed prior to the
amendment; limiting, however, allowable deductions from
gross income is neither discordant with, nor opposed to, the
net income tax concept. The fact of the matter is still that

various deductions, which are by no means inconsequential,

continue to be well provided under the new law.
Article VI, Section 26(1), of the Constitution has been
envisioned so as (a) to prevent log-rolling legislation intended
to unite the members of the legislature who favor any one of
unrelated subjects in support of the whole act, (b) to avoid
surprises or even fraud upon the legislature, and (c) to fairly
apprise the people, through such publications of its
proceedings as are usually made, of the subjects of legislation.
1
The above objectives of the fundamental law appear to us to
have been sufficiently met. Anything else would be to require a
virtual compendium of the law which could not have been the
intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the
constitutional requirement that taxation "shall be uniform and
equitable" in that the law would now attempt to tax single
proprietorships and professionals differently from the manner it
imposes the tax on corporations and partnerships. The
contention clearly forgets, however, that such a system of
income taxation has long been the prevailing rule even prior to
Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision vs. Sarmiento,
91 Phil. 371). Uniformity does not forfend classification as long
as: (1) the standards that are used therefor are substantial and
not arbitrary, (2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being equal,
to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class
(Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the
amendatory law is the legislative intent to increasingly shift the
income tax system towards the schedular approach 2 in the
income taxation of individual taxpayers and to maintain, by and
large, the present global treatment 3 on taxable corporations.
We certainly do not view this classification to be arbitrary and
inappropriate.
Petitioner gives a fairly extensive discussion on the merits of
the law, illustrating, in the process, what he believes to be an
imbalance between the tax liabilities of those covered by the
amendatory law and those who are not. With the legislature
primarily lies the discretion to determine the nature (kind),
object (purpose), extent (rate), coverage (subjects) and situs
(place) of taxation. This court cannot freely delve into those
matters which, by constitutional fiat, rightly rest on legislative
judgment. Of course, where a tax measure becomes so
unconscionable and unjust as to amount to confiscation of
property, courts will not hesitate to strike it down, for, despite all
its plenitude, the power to tax cannot override constitutional
proscriptions. This stage, however, has not been demonstrated
to have been reached within any appreciable distance in this
controversy before us.
Having arrived at this conclusion, the plea of petitioner to have
the law declared unconstitutional for being violative of due
process must perforce fail. The due process clause may
correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax
power. No such transgression is so evident to us.

G.R. No. 109446

The several propositions advanced by petitioners revolve
around the question of whether or not public respondents have
exceeded their authority in promulgating Section 6, Revenue
Regulations No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership The general
professional partnership (GPP) and the partners comprising
the GPP are covered by R. A. No. 7496. Thus, in determining
the net profit of the partnership, only the direct costs mentioned
in said law are to be deducted from partnership income. Also,
the expenses paid or incurred by partners in their individual
capacities in the practice of their profession which are not
reimbursed or paid by the partnership but are not considered
as direct cost, are not deductible from his gross income.
The real objection of petitioners is focused on the
administrative interpretation of public respondents that would
apply SNIT to partners in general professional partnerships.
Petitioners cite the pertinent deliberations in Congress during
its enactment of Republic Act No. 7496, also quoted by the
Honorable Hernando B. Perez, minority floor leader of the
House of Representatives, in the latter's privilege speech by
way of commenting on the questioned implementing regulation
of public respondents following the effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct
impression of this bill. Do we speak here of individuals who are
earning, I mean, who earn through business enterprises and
therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply
to corporations. It applies only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15
P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman
from Batangas say that this bill is intended to increase
collections as far as individuals are concerned and to make
collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano
on the Senate version of the SNITS, it is categorically stated,
thus:
This bill, Mr. President, is not applicable to business
corporations or to partnerships; it is only with respect to
individuals and professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent
misconception that general professional partnerships are
subject to the payment of income tax or that there is a
difference in the tax treatment between individuals engaged in
business or in the practice of their respective professions and

partners in general professional partnerships. The fact of the

matter is that a general professional partnership, unlike an
ordinary business partnership (which is treated as a
corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The
income tax is imposed not on the professional partnership,
which is tax exempt, but on the partners themselves in their
individual capacity computed on their distributive shares of
partnership profits. Section 23 of the Tax Code, which has not
been amended at all by Republic Act 7496, is explicit:

above categorization, are by law assimilated to be within the

context of, and so legally contemplated as, corporations.
Except for few variances, such as in the application of the
"constructive receipt rule" in the derivation of income, the
income tax approach is alike to both juridical persons.
Obviously, SNIT is not intended or envisioned, as so correctly
pointed out in the discussions in Congress during its
deliberations on Republic Act 7496, aforequoted, to cover
corporations and partnerships which are independently subject
to the payment of income tax.

Sec. 23. Tax liability of members of general professional

partnerships. (a) Persons exercising a common profession
in general partnership shall be liable for income tax only in their
individual capacity, and the share in the net profits of the
general professional partnership to which any taxable partner
would be entitled whether distributed or otherwise, shall be
returned for taxation and the tax paid in accordance with the
provisions of this Title.

"Exempt partnerships," upon the other hand, are not similarly

identified as corporations nor even considered as independent
taxable entities for income tax purposes. A general
professional partnership is such an example. 4 Here, the
partners themselves, not the partnership (although it is still
obligated to file an income tax return [mainly for administration
and data]), are liable for the payment of income tax in their
individual capacity computed on their respective and
distributive shares of profits. In the determination of the tax
liability, a partner does so as an individual, and there is no
choice on the matter. In fine, under the Tax Code on income
taxation, the general professional partnership is deemed to be
no more than a mere mechanism or a flow-through entity in the
generation of income by, and the ultimate distribution of such
income to, respectively, each of the individual partners.

(b) In determining his distributive share in the net income of the

partnership, each partner
(1) Shall take into account separately his distributive share of
the partnership's income, gain, loss, deduction, or credit to the
extent provided by the pertinent provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions,
unless he declares his distributive share of the gross income
undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability
between a person who practices his profession alone or
individually and one who does it through partnership (whether
registered or not) with others in the exercise of a common
profession. Indeed, outside of the gross compensation income
tax and the final tax on passive investment income, under the
present income tax system all individuals deriving income from
any source whatsoever are treated in almost invariably the
same manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if
perhaps we were to consider Republic Act No. 7496 as an
entirely independent, not merely as an amendatory, piece of
legislation. The view can easily become myopic, however,
when the law is understood, as it should be, as only forming
part of, and subject to, the whole income tax concept and
precepts long obtaining under the National Internal Revenue
Code. To elaborate a little, the phrase "income taxpayers" is an
all embracing term used in the Tax Code, and it practically
covers all persons who derive taxable income. The law, in
levying the tax, adopts the most comprehensive tax situs of
nationality and residence of the taxpayer (that renders citizens,
regardless of residence, and resident aliens subject to income
tax liability on their income from all sources) and of the
generally accepted and internationally recognized income
taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine
sources). In the process, the Code classifies taxpayers into
four main groups, namely: (1) Individuals, (2) Corporations, (3)
Estates under Judicial Settlement and (4) Irrevocable Trusts
(irrevocable both as to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships"
or "exempt partnerships." Ordinarily, partnerships, no matter
how created or organized, are subject to income tax (and thus
alluded to as "taxable partnerships") which, for purposes of the

Section 6 of Revenue Regulation No. 2-93 did not alter, but

merely confirmed, the above standing rule as now so modified
by Republic ActNo. 7496 on basically the extent of allowable
deductions applicable to all individual income taxpayers on
their non-compensation income. There is no evident intention
of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the
income tax treatment of professionals who practice their
respective professions individually and of those who do it
through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
SO ORDERED.

EN BANC
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners, vs.THE HONORABLE EXECUTIVE
SECRETARY
EDUARDO
ERMITA;
HONORABLE
SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF
INTERNAL REVENUE GUILLERMO PARAYNO, JR.,
Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITOESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON,
ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R.
OSMEA III, Petitioners, vs.EXECUTIVE SECRETARY
EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY

OF
FINANCE,
GUILLERMO
L.
PARAYNO,
JR.,
COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.
represented by its President, ROSARIO ANTONIO; PETRON
DEALERS ASSOCIATION represented by its President, RUTH
E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE
PHILIPPINES represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under the name
and style of "ANB NORTH SHELL SERVICE STATION";
LOURDES MARTINEZ doing business under the name and
style of "SHELL GATE N. DOMINGO"; BETHZAIDA TAN
doing business under the name and style of "ADVANCE
SHELL STATION"; REYNALDO P. MONTOYA doing business
under the name and style of "NEW LAMUAN SHELL SERVICE
STATION"; EFREN SOTTO doing business under the name
and style of "RED FIELD SHELL SERVICE STATION";
DONICA CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business under the
name and style of "R&R PETRON STATION"; PETER M.
UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN
SHEILA A. LEE doing business under the name and style of
"NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAEBO
doing business under the name and style of "CMA
MOTORISTS CENTER"; SUSAN M. ENTRATA doing business
under the name and style of "LEONAS GASOLINE STATION
and SERVICE CENTER"; CARMELITA BALDONADO doing
business under the name and style of "FIRST CHOICE
SERVICE CENTER"; MERCEDITAS A. GARCIA doing
business under the name and style of "LORPED SERVICE
CENTER"; RHEAMAR A. RAMOS doing business under the
name and style of "RJRAM PTT GAS STATION"; MA. ISABEL
VIOLAGO doing business under the name and style of
"VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART
CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS
HARVARD CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; MOTORISTS
HERITAGE CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE
STANDARD OIL CORPORATION represented by its VicePresident for Operations, JOSELITO F. FLORDELIZA;
ROMEO MANUEL doing business under the name and style of
"ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ
III doing business under the name and style of "TRUE
SERVICE STATION", Petitioners, vs.CESAR V. PURISIMA, in
his capacity as Secretary of the Department of Finance
and GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, Respondent.

S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A.

SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C.
LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A.
CASIO, Petitioners, vs.CESAR V. PURISIMA, in his
capacity as Secretary of Finance, GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue, and EDUARDO R. ERMITA, in his
capacity as Executive Secretary, Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs. HON. EDUARDO R. ERMITA, in his capacity as the
Executive Secretary; HON. MARGARITO TEVES, in his
capacity as Secretary of Finance; HON. JOSE MARIO
BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON. ALEXANDER
AREVALO, in his capacity as the OIC Commissioner of the
Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the
interest of all, should be borne by everyone, and the more man
enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal
allocation for education, increased emoluments for health
workers, and wider coverage for full value-added tax benefits
these are the reasons why Republic Act No. 9337 (R.A. No.
9337)1 was enacted. Reasons, the wisdom of which, the Court
even with its extensive constitutional power of review, cannot
probe. The petitioners in these cases, however, question not
only the wisdom of the law, but also perceived constitutional
infirmities in its passage.
Every law enjoys in its favor the presumption of
constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence,
R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills
namely, House Bill Nos. 3555 and 3705, and Senate Bill No.
1950.

x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,
EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN,
BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV

House Bill No. 35552 was introduced on first reading on

January 7, 2005. The House Committee on Ways and Means
approved the bill, in substitution of House Bill No. 1468, which
Representative (Rep.) Eric D. Singson introduced on August 8,
2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of
Representatives approved the bill on second and third reading.

House Bill No. 37053 on the other hand, substituted House Bill
No. 3105 introduced by Rep. Salacnib F. Baterina, and House
Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother
bill" is House Bill No. 3555. The House Committee on Ways
and Means approved the bill on February 2, 2005. The
President also certified it as urgent on February 8, 2005. The
House of Representatives approved the bill on second and
third reading on February 28, 2005.

Executive Order that granted the Petroleum companies some

subsidy . . . interrupted

Meanwhile, the Senate Committee on Ways and Means

approved Senate Bill No. 19504 on March 7, 2005, "in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking
into consideration House Bill Nos. 3555 and 3705." Senator
Ralph G. Recto sponsored Senate Bill No. 1337, while Senate
Bill Nos. 1838 and 1873 were both sponsored by Sens.
Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan.
The President certified the bill on March 11, 2005, and was
approved by the Senate on second and third reading on April
13, 2005.

J. PANGANIBAN : . . . mitigating measures . . .

On the same date, April 13, 2005, the Senate agreed to the
request of the House of Representatives for a committee
conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing
Provisions of House Bill No. 3555, House Bill No. 3705, and
Senate Bill No. 1950, "after having met and discussed in full
free and conference," recommended the approval of its report,
which the Senate did on May 10, 2005, and with the House of
Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House
and Senate version was transmitted to the President, who
signed the same into law on May 24, 2005. Thus, came R.A.
No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said
date came, the Court issued a temporary restraining order,
effective immediately and continuing until further orders,
enjoining respondents from enforcing and implementing the
law.
Oral arguments were held on July 14, 2005. Significantly,
during the hearing, the Court speaking through Mr. Justice
Artemio V. Panganiban, voiced the rationale for its issuance of
the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your
presentation, let me just tell you a little background. You know
when the law took effect on July 1, 2005, the Court issued a
TRO at about 5 oclock in the afternoon. But before that, there
was a lot of complaints aired on television and on radio. Some
people in a gas station were complaining that the gas prices
went up by 10%. Some people were complaining that their
electric bill will go up by 10%. Other times people riding in
domestic air carrier were complaining that the prices that theyll
have to pay would have to go up by 10%. While all that was
being aired, per your presentation and per our own
understanding of the law, thats not true. Its not true that the evat law necessarily increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an

J. PANGANIBAN : Thats correct . . .

ATTY. BANIQUED : . . . and therefore that was meant to
temper the impact . . . interrupted

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : As a matter of fact a part of the mitigating
measures would be the elimination of the Excise Tax and the
import duties. That is why, it is not correct to say that the VAT
as to petroleum dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for
increasing the retail price by 10% to cover the E-Vat tax. If you
consider the excise tax and the import duties, the Net Tax
would probably be in the neighborhood of 7%? We are not
going into exact figures I am just trying to deliver a point that
different industries, different products, different services are hit
differently. So its not correct to say that all prices must go up
by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline
companies, Mr. Counsel, are at present imposed a Sales Tax
of 3%. When this E-Vat law took effect the Sales Tax was also
removed as a mitigating measure. So, therefore, there is no
justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people
were complaining on that first day, were being increased
arbitrarily by 10%. And thats one reason among many others
this Court had to issue TRO because of the confusion in the
implementation. Thats why we added as an issue in this case,
even if its tangentially taken up by the pleadings of the parties,
the confusion in the implementation of the E-vat. Our people
were subjected to the mercy of that confusion of an across the
board increase of 10%, which you yourself now admit and I
think even the Government will admit is incorrect. In some
cases, it should be 3% only, in some cases it should be 6%
depending on these mitigating measures and the location and
situation of each product, of each service, of each company,
isnt it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So thats one reason why we had to
issue a TRO pending the clarification of all these and we wish
the government will take time to clarify all these by means of a
more detailed implementing rules, in case the law is upheld by
this Court. . . .6
The Court also directed the parties to file their respective
Memoranda.

G.R. No. 168056

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

by the Association of Pilipinas Shell Dealers, Inc., et al.,

assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition, excluding
the VAT components, exceeds One Million Pesos (P1,
000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing
a 70% limit on the amount of input tax to be credited against
the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, to deduct a
5% final withholding tax on gross payments of goods and
services, which are subject to 10% VAT under Sections 106
(sale of goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional
for being arbitrary, oppressive, excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of
non-deprivation of life, liberty or property without due process
of law under Article III, Section 1 of the Constitution. According
to petitioners, the contested sections impose limitations on the
amount of input tax that may be claimed. Petitioners also argue
that the input tax partakes the nature of a property that may not
be confiscated, appropriated, or limited without due process of
law. Petitioners further contend that like any other property or
property right, the input tax credit may be transferred or
disposed of, and that by limiting the same, the government
gets to tax a profit or value-added even if there is no profit or
value-added.
Petitioners also believe that these provisions violate the
constitutional guarantee of equal protection of the law under
Article III, Section 1 of the Constitution, as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input tax;
or (2) invests in capital equipment; or (3) has several
transactions with the government, is not based on real and
substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but
progressive, violative of Article VI, Section 28(1) of the
Constitution, and that it is the smaller businesses with higher
input tax to output tax ratio that will suffer the consequences
thereof for it wipes out whatever meager margins the
petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep.
Francis Joseph G. Escudero filed this petition for certiorari on
June 30, 2005. They question the constitutionality of R.A. No.
9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue
delegation of legislative power, in violation of Article VI, Section
28(2) of the Constitution;

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005,

2) The Bicameral Conference Committee acted without

jurisdiction in deleting the no pass on provisions present in

Senate Bill No. 1950 and House Bill No. 3705; and

Constitution:

3) Insertion by the Bicameral Conference Committee of

Sections 27, 28, 34, 116, 117, 119, 121, 125, 7 148, 151, 236,
237 and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which
provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives

a. Article VI, Section 24, and

G.R. No. 168730

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending

Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:

On the eleventh hour, Governor Enrique T. Garcia filed a

petition for certiorari and prohibition on July 20, 2005, alleging
unconstitutionality of the law on the ground that the limitation
on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be
solely allocated for public purposes and expenditures.
Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is
inequitable, in violation of Article VI, Section 28(1) of the
Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in
behalf of respondents. Preliminarily, respondents contend that
R.A. No. 9337 enjoys the presumption of constitutionality and
petitioners failed to cast doubt on its validity.

b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT

Relying on the case of Tolentino vs. Secretary of Finance, 235

SCRA

As a prelude, the Court deems it apt to restate the general

principles and concepts of value-added tax (VAT), as the
confusion and inevitably, litigation, breeds from a fallacious
notion of its nature.

630 (1994), respondents argue that the procedural issues

raised by petitioners, i.e., legality of the bicameral proceedings,
exclusive origination of revenue measures and the power of
the Senate concomitant thereto, have already been settled.
With regard to the issue of undue delegation of legislative
power to the President, respondents contend that the law is
complete and leaves no discretion to the President but to
increase the rate to 12% once any of the two conditions
provided therein arise.

The VAT is a tax on spending or consumption. It is levied on

the sale, barter, exchange or lease of goods or properties and
services.8 Being an indirect tax on expenditure, the seller of
goods or services may pass on the amount of tax paid to the
buyer,9 with the seller acting merely as a tax collector.10 The
burden of VAT is intended to fall on the immediate buyers and
ultimately, the end-consumers.

Respondents also refute petitioners argument that the

increase to 12%, as well as the 70% limitation on the creditable
input tax, the 60-month amortization on the purchase or
importation of capital goods exceeding P1,000,000.00, and the
5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor
of the governments fiscal reform agenda. A reform in the
value-added system of taxation is the core revenue measure
that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.
ISSUES

In contrast, a direct tax is a tax for which a taxpayer is directly

liable on the transaction or business it engages in, without
transferring the burden to someone else. 11 Examples are
individual and corporate income taxes, transfer taxes, and
residence taxes.12
In the Philippines, the value-added system of sales taxation
has long been in existence, albeit in a different mode. Prior to
1978, the system was a single-stage tax computed under the
"cost deduction method" and was payable only by the original
sellers. The single-stage system was subsequently modified,
and a mixture of the "cost deduction method" and "tax credit
method" was used to determine the value-added tax payable. 13
Under the "tax credit method," an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.14

PROCEDURAL ISSUE

It was only in 1987, when President Corazon C. Aquino issued

Executive Order No. 273, that the VAT system was rationalized
by imposing a multi-stage tax rate of 0% or 10% on all sales
using the "tax credit method."15

Whether R.A. No. 9337 violates the following provisions of the

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded

The Court defined the issues, as follows:

VAT Law,16 R.A. No. 8241 or the Improved VAT Law,17 R.A. No.
8424 or the Tax Reform Act of 1997,18 and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as
the VAT Reform Act.

they materially impair the House Bill, the panel shall report
such fact to the House for the latters appropriate action.

The Court will now discuss the issues in logical sequence.

Sec. 89. Conference Committee Reports. . . . Each report

shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure.

PROCEDURAL ISSUE

...

I.

The Chairman of the House panel may be interpellated on the

Conference Committee Report prior to the voting thereon. The
House shall vote on the Conference Committee Report in the
same manner and procedure as it votes on a bill on third and
final reading.

Whether R.A. No. 9337 violates the following provisions of the

Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the
Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in
Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the
House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount
of input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill
No. 1950 regarding other kinds of taxes in addition to the
value-added tax.
Petitioners now beseech the Court to define the powers of the
Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation
and discipline are intrinsic in any legislative body for, as
unerringly elucidated by Justice Story, "[i]f the power did not
exist, it would be utterly impracticable to transact the
business of the nation, either at all, or at least with
decency, deliberation, and order."19 Thus, Article VI, Section
16 (3) of the Constitution provides that "each House may
determine the rules of its proceedings." Pursuant to this
inherent constitutional power to promulgate and implement its
own rules of procedure, the respective rules of each house of
Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House
does not agree with the Senate on the amendment to any bill
or joint resolution, the differences may be settled by the
conference committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House
Bill. If the differences with the Senate are so substantial that

Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the
House of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten (10)
days after their composition. The President shall designate the
members of the Senate Panel in the conference committee
with the approval of the Senate.
Each Conference Committee Report shall contain a detailed
and sufficiently explicit statement of the changes in, or
amendments to the subject measure, and shall be signed by a
majority of the members of each House panel, voting
separately.
A comparative presentation of the conflicting House and
Senate provisions and a reconciled version thereof with the
explanatory statement of the conference committee shall be
attached to the report.
...
The creation of such conference committee was apparently in
response to a problem, not addressed by any constitutional
provision, where the two houses of Congress find themselves
in disagreement over changes or amendments introduced by
the other house in a legislative bill. Given that one of the most
basic powers of the legislative branch is to formulate and
implement its own rules of proceedings and to discipline its
members, may the Court then delve into the details of how
Congress complies with its internal rules or how it conducts its
business of passing legislation? Note that in the present
petitions, the issue is not whether provisions of the rules of
both houses creating the bicameral conference committee are
unconstitutional, but whether the bicameral conference
committee has strictly complied with the rules of both
houses, thereby remaining within the jurisdiction
conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20
the Court En Banc, unanimously reiterated and emphasized
its adherence to the "enrolled bill doctrine," thus, declining
therein petitioners plea for the Court to go behind the enrolled
copy of the bill. Assailed in said case was Congresss creation
of two sets of bicameral conference committees, the lack of
records of said committees proceedings, the alleged violation
of said committees of the rules of both houses, and the
disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference
committee. It was argued that such irregularities in the

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

question is not covered by any constitutional provision

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

House Bill No

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

Provides for 12% VAT on every sale of goods or
properties (amending Sec. 106 of NIRC); 12% VAT
on importation of goods (amending Sec. 107 of
NIRC); and 12% VAT on sale of services and use
or lease of properties (amending Sec. 108 of NIRC)

Provides for 1
properties an
manufactured
materials to
(amending Se
of goods an
products inclu
107 of NIRC);
or lease of p
services inclu
108 of NIRC)

With regard to the "no pass-on" provision

No similar provision

Provides that
on the sale o
generation co
not be passed

With regard to 70% limit on input tax credit

Provides that the input tax credit for capital goods
on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of
such capital goods; the input tax credit for goods
and services other than capital goods shall not
exceed 5% of the total amount of such goods and
services; and for persons engaged in retail trading
of goods, the allowable input tax credit shall not
exceed 11% of the total amount of goods
purchased.

No similar pro

With regard to amendments to be made to NIRC provisions regarding

No similar provision

No similar pro

The disagreements between the provisions in the House bills

and the Senate bill were with regard to (1) what rate of VAT is
to be imposed; (2) whether only the VAT imposed on electricity
generation, transmission and distribution companies should not
be passed on to consumers, as proposed in the Senate bill, or
both the VAT imposed on electricity generation, transmission
and distribution companies and the VAT imposed on sale of
petroleum products should not be passed on to consumers, as
proposed in the House bill; (3) in what manner input tax credits
should be limited; (4) and whether the NIRC provisions on
corporate income taxes, percentage, franchise and excise
taxes should be amended.
There being differences and/or disagreements on the foregoing
provisions of the House and Senate bills, the Bicameral
Conference Committee was mandated by the rules of both
houses of Congress to act on the same by settling said
differences and/or disagreements. The Bicameral Conference
Committee acted on the disagreeing provisions by making the
following changes:

VAT shall be spread over such shorter period: . . .

(B) Excess Output or Input Tax. If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax exceeds
the output tax, the excess shall be carried over to the
succeeding quarter or quarters: PROVIDED that the input tax
inclusive of input VAT carried over from the previous quarter
that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: PROVIDED, HOWEVER,
THAT any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or credited
against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the
NIRC on corporate income tax, franchise, percentage and
excise taxes, the conference committee decided to include
such amendments and basically adopted the provisions found
in Senate Bill No. 1950, with some changes as to the rate of
the tax to be imposed.

1. With regard to the disagreement on the rate of VAT to be

imposed, it would appear from the Conference Committee
Report that the Bicameral Conference Committee tried to
bridge the gap in the difference between the 10% VAT rate
proposed by the Senate, and the various rates with 12% as the
highest VAT rate proposed by the House, by striking a
compromise whereby the present 10% VAT rate would be
retained until certain conditions arise, i.e., the value-added tax
collection as a percentage of gross domestic product (GDP) of
the previous year exceeds 2 4/5%, or National Government
deficit as a percentage of GDP of the previous year exceeds
1%, when the President, upon recommendation of the
Secretary of Finance shall raise the rate of VAT to 12%
effective January 1, 2006.

Under the provisions of both the Rules of the House of

Representatives and Senate Rules, the Bicameral Conference
Committee is mandated to settle the differences between the
disagreeing provisions in the House bill and the Senate bill.
The term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing
provisions, the Bicameral Conference Committee may then (a)
adopt the specific provisions of either the House bill or Senate
bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would

2. With regard to the disagreement on whether only the VAT

imposed on electricity generation, transmission and distribution
companies should not be passed on to consumers or whether
both the VAT imposed on electricity generation, transmission
and distribution companies and the VAT imposed on sale of
petroleum products may be passed on to consumers, the
Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no
pass-on provision.

In the present case, the changes introduced by the Bicameral

Conference Committee on disagreeing provisions were meant
only to reconcile and harmonize the disagreeing provisions for
it did not inject any idea or intent that is wholly foreign to the
subject embraced by the original provisions.

3. With regard to the disagreement on whether input tax credits

should be limited or not, the Bicameral Conference Committee
decided to adopt the position of the House by putting a
limitation on the amount of input tax that may be credited
against the output tax, although it crafted its own language as
to the amount of the limitation on input tax credits and the
manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a
calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds
one million Pesos (P1,000,000.00): PROVIDED, however, that
if the estimated useful life of the capital good is less than five
(5) years, as used for depreciation purposes, then the input

be carried into the final form of the bill, and/or (c) try to arrive at
a compromise between the disagreeing provisions.

The so-called stand-by authority in favor of the President,

whereby the rate of 10% VAT wanted by the Senate is retained
until such time that certain conditions arise when the 12% VAT
wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT
proposed by the two houses of Congress. Nevertheless, such
compromise is still totally within the subject of what rate of VAT
should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the
transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto,
Chairman of the Senate Panel, explained the reason for
deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill
simple. And we were thinking that no sector should be a
beneficiary of legislative grace, neither should any sector be
discriminated on. The VAT is an indirect tax. It is a pass ontax. And lets keep it plain and simple. Lets not confuse the bill
and put a no pass-on provision. Two-thirds of the world have a
VAT system and in this two-thirds of the globe, I have yet to
see a VAT with a no pass-though provision. So, the thinking of
the Senate is basically simple, lets keep the VAT simple.26
(Emphasis supplied)

Rep. Teodoro Locsin further made the manifestation that the

no pass-on provision "never really enjoyed the support of either
House."27
With regard to the amount of input tax to be credited against
output tax, the Bicameral Conference Committee came to a
compromise on the percentage rate of the limitation or cap on
such input tax credit, but again, the change introduced by the
Bicameral Conference Committee was totally within the intent
of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the
subject revenue bill in the House of Representatives, one of
the major objectives was to "plug a glaring loophole in the tax
policy and administration by creating vital restrictions on the
claiming of input VAT tax credits . . ." and "[b]y introducing
limitations on the claiming of tax credit, we are capping a major
leakage that has placed our collection efforts at an apparent
disadvantage."28
As to the amendments to NIRC provisions on taxes other than
the value-added tax proposed in Senate Bill No. 1950, since
said provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the
version of the Senate.
Thus, all the changes or modifications made by the Bicameral
Conference Committee were germane to subjects of the
provisions referred
to it for reconciliation. Such being the case, the Court does not
see any grave abuse of discretion amounting to lack or excess
of jurisdiction committed by the Bicameral Conference
Committee. In the earlier cases of Philippine Judges
Association vs. Prado29 and Tolentino vs. Secretary of
Finance,30 the Court recognized the long-standing legislative
practice of giving said conference committee ample latitude for
compromising differences between the Senate and the House.
Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include
in its report an entirely new provision that is not found either in
the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions,
there is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the
subject of the bills before the committee. After all, its report
was not final but needed the approval of both houses of
Congress to become valid as an act of the legislative
department. The charge that in this case the Conference
Committee acted as a third legislative chamber is thus
without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of
the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it
has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its
Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading
of a bill, no amendment thereto shall be allowed, and the vote

thereon shall be taken immediately thereafter, and the yeas

and nays entered in the Journal.
Petitioners argument that the practice where a bicameral
conference committee is allowed to add or delete provisions in
the House bill and the Senate bill after these had passed three
readings is in effect a circumvention of the "no amendment
rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to
convince the Court to deviate from its ruling in the Tolentino
case that:
Nor is there any reason for requiring that the Committees
Report in these cases must have undergone three readings in
each of the two houses. If that be the case, there would be no
end to negotiation since each house may seek modification of
the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. 32
(Emphasis supplied)
The Court reiterates here that the "no-amendment rule"
refers only to the procedure to be followed by each house
of Congress with regard to bills initiated in each of said
respective houses, before said bill is transmitted to the
other house for its concurrence or amendment. Verily, to
construe said provision in a way as to proscribe any further
changes to a bill after one house has voted on it would lead to
absurdity as this would mean that the other house of Congress
would be deprived of its constitutional power to amend or
introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by
the Bicameral Conference Committee of amendments and
modifications to disagreeing provisions in bills that have been
acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the
Constitution on Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made
regarding the NIRC provisions on corporate income taxes and
percentage, excise taxes. Petitioners refer to the following
provisions, to wit:
Section 27

Rates of Income Tax on Domestic Corporation

28(A)(1)

Tax on Resident Foreign Corporation

28(B)(1)

Inter-corporate Dividends

34(B)(1)

Inter-corporate Dividends

116

Tax on Persons Exempt from VAT

117

Percentage Tax on domestic carriers and keepers

119

Tax on franchises

121

Tax on banks and Non-Bank Financial Intermedia

148

Excise Tax on manufactured oils and other fuels

make the House superior to the Senate.

151

Excise Tax on mineral products

236

Registration requirements

237

Given, then, the power of the Senate to propose

amendments, the Senate can propose its own version
even with respect to bills which are required by the
Constitution to originate in the House.
Issuance of receipts or sales or commercial invoices

288

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of

the NIRC did not at all originate from the House. They aver that
House Bill No. 3555 proposed amendments only regarding
Sections 106, 107, 108, 110 and 114 of the NIRC, while House
Bill No. 3705 proposed amendments only to Sections 106,
107,108, 109, 110 and 111 of the NIRC; thus, the other
sections of the NIRC which the Senate amended but which
amendments were not found in the House bills are not
intended to be amended by the House of Representatives.
Hence, they argue that since the proposed amendments did
not originate from the House, such amendments are a violation
of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with
amendments.
In the present cases, petitioners admit that it was indeed
House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to the
Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the
value-added tax but also amendments to NIRC provisions on
other kinds of taxes. Is the introduction by the Senate of
provisions not dealing directly with the value- added tax, which
is the only kind of tax being amended in the House bills, still
within the purview of the constitutional provision authorizing the
Senate to propose or concur with amendments to a revenue
bill that originated from the House?
The foregoing question had been squarely answered in the
Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which
is required by the Constitution to "originate exclusively" in the
House of Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a
rewriting of the whole. . . . At this point, what is important to
note is that, as a result of the Senate action, a distinct bill may
be produced. To insist that a revenue statute and not only
the bill which initiated the legislative process culminating
in the enactment of the law must substantially be the
same as the House bill would be to deny the Senates
power not only to "concur with amendments" but also to
"propose amendments." It would be to violate the coequality
of legislative power of the two houses of Congress and in fact

...
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff or tax bills, bills authorizing an increase
of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of
the House can be expected to be more sensitive to the
local needs and problems. On the other hand, the
senators, who are elected at large, are expected to
approach the same problems from the national
perspective. Both views are thereby made to bear on the
enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was
acting within its
constitutional power to introduce amendments to the House bill
when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, excise and franchise
taxes. Verily, Article VI, Section 24 of the Constitution does not
contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the
House revenue bill.
Furthermore, the amendments introduced by the Senate to the
NIRC provisions that had not been touched in the House bills
are still in furtherance of the intent of the House in initiating the
subject revenue bills. The Explanatory Note of House Bill No.
1468, the very first House bill introduced on the floor, which
was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is
the urgent and daunting task of solving the countrys serious
financial problems. To do this, government expenditures must
be strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but
our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact,
several measures that will result to significant expenditure
savings have been identified by the administration. It is
supported with a credible package of revenue measures
that include measures to improve tax administration and
control the leakages in revenues from income taxes and
the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill
No. 3555, declared that:
In the budget message of our President in the year 2005, she
reiterated that we all acknowledged that on top of our agenda
must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector
deficit and eventually achieve a balanced budget by the year

2009, we need to seize windows of opportunities which

might seem poignant in the beginning, but in the long run
prove effective and beneficial to the overall status of our
economy. One such opportunity is a review of existing tax
rates, evaluating the relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from
the House of Representatives is to bring in sizeable revenues
for the government
to supplement our countrys serious financial problems, and
improve tax administration and control of the leakages in
revenues from income taxes and value-added taxes. As these
house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national
perspective, can introduce amendments within the purposes of
those bills. It can provide for ways that would soften the impact
of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the
shoulders of the consumers. The sponsorship speech of Sen.
Ralph Recto on why the provisions on income tax on
corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and
Means will raise P64.3 billion in additional revenues annually
even while by mitigating prices of power, services and
petroleum products.
However, not all of this will be wrung out of VAT. In fact, only
P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab P10.5 billion- will be picked by
corporations.
What we therefore prescribe is a burden sharing between
corporate Philippines and the consumer. Why should the latter
bear all the pain? Why should the fiscal salvation be only on
the burden of the consumer?
The corporate worlds equity is in form of the increase in the
corporate income tax from 32 to 35 percent, but up to 2008
only. This will raise P10.5 billion a year. After that, the rate will
slide back, not to its old rate of 32 percent, but two notches
lower, to 30 percent.
Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will be
in effect for 1,200 days, while we put our fiscal house in order.
This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We
intend to keep the length of their sacrifice brief. We would like
to assure them that not because there is a light at the end of
the tunnel, this government will keep on making the tunnel
long.
The responsibility will not rest solely on the weary shoulders of
the small man. Big business will be there to share the burden.35
As the Court has said, the Senate can propose amendments
and in fact, the amendments made on provisions in the tax on
income of corporations are germane to the purpose of the
house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other

percentage and excise taxes germane to the reforms to the

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

SEC. 4. Sec. 106 of the same Code, as amended, is hereby

further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed
and collected on every sale, barter or exchange of goods or
properties, a value-added tax equivalent to ten percent (10%)
of the gross selling price or gross value in money of the goods
or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor: provided, that the President, upon
the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1
%).
SEC. 5. Section 107 of the same Code, as amended, is hereby
further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected
on every importation of goods a value-added tax equivalent to
ten percent (10%) based on the total value used by the Bureau
of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such
goods from customs custody: Provided, That where the
customs duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be based on
the landed cost plus excise taxes, if any: provided, further,
that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%) after
any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1
%).
SEC. 6. Section 108 of the same Code, as amended, is hereby
further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed
and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of
services: provided, that the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following

conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1
%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the
President to increase the VAT rate is a virtual abdication by
Congress of its exclusive power to tax because such
delegation is not within the purview of Section 28 (2), Article VI
of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within
specified limits, and may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the government.
They argue that the VAT is a tax levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services, which cannot be included within the
purview of tariffs under the exempted delegation as the latter
refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on goods
or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend
that delegating to the President the legislative power to tax is
contrary to republicanism. They insist that accountability,
responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also
effectively nullified the Presidents power of control, which
includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the
fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample
powers to cause, influence or create the conditions provided by
the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and
revolting the situation that the imposition of the 12% rate would
be subject to the whim of the Secretary of Finance, an
unelected bureaucrat, contrary to the principle of no taxation
without representation. They submit that the Secretary of
Finance is not mandated to give a favorable recommendation
and he may not even give his recommendation. Moreover, they
allege that no guiding standards are provided in the law on
what basis and as to how he will make his recommendation.
They claim, nonetheless, that any recommendation of the
Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter,
such that, ultimately, it is the President who decides whether to
impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers
is instructive.
The principle of separation of powers ordains that each of the
three great branches of government has exclusive cognizance

of and is supreme in matters falling within its own

constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle
of non-delegation of powers, as expressed in the Latin maxim:
potestas delegata non delegari potest which means "what has
been delegated, cannot be delegated."38 This doctrine is based
on the ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and
not through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the
Constitution provides that "the Legislative power shall be
vested in the Congress of the Philippines which shall consist of
a Senate and a House of Representatives." The powers which
Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been
described as the authority to make a complete law
complete as to the time when it shall take effect and as to
whom it shall be applicable and to determine the
expediency of its enactment.40 Thus, the rule is that in order
that a court may be justified in holding a statute
unconstitutional as a delegation of legislative power, it must
appear that the power involved is purely legislative in nature
that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of
its use or the manner of its exercise, which determines the
validity of its delegation.
Nonetheless, the general rule barring delegation of legislative
powers is subject to the following recognized limitations or
exceptions:
(1) Delegation of tariff powers to the President under Section
28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under
Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a
showing that the delegation itself is valid. It is valid only if the
law (a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate;41 and
(b) fixes a standard the limits of which are sufficiently
determinate and determinable to which the delegate must
conform in the performance of his functions.42 A sufficient
standard is one which defines legislative policy, marks its
limits, maps out its boundaries and specifies the public agency
to apply it. It indicates the circumstances under which the
legislative command is to be effected.43 Both tests are intended
to prevent a total transference of legislative authority to the
delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose
P. Laurel, expounded on the concept and extent of delegation
of power in this wise:

In testing whether a statute constitutes an undue delegation of

legislative power or not, it is usual to inquire whether the
statute was complete in all its terms and provisions when it left
the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature.
...
The true distinction, says Judge Ranney, is between the
delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring
an authority or discretion as to its execution, to be
exercised under and in pursuance of the law. The first
cannot be done; to the latter no valid objection can be
made.
...
It is contended, however, that a legislative act may be made to
the effect as law after it leaves the hands of the legislature. It is
true that laws may be made effective on certain contingencies,
as by proclamation of the executive or the adoption by the
people of a particular community. In Wayman vs. Southard, the
Supreme Court of the United States ruled that the legislature
may delegate a power not legislative which it may itself
rightfully exercise. The power to ascertain facts is such a
power which may be delegated. There is nothing
essentially legislative in ascertaining the existence of
facts or conditions as the basis of the taking into effect of
a law. That is a mental process common to all branches of
the government. Notwithstanding the apparent tendency,
however, to relax the rule prohibiting delegation of legislative
authority on account of the complexity arising from social and
economic forces at work in this modern industrial age, the
orthodox pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in
the following language speaking of declaration of legislative
power to administrative agencies: The principle which
permits the legislature to provide that the administrative
agent may determine when the circumstances are such as
require the application of a law is defended upon the
ground that at the time this authority is granted, the rule of
public policy, which is the essence of the legislative act, is
determined by the legislature. In other words, the
legislature, as it is its duty to do, determines that, under
given circumstances, certain executive or administrative
action is to be taken, and that, under other circumstances,
different or no action at all is to be taken. What is thus left
to the administrative official is not the legislative
determination of what public policy demands, but simply
the ascertainment of what the facts of the case require to
be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but
the ascertainment of the contingency upon which the Act
shall take effect may be left to such agencies as it may
designate. The legislature, then, may provide that a law
shall take effect upon the happening of future specified
contingencies leaving to some other person or body the
power to determine when the specified contingency has
arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the
Constitution to make laws and to alter and repeal them; the

test is the completeness of the statute in all its terms and

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

power. It is simply a delegation of ascertainment of facts upon

which enforcement and administration of the increase rate
under the law is contingent. The legislature has made the
operation of the 12% rate effective January 1, 2006, contingent
upon a specified fact or condition. It leaves the entire operation
or non-operation of the 12% rate upon factual matters outside
of the control of the executive.
No discretion would be exercised by the President. Highlighting
the absence of discretion is the fact that the word shall is used
in the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of discretion.53
Where the law is clear and unambiguous, it must be taken to
mean exactly what it says, and courts have no choice but to
see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the
conditions specified by Congress. This is a duty which cannot
be evaded by the President. Inasmuch as the law specifically
uses the word shall, the exercise of discretion by the President
does not come into play. It is a clear directive to impose the
12% VAT rate when the specified conditions are present. The
time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or
body other than the legislature itself.
The Court finds no merit to the contention of petitioners
ABAKADA GURO Party List, et al. that the law effectively
nullified the Presidents power of control over the Secretary of
Finance by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of
Finance. The Court cannot also subscribe to the position of
petitioners
Pimentel, et al. that the word shall should be interpreted to
mean may in view of the phrase "upon the recommendation of
the Secretary of Finance." Neither does the Court find
persuasive the submission of petitioners Escudero, et al. that
any recommendation by the Secretary of Finance can easily be
brushed aside by the President since the former is a mere alter
ego of the latter.
When one speaks of the Secretary of Finance as the alter ego
of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the
Chief Executive. The multifarious executive and administrative
functions of the Chief Executive are performed by and through
the executive departments, and the acts of the secretaries of
such departments, such as the Department of Finance,
performed and promulgated in the regular course of business,
are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office
in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence"
and, in the language of Attorney-General Cushing, is "subject
to the direction of the President."55
In the present case, in making his recommendation to the
President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. In such instance, he is not
subject to the power of control and direction of the President.
He is acting as the agent of the legislative department, to

determine and declare the event upon which its expressed will
is to take effect.56 The Secretary of Finance becomes the
means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to
gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather
and collate statistical data and other pertinent information and
verify if any of the two conditions laid out by Congress is
present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of
Congress and not of the President, the President cannot alter
or modify or nullify, or set aside the findings of the Secretary of
Finance and to substitute the judgment of the former for that of
the latter.

Under the common provisos of Sections 4, 5 and 6 of R.A. No.

9337, if any of the two conditions set forth therein are satisfied,
the President shall increase the VAT rate to 12%. The
provisions of the law are clear. It does not provide for a return
to the 10% rate nor does it empower the President to so revert
if, after the rate is increased to 12%, the VAT collection goes
below the 24/5 of the GDP of the previous year or that the
national government deficit as a percentage of GDP of the
previous year does not exceed 1%.

Congress simply granted the Secretary of Finance the

authority to ascertain the existence of a fact, namely, whether
by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or the national
government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1%). If either of
these two instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion
as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or
unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in
our complex economy that is frequently the only way in which
the legislative process can go forward.58

Thus, in the absence of any provision providing for a return to

the 10% rate, which in this case the Court finds none,
petitioners argument is, at best, purely speculative. There is no
basis for petitioners fear of a fluctuating VAT rate because the
law itself does not provide that the rate should go back to 10%
if the conditions provided in Sections 4, 5 and 6 are no longer
present. The rule is that where the provision of the law is clear
and unambiguous, so that there is no occasion for the court's
seeking the legislative intent, the law must be taken as it is,
devoid of judicial addition or subtraction.61

As to the argument of petitioners ABAKADA GURO Party List,

et al. that delegating to the President the legislative power to
tax is contrary to the principle of republicanism, the same
deserves scant consideration. Congress did not delegate the
power to tax but the mere implementation of the law. The intent
and will to increase the VAT rate to 12% came from Congress
and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a
manner is not within the province of the Court to inquire into, its
task being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the
President has ample powers to cause, influence or create the
conditions to bring about either or both the conditions
precedent does not deserve any merit as this argument is
highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at all.
The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead of
realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair
and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the
VAT rate imposes an unfair and additional tax burden on the
people. Petitioners also argue that the 12% increase,
dependent on any of the 2 conditions set forth in the contested
provisions, is ambiguous because it does not state if the VAT
rate would be returned to the original 10% if the rates are no
longer satisfied. Petitioners also argue that such rate is unfair
and unreasonable, as the people are unsure of the applicable
VAT rate from year to year.

Therefore, no statutory construction or interpretation is needed.

Neither can conditions or limitations be introduced where none
is provided for. Rewriting the law is a forbidden ground that
only Congress may tread upon.60

Petitioners also contend that the increase in the VAT rate,

which was allegedly an incentive to the President to raise the
VAT collection to at least 2 4/5 of the GDP of the previous year,
should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection
is not the only condition. There is another condition, i.e., the
national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 %).
Respondents explained
alternative conditions:

the

philosophy

behind

these

1. VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have
economic or fiscal meaning. If VAT/GDP is less than 2.8%, it
means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value to
increase it to 12% because such action will also be ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5%
or less means the fiscal condition of government has reached
a relatively sound position or is towards the direction of a
balanced budget position. Therefore, there is no need to
increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than
1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President
to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which
the law was passed, which in this case, is mainly to raise
revenue. In fact, fiscal adequacy dictated the need for a raise
in revenue.

The principle of fiscal adequacy as a characteristic of a sound

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

debt spiral is really have a front-end adjustment in our revenue

base.65
The image portrayed is chilling. Congress passed the law
hoping for rescue from an inevitable catastrophe. Whether the
law is indeed sufficient to answer the states economic
dilemma is not for the Court to judge. In the Farias case, the
Court refused to consider the various arguments raised therein
that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The
Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court.
Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to
look into the wisdom or propriety of legislative determination.
Indeed, whether an enactment is wise or unwise, whether it is
based on sound economic theory, whether it is the best means
to achieve the desired results, whether, in short, the legislative
discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the
legislature, and the serious conflict of opinions does not suffice
to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the
purpose of Congress or the executive policy, given that it is not
for the judiciary to "pass upon questions of wisdom, justice or
expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al.
argue that Section 8 of R.A. No. 9337, amending Sections 110
(A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending
Section 114 (C) of the NIRC are arbitrary, oppressive,
excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property
without due process of law, as embodied in Article III, Section 1
of the Constitution.
Petitioners also contend that these provisions violate the
constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal
protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for proof
of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity
must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the
NIRC imposes a limitation on the amount of input tax that may
be credited against the output tax. It states, in part: "[P]rovided,
that the input tax inclusive of the input VAT carried over from
the previous quarter that may be credited in every quarter shall

not exceed seventy percent (70%) of the output VAT: "

Input Tax is defined under Section 110(A) of the NIRC, as
amended, as the value-added tax due from or paid by a VATregistered person on the importation of goods or local
purchase of good and services, including lease or use of
property, in the course of trade or business, from a VATregistered person, and Output Tax is the value-added tax due
on the sale or lease of taxable goods or properties or services
by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations
on the amount of input tax that may be claimed. In effect, a
portion of the input tax that has already been paid cannot now
be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input
tax exceeds 70% of the output tax, and therefore, the input tax
in excess of 70% remains uncredited. However, to the extent
that the input tax is less than 70% of the output tax, then 100%
of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a
businesss books of accounts and remains creditable in the
succeeding quarter/s. This is explicitly allowed by Section
110(B), which provides that "if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter
or quarters." In addition, Section 112(B) allows a VATregistered person to apply for the issuance of a tax credit
certificate or refund for any unused input taxes, to the extent
that such input taxes have not been applied against the output
taxes. Such unused input tax may be used in payment of his
other internal revenue taxes.
The non-application of the unutilized input tax in a given
quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there
will be unapplied/unutilized inputs VAT for a given quarter. It
does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the
subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax
credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to
comprehend the operation of the 70% limitation on the input
tax. According to petitioner, the limitation on the creditable
input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public
purposes and expenditures
As earlier stated, the input tax is the tax paid by a person,
passed on to him by the seller, when he buys goods. Output
tax meanwhile is the tax due to the person when he sells
goods. In computing the VAT payable, three possible scenarios
may arise:
First, if at the end of a taxable quarter the output taxes charged
by the seller are equal to the input taxes that he paid and
passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the

person shall be liable for the excess, which has to be paid to

the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively
zero-rated transactions, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayers option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation
on the input tax. Thus, a person can credit his input tax only up
to the extent of 70% of the output tax. In laymans term, the
value-added taxes that a person/taxpayer paid and passed on
to him by a seller can only be credited up to 70% of the valueadded taxes that is due to him on a taxable transaction. There
is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a
seller, and the seller will subsequently remit such input tax to
the BIR. The party directly liable for the payment of the tax is
the seller.71 What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al.
also argue that the input tax partakes the nature of a property
that may not be confiscated, appropriated, or limited without
due process of law.
The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VATregistered persons entitlement to the creditable input tax is a
mere statutory privilege.
The distinction between statutory privileges and vested rights
must be borne in mind for persons have no vested rights in
statutory privileges. The state may change or take away rights,
which were created by the law of the state, although it may not
take away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid
at every level of distribution are not recoverable from the taxes
payable, although it becomes part of the cost, which is
deductible from the gross revenue. When Pres. Aquino issued
E.O. No. 273 imposing a 10% multi-stage tax on all sales, it
was then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons
against the output tax was introduced.73 This was adopted by
the Expanded VAT Law (R.A. No. 7716), 74 and The Tax Reform
Act of 1997 (R.A. No. 8424).75 The right to credit input tax as
against the output tax is clearly a privilege created by law, a
privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section
110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in
a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for

such goods, excluding the VAT component thereof, exceeds

One million pesos (P1,000,000.00): Provided, however, That if
the estimated useful life of the capital goods is less than five
(5) years, as used for depreciation purposes, then the input
VAT shall be spread over such a shorter period: Provided,
finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser,
lessee or license upon payment of the compensation, rental,
royalty or fee.
The foregoing section imposes a 60-month period within which
to amortize the creditable input tax on purchase or importation
of capital goods with acquisition cost of P1 Million pesos,
exclusive of the VAT component. Such spread out only poses a
delay in the crediting of the input tax. Petitioners argument is
without basis because the taxpayer is not permanently
deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spreadout of the creditable input tax in this case amounts to a 4-year
interest-free loan to the government.76 In the same breath,
Congress also justified its move by saying that the provision
was designed to raise an annual revenue of 22.6 billion. 77 The
legislature also dispelled the fear that the provision will fend off
foreign investments, saying that foreign investors have other
tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments
were not deterred.78 Again, for whatever is the purpose of the
60-month amortization, this involves executive economic policy
and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on
payments made by the government for taxable transactions,
Section 12 of R.A. No. 9337, which amended Section 114 of
the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any
of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the valueadded tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made.
Section 114(C) merely provides a method of collection, or as
stated by respondents, a more simplified VAT withholding
system. The government in this case is constituted as a
withholding agent with respect to their payments for goods and
services.
Prior to its amendment, Section 114(C) provided for different
rates of value-added taxes to be withheld -- 3% on gross
payments for purchases of goods; 6% on gross payments for
services supplied by contractors other than by public works

contractors; 8.5% on gross payments for services supplied by

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

liability of the seller or contractor: Provided, however, That

in the case of government public works contractors, the
withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of
payment. For this purpose, the payor or person in control of the
payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the
word creditable exhibits Congresss intention to treat
transactions with the government differently. Since it has not
been shown that the class subject to the 5% final withholding
tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are
not the only ones subjected to the 5% final withholding tax. It
applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable,
as petitioners believe. Revenue Regulations No. 14-2005 or
the Consolidated Value-Added Tax Regulations 2005 issued by
the BIR, provides that should the actual input tax exceed 5% of
gross payments, the excess may form part of the cost. Equally,
should the actual input tax be less than 5%, the difference is
treated as income.81
Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit or
value-added even if there is no profit or value-added.

not based on real and substantial differences to meet a valid

classification.
The argument is pedantic, if not outright baseless. The law
does not make any classification in the subject of taxation, the
kind of property, the rates to be levied or the amounts to be
raised, the methods of assessment, valuation and collection.
Petitioners alleged distinctions are based on variables that
bear different consequences. While the implementation of the
law may yield varying end results depending on ones profit
margin and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of
business.
The equal protection clause does not require the universal
application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals
as determined according to a valid classification. By
classification is meant the grouping of persons or things similar
to each other in certain particulars and different from all others
in these same particulars.85
Petitioners brought to the Courts attention the introduction of
Senate Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana
Consuelo A.S. Madrigal on June 6, 2005, and House Bill No.
4493 by Rep. Eric D. Singson. The proposed legislation seeks
to amend the 70% limitation by increasing the same to 90%.
This, according to petitioners, supports their stance that the
70% limitation is arbitrary and confiscatory. On this score,
suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis
for its unconstitutionality, the 70% limitation stays.

Petitioners stance is purely hypothetical, argumentative, and

again, one-sided. The Court will not engage in a legal joust
where premises are what ifs, arguments, theoretical and facts,
uncertain. Any disquisition by the Court on this point will only
be, as Shakespeare describes life in Macbeth,82 "full of sound
and fury, signifying nothing."

B. Uniformity and Equitability of Taxation

Whats more, petitioners contention assumes the proposition

that there is no profit or value-added. It need not take an astute
businessman to know that it is a matter of exception that a
business will sell goods or services without profit or valueadded. It cannot be overstressed that a business is created
precisely for profit.

Uniformity in taxation means that all taxable articles or kinds of

property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided
that the rate is uniform on the same class everywhere with all
people at all times.86

The equal protection clause under the Constitution means that

"no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances."83
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the
kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection,
the States power is entitled to presumption of validity. As a
rule, the judiciary will not interfere with such power absent a
clear showing of unreasonableness, discrimination, or
arbitrariness.84
Petitioners point out that the limitation on the creditable input
tax if the entity has a high ratio of input tax, or invests in capital
equipment, or has several transactions with the government, is

Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.

In this case, the tax law is uniform as it provides a standard

rate of 0% or 10% (or 12%) on all goods and services.
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the NIRC, provide for a rate of
10% (or 12%) on sale of goods and properties, importation of
goods, and sale of services and use or lease of properties.
These same sections also provide for a 0% rate on certain
sales and transaction.
Neither does the law make any distinction as to the type of
industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on
purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the
particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a

threshold margin. The VAT rate of 0% or 10% (or 12%) does

not apply to sales of goods or services with gross annual sales
or receipts not exceeding P1,500,000.00.88 Also, basic marine
and agricultural food products in their original state are still not
subject to the tax,89 thus ensuring that prices at the grassroots
level will remain accessible. As was stated in Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and
marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT,
are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on
businesses with low profit margins, and unduly favors those
with high profit margins. Congress was not oblivious to this.
Thus, to equalize the weighty burden the law entails, the law,
under Section 116, imposed a 3% percentage tax on VATexempt persons under Section 109(v), i.e., transactions with
gross annual sales and/or receipts not exceeding P1.5 Million.
This acts as a equalizer because in effect, bigger businesses
that qualify for VAT coverage and VAT-exempt taxpayers stand
on equal-footing.
Moreover, Congress provided mitigating measures to cushion
the impact of the imposition of the tax on those previously
exempt. Excise taxes on petroleum products91 and natural
gas92 were reduced. Percentage tax on domestic carriers was
removed.93 Power producers are now exempt from paying
franchise tax.94
Aside from these, Congress also increased the income tax
rates of corporations, in order to distribute the burden of
taxation. Domestic, foreign, and non-resident corporations are
now subject to a 35% income tax rate, from a previous 32%. 95
Intercorporate dividends of non-resident foreign corporations
are still subject to 15% final withholding tax but the tax credit
allowed on the corporations domicile was increased to 20%.96
The Philippine Amusement and Gaming Corporation
(PAGCOR) is not exempt from income taxes anymore. 97 Even
the sale by an artist of his works or services performed for the
production of such works was not spared.
All these were designed to ease, as well as spread out, the
burden of taxation, which would otherwise rest largely on the
consumers. It cannot therefore be gainsaid that R.A. No. 9337
is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable
input tax is anything but regressive. It is the smaller business
with higher input tax-output tax ratio that will suffer the
consequences.
Progressive taxation is built on the principle of the taxpayers
ability to pay. This principle was also lifted from Adam Smiths
Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the
support of the government, as nearly as possible, in proportion

to their respective abilities; that is, in proportion to the revenue

which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the
resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive taxation
has no relation with the VAT system inasmuch as the VAT paid
by the consumer or business for every goods bought or
services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income,
whether big or small. The disparity lies in the income earned by
a person or profit margin marked by a business, such that the
higher the income or profit margin, the smaller the portion of
the income or profit that is eaten by VAT. A converso, the lower
the income or profit margin, the bigger the part that the VAT
eats away. At the end of the day, it is really the lower income
group or businesses with low-profit margins that is always
hardest hit.
Nevertheless, the Constitution does not really prohibit the
imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall "evolve a progressive system of
taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of
indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall evolve a progressive
system of taxation. The constitutional provision has been
interpreted to mean simply that direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be
minimized. (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest
form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17 (1) of the 1973 Constitution from
which the present Art. VI, 28 (1) was taken. Sales taxes are
also regressive.
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to
pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, 3, amending 102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A.
No. 7716, 4 amending 103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government.
In this case, it is just an enema, a first-aid measure to
resuscitate an economy in distress. The Court is neither blind
nor is it turning a deaf ear on the plight of the masses. But it
does not have the panacea for the malady that the law seeks
to remedy. As in other cases, the Court cannot strike down a
law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong
there is a remedy, and that the judiciary should stand ready to
afford relief. There are undoubtedly many wrongs the
judicature may not correct, for instance, those involving
political questions. . . .

Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or social
ills; We should not forget that the Constitution has judiciously
allocated the powers of government to three distinct and
separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three,
and a zealous regard of the prerogatives of each, knowing full
well that one is not the guardian of the others and that, for
official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then,
as it still holds true now. All things considered, there is no
raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being
unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full
enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1,
2005 is LIFTED upon finality of herein decision.
SO ORDERED.

EN BANC
G.R. No. 11572

September 22, 1916

FRANCIS A. CHURCHILL and STEWART TAIT, ET AL,

plaintiffs-appellants, vs.VENANCIO CONCEPCION, as Acting
Collector of Internal Revenue, defendant-appellee.
Aitken and De Selms
Avancea for appellee.

for

appellants.Attorney-General

TRENT, J.:
Section 100 of Act No. 2339, passed February 27, 1914,
effective July 1, 1914, imposed an annual tax of P4 per square
meter upon "electric signs, billboards, and spaces used for
posting or displaying temporary signs, and all signs displayed
on premises not occupied by buildings." This section was
subsequently amended by Act No. 2432, effective January 1,
1915, by reducing the tax on such signs, billboards, etc., to P2
per square meter or fraction thereof. Section 26 of Act No.
2432 was in turn amended by Act No. 2445, but this
amendment does not in any way affect the questions involved
in the case under consideration. The taxes imposed by Act No.
2432, as amended, were ratified by the Congress of the United
States on March 4, 1915. The ratifying clause reads as follows:
The internal-revenue taxes imposed by the Philippine
Legislature under the law enacted by that body on December
twenty-third, nineteen hundred and fourteen (Act No. 2432), as
amended by the law enacted by it on January sixteenth,
nineteen hundred and fifteen (Act No. 2445), are hereby
legalized and ratified, and the collection of all such taxes
heretofore or hereafter is hereby legalized, ratified and
confirmed as fully to all intents and purposes as if the same
had by prior Act of Congress been specifically authorized and
directed.

Francis A. Churchill and Stewart Tait, copartners doing

business under the firm name and style of the Mercantile
Advertising Agency, owners of a sign or billboard containing an
area of 52 square meters constructed on private property in the
city of Manila and exposed to public view, were taxes thereon
P104. The tax was paid under protest and the plaintiffs having
exhausted all their administrative remedies instituted the
present action under section 140 of Act No. 2339 against the
Collector of Internal Revenue to recover back the amount thus
paid. From a judgment dismissing the complaint upon the
merits, with costs, the plaintiffs appealed.
It is now urged that the trial court erred:
(1) In not holding that the tax as imposed by virtue of Act No.
2339, as amended by Act No. 2432, as amended by Act No.
2445, constitutes deprivation of property without compensation
or due process of law, because it is confiscatory and unjustly
discriminatory and (2) in not holding that the said tax is void for
lack of uniformity, because it is not graded according to value;
because the classification on which it is based on any
reasonable ground; and furthermore, because it constitutes
double taxation.
We will first inquire whether the tax in question is confiscatory
as to the business of the plaintiff Upon this point the lower
court, in accepting the testimony of the plaintiff, Churchill, to
the effect that "the billboard in question cost P300 to construct,
that its annual gross earning power is P268, and that the
annual tax is P104," found "that for a five years' period the
gross income from the billboard would be P1,340, and that the
expenditures for original construction and taxes would amount
to P820, leaving a balance of P520," held that "unless the tax
equals or exceeds the gross income, the court would hardly be
justified in declaring the tax confiscatory." These findings of
fact and conclusions of law are attacked upon the ground that
the court failed to take into-consideration the pertinent facts
that the annual depreciation of the billboard is 20 per cent; that
at the end of five years the capital of P300 would be
completely lost; that the plaintiffs are entitled to receive a
reasonable rate of interest on this capital; and that there should
be charged against the billboard its proportion of the overhead
charges such as labor, management, maintenance, rental of
office premises, rental or purchase of ground space for board,
repair, paints, oils, etc., resulting in an actual loss per year on
the business, instead of an apparent profit of P520 for five
years, or P44 for one year. If these contentions rested upon a
sound basis it might be said that the tax is, in a sense,
confiscatory; but they do not, as we will attempt to show from
the evidence of record.
The plaintiff Churchill testified in part as follows:
Q.
In your opinion, Mr. Churchill, state what you would
think of the rates that are charged by you for advertising
purposes in connection with this board; could they be raised?

A.

No.

Q.

Why?

A.
The business wouldn't allow it; the business wouldn't
afford it; and otherwise it would mean bankruptcy to try to
increase it.

Q.

Who couldn't afford it? Explain it fully Mr. Churchill?

A.
The merchants couldn't afford to pay more. On crossexamination:
Q.
It is a fact, it is not, Mr. Churchill, that since the
passage of Act No. 2339 you have never made any attempt to
raise the advertising rates?
A.

It would be impossible to raise them.

Q.
My question is: You have never made any attempt to
raise them?
A.
We have talked it over with the merchants and talked
over the price on the event of a tax being put at a reasonable
amount, about putting up some increase.
Q.
But you have never made an actual attempt to
increase your rates?
A.
Q.

A.

I would consider that an actual attempt.

You have never fixed the rate higher than it is now?

No; no.

It was agreed that Tait, the other plaintiff, would testify to the
same effect. The parties, plaintiffs and defendant, further
agreed "that a number of persons have voluntarily and without
protest paid the taxes imposed by section 100 of Act No. 2339,
as amended by Act No. 2432, and in turn amended by Act No.
2445."
It will thus be seen that the contention that the rates charged
for advertising cannot be raised is purely hypothetical, based
entirely upon the opinion of the plaintiffs, unsupported by
actual test, and that the plaintiffs themselves admit that a
number of other persons have voluntarily and without protest
paid the tax herein complained of. Under these circumstances,
can it be held as a matter of fact that the tax is confiscatory or
that, as a matter of law, the tax is unconstitutional? Is the
exercise of the taxing power of the Legislature dependent upon
and restricted by the opinion of two interested witnesses?
There can be but one answer to these questions, especially in
view of the fact that others are paying the tax and presumably
making a reasonable profit from their business.
In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U.
S., 339), a question similar to the one now under consideration
was raised and decided by the Supreme Court of the United
States. The principal contention made in that case was that an
Act of the Legislature of Michigan fixing the amount per mile to
be charged by railways for the transportation of a passenger
was unconstitutional, on the ground that the rate so fixed was
confiscatory. It was agreed in the pleadings that the total
earnings and income of the company from all sources for a
given year were less than the expenses for the same period. In
addition to this agreed statement of facts, two witnesses were
called, one the traffic manager and the other the treasurer of
the company. Their testimony was to the effect that in view of
the competition prevailing at Chicago for through business, it
was impossible to increase the freight rates then charged by

the company because it would throw the volume of business

into the hands of competing roads. In overruling the contention
of the company that the act in question was unconstitutional on
the ground that the rate fixed thereby was confiscatory, the
court said:
Surely, before the courts are called upon to adjudge an act of
the legislature fixing the maximum passenger rates for railroad
companies to be unconstitutional, on the ground that its
enforcement would prevent the stockholders from receiving
any dividends on their investments, or the bondholders any
interest on their loans, they should be fully advised as to what
is done with the receipts and earnings of the company; for if so
advised, it might clearly appear that a prudent and honest
management would, within the rates prescribed, secure to the
bondholders their interest, and to the stockholders reasonable
dividends. While the protection of vested rights of property is a
supreme duty of the courts, it has not come to this, that the
legislative power rests subservient to the discretion of any
railroad corporation which may, by exorbitant and
unreasonable salaries, or in some other improper way, transfer
its earnings into what it is pleased to call `operating expenses.'
It is further alleged that the tax in question is unconstitutional
because "the law herein complained of was enacted for the
sole purpose of destroying billboards and advertising business
depending on the use of signs or billboards." If it be conceded
that the Legislature has the power to impose a tax upon signs,
signboards, and billboards, then "the judicial cannot prescribed
to the legislative department of the Government limitation upon
the exercise of its acknowledge powers." (Veazie Bank vs.
Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has
the power to impose such taxes, we think there can be no
serious doubt, because "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. It reaches to every trade or occupation; to
every object of industry, use, or enjoyment; to every species of
possession; and it imposes a burden which, in case of failure
to discharge it, may be followed by seizure and sale or
confiscation of property. No attribute of sovereignty is more
pervading, and at no point does the power of the government
affect more constantly and intimately all the relations of life
than through the exactions made under it." (Cooley's
Constitutional Limitations, 6th Edition, p. 587.)
In McCray vs. U.S. (195 U.S., 27), the court, in ruling adversely
to the contention that a federal tax on oleomargarine artificially
colored was void because the real purpose of Congress was
not to raise revenue but to tax out of existence a substance not
harmful of itself and one which might be lawfully manufactured
and sold, said:
Whilst, as a result of our written constitution, it is axiomatic that
the judicial department of the government is charged with the
solemn duty of enforcing the Constitution, and therefore, in
cases property presented, of determining whether a given
manifestation of authority has exceeded the power conferred
by that instrument, no instance is afforded from the foundation
of the government where an act which was within a power
conferred, was declared to be repugnant to the Constitution,
because it appeared to the judicial mind that the particular
exertion of constitutional power was either unwise or unjust. To
announce such a principle would amount to declaring that, in
our constitutional system, the judiciary was not only charged
with the duty of upholding the Constitution, but also with the
responsibility of correcting every possible abuse arising from

the exercise by the other departments of their conceded

authority. So to hold would be to overthrow the entire
distinction between the legislative, judicial, and executive
departments of the government, upon which our system is
founded, and would be a mere act of judicial usurpation.
If a case were presented where the abuse of the taxing power
of the local legislature was to extreme as to make it plain to the
judicial mind that the power had been exercised for the sole
purpose of destroying rights which could not be rightfully
destroyed consistently with the principles of freedom and
justice upon which the Philippine Government rests, then it
would be the duty of the courts to say that such an arbitrary act
was not merely an abuse of the power, but was the exercise of
an authority not conferred. (McCray vs. U.S., supra.) But the
instant case is not one of that character, for the reason that the
tax herein complained of falls far short of being confiscatory.
Consequently, it cannot be held that the Legislature has gone
beyond the power conferred upon it by the Philippine Bill in so
far as the amount of the tax is concerned.
Is the tax void for lack of uniformity or because it is not graded
according to value or constitutes double taxation, or because
the classification upon which it is based is mere arbitrary
selection and not based on any reasonable grounds? The only
limitation, in so far as these questions are concerned, placed
upon the Philippine Legislature in the exercise of its taxing
power is that found in section 5 of the Philippine Bill, wherein it
is declared "that the rule of taxation in said Islands shall be
uniform."
Uniformity in taxation says Black on Constitutional Law,
page 292 means that all taxable articles or kinds of property,
of the same class, shall be taxed at the same rate. It does not
mean that lands, chattels, securities, incomes, occupations,
franchises, privileges, necessities, and luxuries, shall all be
assessed at the same rate. Different articles may be taxed at
different amounts, provided the rate is uniform on the same
class everywhere, with all people, and at all times.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found (State
Railroad Tax Cases, 92 U.S., 575.) The words "uniform
throughout the United States," as required of a tax by the
Constitution, do not signify an intrinsic, but simply a
geographical, uniformity, and such uniformity is therefore the
only uniformity which is prescribed by the Constitution. (Patton
vs. Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is uniform,
within the constitutional requirement, when it operates with the
same force and effect in every place where the subject of it is
found. (Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.)
"Uniformity," as applied to the constitutional provision that all
taxes shall be uniform, means that all property belonging to the
same class shall be taxed alike. (Adams vs. Mississippi State
Bank, 23 South, 395, citing Mississippi Mills vs Cook, 56 Miss.,
40.) The statute under consideration imposes a tax of P2 per
square meter or fraction thereof upon every electric sign, billboard, etc., wherever found in the Philippine Islands. Or in
other words, "the rule of taxation" upon such signs is uniform
throughout the Islands. The rule, which we have just quoted
from the Philippine Bill, does not require taxes to be graded
according to the value of the subject or subjects upon which
they are imposed, especially those levied as privilege or
occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land
upon which the billboards are located is taxed at so much per
unit and the billboards at so much per square meter does not
constitute "double taxation." Double taxation, within the true

meaning of that expression, does not necessarily affect its

validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it is not
for the judiciary to say that the classification upon which the tax
is based "is mere arbitrary selection and not based upon any
reasonable grounds." The Legislature selected signs and
billboards as a subject for taxation and it must be presumed
that it, in so doing, acted with a full knowledge of the situation.
For the foregoing reasons, the judgment appealed from is
affirmed, with costs against the appellants. So ordered.
Torres, Johnson, Carson, and Araullo, JJ., concur.
iv. Progressive Taxation
EN BANC

EN BANC

G.R. No. 115455 August 25, 1994

ARTURO M. TOLENTINO, petitioner, vs.THE SECRETARY
OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner, vs.TEOFISTO T. GUINGONA, JR.,
as Executive Secretary; ROBERTO DE OCAMPO, as
Secretary of Finance; LIWAYWAY VINZONS-CHATO, as
Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES,
respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners, vs.THE SECRETARY OF THE
DEPARTMENT OF FINANCE; THE COMMISSIONERS OF
THE BUREAU OF INTERNAL REVENUE AND BUREAU OF
CUSTOMS, respondents.
G.R. No. 115544 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING
CO., INC.; PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners, vs.HON. LIWAYWAY V. CHATO, in
her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive
Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS
ASSOCIATIONS, INC., (CREBA), petitioner, vs.THE
COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 August 25, 1994

115931.

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A.

RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE
T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO,
JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE
CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF
ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., PHILIPPINE BIBLE SOCIETY, INC., and
WIGBERTO TAADA, petitioners, vs.THE EXECUTIVE
SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.

Reve A.V. Saguisag for MABINI.

G.R. No. 115852 August 25, 1994

PHILIPPINE AIRLINES, INC., petitioner, vs.THE SECRETARY
OF FINANCE, and COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary,
and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION,
INC., and ASSOCIATION OF PHILIPPINE BOOK-SELLERS,
petitioners, vs.HON. ROBERTO B. DE OCAMPO, as the
Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in
G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner
R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in
G.R. No. 115754.

MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services. Republic Act No. 7716 seeks to
widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue
Code.
These are various suits for certiorari and prohibition,
challenging the constitutionality of Republic Act No. 7716 on
various grounds summarized in the resolution of July 6, 1994
of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate Art. VI, 24 of the
Constitution?
B. Does it violate Art. VI, 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral
Conference Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
1. 1
2. 4
3. 5
4. 10
B. Does the law violate the following other provisions of the
Constitution?
1. Art. VI, 28(1)
2. Art. VI, 28(3)

Salonga, Hernandez & Allado for Freedon From Debts

Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices
for petitioners in G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No.

These questions will be dealt in the order they are stated

above. As will presently be explained not all of these questions
are judicially cognizable, because not all provisions of the
Constitution are self executing and, therefore, judicially
enforceable. The other departments of the government are
equally charged with the enforcement of the Constitution,
especially the provisions relating to them.
I. PROCEDURAL ISSUES

The contention of petitioners is that in enacting Republic Act

No. 7716, or the Expanded Value-Added Tax Law, Congress
violated the Constitution because, although H. No. 11197 had
originated in the House of Representatives, it was not passed
by the Senate but was simply consolidated with the Senate
version (S. No. 1630) in the Conference Committee to produce
the bill which the President signed into law. The following
provisions of the Constitution are cited in support of the
proposition that because Republic Act No. 7716 was passed in
this manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, 24: All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.
Id., 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to
its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last reading
of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
It appears that on various dates between July 22, 1992 and
August 31, 1993, several bills 1 were introduced in the House
of Representatives seeking to amend certain provisions of the
National Internal Revenue Code relative to the value-added tax
or VAT. These bills were referred to the House Ways and
Means Committee which recommended for approval a
substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND
110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236,
237 AND 238 OF TITLE IX, AND REPEALING SECTIONS 113
AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it was
approved by the House of Representatives after third and final
reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110
OF TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF
TITLE IX, AND REPEALING SECTIONS 113, 114 and 116 OF
TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of

Senate Bill No. 1129, taking into consideration P.S. Res. No.
734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the
bill (S. No. 1630). It finished debates on the bill and approved it
on second reading on March 24, 1994. On the same day, it
approved the bill on third reading by the affirmative votes of 13
of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then
referred to a conference committee which, after meeting four
times (April 13, 19, 21 and 25, 1994), recommended that
"House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the
bill as reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION
AND
FOR
THESE
PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES," was thereafter
approved by the House of Representatives on April 27, 1994
and by the Senate on May 2, 1994. The enrolled bill was then
presented to the President of the Philippines who, on May 5,
1994, signed it. It became Republic Act No. 7716. On May 12,
1994, Republic Act No. 7716 was published in two newspapers
of general circulation and, on May 28, 1994, it took effect,
although its implementation was suspended until June 30,
1994 to allow time for the registration of business entities. It
would have been enforced on July 1, 1994 but its enforcement
was stopped because the Court, by the vote of 11 to 4 of its
members, granted a temporary restraining order on June 30,
1994.
First. Petitioners' contention is that Republic Act No. 7716 did
not "originate exclusively" in the House of Representatives as
required by Art. VI, 24 of the Constitution, because it is in fact
the result of the consolidation of two distinct bills, H. No. 11197
and S. No. 1630. In this connection, petitioners point out that
although Art. VI, SS 24 was adopted from the American
Federal Constitution, 2 it is notable in two respects: the verb
"shall originate" is qualified in the Philippine Constitution by the
word "exclusively" and the phrase "as on other bills" in the
American version is omitted. This means, according to them,
that to be considered as having originated in the House,
Republic Act No. 7716 must retain the essence of H. No.
11197.
This argument will not bear analysis. To begin with, it is not the
law but the revenue bill which is required by the
Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the
whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is
important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute
and not only the bill which initiated the legislative process
culminating in the enactment of the law must substantially
be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments" but also to
"propose amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in fact
make the House superior to the Senate.

The contention that the constitutional design is to limit the

Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-ratifying
power 3 and thereby equalize its powers and those of the
House overlooks the fact that the powers being compared are
different. We are dealing here with the legislative power which
under the Constitution is vested not in any particular chamber
but in the Congress of the Philippines, consisting of "a Senate
and a House of Representatives." 4 The exercise of the treatyratifying power is not the exercise of legislative power. It is the
exercise of a check on the executive power. There is,
therefore, no justification for comparing the legislative powers
of the House and of the Senate on the basis of the possession
of such nonlegislative power by the Senate. The possession of
a similar power by the U.S. Senate 5 has never been thought of
as giving it more legislative powers than the House of
Representatives.
In the United States, the validity of a provision ( 37) imposing
an ad valorem tax based on the weight of vessels, which the
U.S. Senate had inserted in the Tariff Act of 1909, was upheld
against the claim that the provision was a revenue bill which
originated in the Senate in contravention of Art. I, 7 of the
U.S. Constitution. 6 Nor is the power to amend limited to adding
a provision or two in a revenue bill emanating from the House.
The U.S. Senate has gone so far as changing the whole of bills
following the enacting clause and substituting its own versions.
In 1883, for example, it struck out everything after the enacting
clause of a tariff bill and wrote in its place its own measure,
and the House subsequently accepted the amendment. The
U.S. Senate likewise added 847 amendments to what later
became the Payne-Aldrich Tariff Act of 1909; it dictated the
schedules of the Tariff Act of 1921; it rewrote an extensive tax
revision bill in the same year and recast most of the tariff bill of
1922. 7 Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to
originate in the House.
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S. No.
1129) earlier filed and that what the Senate did was merely to
"take [H. No. 11197] into consideration" in enacting S. No.
1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then
writing its own version following the enacting clause (which, it
would seem, petitioners admit is an amendment by
substitution), and, on the other hand, separately presenting a
bill of its own on the same subject matter. In either case the
result are two bills on the same subject.
Indeed, what the Constitution simply means is that the initiative
for filing revenue, tariff, or tax bills, bills authorizing an increase
of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems
from the national perspective. Both views are thereby made to
bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld
pending receipt of the House bill. The Court cannot, therefore,
understand the alarm expressed over the fact that on March 1,
1993, eight months before the House passed H. No. 11197, S.

No. 1129 had been filed in the Senate. After all it does not
appear that the Senate ever considered it. It was only after the
Senate had received H. No. 11197 on November 23, 1993 that
the process of legislation in respect of it began with the referral
to the Senate Committee on Ways and Means of H. No. 11197
and the submission by the Committee on February 7, 1994 of
S. No. 1630. For that matter, if the question were simply the
priority in the time of filing of bills, the fact is that it was in the
House that a bill (H. No. 253) to amend the VAT law was first
filed on July 22, 1992. Several other bills had been filed in the
House before S. No. 1129 was filed in the Senate, and H. No.
11197 was only a substitute of those earlier bills.
Second. Enough has been said to show that it was within the
power of the Senate to propose S. No. 1630. We now pass to
the next argument of petitioners that S. No. 1630 did not pass
three readings on separate days as required by the
Constitution 8 because the second and third readings were
done on the same day, March 24, 1994. But this was because
on February 24, 1994 9 and again on March 22, 1994, 10 the
President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing
but also that of reading the bill on separate days. The phrase
"except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, 26(2) qualifies the two
stated conditions before a bill can become a law: (i) the bill has
passed three readings on separate days and (ii) it has been
printed in its final form and distributed three days before it is
finally approved.
In other words, the "unless" clause must be read in relation to
the "except" clause, because the two are really coordinate
clauses of the same sentence. To construe the "except" clause
as simply dispensing with the second requirement in the
"unless" clause (i.e., printing and distribution three days before
final approval) would not only violate the rules of grammar. It
would also negate the very premise of the "except" clause: the
necessity of securing the immediate enactment of a bill which
is certified in order to meet a public calamity or emergency. For
if it is only the printing that is dispensed with by presidential
certification, the time saved would be so negligible as to be of
any use in insuring immediate enactment. It may well be
doubted whether doing away with the necessity of printing and
distributing copies of the bill three days before the third reading
would insure speedy enactment of a law in the face of an
emergency requiring the calling of a special election for
President and Vice-President. Under the Constitution such a
law is required to be made within seven days of the convening
of Congress in emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of printing
and distribution can be dispensed with is supported by the
weight of legislative practice. For example, the bill defining the
certiorari jurisdiction of this Court which, in consolidation with
the Senate version, became Republic Act No. 5440, was
passed on second and third readings in the House of
Representatives on the same day (May 14, 1968) after the bill
had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential
certification dispenses only with the requirement for the printing
of the bill and its distribution three days before its passage but
not with the requirement of three readings on separate days,
also.
It is nonetheless urged that the certification of the bill in this

case was invalid because there was no emergency, the

condition stated in the certification of a "growing budget deficit"
not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the certification. To
the contrary, by passing S. No. 1630 on second and third
readings on March 24, 1994, the Senate accepted the
President's certification. Should such certification be now
reviewed by this Court, especially when no evidence has been
shown that, because S. No. 1630 was taken up on second and
third readings on the same day, the members of the Senate
were deprived of the time needed for the study of a vital piece
of legislation?
The sufficiency of the factual basis of the suspension of the
writ of habeas corpus or declaration of martial law under Art.
VII, 18, or the existence of a national emergency justifying
the delegation of extraordinary powers to the President under
Art. VI, 23(2), is subject to judicial review because basic
rights of individuals may be at hazard. But the factual basis of
presidential certification of bills, which involves doing away with
procedural requirements designed to insure that bills are duly
considered by members of Congress, certainly should elicit a
different standard of review.
Petitioners also invite attention to the fact that the President
certified S. No. 1630 and not H. No. 11197. That is because S.
No. 1630 was what the Senate was considering. When the
matter was before the House, the President likewise certified
H. No. 9210 the pending in the House.
Third. Finally it is contended that the bill which became
Republic Act No. 7716 is the bill which the Conference
Committee prepared by consolidating H. No. 11197 and S. No.
1630. It is claimed that the Conference Committee report
included provisions not found in either the House bill or the
Senate bill and that these provisions were "surreptitiously"
inserted by the Conference Committee. Much is made of the
fact that in the last two days of its session on April 21 and 25,
1994 the Committee met behind closed doors. We are not told,
however, whether the provisions were not the result of the give
and take that often mark the proceedings of conference
committees.
Nor is there anything unusual or extraordinary about the fact
that the Conference Committee met in executive sessions.
Often the only way to reach agreement on conflicting
provisions is to meet behind closed doors, with only the
conferees present. Otherwise, no compromise is likely to be
made. The Court is not about to take the suggestion of a cabal
or sinister motive attributed to the conferees on the basis solely
of their "secret meetings" on April 21 and 25, 1994, nor read
anything into the incomplete remarks of the members, marked
in the transcript of stenographic notes by ellipses. The
incomplete sentences are probably due to the stenographer's
own limitations or to the incoherence that sometimes
characterize conversations. William Safire noted some such
lapses in recorded talks even by recent past Presidents of the
United States.
In any event, in the United States conference committees had
been customarily held in executive sessions with only the
conferees and their staffs in attendance. 13 Only in November
1975 was a new rule adopted requiring open sessions. Even
then a majority of either chamber's conferees may vote in
public to close the meetings. 14

As to the possibility of an entirely new bill emerging out of a

Conference Committee, it has been explained:
Under congressional rules of procedure, conference
committees are not expected to make any material change in
the measure at issue, either by deleting provisions to which
both houses have already agreed or by inserting new
provisions. But this is a difficult provision to enforce. Note the
problem when one house amends a proposal originating in
either house by striking out everything following the enacting
clause and substituting provisions which make it an entirely
new bill. The versions are now altogether different, permitting a
conference committee to draft essentially a new bill. . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be germane
to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of a
conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the
Senate bill. 17 If the committee can propose an amendment
consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as
an "amendment in the nature of a substitute," so long as such
amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the
approval of both houses of Congress to become valid as an act
of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is
thus without any basis. 18
Nonetheless, it is argued that under the respective Rules of the
Senate and the House of Representatives a conference
committee can only act on the differing provisions of a Senate
bill and a House bill, and that contrary to these Rules the
Conference Committee inserted provisions not found in the
bills submitted to it. The following provisions are cited in
support of this contention:
Rules of the Senate
Rule XII:
26. In the event that the Senate does not agree with the
House of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten days
after their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of
Rule III.
Each Conference Committee Report shall contain a detailed
and sufficiently explicit statement of the changes in or
amendments to the subject measure, and shall be signed by
the conferees.
The consideration of such report shall not be in order unless
the report has been filed with the Secretary of the Senate and
copies thereof have been distributed to the Members.
(Emphasis added)

Rules of the House of Representatives

Rule XIV:
85. Conference Committee Reports. In the event that the
House does not agree with the Senate on the amendments to
any bill or joint resolution, the differences may be settled by
conference committees of both Chambers.
The consideration of conference committee reports shall
always be in order, except when the journal is being read,
while the roll is being called or the House is dividing on any
question. Each of the pages of such reports shall be signed by
the conferees. Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the
subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided, That
in the last fifteen days of each session period it shall be
deemed sufficient that three copies of the report, signed as
above provided, are deposited in the office of the Secretary
General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee
to a consideration of conflicting provisions. But Rule XLIV,
112 of the Rules of the Senate is cited to the effect that "If
there is no Rule applicable to a specific case the precedents of
the Legislative Department of the Philippines shall be resorted
to, and as a supplement of these, the Rules contained in
Jefferson's Manual." The following is then quoted from the
Jefferson's Manual:
The managers of a conference must confine themselves to the
differences committed to them. . . and may not include subjects
not within disagreements, even though germane to a question
in issue.
Note that, according to Rule XLIX, 112, in case there is no
specific rule applicable, resort must be to the legislative
practice. The Jefferson's Manual is resorted to only as
supplement. It is common place in Congress that conference
committee reports include new matters which, though
germane, have not been committed to the committee. This
practice was admitted by Senator Raul S. Roco, petitioner in
G.R. No. 115543, during the oral argument in these cases.
Whatever, then, may be provided in the Jefferson's Manual
must be considered to have been modified by the legislative
practice. If a change is desired in the practice it must be sought
in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house. Thus, Art. VI, 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules
of the two chambers were likewise disregarded in the
preparation of the Conference Committee Report because the
Report did not contain a "detailed and sufficiently explicit
statement of changes in, or amendments to, the subject
measure." The Report used brackets and capital letters to
indicate the changes. This is a standard practice in bill-drafting.
We cannot say that in using these marks and symbols the
Committee violated the Rules of the Senate and the House.
Moreover, this Court is not the proper forum for the

enforcement of these internal Rules. To the contrary, as we

have already ruled, "parliamentary rules are merely procedural
and with their observance the courts have no concern." 19 Our
concern is with the procedural requirements of the Constitution
for the enactment of laws. As far as these requirements are
concerned, we are satisfied that they have been faithfully
observed in these cases.
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three readings in
each of the two houses. If that be the case, there would be no
end to negotiation since each house may seek modifications of
the compromise bill. The nature of the bill, therefore, requires
that it be acted upon by each house on a "take it or leave it"
basis, with the only alternative that if it is not approved by both
houses, another conference committee must be appointed. But
then again the result would still be a compromise measure that
may not be wholly satisfying to both houses.
Art. VI, 26(2) must, therefore, be construed as referring only
to bills introduced for the first time in either house of Congress,
not to the conference committee report. For if the purpose of
requiring three readings is to give members of Congress time
to study bills, it cannot be gainsaid that H. No. 11197 was
passed in the House after three readings; that in the Senate it
was considered on first reading and then referred to a
committee of that body; that although the Senate committee
did not report out the House bill, it submitted a version (S. No.
1630) which it had prepared by "taking into consideration" the
House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise version;
that the Conference Committee Report was thereafter
approved by the House and the Senate, presumably after
appropriate study by their members. We cannot say that, as a
matter of fact, the members of Congress were not fully
informed of the provisions of the bill. The allegation that the
Conference Committee usurped the legislative power of
Congress is, in our view, without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal validity
of Republic Act No. 7716 must be resolved in its favor. Our
cases 20 manifest firm adherence to the rule that an enrolled
copy of a bill is conclusive not only of its provisions but also of
its due enactment. Not even claims that a proposed
constitutional amendment was invalid because the requisite
votes for its approval had not been obtained 21 or that certain
provisions of a statute had been "smuggled" in the printing of
the bill 22 have moved or persuaded us to look behind the
proceedings of a coequal branch of the government. There is
no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute.
In fact in one case 23 we "went behind" an enrolled bill and
consulted the Journal to determine whether certain provisions
of a statute had been approved by the Senate in view of the
fact that the President of the Senate himself, who had signed
the enrolled bill, admitted a mistake and withdrew his
signature, so that in effect there was no longer an enrolled bill
to consider.
But where allegations that the constitutional procedures for the
passage of bills have not been observed have no more basis
than another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had
prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule in
such cases would be to disregard the respect due the other

two departments of our government.

index of its content.

Fifth. An additional attack on the formal validity of Republic Act

No. 7716 is made by the Philippine Airlines, Inc., petitioner in
G.R. No. 11582, namely, that it violates Art. VI, 26(1) which
provides that "Every bill passed by Congress shall embrace
only one subject which shall be expressed in the title thereof."
It is contended that neither H. No. 11197 nor S. No. 1630
provided for removal of exemption of PAL transactions from the
payment of the VAT and that this was made only in the
Conference Committee bill which became Republic Act No.
7716 without reflecting this fact in its title.

The constitutional requirement that every bill passed by

Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon the
members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard regarding
it. If, in the case at bar, petitioner did not know before that its
exemption had been withdrawn, it is not because of any defect
in the title but perhaps for the same reason other statutes,
although published, pass unnoticed until some event somehow
calls attention to their existence. Indeed, the title of Republic
Act No. 7716 is not any more general than the title of PAL's
own franchise under P.D. No. 1590, and yet no mention is
made of its tax exemption. The title of P.D. No. 1590 is:

The title of Republic Act No. 7716 is:

AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION,
AND
FOR
THESE
PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is 103, which
originally read:
103. Exempt transactions. The following shall be exempt
from the value-added tax:
....
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a
signatory. Among the transactions exempted from the VAT
were those of PAL because it was exempted under its
franchise (P.D. No. 1590) from the payment of all "other taxes .
. . now or in the near future," in consideration of the payment
by it either of the corporate income tax or a franchise tax of
2%.
As a result of its amendment by Republic Act No. 7716, 103
of the NIRC now provides:
103. Exempt transactions. The following shall be exempt
from the value-added tax:
....
(q) Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972,
1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of 103 of the NIRC
is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P.D. No. 1590 as
among those which the statute amends. We think it is, since
the title states that the purpose of the statute is to expand the
VAT system, and one way of doing this is to widen its base by
withdrawing some of the exemptions granted before. To insist
that P.D. No. 1590 be mentioned in the title of the law, in
addition to 103 of the NIRC, in which it is specifically referred
to, would be to insist that the title of a bill should be a complete

AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE

AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN
AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND
BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and to
consider it sufficient if the title expresses the general subject of
the statute and all its provisions are germane to the general
subject thus expressed. 24
It is further contended that amendment of petitioner's franchise
may only be made by special law, in view of 24 of P.D. No.
1590 which provides:
This franchise, as amended, or any section or provision hereof
may only be modified, amended, or repealed expressly by a
special law or decree that shall specifically modify, amend, or
repeal this franchise or any section or provision thereof.
This provision is evidently intended to prevent the amendment
of the franchise by mere implication resulting from the
enactment of a later inconsistent statute, in consideration of
the fact that a franchise is a contract which can be altered only
by consent of the parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which
provided for the payment of tax on certain goods and articles
imported into the Philippines, did not amend the franchise of
plaintiff, which exempted it from all taxes except those
mentioned in its franchise. It was held that a special law cannot
be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly
amends PAL's franchise (P.D. No. 1590) by specifically
excepting from the grant of exemptions from the VAT PAL's
exemption under P.D. No. 1590. This is within the power of
Congress to do under Art. XII, 11 of the Constitution, which
provides that the grant of a franchise for the operation of a
public utility is subject to amendment, alteration or repeal by
Congress when the common good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of Thought and
Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper publishers
established for the improvement of journalism in the

Philippines. On the other hand, petitioner in G.R. No. 115781,

the Philippine Bible Society (PBS), is a nonprofit organization
engaged in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of their rights
under 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the
exemption previously granted to the press under 103 (f) of
the NIRC. Although the exemption was subsequently restored
by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of
the possibility that the exemption may still be removed by mere
revocation of the regulation of the Secretary of Finance. On the
other hand, the PBS goes so far as to question the Secretary's
power to grant exemption for two reasons: (1) The Secretary of
Finance has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote of a
majority of all its members 26 and (2) the Secretary's duty is to
execute the law.
103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is devoted principally to the publication of
advertisements.
Republic Act No. 7716 amended 103 by deleting (f) with
the result that print media became subject to the VAT with
respect to all aspects of their operations. Later, however,
based on a memorandum of the Secretary of Justice,
respondent Secretary of Finance issued Revenue Regulations
No. 11-94, dated June 27, 1994, exempting the "circulation
income of print media pursuant to 4 Article III of the 1987
Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of
"circulation income" has left income from advertisements still
subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the Secretary of
Finance to give, in view of PPI's contention that even with the
exemption of the circulation revenue of print media there is still
an unconstitutional abridgment of press freedom because of
the imposition of the VAT on the gross receipts of newspapers
from advertisements and on their acquisition of paper, ink and
services for publication. Even on the assumption that no
exemption has effectively been granted to print media
transactions, we find no violation of press freedom in these
cases.
To be sure, we are not dealing here with a statute that on its
face operates in the area of press freedom. The PPI's claim is
simply that, as applied to newspapers, the law abridges press
freedom. Even with due recognition of its high estate and its
importance in a democratic society, however, the press is not
immune from general regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to
invade the rights and liberties of others. He must answer for
libel. He may be punished for contempt of court. . . . Like
others, he must pay equitable and nondiscriminatory taxes on

his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving
broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a differential
treatment of the press by the law, much less any censorial
motivation for its enactment. If the press is now required to pay
a value-added tax on its transactions, it is not because it is
being singled out, much less targeted, for special treatment but
only because of the removal of the exemption previously
granted to it by law. The withdrawal of exemption is all that is
involved in these cases. Other transactions, likewise previously
granted exemption, have been delisted as part of the scheme
to expand the base and the scope of the VAT system. The law
would perhaps be open to the charge of discriminatory
treatment if the only privilege withdrawn had been that granted
to the press. But that is not the case.
The situation in the case at bar is indeed a far cry from those
cited by the PPI in support of its claim that Republic Act No.
7716 subjects the press to discriminatory taxation. In the cases
cited, the discriminatory purpose was clear either from the
background of the law or from its operation. For example, in
Grosjean v. American Press Co., 28 the law imposed a license
tax equivalent to 2% of the gross receipts derived from
advertisements only on newspapers which had a circulation of
more than 20,000 copies per week. Because the tax was not
based on the volume of advertisement alone but was
measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana,
leaving untaxed four papers with circulation of only slightly less
than 20,000 copies a week and 120 weekly newspapers which
were in serious competition with the thirteen newspapers in
question. It was well known that the thirteen newspapers had
been critical of Senator Huey Long, and the Long-dominated
legislature of Louisiana respondent by taxing what Long
described as the "lying newspapers" by imposing on them "a
tax on lying." The effect of the tax was to curtail both their
revenue and their circulation. As the U.S. Supreme Court
noted, the tax was "a deliberate and calculated device in the
guise of a tax to limit the circulation of information to which the
public is entitled in virtue of the constitutional guaranties." 29
The case is a classic illustration of the warning that the power
to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also
found to have been singled out because everything was
exempt from the "use tax" on ink and paper, except the press.
Minnesota imposed a tax on the sales of goods in that state. To
protect the sales tax, it enacted a complementary tax on the
privilege of "using, storing or consuming in that state tangible
personal property" by eliminating the residents' incentive to get
goods from outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both taxes
from 1967 to 1971. In 1971, however, the state legislature
amended the tax scheme by imposing the "use tax" on the cost
of paper and ink used for publication. The law was held to have
singled out the press because (1) there was no reason for
imposing the "use tax" since the press was exempt from the
sales tax and (2) the "use tax" was laid on an "intermediate
transaction rather than the ultimate retail sale." Minnesota had

a heavy burden of justifying the differential treatment and it

failed to do so. In addition, the U.S. Supreme Court found the
law to be discriminatory because the legislature, by again
amending the law so as to exempt the first $100,000 of paper
and ink used, further narrowed the coverage of the tax so that
"only a handful of publishers pay any tax at all and even fewer
pay any significant amount of tax." 31 The discriminatory
purpose was thus very clear.

literature. This Court relied on Murdock v. Pennsylvania, 39 in

which it was held that, as a license fee is fixed in amount and
unrelated to the receipts of the taxpayer, the license fee, when
applied to a religious sect, was actually being imposed as a
condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee
"restrains in advance those constitutional liberties of press and
religion and inevitably tends to suppress their exercise." 40

More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it

was held that a law which taxed general interest magazines
but not newspapers and religious, professional, trade and
sports journals was discriminatory because while the tax did
not single out the press as a whole, it targeted a small group
within the press. What is more, by differentiating on the basis
of contents (i.e., between general interest and special interests
such as religion or sports) the law became "entirely
incompatible with the First Amendment's guarantee of freedom
of the press."

But, in this case, the fee in 107, although a fixed amount

(P1,000), is not imposed for the exercise of a privilege but only
for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system.
It is designed to provide a record of tax credits because any
person who is subject to the payment of the VAT pays an input
tax, even as he collects an output tax on sales made or
services rendered. The registration fee is thus a mere
administrative fee, one not imposed on the exercise of a
privilege, much less a constitutional right.

These cases come down to this: that unless justified, the

differential treatment of the press creates risks of suppression
of expression. In contrast, in the cases at bar, the statute
applies to a wide range of goods and services. The argument
that, by imposing the VAT only on print media whose gross
sales exceeds P480,000 but not more than P750,000, the law
discriminates 33 is without merit since it has not been shown
that as a result the class subject to tax has been unreasonably
narrowed. The fact is that this limitation does not apply to the
press along but to all sales. Nor is impermissible motive shown
by the fact that print media and broadcast media are treated
differently. The press is taxed on its transactions involving
printing and publication, which are different from the
transactions of broadcast media. There is thus a reasonable
basis for the classification.

For the foregoing reasons, we find the attack on Republic Act

No. 7716 on the ground that it offends the free speech, press
and freedom of religion guarantees of the Constitution to be
without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R.
No. 115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the
constitutional mandate to the government to give priority to
education, science and technology (Art. II, 17) to be
untenable.

The cases canvassed, it must be stressed, eschew any

suggestion that "owners of newspapers are immune from any
forms of ordinary taxation." The license tax in the Grosjean
case was declared invalid because it was "one single in kind,
with a long history of hostile misuse against the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged
that "The First Amendment does not prohibit all regulation of
the press [and that] the States and the Federal Government
can subject newspapers to generally applicable economic
regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of
the PBS that the removal of the exemption of printing,
publication or importation of books and religious articles, as
well as their printing and publication, likewise violates freedom
of thought and of conscience. For as the U.S. Supreme Court
unanimously held in Jimmy Swaggart Ministries v. Board of
Equalization, 36 the Free Exercise of Religion Clause does not
prohibit imposing a generally applicable sales and use tax on
the sale of religious materials by a religious organization.
This brings us to the question whether the registration
provision of the law, 37 although of general applicability,
nonetheless is invalid when applied to the press because it
lays a prior restraint on its essential freedom. The case of
American Bible Society v. City of Manila 38 is cited by both the
PBS and the PPI in support of their contention that the law
imposes censorship. There, this Court held that an ordinance
of the City of Manila, which imposed a license fee on those
engaged in the business of general merchandise, could not be
applied to the appellant's sale of bibles and other religious

B. Claims of Regressivity, Denial of Due Process, Equal

Protection, and Impairmentof Contracts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech, press
and religion. The possible "chilling effect" which it may have on
the essential freedom of the mind and conscience and the
need to assure that the channels of communication are open
and operating importunately demand the exercise of this
Court's power of review.
There is, however, no justification for passing upon the claims
that the law also violates the rule that taxation must be
progressive and that it denies petitioners' right to due process
and that equal protection of the laws. The reason for this
different treatment has been cogently stated by an eminent
authority on constitutional law thus: "[W]hen freedom of the
mind is imperiled by law, it is freedom that commands a
momentum of respect; when property is imperiled it is the
lawmakers' judgment that commands respect. This dual
standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set
up a hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the
need for judicial intervention less evident and underscores the
essential nature of petitioners' attack on the law on the grounds
of regressivity, denial of due process and equal protection and
impairment of contracts as a mere academic discussion of the
merits of the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims so as
to illuminate the actual operation of the law and enable us to
reach sound judgment regarding so fundamental questions as

those raised in these suits.

whether the tax is oppressive and confiscatory.

Thus, the broad argument against the VAT is that it is

regressive and that it violates the requirement that "The rule of
taxation shall be uniform and equitable [and] Congress shall
evolve a progressive system of taxation." 42 Petitioners in G.R.
No. 115781 quote from a paper, entitled "VAT Policy Issues:
Structure, Regressivity, Inflation and Exports" by Alan A. Tait of
the International Monetary Fund, that "VAT payment by lowincome households will be a higher proportion of their incomes
(and expenditures) than payments by higher-income
households. That is, the VAT will be regressive." Petitioners
contend that as a result of the uniform 10% VAT, the tax on
consumption goods of those who are in the higher-income
bracket, which before were taxed at a rate higher than 10%,
has been reduced, while basic commodities, which before
were taxed at rates ranging from 3% to 5%, are now taxed at a
higher rate.

Indeed, regressivity is not a negative standard for courts to

enforce. What Congress is required by the Constitution to do is
to "evolve a progressive system of taxation." This is a directive
to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and
the reduction of social, economic and political inequalities (Art.
XIII, 1), or for the promotion of the right to "quality education"
(Art. XIV, 1). These provisions are put in the Constitution as
moral incentives to legislation, not as judicially enforceable
rights.

Just as vigorously as it is asserted that the law is regressive,

the opposite claim is pressed by respondents that in fact it
distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of
higher-income groups, even as the law exempts basic goods
and services. It is thus equitable. The goods and properties
subject to the VAT are those used or consumed by higherincome groups. These include real properties held primarily for
sale to customers or held for lease in the ordinary course of
business, the right or privilege to use industrial, commercial or
scientific equipment, hotels, restaurants and similar places,
tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000,
are exempted. This, according to respondents, removes from
the coverage of the law some 30,000 business establishments.
On the other hand, an occasional paper 43 of the Center for
Research and Communication cities a NEDA study that the
VAT has minimal impact on inflation and income distribution
and that while additional expenditure for the lowest income
class is only P301 or 1.49% a year, that for a family earning
P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT is
regressive in the sense that it will hit the "poor" and middleincome group in society harder than it will the "rich," as the
Cooperative Union of the Philippines (CUP) claims in G.R. No.
115873, is largely an academic exercise. On the other hand,
the CUP's contention that Congress' withdrawal of exemption
of producers cooperatives, marketing cooperatives, and
service cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional policy to
promote cooperatives as instruments of social justice (Art. XII,
15) but also denies such cooperatives the equal protection of
the law is actually a policy argument. The legislature is not
required to adhere to a policy of "all or none" in choosing the
subject of taxation. 44
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754, that
the VAT will reduce the mark up of its members by as much as
85% to 90% any more concrete. It is a mere allegation. On the
other hand, the claim of the Philippine Press Institute,
petitioner in G.R. No. 115544, that the VAT will drive some of
its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability,
while purporting to be based on the financial statements of the
newspapers in question, still falls short of the establishment of
facts by evidence so necessary for adjudicating the question

At all events, our 1988 decision in Kapatiran 45 should have laid

to rest the questions now raised against the VAT. There similar
arguments made against the original VAT Law (Executive
Order No. 273) were held to be hypothetical, with no more
basis than newspaper articles which this Court found to be
"hearsay and [without] evidentiary value." As Republic Act No.
7716 merely expands the base of the VAT system and its
coverage as provided in the original VAT Law, further debate
on the desirability and wisdom of the law should have shifted to
Congress.
Only slightly less abstract but nonetheless hypothetical is the
contention of CREBA that the imposition of the VAT on the
sales and leases of real estate by virtue of contracts entered
into prior to the effectivity of the law would violate the
constitutional provision that "No law impairing the obligation of
contracts shall be passed." It is enough to say that the parties
to a contract cannot, through the exercise of prophetic
discernment, fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in
order to fix obligations as between parties, but the reservation
of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority
to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation save
only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No.
115852, and we do not understand it to make this claim.
Rather, its position, as discussed above, is that the removal of
its tax exemption cannot be made by a general, but only by a
specific, law.
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the lack of
a concrete record. We accept that this Court does not only
adjudicate private cases; that public actions by "nonHohfeldian" 48 or ideological plaintiffs are now cognizable
provided they meet the standing requirement of the
Constitution; that under Art. VIII, 1, 2 the Court has a
"special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not
have before us in these cases a fully developed factual record
that alone can impart to our adjudication the impact of actuality
49
to insure that decision-making is informed and well
grounded. Needless to say, we do not have power to render
advisory opinions or even jurisdiction over petitions for
declaratory judgment. In effect we are being asked to do what
the Conference Committee is precisely accused of having
done in these cases to sit as a third legislative chamber to
review legislation.

We are told, however, that the power of judicial review is not so

much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance of
that duty if we decline to look behind the barriers set by the
principle of separation of powers. Art. VIII, 1, 2 is cited in
support of this view:
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
To view the judicial power of review as a duty is nothing new.
Chief Justice Marshall said so in 1803, to justify the assertion
of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial
department to say what the law is. Those who apply the rule to
particular cases must of necessity expound and interpret that
rule. If two laws conflict with each other, the courts must decide
on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v.
Electoral Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of
the legislature, but only asserts the solemn and sacred
obligation assigned to it by the Constitution to determine
conflicting claims of authority under the Constitution and to
establish for the parties in an actual controversy the rights
which that instrument secures and guarantees to them. 51
This conception of the judicial power has been affirmed in
severalcases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to
justify this Court's intervention in what is essentially a case that
at best is not ripe for adjudication. That duty must still be
performed in the context of a concrete case or controversy, as
Art. VIII, 5(2) clearly defines our jurisdiction in terms of
"cases," and nothing but "cases." That the other departments
of the government may have committed a grave abuse of
discretion is not an independent ground for exercising our
power. Disregard of the essential limits imposed by the case
and controversy requirement can in the long run only result in
undermining our authority as a court of law. For, as judges,
what we are called upon to render is judgment according to
law, not according to what may appear to be the opinion of the
day.
_______________________________
In the preceeding pages we have endeavored to discuss,
within limits, the validity of Republic Act No. 7716 in its formal
and substantive aspects as this has been raised in the various
cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have
been complied with by Congress in the enactment of the
statute;

(2) That judicial inquiry whether the formal requirements for the
enactment of statutes beyond those prescribed by the
Constitution have been observed is precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise of
religion, nor deny to any of the parties the right to an
education; and
(4) That, in view of the absence of a factual foundation of
record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected under
the Contract Clause are prematurely raised and do not justify
the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
Bidin, Quiason, and Kapunan, JJ., concur.
*ABAKADA vs. Ermita
v. origin of Appropriation, Revenue, and Tariff Bills (Art.
VI, Sec. 24)
* Tolentino vs. Secretary
*ABAKADA vs. Ermita
vi. Voting Requirements for Tax Exmeptions (Art. VI,
Sec. 28 (4))
THIRD DIVISION
G. R. No. 119775

October 24, 2003

JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO

CARIO FOUNDATION INC., CENTER FOR ALTERNATIVE
SYSTEMS FOUNDATION INC., REGINA VICTORIA A.
BENAFIN REPRESENTED AND JOINED BY HER MOTHER
MRS. ELISA BENAFIN, IZABEL M. LUYK REPRESENTED
AND JOINED BY HER MOTHER MRS. REBECCA MOLINA
LUYK, KATHERINE PE REPRESENTED AND JOINED BY
HER MOTHER ROSEMARIE G. PE, SOLEDAD S. CAMILO,
ALICIA C. PACALSO ALIAS "KEVAB," BETTY I.
STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS
"BA-YAY,"
EDILBERTO
T. CLARAVALL,
CARMEN
CAROMINA, LILIA G. YARANON, DIANE MONDOC,
Petitioners,
vs.VICTOR
LIM,
PRESIDENT,
BASES
CONVERSION DEVELOPMENT AUTHORITY; JOHN HAY
PORO POINT DEVELOPMENT CORPORATION, CITY OF
BAGUIO, TUNTEX (B.V.I.) CO. LTD., ASIAWORLD
INTERNATIONALE GROUP, INC., DEPARTMENT OF
ENVIRONMENT
AND
NATURAL
RESOURCES,
Respondents.
DECISION
CARPIO MORALES, J.:
By the present petition for prohibition, mandamus and
declaratory relief with prayer for a temporary restraining order
(TRO) and/or writ of preliminary injunction, petitioners assail, in
the main, the constitutionality of Presidential Proclamation No.
420, Series of 1994, "CREATING AND DESIGNATING a
portion of the area covered by the former Camp John [Hay] as
THE JOHN HAY Special Economic Zone pursuant to R.A. No.
7227."

R.A. No. 7227, AN ACT ACCELERATING THE CONVERSION

OF MILITARY RESERVATIONS INTO OTHER PRODUCTIVE
USES, CREATING THE BASES CONVERSION AND
DEVELOPMENT AUTHORITY FOR THIS PURPOSE,
PROVIDING FUNDS THEREFOR AND FOR OTHER
PURPOSES, otherwise known as the "Bases Conversion and
Development Act of 1992," which was enacted on March 13,
1992, set out the policy of the government to accelerate the
sound and balanced conversion into alternative productive
uses of the former military bases under the 1947 PhilippinesUnited States of America Military Bases Agreement, namely,
the Clark and Subic military reservations as well as their
extensions including the John Hay Station (Camp John Hay or
the camp) in the City of Baguio.1
As noted in its title, R.A. No. 7227 created public respondent
Bases Conversion and Development Authority2 (BCDA),
vesting it with powers pertaining to the multifarious aspects of
carrying out the ultimate objective of utilizing the base areas in
accordance with the declared government policy.
R.A. No. 7227 likewise created the Subic Special Economic
[and Free Port] Zone (Subic SEZ) the metes and bounds of
which were to be delineated in a proclamation to be issued by
the President of the Philippines.3
R.A. No. 7227 granted the Subic SEZ incentives ranging from
tax and duty-free importations, exemption of businesses
therein from local and national taxes, to other hallmarks of a
liberalized financial and business climate.4
And R.A. No. 7227 expressly gave authority to the President to
create through executive proclamation, subject to the
concurrence of the local government units directly affected,
other Special Economic Zones (SEZ) in the areas covered
respectively by the Clark military reservation, the Wallace Air
Station in San Fernando, La Union, and Camp John Hay.5
On August 16, 1993, BCDA entered into a Memorandum of
Agreement and Escrow Agreement with private respondents
Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale
Group, Inc. (ASIAWORLD), private corporations registered
under the laws of the British Virgin Islands, preparatory to the
formation of a joint venture for the development of Poro Point
in La Union and Camp John Hay as premier tourist
destinations and recreation centers. Four months later or on
December 16, 1993, BCDA, TUNTEX and ASIAWORD
executed a Joint Venture Agreement6 whereby they bound
themselves to put up a joint venture company known as the
Baguio International Development and Management
Corporation which would lease areas within Camp John Hay
and Poro Point for the purpose of turning such places into
principal tourist and recreation spots, as originally envisioned
by the parties under their Memorandum of Agreement.
The Baguio City government meanwhile passed a number of
resolutions in response to the actions taken by BCDA as owner
and administrator of Camp John Hay.
By Resolution7 of September 29, 1993, the Sangguniang
Panlungsod of Baguio City (the sanggunian) officially asked
BCDA to exclude all the barangays partly or totally located
within Camp John Hay from the reach or coverage of any plan
or program for its development.
By a subsequent Resolution8 dated January 19, 1994, the

sanggunian sought from BCDA an abdication, waiver or

quitclaim of its ownership over the home lots being occupied
by residents of nine (9) barangays surrounding the military
reservation.
Still by another resolution passed on February 21, 1994, the
sanggunian adopted and submitted to BCDA a 15-point
concept for the development of Camp John Hay. 9 The
sanggunian's vision expressed, among other things, a kind of
development that affords protection to the environment, the
making of a family-oriented type of tourist destination, priority
in employment opportunities for Baguio residents and free
access to the base area, guaranteed participation of the city
government in the management and operation of the camp,
exclusion of the previously named nine barangays from the
area for development, and liability for local taxes of businesses
to be established within the camp.10
BCDA, Tuntex and AsiaWorld agreed to some, but rejected or
modified the other proposals of the sanggunian.11 They
stressed the need to declare Camp John Hay a SEZ as a
condition precedent to its full development in accordance with
the mandate of R.A. No. 7227.12
On May 11, 1994, the sanggunian passed a resolution
requesting the Mayor to order the determination of realty taxes
which may otherwise be collected from real properties of Camp
John Hay.13 The resolution was intended to intelligently guide
the sanggunian in determining its position on whether Camp
John Hay be declared a SEZ, it (the sanggunian) being of the
view that such declaration would exempt the camp's property
and the economic activity therein from local or national
taxation.
More than a month later, however, the sanggunian passed
Resolution No. 255, (Series of 1994),14 seeking and
supporting, subject to its concurrence, the issuance by then
President Ramos of a presidential proclamation declaring an
area of 288.1 hectares of the camp as a SEZ in accordance
with the provisions of R.A. No. 7227. Together with this
resolution was submitted a draft of the proposed proclamation
for consideration by the President.15
On July 5, 1994 then President Ramos issued Proclamation
No. 420,16 the title of which was earlier indicated, which
established a SEZ on a portion of Camp John Hay and which
reads as follows:
xxx
Pursuant to the powers vested in me by the law and the
resolution of concurrence by the City Council of Baguio, I,
FIDEL V. RAMOS, President of the Philippines, do hereby
create and designate a portion of the area covered by the
former John Hay reservation as embraced, covered, and
defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America, as amended, as
the John Hay Special Economic Zone, and accordingly order:
SECTION 1. Coverage of John Hay Special Economic Zone. The John Hay Special Economic Zone shall cover the area
consisting of Two Hundred Eighty Eight and one/tenth (288.1)
hectares, more or less, of the total of Six Hundred SeventySeven (677) hectares of the John Hay Reservation, more or
less, which have been surveyed and verified by the
Department of Environment and Natural Resources (DENR) as

defined by the following technical description:

A parcel of land, situated in the City of Baguio, Province of
Benguet, Island of Luzon, and particularly described in survey
plans Psd-131102-002639 and Ccs-131102-000030 as
approved on 16 August 1993 and 26 August 1993,
respectively, by the Department of Environment and Natural
Resources, in detail containing:
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot
15, and Lot 20 of Ccs-131102-000030
-andLot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot
14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd-131102-002639
being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT
AND ONE/TENTH HECTARES (288.1 hectares); Provided that
the area consisting of approximately Six and two/tenth (6.2)
hectares, more or less, presently occupied by the VOA and the
residence of the Ambassador of the United States, shall be
considered as part of the SEZ only upon turnover of the
properties to the government of the Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special Economic
Zone. - Pursuant to Section 15 of R.A. No. 7227, the Bases
Conversion and Development Authority is hereby established
as the governing body of the John Hay Special Economic Zone
and, as such, authorized to determine the utilization and
disposition of the lands comprising it, subject to private rights, if
any, and in consultation and coordination with the City
Government of Baguio after consultation with its inhabitants,
and to promulgate the necessary policies, rules, and
regulations to govern and regulate the zone thru the John Hay
Poro Point Development Corporation, which is its implementing
arm for its economic development and optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic
Zone. - Pursuant to Section 5(m) and Section 15 of R.A. No.
7227, the John Hay Poro Point Development Corporation shall
implement all necessary policies, rules, and regulations
governing the zone, including investment incentives, in
consultation with pertinent government departments. Among
others, the zone shall have all the applicable incentives of the
Special Economic Zone under Section 12 of R.A. No. 7227 and
those applicable incentives granted in the Export Processing
Zones, the Omnibus Investment Code of 1987, the Foreign
Investment Act of 1991, and new investment laws that may
hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and
Instrumentalities. - All Heads of departments, bureaus, offices,
agencies, and instrumentalities of the government are hereby
directed to give full support to Bases Conversion and
Development Authority and/or its implementing subsidiary or
joint venture to facilitate the necessary approvals to expedite
the implementation of various projects of the conversion
program.
Sec. 5. Local Authority. - Except as herein provided, the
affected local government units shall retain their basic
autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and regulations,

or parts thereof, which are inconsistent with the provisions of

this Proclamation, are hereby repealed, amended, or modified
accordingly.
Sec. 7. Effectivity. This proclamation shall take effect
immediately.
Done in the City of Manila, this 5th day of July, in the year of
Our Lord, nineteen hundred and ninety-four.
The issuance of Proclamation No. 420 spawned the present
petition17 for prohibition, mandamus and declaratory relief
which was filed on April 25, 1995 challenging, in the main, its
constitutionality or validity as well as the legality of the
Memorandum of Agreement and Joint Venture Agreement
between public respondent BCDA and private respondents
Tuntex and AsiaWorld.
Petitioners allege as grounds for the allowance of the petition
the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF
1990 (sic) IN SO FAR AS IT GRANTS TAX EXEMPTIONS IS
INVALID AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL
EXERCISE BY THE PRESIDENT OF A POWER GRANTED
ONLY TO THE LEGISLATURE.
II .PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS
IT LIMITS THE POWERS AND INTERFERES WITH THE
AUTONOMY OF THE CITY OF BAGUIO IS INVALID, ILLEGAL
AND UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF
1994 IS UNCONSTITUTIONAL IN THAT IT VIOLATES THE
RULE THAT ALL TAXES SHOULD BE UNIFORM AND
EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO
BY AND BETWEEN PRIVATE AND PUBLIC RESPONDENTS
BASES
CONVERSION
DEVELOPMENT
AUTHORITY
HAVING BEEN ENTERED INTO ONLY BY DIRECT
NEGOTIATION IS ILLEGAL.
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM
OF AGREEMENT ENTERED INTO BY AND BETWEEN
PRIVATE
AND
PUBLIC
RESPONDENT
BASES
CONVERSION DEVELOPMENT AUTHORITY IS (sic)
ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF
RESPONDENTS
NOT
HAVING
UNDERGONE
ENVIRONMENTAL IMPACT ASSESSMENT IS BEING
ILLEGALLY
CONSIDERED
WITHOUT
A
VALID
ENVIRONMENTAL IMPACT ASSESSMENT.
A temporary restraining order and/or writ of preliminary
injunction was prayed for to enjoin BCDA, John Hay Poro Point
Development Corporation and the city government from
implementing Proclamation No. 420, and Tuntex and
AsiaWorld from proceeding with their plan respecting Camp
John Hay's development pursuant to their Joint Venture
Agreement with BCDA.18
Public respondents, by their separate Comments, allege as
moot and academic the issues raised by the petition, the

questioned Memorandum of Agreement and Joint Venture

Agreement having already been deemed abandoned by the
inaction of the parties thereto prior to the filing of the petition as
in fact, by letter of November 21, 1995, BCDA formally notified
Tuntex and AsiaWorld of the revocation of their said
agreements.19
In maintaining the validity of Proclamation No. 420,
respondents contend that by extending to the John Hay SEZ
economic incentives similar to those enjoyed by the Subic SEZ
which was established under R.A. No. 7227, the proclamation
is merely implementing the legislative intent of said law to turn
the US military bases into hubs of business activity or
investment. They underscore the point that the government's
policy of bases conversion can not be achieved without
extending the same tax exemptions granted by R.A. No. 7227
to Subic SEZ to other SEZs.
Denying that Proclamation No. 420 is in derogation of the local
autonomy of Baguio City or that it is violative of the
constitutional guarantee of equal protection, respondents
assail petitioners' lack of standing to bring the present suit
even as taxpayers and in the absence of any actual case or
controversy to warrant this Court's exercise of its power of
judicial review over the proclamation.
Finally, respondents seek the outright dismissal of the petition
for having been filed in disregard of the hierarchy of courts and
of the doctrine of exhaustion of administrative remedies.
Replying,20 petitioners aver that the doctrine of exhaustion of
administrative remedies finds no application herein since they
are invoking the exclusive authority of this Court under Section
21 of R.A. No. 7227 to enjoin or restrain implementation of
projects for conversion of the base areas; that the established
exceptions to the aforesaid doctrine obtain in the present
petition; and that they possess the standing to bring the
petition which is a taxpayer's suit.
Public respondents have filed their Rejoinder
have filed their respective memoranda.

21

and the parties

Before dwelling on the core issues, this Court shall first

address the preliminary procedural questions confronting the
petition.
The judicial policy is and has always been that this Court will
not entertain direct resort to it except when the redress sought
cannot be obtained in the proper courts, or when exceptional
and compelling circumstances warrant availment of a remedy
within and calling for the exercise of this Court's primary
jurisdiction.22 Neither will it entertain an action for declaratory
relief, which is partly the nature of this petition, over which it
has no original jurisdiction.
Nonetheless, as it is only this Court which has the power
under Section 2123 of R.A. No. 7227 to enjoin implementation
of projects for the development of the former US military
reservations, the issuance of which injunction petitioners pray
for, petitioners' direct filing of the present petition with it is
allowed. Over and above this procedural objection to the
present suit, this Court retains full discretionary power to take
cognizance of a petition filed directly to it if compelling reasons,
or the nature and importance of the issues raised, warrant. 24
Besides, remanding the case to the lower courts now would
just unduly prolong adjudication of the issues.

The transformation of a portion of the area covered by Camp

John Hay into a SEZ is not simply a re-classification of an
area, a mere ascription of a status to a place. It involves
turning the former US military reservation into a focal point for
investments by both local and foreign entities. It is to be made
a site of vigorous business activity, ultimately serving as a spur
to the country's long awaited economic growth. For, as R.A.
No. 7227 unequivocally declares, it is the government's policy
to enhance the benefits to be derived from the base areas in
order to promote the economic and social development of
Central Luzon in particular and the country in general.25 Like
the Subic SEZ, the John Hay SEZ should also be turned into a
"self-sustaining, industrial, commercial, financial and
investment center."26
More than the economic interests at stake, the development of
Camp John Hay as well as of the other base areas
unquestionably has critical links to a host of environmental and
social concerns. Whatever use to which these lands will be
devoted will set a chain of events that can affect one way or
another the social and economic way of life of the communities
where the bases are located, and ultimately the nation in
general.
Underscoring the fragility of Baguio City's ecology with its
problem on the scarcity of its water supply, petitioners point out
that the local and national government are faced with the
challenge of how to provide for an ecologically sustainable,
environmentally sound, equitable transition for the city in the
wake of Camp John Hay's reversion to the mass of
government property.27 But that is why R.A. No. 7227
emphasizes the "sound and balanced conversion of the Clark
and Subic military reservations and their extensions consistent
with ecological and environmental standards."28 It cannot thus
be gainsaid that the matter of conversion of the US bases into
SEZs, in this case Camp John Hay, assumes importance of a
national magnitude.
Convinced then that the present petition embodies crucial
issues, this Court assumes jurisdiction over the petition.
As far as the questioned agreements between BCDA and
Tuntex and AsiaWorld are concerned, the legal questions
being raised thereon by petitioners have indeed been rendered
moot and academic by the revocation of such agreements.
There are, however, other issues posed by the petition, those
which center on the constitutionality of Proclamation No. 420,
which have not been mooted by the said supervening event
upon application of the rules for the judicial scrutiny of
constitutional cases. The issues boil down to:
(1)

Whether the present petition complies with the requirements for th

(2)

Whether Proclamation No. 420 is constitutional by providing for n

the John Hay Special Economic Zone; and

(3)

Whether Proclamation No. 420 is constitutional for limiting or inte

It is settled that when questions of constitutional significance

are raised, the court can exercise its power of judicial review
only if the following requisites are present: (1) the existence of

an actual and appropriate case; (2) a personal and substantial

interest of the party raising the constitutional question; (3) the
exercise of judicial review is pleaded at the earliest opportunity;
and (4) the constitutional question is the lis mota of the case.29
An actual case or controversy refers to an existing case or
controversy that is appropriate or ripe for determination, not
conjectural or anticipatory.30 The controversy needs to be
definite and concrete, bearing upon the legal relations of
parties who are pitted against each other due to their adverse
legal interests.31 There is in the present case a real clash of
interests and rights between petitioners and respondents
arising from the issuance of a presidential proclamation that
converts a portion of the area covered by Camp John Hay into
a SEZ, the former insisting that such proclamation contains
unconstitutional provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires the concurrence of the
affected local government units to the creation of SEZs out of
all the base areas in the country.32 The grant by the law on
local government units of the right of concurrence on the
bases' conversion is equivalent to vesting a legal standing on
them, for it is in effect a recognition of the real interests that
communities nearby or surrounding a particular base area
have in its utilization. Thus, the interest of petitioners, being
inhabitants of Baguio, in assailing the legality of Proclamation
No. 420, is personal and substantial such that they have
sustained or will sustain direct injury as a result of the
government act being challenged.33 Theirs is a material
interest, an interest in issue affected by the proclamation and
not merely an interest in the question involved or an incidental
interest,34 for what is at stake in the enforcement of
Proclamation No. 420 is the very economic and social
existence of the people of Baguio City.
Petitioners' locus standi parallels that of the petitioner and
other residents of Bataan, specially of the town of Limay, in
Garcia v. Board of Investments 35 where this Court
characterized their interest in the establishment of a
petrochemical plant in their place as actual, real, vital and
legal, for it would affect not only their economic life but even
the air they breathe.

likewise no question that they have been complied with in the

case at bar. This is an action filed purposely to bring forth
constitutional issues, ruling on which this Court must take up.
Besides, respondents never raised issues with respect to these
requisites, hence, they are deemed waived.
Having cleared the way for judicial review, the constitutionality
of Proclamation No. 420, as framed in the second and third
issues above, must now be addressed squarely.
The second issue refers to petitioners' objection against the
creation by Proclamation No. 420 of a regime of tax exemption
within the John Hay SEZ. Petitioners argue that nowhere in R.
A. No. 7227 is there a grant of tax exemption to SEZs yet to
be established in base areas, unlike the grant under Section
12 thereof of tax exemption and investment incentives to the
therein established Subic SEZ. The grant of tax exemption to
the John Hay SEZ, petitioners conclude, thus contravenes
Article VI, Section 28 (4) of the Constitution which provides that
"No law granting any tax exemption shall be passed without
the concurrence of a majority of all the members of Congress."
Section 3 of Proclamation No. 420, the challenged provision,
reads:
Sec. 3. Investment Climate in John Hay Special Economic
Zone. - Pursuant to Section 5(m) and Section 15 of R.A. No.
7227, the John Hay Poro Point Development Corporation shall
implement all necessary policies, rules, and regulations
governing the zone, including investment incentives, in
consultation with pertinent government departments. Among
others, the zone shall have all the applicable incentives of
the Special Economic Zone under Section 12 of R.A. No.
7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investment Code of 1987,
the Foreign Investment Act of 1991, and new investment
laws that may hereinafter be enacted. (Emphasis and
underscoring supplied)
Upon the other hand, Section 12 of R.A. No. 7227 provides:
xxx

Moreover, petitioners Edilberto T. Claravall and Lilia G.

Yaranon were duly elected councilors of Baguio at the time,
engaged in the local governance of Baguio City and whose
duties included deciding for and on behalf of their constituents
the question of whether to concur with the declaration of a
portion of the area covered by Camp John Hay as a SEZ.
Certainly then, petitioners Claravall and Yaranon, as city
officials who voted against36 the sanggunian Resolution No.
255 (Series of 1994) supporting the issuance of the now
challenged Proclamation No. 420, have legal standing to bring
the present petition.
That there is herein a dispute on legal rights and interests is
thus beyond doubt. The mootness of the issues concerning the
questioned agreements between public and private
respondents is of no moment.
"By the mere enactment of the questioned law or the approval
of the challenged act, the dispute is deemed to have ripened
into a judicial controversy even without any other overt act.
Indeed, even a singular violation of the Constitution and/or the
law is enough to awaken judicial duty."37
As to the third and fourth requisites of a judicial inquiry, there is

(a) Within the framework and subject to the mandate and

limitations of the Constitution and the pertinent provisions of
the Local Government Code, the Subic Special Economic
Zone shall be developed into a self-sustaining, industrial,
commercial, financial and investment center to generate
employment opportunities in and around the zone and to
attract and promote productive foreign investments;
b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide
incentives such as tax and duty free importations of raw
materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the
Philippines;
(c) The provisions of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special Economic Zone. In lieu of

paying taxes, three percent (3%) of the gross income earned

by all businesses and enterprises within the Subic Special
Economic Zone shall be remitted to the National Government,
one percent (1%) each to the local government units affected
by the declaration of the zone in proportion to their population
area, and other factors. In addition, there is hereby established
a development fund of one percent (1%) of the gross income
earned by all businesses and enterprises within the Subic
Special Economic Zone to be utilized for the Municipality of
Subic, and other municipalities contiguous to be base areas. In
case of conflict between national and local laws with respect to
tax exemption privileges in the Subic Special Economic Zone,
the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free
markets for foreign exchange, gold, securities and futures shall
be allowed and maintained in the Subic Special Economic
Zone;
(e) The Central Bank, through the Monetary Board, shall
supervise and regulate the operations of banks and other
financial institutions within the Subic Special Economic Zone;
(f) Banking and Finance shall be liberalized with the
establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks
with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone
whose continuing investment shall not be less than Two
Hundred fifty thousand dollars ($250,000), his/her spouse and
dependent children under twenty-one (21) years of age, shall
be granted permanent resident status within the Subic Special
Economic Zone. They shall have freedom of ingress and
egress to and from the Subic Special Economic Zone without
any need of special authorization from the Bureau of
Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue
working visas renewable every two (2) years to foreign
executives and other aliens possessing highly-technical skills
which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and
Employment. The names of aliens granted permanent
residence status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after
issuance thereof;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only the
Subic SEZ which was granted by Congress with tax
exemption, investment incentives and the like. There is no
express extension of the aforesaid benefits to other SEZs still
to be created at the time via presidential proclamation.
The deliberations of the Senate confirm the exclusivity to Subic
SEZ of the tax and investment privileges accorded it under the
law, as the following exchanges between our lawmakers show
during the second reading of the precursor bill of R.A. No.
7227 with respect to the investment policies that would govern
Subic SEZ which are now embodied in the aforesaid Section
12 thereof:
xxx

Senator Maceda: This is what I was talking about. We get into

problems here because all of these following policies are
centered around the concept of free port. And in the main
paragraph above, we have declared both Clark and Subic as
special economic zones, subject to these policies which are, in
effect, a free-port arrangement.
Senator Angara: The Gentleman is absolutely correct, Mr.
President. So we must confine these policies only to Subic.
May I withdraw then my amendment, and instead provide that
"THE SPECIAL ECONOMIC ZONE OF SUBIC SHALL BE
ESTABLISHED IN ACCORDANCE WITH THE FOLLOWING
POLICIES." Subject to style, Mr. President.
Thus, it is very clear that these principles and policies are
applicable only to Subic as a free port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment suggested by
Senator Angara would then prevent the establishment of other
special economic zones observing these policies.
Senator Angara: No, Mr. President, because during our short
caucus, Senator Laurel raised the point that if we give this
delegation to the President to establish other economic zones,
that may be an unwarranted delegation.
So we agreed that we will simply limit the definition of powers
and description of the zone to Subic, but that does not exclude
the possibility of creating other economic zones within the
baselands.
Senator Paterno: But if that amendment is followed, no other
special economic zone may be created under authority of this
particular bill. Is that correct, Mr. President?
Senator Angara: Under this specific provision, yes, Mr.
President. This provision now will be confined only to Subic.38
x x x (Underscoring supplied).
As gathered from the earlier-quoted Section 12 of R.A. No.
7227, the privileges given to Subic SEZ consist principally of
exemption from tariff or customs duties, national and local
taxes of business entities therein (paragraphs (b) and (c)), free
market and trade of specified goods or properties (paragraph
d), liberalized banking and finance (paragraph f), and relaxed
immigration rules for foreign investors (paragraph g). Yet, apart
from these, Proclamation No. 420 also makes available to the
John Hay SEZ benefits existing in other laws such as the
privilege of export processing zone-based businesses of
importing capital equipment and raw materials free from taxes,
duties and other restrictions;39 tax and duty exemptions, tax
holiday, tax credit, and other incentives under the Omnibus
Investments Code of 1987;40 and the applicability to the subject
zone of rules governing foreign investments in the
Philippines.41
While the grant of economic incentives may be essential to the
creation and success of SEZs, free trade zones and the like,
the grant thereof to the John Hay SEZ cannot be sustained.

The incentives under R.A. No. 7227 are exclusive only to the
Subic SEZ, hence, the extension of the same to the John Hay
SEZ finds no support therein. Neither does the same grant of
privileges to the John Hay SEZ find support in the other laws
specified under Section 3 of Proclamation No. 420, which laws
were already extant before the issuance of the proclamation or
the enactment of R.A. No. 7227.

(a) To own, hold and/or administer the military reservations of

John Hay Air Station, Wallace Air Station, O'Donnell
Transmitter Station, San Miguel Naval Communications
Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those
portions of Metro Manila Camps which may be transferred to it
by the President;
x x x (Underscoring supplied)

More importantly, the nature of most of the assailed privileges

is one of tax exemption. It is the legislature, unless limited by a
provision of the state constitution, that has full power to exempt
any person or corporation or class of property from taxation, its
power to exempt being as broad as its power to tax. 42 Other
than Congress, the Constitution may itself provide for specific
tax exemptions,43 or local governments may pass ordinances
on exemption only from local taxes.44
The challenged grant of tax exemption would circumvent the
Constitution's imposition that a law granting any tax exemption
must have the concurrence of a majority of all the members of
Congress.45 In the same vein, the other kinds of privileges
extended to the John Hay SEZ are by tradition and usage for
Congress to legislate upon.
Contrary to public respondents' suggestions, the claimed
statutory exemption of the John Hay SEZ from taxation should
be manifest and unmistakable from the language of the law on
which it is based; it must be expressly granted in a statute
stated in a language too clear to be mistaken. 46 Tax exemption
cannot be implied as it must be categorically and unmistakably
expressed.47
If it were the intent of the legislature to grant to the John Hay
SEZ the same tax exemption and incentives given to the Subic
SEZ, it would have so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political
departments of the government on either of two groundsinfringement of the Constitution or grave abuse of discretion.48
This Court then declares that the grant by Proclamation No.
420 of tax exemption and other privileges to the John Hay SEZ
is void for being violative of the Constitution. This renders it
unnecessary to still dwell on petitioners' claim that the same
grant violates the equal protection guarantee.
With respect to the final issue raised by petitioners -- that
Proclamation No. 420 is unconstitutional for being in
derogation of Baguio City's local autonomy, objection is
specifically mounted against Section 2 thereof in which BCDA
is set up as the governing body of the John Hay SEZ.49
Petitioners argue that there is no authority of the President to
subject the John Hay SEZ to the governance of BCDA which
has just oversight functions over SEZ; and that to do so is to
diminish the city government's power over an area within its
jurisdiction, hence, Proclamation No. 420 unlawfully gives the
President power of control over the local government instead
of just mere supervision.
Petitioners' arguments are bereft of merit. Under R.A. No.
7227, the BCDA is entrusted with, among other things, the
following purpose:50
xxx

With such broad rights of ownership and administration vested

in BCDA over Camp John Hay, BCDA virtually has control over
it, subject to certain limitations provided for by law. By
designating BCDA as the governing agency of the John Hay
SEZ, the law merely emphasizes or reiterates the statutory role
or functions it has been granted.
The unconstitutionality of the grant of tax immunity and
financial incentives as contained in the second sentence of
Section 3 of Proclamation No. 420 notwithstanding, the entire
assailed proclamation cannot be declared unconstitutional, the
other parts thereof not being repugnant to law or the
Constitution. The delineation and declaration of a portion of the
area covered by Camp John Hay as a SEZ was well within the
powers of the President to do so by means of a proclamation. 51
The requisite prior concurrence by the Baguio City government
to such proclamation appears to have been given in the form of
a duly enacted resolution by the sanggunian. The other
provisions of the proclamation had been proven to be
consistent with R.A. No. 7227.
Where part of a statute is void as contrary to the Constitution,
while another part is valid, the valid portion, if separable from
the invalid, may stand and be enforced.52 This Court finds that
the other provisions in Proclamation No. 420 converting a
delineated portion of Camp John Hay into the John Hay SEZ
are separable from the invalid second sentence of Section 3
thereof, hence they stand.
WHEREFORE, the second sentence of Section 3 of
Proclamation No. 420 is hereby declared NULL AND VOID and
is accordingly declared of no legal force and effect. Public
respondents are hereby enjoined from implementing the
aforesaid void provision.
Proclamation No. 420, without the invalidated portion, remains
valid and effective.
SO ORDERED.
vii. Delegation to President to fix Tariff rates, etc (Art. VI,
Sec. 28 (2))
VIII. Presidents Veto Power on Appropriation,
Revenue, Tarif
G.R. No. L-47421 May 14, 1990
COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
HON. COURT OF TAX APPEALS and MANILA GOLF
& COUNTRY CLUB, INC., respondents.
Bito, Misa & Lozada for private respondent.

MEDIALDEA, J.:
In Commissioner of Internal Revenue v. Manila Hotel
Corporation, et al., G.R. No. 83250, September 26,
1989, We overruled a decision of the Court of Tax
Appeals which declared the collection of caterer's tax
under Section 191-A of Republic Act No. 6110 illegal
because Sec. 42 of House Bill No. 17839, which carries
that proviso, was vetoed by then President Ferdinand
E. Marcos when the bill was presented to him and
Congress had not taken any step to override the
presidential veto. We held thus:
The power of the State to impose the
3% caterer's tax is not debatable. The
Court of Tax Appeals erred, however, in
holding that the tax was abolished as a
result of the presidential veto of August
4, 1969. It failed to examine the law
then, and up to now, existing on the
subject which has always imposed a
3% caterer's tax on operators of
restaurants. Since the Manila Hotel
operates restaurants in its premises, it
is liable to pay the tax provided in
paragraph (1), Section 206 of the Tax
Code.
(Commissioner
of
Internal
Revenue v. Manila Hotel Corporation
and the Court of Tax Appeals, G.R. No.
83250, September 26, 1989)
The petition now before Us presents an identical
question: whether the presidential veto referred to the
entire section or merely to the imposition of 20% tax
on gross receipts of operators or proprietors of
restaurants, refreshment parlors, bars and other eating
places which are maintained within the premises or
compound of a hotel, motel or resthouses. Reference to
the Manila Hotel case, therefore, might have been
sufficient to dispose of this petition were it not for the
position of the CTA that a chief executive has no power
to veto part of an item in a bill; either he vetoes an
entire section or approves it but not a fraction thereof.
Herein private respondent, Manila Golf & Country Club,
Inc. is a non-stock corporation. True, it maintains a golf
course and operates a clubhouse with a lounge, bar
and dining room, but these facilities are for the
exclusive use of its members and accompanied guests,
and it charges on cost-plus-expense basis. As such, it
claims it should have been exempt from payment of
privilege taxes were it not for the last paragraph of
Section 191-A of R.A. No. 6110, otherwise known as the
"Omnibus Tax Law." Section 191-A reads:
Sec. 191-A. Caterer. A caterer's tax
is hereby imposed as follows:
(1) On proprietors or operators of
restaurants, refreshment parlors and
other eating places, including clubs,
and caterers, three per cent of their
gross receipts.

(2) On proprietors or operators of

restaurants, bars, cafes and other
eating places, including clubs, where
distilled spirits, fermented liquors, or
wines are served, three per cent of
their gross receipts from sale of food or
refreshments and seven per cent of
their gross receipts from sale of
distilled spirits, fermented liquors or
wines. Two sets of commercial invoices
or receipts serially numbered in
duplicate shall be separately prepared
and
issued,
one
for
sale
of
refreshments served, and another for
each sale of distilled spirits, fermented
liquors or wines served, the originals of
the invoices or receipts to be issued to
the purchaser or customer.
(3) On proprietors or operators of
restaurants, refreshment parlors, bars,
cafes and other eating places which
are maintained within the preferences
or compound of a hotel, motel,
resthouse, cockpit, race track, jai-alai,
cabaret, night or day club by means of
a connecting door or passage twenty
per cent of their gross receipts.
Where
the
establishments
are
operated or maintained by clubs of any
kind or nature (irrespective of the
disposition of their net income and
whether or not they cater exclusively
to members or their guests) the
keepers of the establishments shall
pay the corresponding tax at the rate
fixed above. (Emphasis supplied)
Republic Act No. 6110 took effect on September 1,
1969. By this virtue, petitioners assessed the club fixed
taxes as operators of golf links and restaurants, and
also percentage tax (caterer's tax) for its sale of foods
and fermented liquors/wines for the period covering
September 1969 to December 1970 in the amount of
P32,504.96. The club protested claiming the
assessment to be without basis because Section 42
was vetoed by then President Marcos. The veto
message reads:
MALACAANG
Manila

August 4
Gentlemen of the House
of Representatives:
I have the honor to inform you that I
have this day signed H.B. No. 17839,
entitled:
AN ACT AMENDING CERTAIN

PROVISIONS
INTERNAL

OF

THE

NATIONAL

development of hotels which is essential to the tourism

industry. This in fact was the position of the House
Ways and Means Committee which reported, to wit:

REVENUE CODE, AS AMENDED

When Congress decided to split Section
191 into two parts, one dealing with
contractors, and the other dealing with
those who serve food and drinks, the
intention was to classify and to
improve. While the Congress expanded
the coverage of both 191 and 191-A, it
also provided for certain exemptions.
The veto message seems to object to
certain additions to 191-A. What
additions are objectionables can be
gleaned from the reasons given: a
general reason that this sort of tax is
passed on to the consuming public,
and a particular reason that hotel
developments, so essential to the
tourist industry, may be restrained.
These reasons have been taken
together in the interpretations of the
veto message and the deletions of
such enterprises as are connected with
the tourist industry has therefore been
recommended.

Pursuant to the provisions of Section

20-(3), Article VI, of the Constitution,
however, I have vetoed the following
items in this bill:
xxx xxx xxx
pp. 44, SEC. 42. Inserting a new
Section 191-A which imposes a
caterer's tax of three percent of the
gross receipts of proprietors or
operators of restaurants, refreshment
parlors and other eating places; three
percent of gross receipts from sale of
food or refreshment and seven percent
on gross receipts from the sale of
distilled spirits, fermented liquors or
wines, on proprietors or operators of
restaurants, bars, cafes and other
eating places, including clubs, where
distilled spirits, fermented liquors, or
wines are served; and twenty percent
of gross receipts on proprietor or
operators of restaurants, refreshment
parlors, bars, cafes and other eating
places maintained within the premises
or compound of a hotel, motel,
resthouse, cockpit, race track, jai-alai,
cabaret, night or day club, or which are
accessible
to
patrons
of
said
establishments
by
means
of
a
connecting door or passage.

To interpret the veto. message

otherwise
would
result
in
the
exemption of entities already subject of
tax. This would be absurd. Where the
Congress wanted to exempt, it was so
provided in the bill. While the President
may veto any item or items in a
revenue bill the constitution does not
give him the power to repeal an
existing tax. (2nd Indorsement dated
December 9, 1969, Chairman on Ways
and Means, Sixth Congress of the
Republic of the Phil.) (Exhs. 14, p. 85,
B.I.R. rec.). (pp. 20-21, Rollo)

The burden of petition

will be shifted to the
consuming public.
The development of
hotels, essential to our
tourist industry, may
be
restrained
considering that a big
portion
of
hotel
earnings comes from
food sale. . . .
This bill, H.B. No. 17839, has become
Republic Act No. 6110.

It was by reason of this interpretation of the Committee

that R.A. No. 6110 was published in Volume 66, No. 18,
p. 4531 of the Official Gazette (May 4, 1970) in such a
way that Section 191-A was included in the text save
for the words "hotels, motels, resthouses."
As already mentioned, the Court of Tax Appeals, upon
petition by the club, sustained the latter's position
reasoning that the veto message was clear and
unqualified, as in fact it was confirmed three years
later, after much controversy, by the Office of the
President, thus:

Respectfully,
Mr. Antero M. Sison, Jr.
(SGD.) FERDINAND E. MARCOS
San Martin Building, 1564,
[Emphasis ours]
A. Mabini, P.O. Box 2288
The protestation of the club was denied by the
petitioner who maintains that Section 42 was not
entirely vetoed but merely the words "hotels, motels,
resthouses" on the ground that it might restrain the

Manila, Philippines
Dear Sir:

With reference to your letter dated July

14, 1972, we wish to inform you that
Section 42 (which contains Sec. 191-A)
of House Bill No. 17839, now R.A. 6110
was one of the Sections vetoed by the
President in his veto message dated
August 4, 1969, vetoing certain
sections of the said revenue bill.

IX. Taxes Levied for Special Purpose (refer to the

above case)
XI. Flexible Tarif Clause
G.R. No. 170516

July 16, 2008

AKBAYAN CITIZENS ACTION PARTY ("AKBAYAN"),

PAMBANSANG
KATIPUNAN NG MGA SAMAHAN SA
Very Truly
Yours,
KANAYUNAN
("PKSK"),
ALLIANCE
OF
PROGRESSIVE LABOR ("APL"), VICENTE A. FABE,
(SGD.) IRINEO
T. AGUIRRE,
JR.
ANGELITO
R. MENDOZA,
MANUEL P. QUIAMBAO,
ROSE BEATRIX CRUZ-ANGELES, CONG. LORENZO
Presidential
R. TANADA
Staff Assistant
III, CONG. MARIO JOYO AGUJA, CONG.
LORETA ANN P. ROSALES, CONG. ANA THERESIA
HONTIVEROS-BARAQUEL, AND CONG. EMMANUEL
(p. 49, Rollo)
JOEL
J.
VILLANUEVA, Petitioners,
vs.
As mentioned earlier, We have already ruled that the
THOMAS G. AQUINO, in his capacity as
presidential veto referred merely to the inclusion of
Undersecretary of the Department of Trade and
hotels, motels and resthouses in the 20% caterer's tax
Industry (DTI) and Chairman and Chief Delegate
bracket but not to the whole section. But, as mentioned
of the Philippine Coordinating Committee (PCC)
earlier also, the CTA opined that the President could
for the Japan-Philippines Economic Partnership
not veto words or phrases in a bill but only an entire
Agreement, EDSEL T. CUSTODIO, in his capacity
item. Obviously, what the CTA meant by "item" was an
as Undersecretary of the Department of Foreign
entire section. We do not agree. But even assuming it
Afairs (DFA) and Co-Chair of the PCC for the
to be so, it would also be to petitioner's favor. The
JPEPA, EDGARDO ABON, in his capacity as
ineffectual veto by the President rendered the whole
Chairman of the Tarif Commission and lead
section 191-A as not having been vetoed at all and it,
negotiator for Competition Policy and Emergency
therefore, became law as an unconstitutional veto has
Measures of the JPEPA, MARGARITA SONGCO, in
no effect, whatsoever. (See Bolinao Electronics Corp. v.
her capacity as Assistant Director-General of the
Valeria No. L-20740, June 30, 1964, 11 SCRA 486).
National
Economic
Development
Authority
(NEDA) and lead negotiator for Trade in Services
However, We agree with then Solicitor General Estelito
and Cooperation of the JPEPA, MALOU MONTERO,
Mendoza and his associates that inclusion of hotels,
in her capacity as Foreign Service Officer I, Office
motels and resthouses in the 20% caterer's tax bracket
of the Undersecretary for International Economic
are "items" in themselves within the meaning of Sec.
Relations of the DFA and lead negotiator for the
20(3), Art. VI of the 1935 Constitution which, therefore,
General and Final Provisions of the JPEPA,
the President has the power to veto. An "item" in a
ERLINDA ARCELLANA, in her capacity as Director
revenue bill does not refer to an entire section
of the Board of Investments and lead negotiator
imposing a particular kind of tax, but rather to the
for Trade in Goods (General Rules) of the JPEPA,
subject of the tax and the tax rate. In the portion of a
RAQUEL ECHAGUE, in her capacity as lead
revenue bill which actually imposes a tax, a section
negotiator for Rules of Origin of the JPEPA,
identifies the tax and enumerates the persons liable
GALLANT SORIANO, in his official capacity as
therefor with the corresponding tax rate. To construe
Deputy Commissioner of the Bureau of Customs
the word "item" as referring to the whole section would
and lead negotiator for Customs Procedures and
tie the President's hand in choosing either to approve
Paperless Trading of the JPEPA, MA. LUISA
the whole section at the expense of also approving a
GIGETTE IMPERIAL, in her capacity as Director of
provision therein which he deems unacceptable or veto
the Bureau of Local Employment of the
the entire section at the expense of foregoing the
Department of Labor and Employment (DOLE)
collection of the kind of tax altogether. The evil which
and lead negotiator for Movement of Natural
was sought to be prevented in giving the President the
Persons of the JPEPA, PASCUAL DE GUZMAN, in
power to disapprove items in a revenue bill would be
his capacity as Director of the Board of
perpetrated rendering that power inutile (See
Investments and lead negotiator for Investment
Commonwealth ex rel. Elkin v. Barnett, 199 Pa. 161, 55
of the JPEPA, JESUS MOTOOMULL, in his capacity
LRA 882 [1901]).
as Director for the Bureau of Product Standards
of the DTI and lead negotiator for Mutual
Recognition of the JPEPA, LOUIE CALVARIO, in his
ACCORDINGLY, the petition is GRANTED and the
capacity as lead negotiator for Intellectual
decision of the Court of Tax Appeals in CTA Case No.
Property of the JPEPA, ELMER H. DORADO, in his
2630 is set aside. Section 191-A of RA No. 6110 is valid
capacity as Officer-in-Charge of the Government
and enforceable and, hence, the Manila Golf & Country
Procurement Policy Board Technical Support
Club Inc. is liable for the amount assessed against it.
Office, the government agency that is leading
the negotiations on Government Procurement of
SO ORDERED.
the JPEPA, RICARDO V. PARAS, in his capacity as
Chief State Counsel of the Department of Justice
(DOJ) and lead negotiator for Dispute Avoidance

and Settlement of the JPEPA, ADONIS SULIT, in

his capacity as lead negotiator for the General
and Final Provisions of the JPEPA, EDUARDO R.
ERMITA, in his capacity as Executive Secretary,
and ALBERTO ROMULO, in his capacity as
Secretary of the DFA,* Respondents.
DECISION
CARPIO MORALES, J.:
Petitioners

non-government
organizations,
Congresspersons, citizens and taxpayers seek via the
present petition for mandamus and prohibition to
obtain from respondents the full text of the JapanPhilippines Economic Partnership Agreement (JPEPA)
including the Philippine and Japanese offers submitted
during the negotiation process and all pertinent
attachments and annexes thereto.
Petitioners Congressmen Lorenzo R. Taada III and
Mario Joyo Aguja filed on January 25, 2005 House
Resolution No. 551 calling for an inquiry into the
bilateral trade agreements then being negotiated by
the Philippine government, particularly the JPEPA. The
Resolution became the basis of an inquiry
subsequently conducted by the House Special
Committee on Globalization (the House Committee)
into the negotiations of the JPEPA.
In the course of its inquiry, the House Committee
requested herein respondent Undersecretary Tomas
Aquino (Usec. Aquino), Chairman of the Philippine
Coordinating Committee created under Executive Order
No. 213 ("Creation of A Philippine Coordinating
Committee to Study the Feasibility of the JapanPhilippines Economic Partnership Agreement") 1 to
study and negotiate the proposed JPEPA, and to furnish
the Committee with a copy of the latest draft of the
JPEPA. Usec. Aquino did not heed the request, however.
Congressman Aguja later requested for the same
document, but Usec. Aquino, by letter of November 2,
2005, replied that the Congressman shall be provided
with a copy thereof "once the negotiations are
completed and as soon as a thorough legal review of
the proposed agreement has been conducted."
In a separate move, the House Committee, through
Congressman Herminio G. Teves, requested Executive
Secretary Eduardo Ermita to furnish it with "all
documents on the subject including the latest draft of
the proposed agreement, the requests and offers
etc."2 Acting on the request, Secretary Ermita, by letter
of June 23, 2005, wrote Congressman Teves as follows:
In its letter dated 15 June 2005 (copy enclosed), [the]
D[epartment of] F[oreign] A[ffairs] explains that the
Committees request to be furnished all
documents on the JPEPA may be difficult to
accomplish at this time, since the proposed
Agreement has been a work in progress for
about three years. A copy of the draft JPEPA will
however be forwarded to the Committee as soon as the

text thereof
supplied)

is

settled

and

complete.

(Emphasis

Congressman Aguja also requested NEDA DirectorGeneral Romulo Neri and Tariff Commission Chairman
Edgardo Abon, by letter of July 1, 2005, for copies of
the
latest
text
of
the
JPEPA.
Chairman Abon replied, however, by letter of July 12,
2005 that the Tariff Commission does not have a copy
of the documents being requested, albeit he was
certain that Usec. Aquino would provide the
Congressman with a copy "once the negotiation is
completed." And by letter of July 18, 2005, NEDA
Assistant Director-General Margarita R. Songco
informed the Congressman that his request addressed
to Director-General Neri had been forwarded to Usec.
Aquino who would be "in the best position to respond"
to the request.
In its third hearing conducted on August 31, 2005, the
House Committee resolved to issue a subpoena for the
most recent draft of the JPEPA, but the same was not
pursued
because
by
Committee
Chairman
Congressman Teves information, then House Speaker
Jose de Venecia had requested him to hold in abeyance
the issuance of the subpoena until the President gives
her consent to the disclosure of the documents. 3
Amid speculations that the JPEPA might be signed by
the Philippine government within December 2005, the
present petition was filed on December 9, 2005. 4 The
agreement was to be later signed on September 9,
2006 by President Gloria Macapagal-Arroyo and
Japanese Prime Minister Junichiro Koizumi in Helsinki,
Finland, following which the President endorsed it to
the Senate for its concurrence pursuant to Article VII,
Section 21 of the Constitution. To date, the JPEPA is still
being deliberated upon by the Senate.
The JPEPA, which will be the first bilateral free trade
agreement to be entered into by the Philippines with
another country in the event the Senate grants its
consent to it, covers a broad range of topics which
respondents enumerate as follows: trade in goods,
rules of origin, customs procedures, paperless trading,
trade in services, investment, intellectual property
rights, government procurement, movement of natural
persons, cooperation, competition policy, mutual
recognition, dispute avoidance and settlement,
improvement of the business environment, and general
and final provisions.5
While the final text of the JPEPA has now been made
accessible to the public since September 11,
2006,6respondents do not dispute that, at the time the
petition was filed up to the filing of petitioners Reply
when the JPEPA was still being negotiated the initial
drafts thereof were kept from public view.
Before delving on the substantive grounds relied upon
by petitioners in support of the petition, the Court finds
it necessary to first resolve some material procedural
issues.
Standing

For a petition for mandamus such as the one at bar to

be given due course, it must be instituted by a party
aggrieved by the alleged inaction of any tribunal,
corporation, board or person which unlawfully excludes
said party from the enjoyment of a legal
right.7 Respondents deny that petitioners have such
standing to sue. "[I]n the interest of a speedy and
definitive resolution of the substantive issues raised,"
however, respondents consider it sufficient to cite a
portion of the ruling in Pimentel v. Office of Executive
Secretary8 which emphasizes the need for a "personal
stake in the outcome of the controversy" on questions
of standing.
In a petition anchored upon the right of the people to
information on matters of public concern, which is a
public right by its very nature, petitioners need not
show that they have any legal or special interest in the
result, it being sufficient to show that they are citizens
and, therefore, part of the general public which
possesses the right.9 As the present petition is
anchored on the right to information and petitioners
are all suing in their capacity as citizens and groups of
citizens including petitioners-members of the House of
Representatives who additionally are suing in their
capacity as such, the standing of petitioners to file the
present suit is grounded in jurisprudence.
Mootness
Considering, however, that "[t]he principal relief
petitioners are praying for is the disclosure of the
contents of the JPEPA prior to its finalization between
the two States parties,"10 public disclosure of the text
of the JPEPA after its signing by the President, during
the pendency of the present petition, has been largely
rendered moot and academic.
With the Senate deliberations on the JPEPA still
pending, the agreement as it now stands cannot yet be
considered as final and binding between the two
States. Article 164 of the JPEPA itself provides that the
agreement does not take effect immediately upon the
signing thereof. For it must still go through the
procedures required by the laws of each country for its
entry into force, viz:
Article
Entry into Force

164

This Agreement shall enter into force on the thirtieth

day after the date on which the Governments of the
Parties exchange diplomatic notes informing each
other that their respective legal procedures
necessary for entry into force of this Agreement
have been completed. It shall remain in force unless
terminated as provided for in Article 165. 11 (Emphasis
supplied)
President Arroyos endorsement of the JPEPA to the
Senate for concurrence is part of the legal procedures
which must be met prior to the agreements entry into
force.

The text of the JPEPA having then been made

accessible to the public, the petition has become moot
and academic to the extent that it seeks the disclosure
of the "full text" thereof.
The petition is not entirely moot, however, because
petitioners seek to obtain, not merely the text of the
JPEPA, but also the Philippine and Japanese offers in the
course of the negotiations.12
A discussion of the substantive issues, insofar as they
impinge on petitioners demand for access to the
Philippine and Japanese offers, is thus in order.
Grounds relied upon by petitioners
Petitioners assert, first, that the refusal of the
government to disclose the documents bearing on the
JPEPA negotiations violates their right to information on
matters of public concern 13 and contravenes other
constitutional provisions on transparency, such as that
on the policy of full public disclosure of all transactions
involving public interest.14 Second, they contend that
non-disclosure of the same documents undermines
their right to effective and reasonable participation in
all levels of social, political, and economic decisionmaking.15 Lastly, they proffer that divulging the
contents of the JPEPA only after the agreement has
been concluded will effectively make the Senate into a
mere rubber stamp of the Executive, in violation of the
principle of separation of powers.
Significantly, the grounds relied upon by petitioners for
the disclosure of the latest text of the JPEPA are,
except for the last, the same as those cited for the
disclosure of the Philippine and Japanese ofers.
The first two grounds relied upon by petitioners which
bear on the merits of respondents claim of privilege
shall be discussed. The last, being purely speculatory
given that the Senate is still deliberating on the JPEPA,
shall not.
The JPEPA is a matter of public concern
To be covered by the right to information, the
information sought must meet the threshold
requirement that it be a matter of public concern.
Apropos is the teaching of Legaspi v. Civil Service
Commission:
In determining whether or not a particular information
is of public concern there is no rigid test which can be
applied. Public concern like public interest is a term
that eludes exact definition. Both terms embrace a
broad spectrum of subjects which the public may want
to know, either because these directly affect their lives,
or simply because such matters naturally arouse the
interest of an ordinary citizen. In the final analysis, it is
for the courts to determine on a case by case basis
whether the matter at issue is of interest or
importance, as it relates to or affects the
public.16(Underscoring supplied)

From the nature of the JPEPA as an international trade

agreement, it is evident that the Philippine and
Japanese offers submitted during the negotiations
towards its execution are matters of public concern.
This, respondents do not dispute. They only claim that
diplomatic negotiations are covered by the doctrine
of executive privilege, thus constituting an exception
to the right to information and the policy of full public
disclosure.
Respondents claim of privilege
It is well-established in jurisprudence that neither the
right to information nor the policy of full public
disclosure is absolute, there being matters which,
albeit of public concern or public interest, are
recognized as privileged in nature. The types of
information which may be considered privileged have
been elucidated in Almonte v. Vasquez,17 Chavez v.
PCGG,18 Chavez v. Public Estates Authority, 19 and most
recently in Senate v. Ermita20where the Court
reaffirmed the validity of the doctrine of executive
privilege in this jurisdiction and dwelt on its scope.
Whether a claim of executive privilege is valid depends
on the ground invoked to justify it and the context in
which it is made.21 In the present case, the ground for
respondents claim of privilege is set forth in
their Comment, viz:
x x x The categories of information that may be
considered privileged includes matters of diplomatic
character and under negotiation and review. In this
case, the privileged character of the diplomatic
negotiations has been categorically invoked and clearly
explained by respondents particularly respondent DTI
Senior Undersecretary.
The documents on the proposed JPEPA as well as the
text which is subject to negotiations and legal review
by the parties fall under the exceptions to the right of
access to information on matters of public concern and
policy of public disclosure. They come within the
coverage of executive privilege. At the time when the
Committee was requesting for copies of such
documents, the negotiations were ongoing as they are
still now and the text of the proposed JPEPA is still
uncertain and subject to change. Considering the
status and nature of such documents then and now,
these are evidently covered by executive privilege
consistent with existing legal provisions and settled
jurisprudence.
Practical and strategic considerations likewise counsel
against the disclosure of the "rolling texts" which may
undergo radical change or portions of which may be
totally abandoned. Furthermore, the negotiations of
the representatives of the Philippines as well as
of Japan must be allowed to explore alternatives
in the course of the negotiations in the same
manner as judicial deliberations and working
drafts
of
opinions
are
accorded
strict
confidentiality.22 (Emphasis
and
underscoring
supplied)

The ground relied upon by respondents is thus not

simply that the information sought involves a
diplomatic matter, but that it pertains to diplomatic
negotiations then in progress.
Privileged character of diplomatic negotiations
The privileged character of diplomatic negotiations has
been recognized in this jurisdiction. In discussing valid
limitations on the right to information, the Court
in Chavez v. PCGG held that "information on intergovernment exchanges prior to the conclusion of
treaties and executive agreements may be subject to
reasonable safeguards for the sake of national
interest."23 Even earlier, the same privilege was upheld
in Peoples Movement for Press Freedom (PMPF) v.
Manglapus24 wherein the Court discussed the reasons
for the privilege in more precise terms.
In PMPF v. Manglapus, the therein petitioners were
seeking
information
from
the
Presidents
representatives on the state of the then on-going
negotiations
of
the
RP-US
Military
Bases
Agreement.25 The Court denied the petition, stressing
that
"secrecy
of
negotiations with
foreign
countries is not violative of the constitutional
provisions of freedom of speech or of the press nor of
the freedom of access to information." The
Resolution went on to state, thus:
The nature of diplomacy requires centralization
of authority and expedition of decision which are
inherent in executive action. Another essential
characteristic of diplomacy is its confidential
nature.Although much has been said about "open"
and "secret" diplomacy, with disparagement of the
latter, Secretaries of State Hughes and Stimson have
clearly analyzed and justified the practice. In the words
of Mr. Stimson:
"A complicated negotiation . . . cannot be carried
through without many, many private talks and
discussion, man to man; many tentative
suggestions and proposals. Delegates from other
countries come and tell you in confidence of
their troubles at home and of their diferences
with
other
countries
and
with
other
delegates; they tell you of what they would do
under certain circumstances and would not do
under
other
circumstances.
.
. If
these
reports . . . should become public . . . who would
ever trust American Delegations in another
conference? (United States Department of State,
Press Releases, June 7, 1930, pp. 282-284.)."
xxxx
There is frequent criticism of the secrecy in
which negotiation with foreign powers on nearly
all subjects is concerned. This, it is claimed, is
incompatible
with
the
substance
of
democracy. As expressed by one writer, "It can be
said that there is no more rigid system of silence
anywhere in the world." (E.J. Young, Looking Behind the
Censorship, J. B. Lippincott Co., 1938) President Wilson
in starting his efforts for the conclusion of the World

War declared that we must have "open covenants,

openly arrived at." He quickly abandoned his thought.
No one who has studied the question believes that
such a method of publicity is possible. In the moment
that negotiations are started, pressure groups
attempt to "muscle in." An ill-timed speech by
one of the parties or a frank declaration of the
concession which are exacted or ofered on both
sides
would
quickly
lead
to
widespread
propaganda to block the negotiations. After a
treaty has been drafted and its terms are fully
published, there is ample opportunity for
discussion before it is approved. (The New
American Government and Its Works, James T. Young,
4th Edition, p. 194) (Emphasis and underscoring
supplied)
Still in PMPF v. Manglapus, the Court adopted the
doctrine in U.S. v. Curtiss-Wright Export Corp.26 that the
President is the sole organ of the nation in its
negotiations with foreign countries, viz:
"x x x In this vast external realm, with its important,
complicated, delicate and manifold problems, the
President alone has the power to speak or listen as a
representative of the nation. He makes treaties with
the advice and consent of the Senate; but he alone
negotiates. Into the field of negotiation the Senate
cannot intrude; and Congress itself is powerless to
invade it. As Marshall said in his great argument of
March 7, 1800, in the House of Representatives,"The
President is the sole organ of the nation in its
external relations, and its sole representative
with foreign nations." Annals, 6th Cong., col. 613. . .
(Emphasis supplied; underscoring in the original)
Applying the principles adopted in PMPF v. Manglapus,
it is clear that while the final text of the JPEPA may not
be kept perpetually confidential since there should be
"ample opportunity for discussion before [a treaty] is
approved" the offers exchanged by the parties during
the negotiations continue to be privileged even after
the JPEPA is published. It is reasonable to conclude that
the Japanese representatives submitted their offers
with
the
understanding
that
"historic
confidentiality"27 would govern the same. Disclosing
these offers could impair the ability of the Philippines
to deal not only with Japan but with other foreign
governments in future negotiations.
A ruling that Philippine offers in treaty negotiations
should now be open to public scrutiny would
discourage future Philippine representatives from
frankly expressing their views during negotiations.
While, on first impression, it appears wise to deter
Philippine
representatives
from
entering
into
compromises, it bears noting that treaty negotiations,
or any negotiation for that matter, normally involve a
process of quid pro quo, and oftentimes negotiators
have to be willing to grant concessions in an
area of lesser importance in order to obtain
more favorable terms in an area of greater
national interest. Apropos are the following
observations of Benjamin S. Duval, Jr.:

x x x [T]hose involved in the practice of negotiations

appear to be in agreement that publicity leads to
"grandstanding," tends to freeze negotiating positions,
and inhibits the give-and-take essential to successful
negotiation. As Sissela Bok points out, if "negotiators
have more to gain from being approved by their own
sides than by making a reasoned agreement with
competitors or adversaries, then they are inclined to
'play to the gallery . . .'' In fact, the public reaction
may leave them little option. It would be a brave, or
foolish, Arab leader who expressed publicly a
willingness for peace with Israel that did not involve
the return of the entire West Bank, or Israeli leader who
stated publicly a willingness to remove Israel's existing
settlements from Judea and Samaria in return for
peace.28 (Emphasis supplied)
Indeed, by hampering the ability of our representatives
to compromise, we may be jeopardizing higher national
goals for the sake of securing less critical ones.
Diplomatic negotiations, therefore, are recognized as
privileged in this jurisdiction, the JPEPA negotiations
constituting no exception. It bears emphasis, however,
that such privilege is only presumptive. For as Senate
v. Ermita holds, recognizing a type of information as
privileged does not mean that it will be considered
privileged in all instances. Only after a consideration of
the context in which the claim is made may it be
determined if there is a public interest that calls for the
disclosure of the desired information, strong enough to
overcome its traditionally privileged status.
Whether petitioners have established the presence of
such a public interest shall be discussed later. For now,
the Court shall first pass upon the arguments raised by
petitioners against the application of PMPF v.
Manglapus to the present case.
Arguments profered by petitioners against the
application of PMPF v. Manglapus
Petitioners argue that PMPF v. Manglapus cannot be
applied in toto to the present case, there
being substantial factual distinctions between the two.
To petitioners, the first and most fundamental
distinction lies in the nature of the treaty involved.
They stress thatPMPF v. Manglapus involved the
Military Bases Agreement which necessarily pertained
to matters affecting national security; whereas the
present case involves an economic treaty that seeks to
regulate trade and commerce between the Philippines
and Japan, matters which, unlike those covered by the
Military Bases Agreement, are not so vital to national
security to disallow their disclosure.
Petitioners argument betrays a faulty assumption that
information, to be considered privileged, must involve
national security. The recognition in Senate v.
Ermita29 that executive privilege has encompassed
claims of varying kinds, such that it may even be more
accurate to speak of "executive privileges," cautions
against such generalization.

While there certainly are privileges grounded on the

necessity of safeguarding national security such as
those involving military secrets, not all are founded
thereon. One example is the "informers privilege," or
the privilege of the Government not to disclose the
identity of a person or persons who furnish information
of violations of law to officers charged with the
enforcement of that law.30 The suspect involved need
not be so notorious as to be a threat to national
security for this privilege to apply in any given
instance.
Otherwise,
the
privilege
would
be
inapplicable in all but the most high-profile cases, in
which case not only would this be contrary to longstanding practice. It would also be highly prejudicial to
law enforcement efforts in general.
Also illustrative is the privilege accorded to presidential
communications, which are presumed privileged
without distinguishing between those which involve
matters of national security and those which do not,
the rationale for the privilege being that
x x x [a] frank exchange of exploratory ideas and
assessments, free from the glare of publicity and
pressure by interested parties, is essential to
protect the independence of decision-making of
those tasked to exercise Presidential, Legislative and
Judicial power. x x x31 (Emphasis supplied)
In the same way that the privilege for judicial
deliberations does not depend on the nature of the
case deliberated upon, so presidential communications
are privileged whether they involve matters of national
security.
It bears emphasis, however, that the privilege
accorded to presidential communications is not
absolute, one significant qualification being that "the
Executive cannot, any more than the other branches of
government, invoke a general confidentiality privilege
to shield
its
officials
and
employees
from
investigations by the proper governmental institutions
into possible criminal wrongdoing." 32 This qualification
applies whether the privilege is being invoked in the
context of a judicial trial or a congressional
investigation conducted in aid of legislation. 33

Closely related to the "presidential communications"

privilege is the deliberative process privilege
recognized in the United States. As discussed by the
U.S. Supreme Court in NLRB v. Sears, Roebuck &
Co,34 deliberative process covers documents reflecting
advisory opinions, recommendations and deliberations
comprising part of a process by which governmental
decisions and policies are formulated. Notably, the
privileged status of such documents rests,not on the
need to protect national security but, on the
"obvious realization that officials will not communicate
candidly among themselves if each remark is a
potential item of discovery and front page news," the
objective of the privilege being to enhance the quality
of
agency
decisionshttp://web2.westlaw.com/find/default.wl?
rs=WLW7.07&serialnum=1975129772&fn=_top&sv=S
plit&tc=-1&findtype=Y&tf=-1&db=708&utid=
%7b532A6DBF-9B4C-4A5A-8F16C20D9BAA36C4%7d&vr=2.0&rp=%2ffind
%2fdefault.wl&mt=WLIGeneralSubscription. 35
The diplomatic negotiations privilege bears a close
resemblance to the deliberative process and
presidential communications privilege. It may be
readily perceived that the rationale for the confidential
character of diplomatic negotiations, deliberative
process, and presidential communications is similar, if
not identical.
The earlier discussion on PMPF v. Manglapus36 shows
that the privilege for diplomatic negotiations is meant
to encourage a frank exchange of exploratory ideas
between the negotiating parties by shielding such
negotiations from public view. Similar to the privilege
for presidential communications, the diplomatic
negotiations privilege seeks, through the same means,
to protect the independence in decision-making of the
President, particularly in its capacity as "the sole organ
of the nation in its external relations, and its sole
representative with foreign nations." And, as with the
deliberative process privilege, the privilege accorded to
diplomatic negotiations arises, not on account of the
content of the information per se, but because the
information is part of a process of deliberation which,
in pursuit of the public interest, must be presumed
confidential.
The decision of the U.S. District Court, District of
Columbia in Fulbright & Jaworski v. Department of the
Treasury37enlightens on the close relation between
diplomatic negotiations and deliberative process
privileges. The plaintiffs in that case sought access to
notes taken by a member of the U.S. negotiating team
during the U.S.-French taxtreaty negotiations. Among
the points noted therein were the issues to be
discussed, positions which the French and U.S. teams
took on some points, the draft language agreed on,
and articles which needed to be amended. Upholding
the confidentiality of those notes, Judge Green ruled,
thus:
Negotiations between two countries to draft a
treaty represent a true example of a deliberative
process. Much give-and-take must occur for the
countries to reach an accord. A description of the
negotiations at any one point would not provide an

onlooker a summary of the discussions which could

later be relied on as law. It would not be "working law"
as the points discussed and positions agreed on would
be subject to change at any date until the treaty was
signed by the President and ratified by the Senate.
The policies behind the deliberative process
privilege support
non-disclosure. Much
harm
could accrue to the negotiations process if these
notes were revealed. Exposure of the preagreement positions of the French negotiators
might well ofend foreign governments and
would lead to less candor by the U. S. in
recording the events of the negotiations
process. As several months pass in between
negotiations, this lack of record could hinder readily
the U. S. negotiating team. Further disclosure would
reveal prematurely adopted policies. If these policies
should be changed, public confusion would result
easily.
Finally, releasing these snapshot views of the
negotiations would be comparable to releasing
drafts of the treaty, particularly when the notes
state the tentative provisions and language
agreed on. As drafts of regulations typically are
protected
by
the
deliberative
process
privilege, Arthur Andersen & Co. v. Internal Revenue
Service, C.A. No. 80-705 (D.C.Cir., May 21, 1982),
drafts of treaties should be accorded the same
protection. (Emphasis and underscoring supplied)
Clearly, the privilege accorded to diplomatic
negotiations follows as a logical consequence from the
privileged character of the deliberative process.
The Court is not unaware that in Center for
International Environmental Law (CIEL), et al. v. Office
of U.S. Trade Representative 38 where the plaintiffs
sought information relating to the just-completed
negotiation of a United States-Chile Free Trade
Agreement the same district court, this time under
Judge Friedman, consciously refrained from applying
the doctrine in Fulbright and ordered the disclosure of
the information being sought.
Since the factual milieu in CIEL seemed to call for the
straight application of the doctrine in Fulbright, a
discussion of why the district court did not apply the
same would help illumine this Courts own reasons for
deciding the present case along the lines of Fulbright.
In both Fulbright and CIEL, the U.S. government cited a
statutory basis for withholding information, namely,
Exemption 5 of the Freedom of Information Act
(FOIA).39 In order to qualify for protection under
Exemption 5, a document must satisfy two conditions:
(1) it must be either inter-agency or intra-agency in
nature, and (2) it must be both pre-decisional and
part of the agency's deliberative or decisionmaking process.40
Judge Friedman, in CIEL, himself cognizant of a
"superficial similarity of context" between the two
cases, based his decision on what he perceived to be a
significant distinction: he found the negotiators notes

that were sought inFulbright to be "clearly internal,"

whereas the documents being sought in CIEL were
those produced by or exchanged with an outside party,
i.e. Chile. The documents subject of Fulbright being
clearly internal in character, the question of disclosure
therein turned not on the threshold requirement of
Exemption 5 that the document be inter-agency, but on
whether the documents were part of the agency's predecisional deliberative process. On this basis, Judge
Friedman found that "Judge Green's discussion [in
Fulbright] of the harm that could result from disclosure
therefore is irrelevant, since the documents at issue
[in CIEL] are not inter-agency, and the Court
does not reach the question of deliberative
process." (Emphasis supplied)
In fine, Fulbright was not overturned. The court
in CIEL merely found the same to be irrelevant in light
of its distinct factual setting. Whether this conclusion
was valid a question on which this Court would not
pass the ruling inFulbright that "[n]egotiations
between two countries to draft a treaty represent a
true example of a deliberative process" was left
standing, since the CIEL court explicitly stated that it
did not reach the question of deliberative process.
Going back to the present case, the Court recognizes
that the information sought by petitioners includes
documents produced and communicated by a party
external to the Philippine government, namely, the
Japanese representatives in the JPEPA negotiations, and
to that extent this case is closer to the factual
circumstances ofCIEL than those of Fulbright.
Nonetheless, for reasons which shall be discussed
shortly, this Court echoes the principle articulated
in Fulbrightthat the public policy underlying the
deliberative process privilege requires that diplomatic
negotiations should also be accorded privileged status,
even if the documents subject of the present case
cannot be described as purely internal in character.
It need not be stressed that in CIEL, the court ordered
the disclosure of information based on its finding that
the first requirement of FOIA Exemption 5 that the
documents be inter-agency was not met. In
determining whether the government may validly
refuse disclosure of the exchanges between the U.S.
and Chile, it necessarily had to deal with this
requirement, it being laid down by a statute binding on
them.
In this jurisdiction, however, there is no counterpart of
the FOIA, nor is there any statutory requirement similar
to FOIA Exemption 5 in particular. Hence, Philippine
courts, when assessing a claim of privilege for
diplomatic negotiations, are more free to focus directly
on the issue of whether the privilege being claimed is
indeed supported by public policy, without having to
consider as the CIEL court did if these negotiations
fulfill a formal requirement of being "inter-agency."
Important though that requirement may be in the
context of domestic negotiations, it need not be
accorded the same significance when dealing with
international negotiations.

There being a public policy supporting a privilege for

diplomatic negotiations for the reasons explained
above, the Court sees no reason to modify, much less
abandon, the doctrine in PMPF v. Manglapus.
A second point petitioners proffer in their attempt to
differentiate PMPF v. Manglapus from the present
case is the fact that the petitioners therein consisted
entirely of members of the mass media, while
petitioners in the present case include members of the
House of Representatives who invoke their right to
information not just as citizens but as members of
Congress.
Petitioners thus conclude that the present case
involves the right of members of Congress to demand
information on negotiations of international trade
agreements from the Executive branch, a matter which
was not raised inPMPF v. Manglapus.
While
indeed
the
petitioners
in PMPF
v.
Manglapus consisted only of members of the mass
media, it would be incorrect to claim that the doctrine
laid down therein has no bearing on a controversy such
as the present, where the demand for information has
come from members of Congress, not only from private
citizens.
The privileged character accorded to diplomatic
negotiations does not ipso facto lose all force
and efect simply because the same privilege is
now
being
claimed
under
diferent
circumstances.
Theprobability of
the
claim
succeeding in the new context might differ, but to say
that the privilege, as such, has no validity at all in that
context is another matter altogether.
The Courts statement in Senate v. Ermita that
"presidential refusals to furnish information may be
actuated by any of at least three distinct kinds of
considerations [state secrets privilege, informers
privilege, and a generic privilege for internal
deliberations], and may be asserted, with difering
degrees of success, in the context of either judicial
or legislative investigations," 41 implies that a privilege,
once recognized, may be invoked under different
procedural settings. That this principle holds true
particularly with respect to diplomatic negotiations
may be inferred from PMPF v. Manglapus itself, where
the Court held that it is the President alone who
negotiates treaties, and not even the Senate or the
House of Representatives, unless asked, may intrude
upon that process.
Clearly, the privilege for diplomatic negotiations may
be invoked not only against citizens demands for
information, but also in the context of legislative
investigations.
Hence,
the
recognition
granted
in PMPF
v.
Manglapus to the privileged character of diplomatic
negotiations cannot be considered irrelevant in
resolving the present case, the contextual differences
between the two cases notwithstanding.

As third and last point raised against the application

of PMPF v. Manglapus in this case, petitioners proffer
that "the socio-political and historical contexts of the
two cases are worlds apart." They claim that the
constitutional traditions and concepts prevailing at the
time PMPF v. Manglapus came about, particularly the
school of thought that the requirements of foreign
policy and the ideals of transparency were
incompatible with each other or the "incompatibility
hypothesis," while valid when international relations
were still governed by power, politics and wars, are no
longer so in this age of international cooperation. 42
Without delving into petitioners assertions respecting
the "incompatibility hypothesis," the Court notes that
the ruling in PMPF v. Manglapus is grounded more on
the nature of treaty negotiations as such than on a
particular socio-political school of thought. If
petitioners are suggesting that the nature of treaty
negotiations have so changed that "[a]n ill-timed
speech by one of the parties or a frank declaration of
the concession which are exacted or offered on both
sides" no longer "lead[s] to widespread propaganda to
block the negotiations," or that parties in treaty
negotiations no longer expect their communications to
be governed by historic confidentiality, the burden is
on them to substantiate the same. This petitioners
failed to discharge.
Whether the privilege applies only at certain
stages of the negotiation process
Petitioners admit that "diplomatic negotiations on the
JPEPA are entitled to a reasonable amount of
confidentiality so as not to jeopardize the diplomatic
process." They argue, however, that the same is
privileged "only at certain stages of the negotiating
process, after which such information must necessarily
be revealed to the public."43 They add that the duty to
disclose this information was vested in the government
when the negotiations moved from the formulation and
exploratory stage to the firming up of definite
propositions or official recommendations, citingChavez
v. PCGG44 and Chavez v. PEA.45
The following statement in Chavez v. PEA, however,
suffices to show that the doctrine in both that case
and Chavez v. PCGG with regard to the duty to disclose
"definite propositions of the government" does not
apply to diplomatic negotiations:
We rule, therefore, that the constitutional right to
information includes official information on on-going
negotiationsbefore a final contract. The information,
however,
must
constitute definite
propositions by the government and should not
cover
recognized
exceptions like
privileged
information, military and diplomatic secrets and
similar matters afecting national security and
public order. x x x46 (Emphasis and underscoring
supplied)
It follows from this ruling that even definite
propositions of the government may not be disclosed if
they fall under "recognized exceptions." The privilege
for diplomatic negotiations is clearly among the

recognized exceptions, for the

immediately
quoted
ruling
Manglapus itself as an authority.

footnote to
cites PMPF

the
v.

Whether there is sufficient public interest to

overcome the claim of privilege
It being established that diplomatic negotiations enjoy
a presumptive privilege against disclosure, even
against the demands of members of Congress for
information, the Court shall now determine whether
petitioners have shown the existence of a public
interest sufficient to overcome the privilege in this
instance.
To clarify, there are at least two kinds of public interest
that must be taken into account. One is the presumed
public interest in favor of keeping the subject
information confidential, which is the reason for the
privilege in the first place, and the other is the public
interest in favor of disclosure, the existence of which
must be shown by the party asking for information. 47
The criteria to be employed in determining whether
there is a sufficient public interest in favor of disclosure
may be gathered from cases such as U.S. v.
Nixon,48 Senate Select Committee on Presidential
Campaign Activities v. Nixon,49 and In re Sealed Case.50
U.S. v. Nixon, which involved a claim of the presidential
communications privilege against the subpoena duces
tecum of a district court in a criminal case,
emphasized the need to balance such claim of privilege
against the constitutional duty of courts to ensure a
fair administration of criminal justice.
x x x the allowance of the privilege to withhold
evidence that is demonstrably relevant in a criminal
trial would cut deeply into the guarantee of due
process of law and gravely impair the basic
function
of
the
courts.
A
Presidents
acknowledged need for confidentiality in the
communications of his office is general in nature,
whereas the constitutional need for production
of relevant evidence in a criminal proceeding is
specific and central to the fair adjudication of a
particular criminal case in the administration of
justice.Without access to specific facts a criminal
prosecution may be totally frustrated. The Presidents
broad interest in confidentiality of communications will
not be vitiated by disclosure of a limited number of
conversations preliminarily shown to have some
bearing on the pending criminal cases. (Emphasis,
italics and underscoring supplied)
Similarly, Senate Select Committee v. Nixon,51 which
involved a claim of the presidential communications
privilege against the subpoena duces tecum of a
Senate committee, spoke of the need to balance such
claim with the duty of Congress to perform its
legislative functions.
The staged decisional structure established in Nixon v.
Sirica was designed to ensure that the President and
those upon whom he directly relies in the performance

of his duties could continue to work under a general

assurance that their deliberations would remain
confidential. So long as the presumption that the
public interest favors confidentiality can be
defeated only by a strong showing of need by
another institution of government-a showing
that the responsibilities of that institution
cannot responsibly be fulfilled without access to
records of the President's deliberations- we
believed in Nixon v. Sirica, and continue to believe,
that the effective functioning of the presidential office
will not be impaired. x x x
xxxx
The sufficiency of the Committee's showing of
need has come to depend, therefore, entirely on
whether the subpoenaed materials are critical to
the performance of its legislative functions. x x x
(Emphasis and underscoring supplied)
In re Sealed Case52 involved a claim of the deliberative
process and presidential communications privileges
against a subpoena duces tecum of a grand jury. On
the claim of deliberative process privilege, the court
stated:
The deliberative process privilege is a qualified
privilege and can be overcome by a sufficient
showing of need. This need determination is to
be made flexibly on a case-by-case, ad hoc basis.
"[E]ach time [the deliberative process privilege] is
asserted the district court must undertake a fresh
balancing of the competing interests," taking into
account factors such as "the relevance of the
evidence," "the availability of other evidence,"
"the seriousness of the litigation," "the role of
the government," and the "possibility of future
timidity by government employees. x x x
(Emphasis, italics and underscoring supplied)
Petitioners have failed to present the strong and
"sufficient showing of need" referred to in the
immediately cited cases. The arguments they proffer to
establish their entitlement to the subject documents
fall short of this standard.
Petitioners go on to assert that the non-involvement of
the Filipino people in the JPEPA negotiation process
effectively results in the bargaining away of their
economic and property rights without their knowledge
and participation, in violation of the due process clause
of the Constitution. They claim, moreover, that it is
essential for the people to have access to the initial
offers exchanged during the negotiations since only
through such disclosure can their constitutional right to
effectively participate in decision-making be brought to
life in the context of international trade agreements.
Whether it can accurately be said that the Filipino
people were not involved in the JPEPA negotiations is a
question of fact which this Court need not resolve.
Suffice it to state that respondents had presented
documents
purporting
to
show
that
public
consultations
were
conducted
on
the
JPEPA.
Parenthetically, petitioners consider these "alleged

consultations"
inadequate."53

as

"woefully

selective

and

of the national
Government.

development

program

of

the

AT ALL EVENTS, since it is not disputed that the offers

exchanged
by
the
Philippine
and
Japanese
representatives have not been disclosed to the public,
the Court shall pass upon the issue of whether access
to the documents bearing on them is, as petitioners
claim, essential to their right to participate in decisionmaking.

As to the power to negotiate treaties, the constitutional

basis thereof is Section 21 of Article VII the article on
the Executive Department which states:

The case for petitioners has, of course, been

immensely weakened by the disclosure of the full text
of the JPEPA to the public since September 11, 2006,
even as it is still being deliberated upon by the Senate
and, therefore, not yet binding on the Philippines. Were
the Senate to concur with the validity of the JPEPA at
this moment, there has already been, in the words
of PMPF v. Manglapus, "ample opportunity for
discussion before [the treaty] is approved."

The doctrine in PMPF v. Manglapus that the treatymaking power is exclusive to the President, being the
sole organ of the nation in its external relations, was
echoed in BAYAN v. Executive Secretary 56 where the
Court held:

The text of the JPEPA having been published,

petitioners have failed to convince this Court that they
will not be able to meaningfully exercise their right to
participate in decision-making unless the initial offers
are also published.
It is of public knowledge that various non-government
sectors and private citizens have already publicly
expressed their views on the JPEPA, their comments
not being limited to general observations thereon but
on its specific provisions. Numerous articles and
statements critical of the JPEPA have been posted on
the Internet.54 Given these developments, there is no
basis for petitioners claim that access to the Philippine
and Japanese offers is essential to the exercise of their
right to participate in decision-making.
Petitioner-members of the House of Representatives
additionally anchor their claim to have a right to the
subject documents on the basis of Congress inherent
power to regulate commerce, be it domestic or
international. They allege that Congress cannot
meaningfully exercise the power to regulate
international trade agreements such as the JPEPA
without being given copies of the initial offers
exchanged during the negotiations thereof. In the same
vein, they argue that the President cannot exclude
Congress from the JPEPA negotiations since whatever
power and authority the President has to negotiate
international trade agreements is derived only by
delegation of Congress, pursuant to Article VI, Section
28(2) of the Constitution and Sections 401 and 402 of
Presidential Decree No. 1464.55
The subject of Article VI Section 28(2) of the
Constitution is not the power to negotiate treaties and
international agreements, but the power to fix tariff
rates, import and export quotas, and other taxes. Thus
it provides:
(2) The Congress may, by law, authorize the President
to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework

No treaty or international agreement shall be valid and

effective unless concurred in by at least two-thirds of
all the Members of the Senate.

By constitutional fiat and by the intrinsic nature of his

office, the President, as head of State, is
the sole organ and authority in the external affairs of
the country. In many ways, the President is the chief
architect of the nation's foreign policy; his "dominance
in the field of foreign relations is (then) conceded."
Wielding vast powers and influence, his conduct in the
external affairs of the nation, as Jefferson describes, is
"executive altogether."
As regards the power to enter into treaties or
international agreements, the Constitution vests
the same in the President, subject only to the
concurrence of at least two thirds vote of all the
members of the Senate. In this light, the negotiation
of the VFA and the subsequent ratification of the
agreement are exclusive acts which pertain solely to
the President, in the lawful exercise of his vast
executive and diplomatic powersgranted him no
less than by the fundamental law itself. Into the
field of negotiation the Senate cannot intrude,
and Congress itself is powerless to invade it. x x
x (Italics in the original; emphasis and underscoring
supplied)
The same doctrine was reiterated even more recently
in Pimentel v. Executive Secretary 57 where the Court
ruled:
In our system of government, the President, being the
head of state, is regarded as the sole organ and
authority in external relations and is the
country's sole representative with foreign
nations. As the chief architect of foreign policy, the
President acts as the country's mouthpiece with
respect to international affairs. Hence, the President
is vested with the authority to deal with foreign
states and governments, extend or withhold
recognition, maintain diplomatic relations, enter into
treaties, and otherwise transact the business of
foreign relations. In the realm of treaty-making,
the President has the sole authority to negotiate
with other states.
Nonetheless,
while
the
President
has
the sole authority to negotiate and enter into
treaties, the Constitution provides a limitation to
his power by requiring the concurrence of 2/3 of

all the members of the Senate for the validity of

the treaty entered into by him. x x x (Emphasis and
underscoring supplied)
While the power then to fix tariff rates and other taxes
clearly belongs to Congress, and is exercised by the
President only by delegation of that body, it has long
been recognized that the power to enter into treaties is
vested directly and exclusively in the President, subject
only to the concurrence of at least two-thirds of all the
Members of the Senate for the validity of the treaty. In
this light, the authority of the President to enter into
trade agreements with foreign nations provided under
P.D. 146458 may be interpreted as an acknowledgment
of a power already inherent in its office. It may not be
used as basis to hold the President or its
representatives accountable to Congress for the
conduct of treaty negotiations.
This is not to say, of course, that the Presidents power
to enter into treaties is unlimited but for the
requirement of Senate concurrence, since the President
must still ensure that all treaties will substantively
conform to all the relevant provisions of the
Constitution.
It follows from the above discussion that Congress,
while possessing vast legislative powers, may not
interfere in the field of treaty negotiations. While
Article VII, Section 21 provides for Senate concurrence,
such pertains only to the validity of the treaty under
consideration, not to the conduct of negotiations
attendant to its conclusion. Moreover, it is not even
Congress as a whole that has been given the authority
to concur as a means of checking the treaty-making
power of the President, but only the Senate.
Thus, as in the case of petitioners suing in their
capacity as private citizens, petitioners-members of
the House of Representatives fail to present a
"sufficient showing of need" that the information
sought is critical to the performance of the functions of
Congress, functions that do not include treatynegotiation.
Respondents alleged failure to timely claim
executive privilege
On respondents invocation of executive privilege,
petitioners find the same defective, not having been
done seasonably as it was raised only in their
Comment to the present petition and not during the
House Committee hearings.
That respondents invoked the privilege for the first
time only in their Comment to the present petition
does not mean that the claim of privilege should not be
credited. Petitioners position presupposes that an
assertion of the privilege should have been made
during the House Committee investigations, failing
which respondents are deemed to have waived it.
When
the
House
Committee
and
petitionerCongressman Aguja requested respondents for copies
of the documents subject of this case, respondents

replied that the negotiations were still on-going and

that the draft of the JPEPA would be released once the
text thereof is settled and complete. There was no
intimation that the requested copies are confidential in
nature by reason of public policy. The response may
not thus be deemed a claim of privilege by the
standards of Senate v. Ermita, which recognizes as
claims of privilege only those which are accompanied
by precise and certain reasons for preserving
the confidentiality of the information being sought.
Respondents failure to claim the privilege during the
House Committee hearings may not, however, be
construed as a waiver thereof by the Executive branch.
As the immediately preceding paragraph indicates,
what respondents received from the House Committee
and
petitioner-Congressman
Aguja
were
mere requests for information. And as priorly stated,
the House Committee itself refrained from pursuing its
earlier resolution to issue a subpoena duces tecum on
account of then Speaker Jose de Venecias alleged
request to Committee Chairperson Congressman Teves
to hold the same in abeyance.
While it is a salutary and noble practice for Congress to
refrain from issuing subpoenas to executive officials
out of respect for their office until resort to it
becomes necessary, the fact remains that such
requests are not a compulsory process. Being mere
requests, they do not strictly call for an assertion of
executive privilege.
The privilege is an exemption to Congress power of
inquiry.59 So long as Congress itself finds no cause to
enforce such power, there is no strict necessity to
assert the privilege. In this light, respondents failure to
invoke the privilege during the House Committee
investigations did not amount to a waiver thereof.
The Court observes, however, that the claim of
privilege appearing in respondents Comment to this
petition fails to satisfy in full the requirement laid down
in Senate v. Ermita that the claim should be
invoked by the President or through the Executive
Secretary "by order of the President."60 Respondents
claim of privilege is being sustained, however, its flaw
notwithstanding, because of circumstances peculiar to
the case.
The assertion of executive privilege by the Executive
Secretary, who is one of the respondents herein,
without him adding the phrase "by order of the
President," shall be considered as partially complying
with the requirement laid down in Senate v. Ermita. The
requirement that the phrase "by order of the President"
should accompany the Executive Secretarys claim of
privilege is a new rule laid down for the first time
in Senate v. Ermita, which was not yet final and
executory at the time respondents filed their Comment
to the petition. 61 A strict application of this requirement
would thus be unwarranted in this case.
Response to the Dissenting Opinion of the Chief
Justice

We are aware that behind the dissent of the Chief

Justice lies a genuine zeal to protect our peoples right
to information against any abuse of executive privilege.
It is a zeal that We fully share.
The Court, however, in its endeavor to guard against
the abuse of executive privilege, should be careful not
to veer towards the opposite extreme, to the point that
it would strike down as invalid even a legitimate
exercise thereof.
We respond only to the salient arguments of the
Dissenting Opinion which have not yet been sufficiently
addressed above.
1. After its historical discussion on the allocation of
power over international trade agreements in the
United States, the dissent concludes that "it will be
turning somersaults with history to contend that the
President is the sole organ for external relations" in
that jurisdiction. With regard to this opinion, We make
only the following observations:
There is, at least, a core meaning of the phrase "sole
organ of the nation in its external relations" which is
not being disputed, namely, that the power
to directly negotiate
treaties
and
international
agreements is vested by our Constitution only in the
Executive. Thus, the dissent states that "Congress has
the power to regulate commerce with foreign
nations but does not have the power to negotiate
international agreements directly."62
What is disputed is how this principle applies to the
case at bar.
The dissent opines that petitioner-members of the
House of Representatives, by asking for the subject
JPEPA
documents,
are
not
seeking
to directly participate in the negotiations of the JPEPA,
hence, they cannot be prevented from gaining access
to these documents.
On the other hand, We hold that this is one occasion
where the following ruling in Agan v. PIATCO63 and in
other cases both before and since should be applied:
This Court has long and consistently adhered to
the legal maxim that those that cannot be done
directly cannot be done indirectly. To declare the
PIATCO contracts valid despite the clear statutory
prohibition
against
a
direct
government
guarantee would not only make a mockery of what the
BOT Law seeks to prevent -- which is to expose the
government to the risk of incurring a monetary
obligation resulting from a contract of loan between
the project proponent and its lenders and to which the
Government is not a party to -- but would also render
the BOT Law useless for what it seeks to achieve - to
make use of the resources of the private sector in the
"financing,
operation
and
maintenance
of
infrastructure and development projects" which are
necessary for national growth and development but
which the government, unfortunately, could ill-afford to
finance at this point in time.64

Similarly, while herein petitioners-members of the

House of Representatives may not have been aiming to
participate in the negotiations directly, opening the
JPEPA negotiations to their scrutiny even to the point
of giving them access to the offers exchanged between
the Japanese and Philippine delegations would have
made a mockery of what the Constitution sought to
prevent and rendered it useless for what it sought to
achieve when it vested the power of direct negotiation
solely with the President.
What the U.S. Constitution sought to prevent and
aimed to achieve in defining the treaty-making power
of the President, which our Constitution similarly
defines, may be gathered from Hamiltons explanation
of why the U.S. Constitution excludes the House of
Representatives from the treaty-making process:
x x x The fluctuating, and taking its future increase into
account, the multitudinous composition of that
body, forbid us to expect in it those qualities which are
essential to the proper execution of such a trust.
Accurate and comprehensive knowledge of foreign
politics; a steady and systematic adherence to the
same views; a nice and uniform sensibility to national
character,
decision, secrecy and dispatch;
are
incompatible with a body so variable and so numerous.
The very complication of the business by introducing a
necessity of the concurrence of so many different
bodies, would of itself afford a solid objection. The
greater frequency of the calls upon the house of
representatives, and the greater length of time which it
would often be necessary to keep them together when
convened, to obtain their sanction in the progressive
stages of a treaty, would be source of so great
inconvenience and expense, as alone ought to
condemn the project.65
These considerations a fortiori apply in this jurisdiction,
since the Philippine Constitution, unlike that of the U.S.,
does not even grant the Senate the power to
advise the Executive in the making of treaties, but only
vests in that body the power to concur in the validity of
the
treaty
after
negotiations
have
been
concluded.66 Much less, therefore, should it be inferred
that the House of Representatives has this power.
Since allowing petitioner-members of the House of
Representatives access to the subject JPEPA documents
would set a precedent for future negotiations, leading
to the contravention of the public interests articulated
above which the Constitution sought to protect, the
subject documents should not be disclosed.
2. The dissent also asserts that respondents can no
longer claim the diplomatic secrets privilege over the
subject JPEPA documents now that negotiations have
been concluded, since their reasons for nondisclosure
cited in the June 23, 2005 letter of Sec. Ermita, and
later in their Comment, necessarily apply only for as
long as the negotiations were still pending;
In their Comment, respondents contend that "the
negotiations of the representatives of the Philippines as
well as of Japan must be allowed to explore
alternatives in the course of the negotiations in the

same manner as judicial deliberations and working

drafts
of
opinions
are
accorded
strict
confidentiality." That
respondents
liken
the
documents involved in the JPEPA negotiations to
judicial deliberations and working drafts of
opinions evinces, by itself, that they were
claiming confidentiality not only until, but even
after, the conclusion of the negotiations.
Judicial deliberations do not lose their confidential
character once a decision has been promulgated by
the courts. The same holds true with respect to
working drafts of opinions, which are comparable to
intra-agencyrecommendations.
Such
intra-agency
recommendations are privileged even after the position
under consideration by the agency has developed into
a definite proposition, hence, the rule in this
jurisdiction that agencies have the duty to
disclose only definite propositions, and not the interagency and intra-agency communications during the
stage when common assertions are still being
formulated.67
3. The dissent claims that petitioner-members of the
House of Representatives have sufficiently shown their
need for the same documents to overcome the
privilege. Again, We disagree.
The House Committee that initiated the investigations
on the JPEPA did not pursue its earlier intention to
subpoena the documents. This strongly undermines
the assertion that access to the same documents by
the House Committee is critical to the performance of
its legislative functions. If the documents were indeed
critical, the House Committee should have, at the very
least, issued a subpoena duces tecum or, like what the
Senate did in Senate v. Ermita, filed the present
petition as a legislative body, rather than leaving it to
the discretion of individual Congressmen whether to
pursue an action or not. Such acts would have served
as strong indicia that Congress itself finds the subject
information to be critical to its legislative functions.
Further, given that respondents have claimed
executive privilege, petitioner-members of the House of
Representatives should have, at least, shown how its
lack of access to the Philippine and Japanese offers
would hinder the intelligent crafting of legislation. Mere
assertion that the JPEPA covers a subject matter over
which Congress has the power to legislate would not
suffice. As Senate Select Committee v. Nixon 68 held,
the showing required to overcome the presumption
favoring confidentiality turns, not only on the nature
and appropriateness of the function in the performance
of which the material was sought, but also the degree
to which the material was necessary to its fulfillment.
This petitioners failed to do.
Furthermore, from the time the final text of the JPEPA
including its annexes and attachments was published,
petitioner-members of the House of Representatives
have been free to use it for any legislative purpose
they may see fit. Since such publication, petitioners
need, if any, specifically for the Philippine and Japanese
offers leading to the final version of the JPEPA, has
become even less apparent.

In asserting that the balance in this instance tilts in

favor of disclosing the JPEPA documents, the dissent
contends that the Executive has failed to show how
disclosing them after the conclusion of negotiations
would impair the performance of its functions. The
contention, with due respect, misplaces the onus
probandi. While, in keeping with the general
presumption of transparency, the burden is initially on
the Executive to provide precise and certain reasons
for upholding its claim of privilege, once the Executive
is able to show that the documents being sought are
covered by a recognized privilege, the burden shifts to
the party seeking information to overcome the
privilege by a strong showing of need.
When it was thus established that the JPEPA documents
are covered by the privilege for diplomatic negotiations
pursuant to PMPF v. Manglapus, the presumption arose
that their disclosure would impair the performance of
executive functions. It was then incumbent on
petitioner- requesting parties to show that they have a
strong need for the information sufficient to overcome
the privilege. They have not, however.
4. Respecting the failure of the Executive Secretary to
explicitly state that he is claiming the privilege "by
order of the President," the same may not be strictly
applied to the privilege claim subject of this case.
When the Court in Senate v. Ermita limited the power
of invoking the privilege to the President alone, it was
laying down a new rule for which there is no
counterpart even in the United States from which the
concept of executive privilege was adopted. As held in
the 2004 case of Judicial Watch, Inc. v. Department of
Justice,69 citing In re Sealed Case,70 "the issue of
whether a President must personally invoke the
[presidential communications] privilege remains an
open question." U.S. v. Reynolds,71 on the other hand,
held that "[t]here must be a formal claim of privilege,
lodged by the head of the department which has
control over the matter, after actual personal
consideration by that officer."
The rule was thus laid down by this Court, not in
adherence to any established precedent, but with the
aim of preventing the abuse of the privilege in light of
its highly exceptional nature. The Courts recognition
that the Executive Secretary also bears the power to
invoke the privilege, provided he does so "by order of
the President," is meant to avoid laying down too rigid
a rule, the Court being aware that it was laying down a
new restriction on executive privilege. It is with the
same spirit that the Court should not be overly strict
with applying the same rule in this peculiar instance,
where the claim of executive privilege occurred before
the judgment in Senate v. Ermitabecame final.
5. To show that PMPF v. Manglapus may not be applied
in the present case, the dissent implies that the Court
therein erred in citing US v. Curtiss Wright72 and the
book entitled The New American Government and Its
Work73since these authorities, so the dissent claims,
may not be used to calibrate the importance of the
right to information in the Philippine setting.

The dissent argues that since Curtiss-Wright referred to

a conflict between the executive and legislative
branches of government, the factual setting thereof
was different from that of PMPF v. Manglapus which
involved a collision between governmental power over
the conduct of foreign affairs and the citizens right to
information.
That the Court could freely cite Curtiss-Wright a case
that upholds the secrecy of diplomatic negotiations
againstcongressional demands for information in the
course of laying down a ruling on the public right to
information only serves to underscore the principle
mentioned earlier that the privileged character
accorded to diplomatic negotiations does not ipso
facto lose all force and effect simply because the same
privilege is now being claimedunder different
circumstances.
PMPF v. Manglapus indeed involved a demand for
information from private citizens and not an executivelegislative conflict, but so did Chavez v. PEA74 which
held that "the [publics] right to information . . . does
not extend to matters recognized as privileged
information under the separation of powers." What
counts as privileged information in an executivelegislative conflict is thus also recognized as such in
cases involving the publics right to information.
Chavez v. PCGG75 also involved the publics right to
information, yet the Court recognized as a valid
limitation to that right the same privileged information
based on separation of powers closed-door Cabinet
meetings, executive sessions of either house of
Congress, and the internal deliberations of the
Supreme Court.
These cases show that the Court has always regarded
claims of privilege, whether in the context of an
executive-legislative conflict or a citizens demand for
information, as closely intertwined, such that the
principles applicable to one are also applicable to the
other.
The reason is obvious. If the validity of claims of
privilege were to be assessed by entirely different
criteria in each context, this may give rise to the
absurd result where Congress would be denied access
to a particular information because of a claim of
executive privilege, but the general public would
have access to the same information, the claim of
privilege notwithstanding.
Absurdity would be the ultimate result if, for instance,
the Court adopts the "clear and present danger" test
for
the
assessment
of
claims
of
privilege
against citizens demands for information. If executive
information, when demanded by a citizen, is privileged
only when there is a clear and present danger of a
substantive evil that the State has a right to prevent, it
would be very difficult for the Executive to establish
the validity of its claim in each instance. In contrast, if
the demand comes from Congress, the Executive
merely has to show that the information is covered by
a recognized privilege in order to shift the burden on
Congress to present a strong showing of need. This

would lead to a situation where it would be more

difficult
for
Congress to
access
executive
information than it would be for private citizens.
We maintain then that when the Executive has already
shown that an information is covered by executive
privilege, the party demanding the information must
present a "strong showing of need," whether that party
is Congress or a private citizen.
The rule that the same "showing of need" test applies
in both these contexts, however, should not be
construed as a denial of the importance of analyzing
the context in which an executive privilege controversy
may happen to be placed. Rather, it affirms it, for it
means that the specific need being shown by the party
seeking information in every particular instance is
highly significant in determining whether to uphold a
claim of privilege. This "need" is, precisely, part of
the context in light of which every claim of
privilege should be assessed.
Since, as demonstrated above, there are common
principles that should be applied to executive privilege
controversies across different contexts, the Court
in PMPF v. Manglapus did not err when it cited
the Curtiss-Wrightcase.
The claim that the book cited in PMPF v.
Manglapus entitled The New American Government
and Its Work could not have taken into account the
expanded statutory right to information in the FOIA
assumes that the observations in that book in support
of the confidentiality of treaty negotiations would be
different had it been written after the FOIA. Such
assumption is, with due respect, at best, speculative.
As to the claim in the dissent that "[i]t is more doubtful
if the same book be used to calibrate the importance of
the right of access to information in the Philippine
setting considering its elevation as a constitutional
right," we submit that the elevation of such right as a
constitutional right did not set it free from the
legitimate restrictions of executive privilege which is
itself constitutionally-based.76 Hence, the comments in
that
book
which
were
cited
in PMPF
v.
Manglapus remain valid doctrine.
6. The dissent further asserts that the Court has never
used "need" as a test to uphold or allow inroads into
rights guaranteed under the Constitution. With due
respect, we assert otherwise. The Court has done so
before, albeit without using the term "need."
In executive privilege controversies, the requirement
that parties present a "sufficient showing of need" only
means, in substance, that they should show a public
interest in favor of disclosure sufficient in degree to
overcome the claim of privilege.77 Verily, the Court in
such cases engages in a balancing of interests. Such
a balancing of interests is certainly not new in
constitutional adjudication involving fundamental
rights. Secretary of Justice v. Lantion, 78 which was cited
in the dissent, applied just such a test.

Given that the dissent has clarified that it does not

seek to apply the "clear and present danger" test to
the present controversy, but the balancing test, there
seems to be no substantial dispute between the
position laid down in thisponencia and that reflected in
the dissent as to what test to apply. It would appear
that the only disagreement is on the results of applying
that test in this instance.
The dissent, nonetheless, maintains that "it suffices
that information is of public concern for it to be
covered by the right, regardless of the publics need for
the information," and that the same would hold true
even "if they simply want to know it because it
interests them." As has been stated earlier, however,
there is no dispute that the information subject of this
case is a matter of public concern. The Court has
earlier concluded that it is a matter of public
concern, not on the basis of any specific need shown
by petitioners, but from the very nature of the JPEPA as
an international trade agreement.
However, when the Executive has as in this case
invoked the privilege, and it has been established that
the subject information is indeed covered by the
privilege being claimed, can a party overcome the
same by merely asserting that the information being
demanded is a matter of public concern, without any
further showing required? Certainly not, for that would
render the doctrine of executive privilege of no force
and effect whatsoever as a limitation on the right to
information, because then the sole test in such
controversies would be whether an information is a
matter of public concern.
Moreover, in view of the earlier discussions, we must
bear in mind that, by disclosing the documents of the
JPEPA negotiations, the Philippine government runs the
grave risk of betraying the trust reposed in it by the
Japanese representatives, indeed, by the Japanese
government
itself.
How
would
the
Philippine
government then explain itself when that happens?
Surely, it cannot bear to say that it just had to release
the information because certain persons simply wanted
to know it "because it interests them."
Thus, the Court holds that, in determining whether an
information is covered by the right to information, a
specific "showing of need" for such information is not a
relevant consideration, but only whether the same is a
matter ofpublic concern. When, however, the
government has claimed executive privilege, and it has
established that the information is indeed covered by
the same, then the party demanding it, if it is to
overcome the privilege, must show that that the
information is vital, not simply for the satisfaction of its
curiosity, but for its ability to effectively and
reasonably participate in social, political, and economic
decision-making.79
7. The dissent maintains that "[t]he treaty has thus
entered the ultimate stage where the people can
exercise theirright to participate in the discussion
whether the Senate should concur in its ratification or
not." (Emphasis supplied) It adds that this right "will be
diluted unless the people can have access to the

subject JPEPA documents". What, to the dissent, is a

dilution of the right to participate in decision-making is,
to Us, simply a recognition of the qualified nature of
the publics right to information. It is beyond dispute
that the right to information is not absolute and that
the doctrine of executive privilege is a recognized
limitation on that right.
Moreover, contrary to the submission that the right to
participate in decision-making would be diluted, We
reiterate that our people have been exercising their
right to participate in the discussion on the issue of the
JPEPA, and they have been able to articulate their
different opinions without need of access to the JPEPA
negotiation documents.
Thus, we hold that the balance in this case tilts in favor
of executive privilege.
8. Against our ruling that the principles applied in U.S.
v. Nixon, the Senate Select Committee case, and In re
Sealed Case, are similarly applicable to the present
controversy, the dissent cites the caveat in
the Nixon case that the U.S. Court was there
addressing only the Presidents assertion of privilege in
the context of a criminal trial, not a civil litigation nor a
congressional demand for information. What this
caveat means, however, is only that courts must be
careful not to hastily apply the ruling therein to other
contexts. It does not, however, absolutely mean that
the principles applied in that case may never be
applied in such contexts.
Hence, U.S. courts have cited U.S. v. Nixon in support
of their rulings on claims of executive privilege in
contexts other than a criminal trial, as in the case
of Nixon v. Administrator of General Services 80 which
involved former President Nixons invocation of
executive privilege to challenge the constitutionality of
the "Presidential Recordings and Materials Preservation
Act"81 and the above-mentioned In re Sealed
Case which involved a claim of privilege against
a subpoena duces tecum issued in a grand jury
investigation.
Indeed, in applying to the present case the principles
found in U.S. v. Nixon and in the other cases already
mentioned, We are merely affirming what the Chief
Justice stated in his Dissenting Opinion in Neri v.
Senate Committee on Accountability82 a case
involving
an
executive-legislative
conflict
over
executive privilege. That dissenting opinion stated that,
while Nixon was not concerned with the balance
between the Presidents generalized interest in
confidentiality
and
congressional
demands
for
information, "[n]onetheless the [U.S.] Court laid
down principles and procedures that can serve
as torch lights to illumine us on the scope and
use of Presidential communication privilege in
the case at bar."83 While the Court was divided
in Neri, this opinion of the Chief Justice was not among
the points of disagreement, and We similarly hold now
that the Nixon case is a useful guide in the proper
resolution of the present controversy, notwithstanding
the difference in context.

Verily, while the Court should guard against the

abuse of executive privilege, it should also give
full recognition to the validity of the privilege
whenever it is claimed within the proper bounds
of executive power, as in this case. Otherwise, the
Court would undermine its own credibility, for it would
be perceived as no longer aiming to strike a balance,
but seeking merely to water down executive privilege
to the point of irrelevance.
Conclusion
To recapitulate, petitioners demand to be furnished
with a copy of the full text of the JPEPA has become
moot and academic, it having been made accessible to
the public since September 11, 2006. As for their
demand for copies of the Philippine and Japanese offers
submitted during the JPEPA negotiations, the same
must be denied, respondents claim of executive
privilege being valid.
Diplomatic negotiations have, since the Court
promulgated its Resolution in PMPF v. Manglapus on
September 13, 1988, been recognized as privileged in
this jurisdiction and the reasons proffered by
petitioners against the application of the ruling therein
to the present case have not persuaded the Court.
Moreover, petitioners both private citizens and
members of the House of Representatives have failed
to present a "sufficient showing of need" to overcome
the claim of privilege in this case.
That the privilege was asserted for the first time in
respondents Comment to the present petition, and not
during the hearings of the House Special Committee on
Globalization, is of no moment, since it cannot be
interpreted as a waiver of the privilege on the part of
the Executive branch.
For reasons already explained, this Decision shall not
be interpreted as departing from the ruling in Senate v.
Ermita that executive privilege should be invoked by
the President or through the Executive Secretary "by
order of the President."
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
G.R. No. 158540

July 8, 2004

SOUTHERN
CROSS
CEMENT
CORPORATION, petitioner,
vs.
THE
PHILIPPINE
CEMENT
MANUFACTURERS
CORP., THE SECRETARY OF THE DEPARTMENT OF
TRADE & INDUSTRY, THE SECRETARY OF THE
DEPARTMENT
OF
FINANCE,
and
THE
COMMISSIONER
OF
THE
BUREAU
OF
CUSTOMS, respondents.

DECISION

TINGA, J.:
"Good fences make good neighbors," so observed
Robert Frost, the archetype of traditional New England
detachment. The Frost ethos has been heeded by
nations adjusting to the effects of the liberalized global
market.1 The Philippines, for one, enacted Republic Act
(Rep. Act) No. 8751 (on the imposition of countervailing
duties), Rep. Act No. 8752 (on the imposition of antidumping duties) and, finally, Rep. Act No. 8800, also
known as the Safeguard Measures Act ("SMA")2 soon
after it joined the General Agreement on Tariff and
Trade (GATT) and the World Trade Organization (WTO)
Agreement.3
The SMA provides the structure and mechanics for the
imposition of emergency measures, including tariffs, to
protect domestic industries and producers from
increased imports which inflict or could inflict serious
injury on them.4 The wisdom of the policies behind the
SMA, however, is not put into question by the petition
at bar. The questions submitted to the Court relate to
the means and the procedures ordained in the law to
ensure that the determination of the imposition or nonimposition of a safeguard measure is proper.
Antecedent Facts
Petitioner
Southern
Cross
Cement
Corporation
("Southern Cross") is a domestic corporation engaged
in the business of cement manufacturing, production,
importation and exportation. Its principal stockholders
are Taiheiyo Cement Corporation and Tokuyama
Corporation,
purportedly
the
largest
cement
manufacturers in Japan.5
Private respondent Philippine Cement Manufacturers
Corporation6 ("Philcemcor") is an association of
domestic cement manufacturers. It has eighteen (18)
members,7 per Record. While Philcemcor heralds itself
to
be
an
association
of
domestic
cement
manufacturers, it appears that considerable equity
holdings, if not controlling interests in at least twelve
(12) of its member-corporations, were acquired by the
three largest cement manufacturers in the world,
namely Financiere Lafarge S.A. of France, Cemex S.A.
de C.V. of Mexico, and Holcim Ltd. of Switzerland
(formerly Holderbank Financiere Glaris, Ltd., then
Holderfin B.V.).8
On 22 May 2001, respondent Department of Trade and
Industry ("DTI") accepted an application from
Philcemcor, alleging that the importation of gray
Portland cement9 in increased quantities has caused
declines in domestic production, capacity utilization,
market share, sales and employment; as well as
caused depressed local prices. Accordingly, Philcemcor
sought the imposition at first of provisional, then later,
definitive safeguard measures on the import of cement

pursuant to the SMA. Philcemcor filed the application in

behalf of twelve (12) of its member-companies. 10
After preliminary investigation, the Bureau of Import
Services of the DTI, determined that critical
circumstances existed justifying the imposition of
provisional measures.11 On 7 November 2001, the DTI
issued an Order,imposing a provisional measure
equivalent to Twenty Pesos and Sixty Centavos
(P20.60) per forty (40) kilogram bag on all importations
of gray Portland cement for a period not exceeding two
hundred (200) days from the date of issuance by the
Bureau
of
Customs
(BOC)
of
the
implementing Customs
Memorandum
Order.12 The
corresponding Customs
Memorandum
Order was
issued on 10 December 2001, to take effect that same
day and to remain in force for two hundred (200)
days.13
In the meantime, the Tariff Commission, on 19
November 2001, received a request from the DTI for a
formal investigation to determine whether or not to
impose a definitive safeguard measure on imports of
gray Portland cement, pursuant to Section 9 of the SMA
and its Implementing Rules and Regulations. A notice
of commencement of formal investigation was
published in the newspapers on 21 November 2001.
Individual notices were likewise sent to concerned
parties, such as Philcemcor, various importers and
exporters, the Embassies of Indonesia, Japan and
Taiwan, contractors/builders associations, industry
associations, cement workers' groups, consumer
groups, non-government organizations and concerned
government agencies.14 A preliminary conference was
held on 27 November 2001, attended by several
concerned
parties,
including
Southern
Cross.15 Subsequently, the Tariff Commission received
several position papers both in support and against
Philcemcor's application.16The Tariff Commission also
visited the corporate offices and manufacturing
facilities of each of the applicant companies, as well as
that of Southern Cross and two other cement
importers.17
On 13 March 2002, the Tariff Commission issued its
Formal Investigation Report ("Report"). Among the
factors studied by the Tariff Commission in its Report
were
the
market
share
of
the
domestic
industry,18 production
and
sales,19 capacity
utilization,20 financial
performance
and
profitability,21 and
return
on
sales.22 The
Tariff
Commission arrived at the following conclusions:
1. The circumstances provided in Article XIX of
GATT 1994 need not be demonstrated since
the product under consideration (gray Portland
cement) is not the subject of any Philippine
obligation or tariff concession under the WTO
Agreement. Nonetheless, such inquiry is
governed by the national legislation (R.A. 8800)
and the terms and conditions of the Agreement
on Safeguards.

2. The collective output of the twelve (12)

applicant companies constitutes a major
proportion of the total domestic production of
gray Portland cement and blended Portland
cement.
3. Locally produced gray Portland cement and
blended Portland cement (Pozzolan) are "like"
to imported gray Portland cement.
4. Gray Portland cement is being imported into
the Philippines in increased quantities, both in
absolute terms and relative to domestic
production, starting in 2000. The increase in
volume of imports is recent, sudden, sharp and
significant.
5. The industry has not suffered and is not
suffering significant overall impairment in its
condition, i.e., serious injury.
6. There is no threat of serious injury that is
imminent from imports of gray Portland
cement.
7. Causation has become moot and academic
in view of the negative determination of the
elements of serious injury and imminent threat
of serious injury.23
Accordingly, the Tariff Commission made the following
recommendation, to wit:
The elements of serious injury and imminent
threat of serious injury not having been
established, it is hereby recommended that no
definitive general safeguard measure be
imposed on the importation of gray Portland
cement.24
The DTI received the Report on 14 March 2002. After
reviewing the report, then DTI Secretary Manuel Roxas
II ("DTI Secretary") disagreed with the conclusion of the
Tariff Commission that there was no serious injury to
the local cement industry caused by the surge of
imports.25 In view of this disagreement, the DTI
requested an opinion from the Department of Justice
("DOJ") on the DTI Secretary's scope of options in
acting on the Commission's recommendations.
Subsequently, then DOJ Secretary Hernando Perez
rendered an opinion stating that Section 13 of the SMA
precluded a review by the DTI Secretary of the Tariff
Commission's negative finding, or finding that a
definitive safeguard measure should not be imposed. 26
On 5 April 2002, the DTI Secretary promulgated
a Decision. After quoting the conclusions of the Tariff
Commission, the DTI Secretary noted the DTI's
disagreement with the conclusions. However, he also
cited the DOJ Opinion advising the DTI that it was
bound by the negative finding of the Tariff Commission.
Thus, he ruled as follows:
The DTI has no alternative but to abide by the
[Tariff] Commission's recommendations.

IN VIEW OF THE FOREGOING, and in

accordance with Section 13 of RA 8800 which
states:

Cross echoed the DOJ Opinion that Section 13 of the

SMA precludes a review by the DTI Secretary of a
negative finding of the Tariff Commission.

"In the event of a negative final

determination; or if the cash bond
is in excess of the definitive
safeguard duty assessed, the
Secretary shall immediately issue,
through the Secretary of Finance,
a written instruction to the
Commissioner
of
Customs,
authorizing the return of the cash
bond or the remainder thereof, as
the case may be, previously
collected as provisional general
safeguard measure within ten (10)
days from the date a final decision
has been made; Provided, that the
government shall not be liable for
any interest on the amount to be
returned. The Secretary shall not
accept for consideration another
petition from the same industry,
with respect to the same imports
of the product under consideration
within one (1) year after the date
of rendering such a decision."

After conducting a hearing on 19 June 2002 on

Philcemcor's application for preliminary injunction, the
Court of Appeals' Twelfth Division 31 granted the writ
sought in its Resolution dated 21 June 2002.32 Seven
days later, on 28 June 2002, the two-hundred (200)-day
period for the imposition of the provisional measure
expired. Despite the lapse of the period, the BOC
continued to impose the provisional measure on all
importations of Portland cement made by Southern
Cross. The uninterrupted assessment of the tariff,
according to Southern Cross, worked to its detriment to
the point that the continued imposition would
eventually lead to its closure.33

The DTI hereby issues the following:

The application for safeguard measures against
the importation of gray Portland cement filed
by PHILCEMCOR (Case No. 02-2001) is hereby
denied.27 (Emphasis in the original)
Philcemcor received a copy of the DTI Decision on 12
April 2002. Ten days later, it filed with the Court of
Appeals a Petition for Certiorari, Prohibition and
Mandamus28 seeking to set aside the DTI Decision, as
well as the Tariff Commission's Report. Philcemcor
likewise
applied
for
a Temporary
Restraining
Order/Injunction to enjoin the DTI and the BOC from
implementing the questioned Decision and Report. It
prayed that the Court of Appeals direct the DTI
Secretary to disregard the Report and to render
judgment independently of the Report. Philcemcor
argued that the DTI Secretary, vested as he is under
the law with the power of review, is not bound to adopt
the recommendations of the Tariff Commission; and,
that the Report is void, as it is predicated on a flawed
framework, inconsistent inferences and erroneous
methodology.29
On 10 June 2002, Southern Cross filed its Comment.30 It
argued that the Court of Appeals had no jurisdiction
over Philcemcor's Petition, for it is on the Court of Tax
Appeals ("CTA") that the SMA conferred jurisdiction to
review rulings of the Secretary in connection with the
imposition of a safeguard measure. It likewise argued
that Philcemcor's resort to the special civil action of
certiorari is improper, considering that what Philcemcor
sought to rectify is an error of judgment and not an
error of jurisdiction or grave abuse of discretion, and
that a petition for review with the CTA was available as
a plain, speedy and adequate remedy. Finally, Southern

Southern
Cross
timely
filed
a Motion
for
Reconsideration of the Resolution on 9 September
2002. Alleging that Philcemcor was not entitled to
provisional relief, Southern Cross likewise sought a
clarificatory order as to whether the grant of the writ of
preliminary injunction could extend the earlier
imposition of the provisional measure beyond the two
hundred (200)-day limit imposed by law. The appeals'
court failed to take immediate action on Southern
Cross's motion despite the four (4) motions for early
resolution the latter filed between September of 2002
and February of 2003. After six (6) months, on 19
February 2003, the Court of Appeals directed
Philcemcor to comment on Southern Cross's Motion for
Reconsideration.34 After
Philcemcor
filed
its Opposition35 on 13 March 2003, Southern Cross filed
another set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of
Appeals failed to directly resolve the Motion for
Reconsideration. Instead, on 5 June 2003, it rendered
a Decision,36 granting in part Philcemcor's petition. The
appellate court ruled that it had jurisdiction over the
petition for certiorari since it alleged grave abuse of
discretion. It refused to annul the findings of the Tariff
Commission, citing the rule that factual findings of
administrative agencies are binding upon the courts
and its corollary, that courts should not interfere in
matters addressed to the sound discretion and coming
under the special technical knowledge and training of
such agencies.37 Nevertheless, it held that the DTI
Secretary is not bound by the factual findings of the
Tariff Commission since such findings are merely
recommendatory and they fall within the ambit of the
Secretary's discretionary review. It determined that the
legislative intent is to grant the DTI Secretary the
power to make a final decision on the Tariff
Commission's
recommendation.38 The
dispositive
portion of the Decision reads:
WHEREFORE, based on the foregoing
premises, petitioner's prayer to set aside the
findings of the Tariff Commission in its assailed
Report dated March 13, 2002 is DENIED. On
the other hand, the assailed April 5, 2002
Decision of the Secretary of the Department of
Trade and Industry is hereby SET ASIDE.
Consequently, the case is REMANDED to the
public respondent Secretary of Department of

Trade and Industry for a final decision in

accordance with RA 8800 and its Implementing
Rules and Regulations.
SO ORDERED.39
On 23 June 2003, Southern Cross filed the present
petition, assailing the appellate court's Decision for
departing from the accepted and usual course of
judicial proceedings, and not deciding the substantial
questions in accordance with law and jurisprudence.
The petition argues in the main that the Court of
Appeals has no jurisdiction over Philcemcor's petition,
the proper remedy being a petition for review with the
CTA conformably with the SMA, and; that the factual
findings of the Tariff Commission on the existence or
non-existence conditions warranting the imposition of
general safeguard measures are binding upon the DTI
Secretary.
The timely filing of Southern Cross's petition before this
Court
necessarily
prevented
the
Court
of
AppealsDecision from becoming final.40 Yet on 25 June
2003, the DTI Secretary issued a new Decision, ruling
this time that that in light of the appellate
court's Decision there was no longer any legal
impediment to his deciding Philcemcor's application for
definitive
safeguard
measures.41 He
made
a
determination that, contrary to the findings of the Tariff
Commission, the local cement industry had suffered
serious
injury
as
a
result
of
the
import
surges.42 Accordingly,
he
imposed
a
definitive
safeguard measure on the importation of gray Portland
cement, in the form of a definitive safeguard duty in
the amount of P20.60/40 kg. bag for three years on
imported gray Portland Cement.43
On 7 July 2003, Southern Cross filed with the Court a
"Very Urgent Application for a Temporary Restraining
Order and/or A Writ of Preliminary Injunction"
("TRO Application"), seeking to enjoin the DTI Secretary
from enforcing hisDecision of 25 June 2003 in view of
the pending petition before this Court. Philcemcor filed
an opposition, claiming, among others, that it is not
this Court but the CTA that has jurisdiction over the
application under the law.
On 1 August 2003, Southern Cross filed with the CTA
a Petition for Review, assailing the DTI Secretary's 25
June 2003 Decision which imposed the definite
safeguard measure. Prescinding from this action,
Philcemcor filed with this Court a Manifestation and
Motion to Dismiss in regard to Southern Cross's
petition, alleging that it deliberately and willfully
resorted to forum-shopping. It points out that Southern
Cross's TRO Application seeks to enjoin the DTI
Secretary's second decision, while its Petition before
the CTA prays for the annulment of the same
decision.44

Reiterating its Comment on Southern Cross's Petition

for Review, Philcemcor also argues that the CTA, being
a special court of limited jurisdiction, could only review
the ruling of the DTI Secretary when a safeguard
measure is imposed, and that the factual findings of
the Tariff Commission are not binding on the DTI
Secretary.45
After giving due course to Southern Cross's Petition,
the Court called the case for oral argument on 18
February 2004.46 At the oral argument, attended by the
counsel for Philcemcor and Southern Cross and the
Office of the Solicitor General, the Court simplified the
issues in this wise: (i) whether the Decision of the DTI
Secretary is appealable to the CTA or the Court of
Appeals; (ii) assuming that the Court of Appeals has
jurisdiction, whether itsDecision is in accordance with
law; and, (iii) whether a Temporary Restraining Order is
warranted.47
During the oral arguments, counsel for Southern Cross
manifested that due to the imposition of the general
safeguard measures, Southern Cross was forced to
cease operations in the Philippines in November of
2003.48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on
Southern Cross's application for provisional relief. It
sought to enjoin the DTI Secretary from enforcing the
definitive safeguard measure he imposed in his 25 June
2003Decision. The Court did not grant the provisional
relief for it would be tantamount to enjoining the
collection of taxes, a peremptory judicial act which is
traditionally frowned upon,49 unless there is a clear
statutory basis for it.50 In that regard, Section 218 of
the Tax Reform Act of 1997 prohibits any court from
granting an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by
the internal revenue code. 51A similar philosophy is
expressed by Section 29 of the SMA, which states that
the filing of a petition for review before the CTA does
not stop, suspend, or otherwise toll the imposition or
collection of the appropriate tariff duties or the
adoption
of
other
appropriate
safeguard
measures.52 This evinces a clear legislative intent that
the imposition of safeguard measures, despite the
availability of judicial review, should not be enjoined
notwithstanding any timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the
allegation of forum-shopping has been duly proven, or
that sanction should befall upon Southern Cross and its
counsel. The standard by Section 5, Rule 7 of the 1997
Rules of Civil Procedure in order that sanction may be
had is that "the acts of the party or his counsel clearly
constitute willful and deliberate forum shopping." 53 The
standard implies a malicious intent to subvert
procedural rules, and such state of mind is not evident
in this case.
The Jurisdictional Issue

On to the merits of the present petition.

In its assailed Decision, the Court of Appeals, after
asserting only in brief that it had jurisdiction over
Philcemcor'sPetition, discussed the issue of whether or
not the DTI Secretary is bound to adopt the negative
recommendation of the Tariff Commission on the
application for safeguard measure. The Court of
Appeals maintained that it had jurisdiction over the
petition, as it alleged grave abuse of discretion on the
part of the DTI Secretary, thus:
A perusal of the instant petition reveals
allegations of grave abuse of discretion on the
part of the DTI Secretary in rendering the
assailed April 5, 2002 Decision wherein it was
ruled that he had no alternative but to abide by
the findings of the Commission on the matter
of safeguard measures for the local cement
industry. Abuse of discretion is admittedly
within the ambit of certiorari.
Grave abuse of discretion implies such
capricious and whimsical exercise of judgment
as is equivalent to lack of jurisdiction. It is
alleged that, in the assailed Decision, the DTI
Secretary gravely abused his discretion in
wantonly evading to discharge his duty to
render an independent determination or
decision in imposing a definitive safeguard
measure.54
We do not doubt that the Court of Appeals' certiorari
powers extend to correcting grave abuse of discretion
on the part of an officer exercising judicial or quasijudicial functions.55 However, the special civil action of
certiorari is available only when there is no plain,
speedy and adequate remedy in the ordinary course of
law.56 Southern Cross relies on this limitation, stressing
that Section 29 of the SMA is a plain, speedy and
adequate remedy in the ordinary course of law which
Philcemcor did not avail of. The Section reads:
Section 29. Judicial Review. Any interested
party who is adversely affected by the ruling
of the Secretary in connection with the
imposition of a safeguard measure may
file with the CTA, a petition for review of such
ruling within thirty (30) days from receipt
thereof. Provided, however, that the filing of
such petition for review shall not in any way
stop, suspend or otherwise toll the imposition
or collection of the appropriate tariff duties or
the adoption of other appropriate safeguard
measures, as the case may be.
The petition for review shall comply with the
same requirements and shall follow the same
rules of procedure and shall be subject to the
same disposition as in appeals in connection
with adverse rulings on tax matters to the
Court of Appeals.57 (Emphasis supplied)
It is not difficult to divine why the legislature singled
out the CTA as the court with jurisdiction to review the
ruling of the DTI Secretary in connection with the

imposition of a safeguard measure. The Court has long

recognized the legislative determination to vest sole
and exclusive jurisdiction on matters involving internal
revenue and customs duties to such a specialized
court.58 By the very nature of its function, the CTA is
dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an
expertise on the subject.59
At the same time, since the CTA is a court of limited
jurisdiction, its jurisdiction to take cognizance of a case
should be clearly conferred and should not be deemed
to exist on mere implication. 60 Concededly, Rep. Act
No. 1125, the statute creating the CTA, does not
extend to it the power to review decisions of the DTI
Secretary in connection with the imposition of
safeguard measures.61 Of course, at that time which
was before the advent of trade liberalization the notion
of safeguard measures or safety nets was not yet in
vogue.
Undeniably, however, the SMA expanded the
jurisdiction of the CTA by including review of the rulings
of the DTI Secretary in connection with the imposition
of safeguard measures. However, Philcemcor and the
public respondents agree that the CTA has appellate
jurisdiction over a decision of the DTI Secretary
imposing a safeguard measure, but not when his ruling
is not to impose such measure.
In a related development, Rep. Act No. 9282, enacted
on 30 March 2004, expressly vests unto the CTA
jurisdiction over "[d]ecisions of the Secretary of Trade
and Industry, in case of nonagricultural product,
commodity or article xxx involving xxx safeguard
measures under Republic Act No. 8800, where
either party may appeal the decision to impose
or not to impose said duties."62 Had Rep. Act No.
9282 already been in force at the beginning of the
incidents subject of this case, there would have been
no need to make any deeper inquiry as to the extent of
the CTA's jurisdiction. But as Rep. Act No. 9282 cannot
be applied retroactively to the present case, the
question of whether such jurisdiction extends to a
decision not to impose a safeguard measure will have
to be settled principally on the basis of the SMA.
Under Section 29 of the SMA, there are three requisites
to enable the CTA to acquire jurisdiction over the
petition for review contemplated therein: (i) there must
be a ruling by the DTI Secretary; (ii) the petition must
be filed by an interested party adversely affected by
the ruling; and (iii) such ruling must be in connection
with the imposition of a safeguard measure. The first
two requisites are clearly present. The third requisite
deserves closer scrutiny.
Contrary to the stance of the public respondents and
Philcemcor, in this case where the DTI Secretary
decides not to impose a safeguard measure, it is the
CTA which has jurisdiction to review his decision. The
reasons are as follows:
First. Split jurisdiction is abhorred.

Essentially, respondents' position is that judicial review

of the DTI Secretary's ruling is exercised by two
different courts, depending on whether or not it
imposes a safeguard measure, and in either case the
court exercising jurisdiction does so to the exclusion of
the other. Thus, if the DTI decision involves the
imposition of a safeguard measure it is the CTA which
has appellate jurisdiction; otherwise, it is the Court of
Appeals. Such setup is as novel and unusual as it is
cumbersome and unwise. Essentially, respondents
advocate that Section 29 of the SMA has established
split appellate jurisdiction over rulings of the DTI
Secretary on the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has
consistently refused to sanction split jurisdiction. 63 The
power of the DTI Secretary to adopt or withhold a
safeguard measure emanates from the same statutory
source, and it boggles the mind why the appeal
modality would be such that one appellate court is
qualified if what is to be reviewed is a positive
determination, and it is not if what is appealed is a
negative determination. In deciding whether or not to
impose a safeguard measure, provisional or general,
the DTI Secretary would be evaluating only one body of
facts and applying them to one set of laws. The
reviewing tribunal will be called upon to examine the
same facts and the same laws, whether or not the
determination is positive or negative.
In short, if we were to rule for respondents we would be
confirming the exercise by two judicial bodies of
jurisdiction
over
basically
the
same
subject
matterprecisely the split-jurisdiction situation which
is anathema to the orderly administration of
justice.64 The Court cannot accept that such was the
legislative motive especially considering that the law
expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the
role of judicial review without mention of any other
court that may exercise corollary or ancillary
jurisdiction in relation to the SMA. The provision refers
to the Court of Appeals but only in regard to procedural
rules and dispositions of appeals from the CTA to the
Court of Appeals.65
The principle enunciated in Tejada v. Homestead
Property Corporation66 is applicable to the case at bar:
The Court agrees with the observation of the
[that] when an administrative agency or body
is
conferred
quasi-judicial
functions, all
controversies relating to the subject
matter pertaining to its specialization are
deemed to be included within the
jurisdiction of said administrative agency
or body. Split jurisdiction is not favored.67
Second. The interpretation of the provisions of the SMA
favors vesting untrammeled appellate jurisdiction on
the CTA.
A plain reading of Section 29 of the SMA reveals that
Congress did not expressly bar the CTA from reviewing
a negative determination by the DTI Secretary nor
conferred on the Court of Appeals such review

authority. Respondents note, on the other hand, that

neither did the law expressly grant to the CTA the
power to review a negative determination. However,
under the clear text of the law, the CTA is vested with
jurisdiction to review the ruling of the DTI Secretary " in
connection with the imposition of a safeguard
measure." Had the law been couched instead to
incorporate the phrase "the ruling imposing a
safeguard measure," then respondent's claim would
have indisputable merit. Undoubtedly, the phrase "in
connection with" not only qualifies but clarifies the
succeeding phrase "imposition of a safeguard
measure." As expounded later, the phrase also
encompasses the opposite or converse ruling which is
the non-imposition of a safeguard measure.
In the American case of Shaw v. Delta Air Lines,
Inc.,68 the United States Supreme Court, in interpreting
a key provision of the Employee Retirement Security
Act of 1974, construed the phrase "relates to" in its
normal sense which is the same as "if it has connection
with or reference to."69 There is no serious dispute that
the phrase "in connection with" is synonymous to
"relates to" or "reference to," and that all three phrases
are broadly expansive. This is affirmed not just by
jurisprudential fiat, but also the acquired connotative
meaning of "in connection with" in common parlance.
Consequently, with the use of the phrase "in
connection with," Section 29 allows the CTA to review
not only the ruling imposing a safeguard measure, but
all other rulings related or have reference to the
application for such measure.
Now, let us determine the maximum scope and reach
of the phrase "in connection with" as used in Section
29 of the SMA. A literalist reading or linguistic survey
may not satisfy. Even the US Supreme Court in New
York State Blue Cross Plans v. Travelers Ins.70 conceded
that the phrases "relate to" or "in connection with" may
be extended to the farthest stretch of indeterminacy
for, universally, relations or connections are infinite
and stop nowhere.71Thus, in the case the US High
Court, examining the same phrase of the same
provision of law involved in Shaw, resorted to looking
at the statute and its objectives as the alternative to an
"uncritical literalism."72 A similar inquiry into the other
provisions of the SMA is in order to determine the
scope of review accorded therein to the CTA.73
The authority to decide on the safeguard measure is
vested in the DTI Secretary in the case of nonagricultural products, and in the Secretary of the
Department of Agriculture in the case of agricultural
products.74 Section 29 is likewise explicit that only the
rulings of the DTI Secretary or the Agriculture Secretary
may be reviewed by the CTA.75 Thus, the acts of other
bodies that were granted some powers by the SMA,
such as the Tariff Commission, are not subject to direct
review by the CTA.
Under the SMA, the Department Secretary concerned is
authorized to decide on several matters. Within thirty
(30) days from receipt of a petition seeking the
imposition of a safeguard measure, or from the date he
made motu proprio initiation, the Secretary shall make
a preliminary determination on whether the increased
imports
of
the
product
under
consideration

substantially cause or threaten to cause serious injury

to the domestic industry.76Such ruling is crucial since
only upon the Secretary's positive preliminary
determination that a threat to the domestic industry
exists shall the matter be referred to the Tariff
Commission for formal investigation, this time, to
determine whether the general safeguard measure
should be imposed or not.77 Pursuant to a positive
preliminary determination, the Secretary may also
decide that the imposition of a provisional safeguard
measure would be warranted under Section 8 of the
SMA.78 The Secretary is also authorized to decide, after
receipt of the report of the Tariff Commission, whether
or not to impose the general safeguard measure, and if
in the affirmative, what general safeguard measures
should be applied.79 Even after the general safeguard
measure is imposed, the Secretary is empowered to
extend the safeguard measure,80 or terminate, reduce
or modify his previous rulings on the general safeguard
measure.81
With the explicit grant of certain powers involving
safeguard measures by the SMA on the DTI Secretary,
it follows that he is empowered to rule on several
issues. These are the issues which arise in connection
with, or in relation to, the imposition of a safeguard
measure. They may arise at different stages the
preliminary investigation stage, the post-formal
investigation stage, or the post-safeguard measure
stage yet all these issues do become ripe for
resolution because an initiatory action has been taken
seeking the imposition of a safeguard measure. It is the
initiatory action for the imposition of a safeguard
measure that sets the wheels in motion, allowing the
Secretary to make successive rulings, beginning with
the preliminary determination.
Clearly, therefore, the scope and reach of the phrase
"in connection with," as intended by Congress, pertain
to all rulings of the DTI Secretary or Agriculture
Secretary which arise from the time an application
or motu proprioinitiation for the imposition of a
safeguard measure is taken. Indeed, the incidents
which require resolution come to the fore only because
there is an initial application or action seeking the
imposition of a safeguard measure. From the legislative
standpoint, it was a matter of sense and practicality to
lump up the questions related to the initiatory
application or action for safeguard measure and to
assign only one court and; that is the CTA to initially
review all the rulings related to such initiatory
application or action. Both directions Congress put in
place by employing the phrase "in connection with" in
the law.
Given the relative expanse of decisions subject to
judicial review by the CTA under Section 29, we do not
doubt that a negative ruling refusing to impose a
safeguard measure falls within the scope of its
jurisdiction. On a literal level, such negative ruling is "a
ruling of the Secretary in connection with the
imposition of a safeguard measure," as it is one of the
possible outcomes that may result from the initial
application or action for a safeguard measure. On a
more critical level, the rulings of the DTI Secretary in
connection with a safeguard measure, however diverse
the outcome may be, arise from the same grant of

jurisdiction on the DTI Secretary by the SMA.82 The

refusal by the DTI Secretary to grant a safeguard
measure involves the same grant of authority, the
same statutory prescriptions, and the same degree of
discretion as the imposition by the DTI Secretary of a
safeguard measure.
The position of the respondents is one of "uncritical
literalism"83 incongruent with the animus of the law.
Moreover, a fundamentalist approach to Section 29 is
not warranted, considering the absurdity of the
consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda
Est, Ut Evitur Inconveniens Et Absurdum.84
Even assuming arguendo that Section 29 has not
expressly granted the CTA jurisdiction to review a
negative ruling of the DTI Secretary, the Court is
precluded from favoring an interpretation that would
cause inconvenience and absurdity. 85 Adopting the
respondents' position favoring the CTA's minimal
jurisdiction would unnecessarily lead to illogical and
onerous results.
Indeed, it is illiberal to assume that Congress had
intended to provide appellate relief to rulings imposing
a safeguard measure but not to those declining to
impose the measure. Respondents might argue that
the right to relief from a negative ruling is not lost
since the applicant could, as Philcemcor did, question
such ruling through a special civil action for certiorari
under Rule 65 of the 1997 Rules of Civil Procedure, in
lieu of an appeal to the CTA. Yet these two reliefs are of
differing natures and gravamen. While an appeal may
be predicated on errors of fact or errors of law, a
special civil action for certiorari is grounded on grave
abuse of discretion or lack of or excess of jurisdiction
on the part of the decider. For a special civil action for
certiorari to succeed, it is not enough that the
questioned act of the respondent is wrong. As the
Court clarified in Sempio v. Court of Appeals:
A tribunal, board or officer acts without
jurisdiction if it/he does not have the legal
power to determine the case. There is excess
of jurisdiction where, being clothed with the
power to determine the case, the tribunal,
board or officer oversteps its/his authority as
determined by law. And there is grave abuse of
discretion where the tribunal, board or officer
acts in a capricious, whimsical, arbitrary or
despotic manner in the exercise of his
judgment as to be said to be equivalent to lack
of jurisdiction. Certiorari is often resorted to in
order to correct errors of jurisdiction. Where
the error is one of law or of fact, which is a
mistake of judgment, appeal is the remedy.86
It is very conceivable that the DTI Secretary, after
deliberate thought and careful evaluation of the
evidence, may either make a negative preliminary
determination as he is so empowered under Section 7
of the SMA, or refuse to adopt the definitive safeguard
measure under Section 13 of the same law. Adopting
the respondents' theory, this negative ruling is

susceptible to reversal only through a special civil

action for certiorari, thus depriving the affected party
the chance to elevate the ruling on appeal on the
rudimentary grounds of errors in fact or in law. Instead,
and despite whatever indications that the DTI
Secretary acted with measure and within the bounds of
his jurisdiction are, the aggrieved party will be forced
to resort to a gymnastic exercise, contorting the
straight and narrow in an effort to discombobulate the
courts into believing that what was within was actually
beyond and what was studied and deliberate actually
whimsical and capricious. What then would be the
remedy of the party aggrieved by a negative ruling
that simply erred in interpreting the facts or the law? It
certainly cannot be the special civil action for
certiorari, for as the Court held in Silverio v. Court of
Appeals: "Certiorari is a remedy narrow in its scope and
inflexible in its character. It is not a general utility tool
in the legal workshop."87
Fortunately, this theoretical quandary need not come
to pass. Section 29 of the SMA is worded in such a way
that it places under the CTA's judicial review all rulings
of the DTI Secretary, which are connected with the
imposition of a safeguard measure. This is sound and
proper in light of the specialized jurisdiction of the CTA
over tax matters. In the same way that a question of
whether to tax or not to tax is properly a tax matter, so
is the question of whether to impose or not to impose a
definitive safeguard measure.

The Court of Appeals relied upon Section 13 of the SMA

in ruling that the findings of the Tariff Commission do
not necessarily constitute a final decision. Section 13
details the procedure for the adoption of a safeguard
measure, as well as the steps to be taken in case there
is a negative final determination. The implication of the
Court of Appeals' holding is that the DTI Secretary may
adopt a definitive safeguard measure, notwithstanding
a negative determination made by the Tariff
Commission.
Undoubtedly, Section 13 prescribes certain limitations
and restrictions before general safeguard measures
may be imposed. However, the most fundamental
restriction on the DTI Secretary's power in that
respect is contained in Section 5 of the
SMAthat there should first be a positive final
determination of the Tarif Commissionwhich the
Court of Appeals curiously all but ignored. Section 5
reads:

On another note, the second paragraph of Section 29

similarly reveals the legislative intent that rulings of
the DTI Secretary over safeguard measures should first
be reviewed by the CTA and not the Court of Appeals. It
reads:

Sec. 5. Conditions for the Application of

General
Safeguard
Measures.
The
Secretary shall apply a general safeguard
measure
upon
a
positive
final
determination
of
the
[Tarif]
Commission that a product is being imported
into the country in increased quantities,
whether absolute or relative to the domestic
production, as to be a substantial cause of
serious injury or threat thereof to the domestic
industry; however, in the case of nonagricultural products, the Secretary shall first
establish that the application of such safeguard
measures will be in the public interest.
(emphasis supplied)

The petition for review shall comply with the

same requirements and shall follow the same
rules of procedure and shall be subject to the
same disposition as in appeals in connection
with adverse rulings on tax matters to the
Court of Appeals.

The plain meaning of Section 5 shows that it is the

Tariff Commission that has the power to make a
"positive final determination." This power lodged in the
Tariff Commission, must be distinguished from the
power to impose the general safeguard measure which
is properly vested on the DTI Secretary. 88

This is the only passage in the SMA in which the Court

of Appeals is mentioned. The express wish of Congress
is that the petition conform to the requirements and
procedure under Rule 43 of the Rules of Civil
Procedure. Since Congress mandated that the form and
procedure adopted be analogous to a review of a CTA
ruling by the Court of Appeals, the legislative
contemplation could not have been that the appeal be
directly taken to the Court of Appeals.

All in all, there are two condition precedents that must

be satisfied before the DTI Secretary may impose a
general safeguard measure on grey Portland cement.
First, there must be a positive final determination by
the Tariff Commission that a product is being imported
into the country in increased quantities (whether
absolute or relative to domestic production), as to be a
substantial cause of serious injury or threat to the
domestic industry. Second, in the case of nonagricultural products the Secretary must establish that
the application of such safeguard measures is in the
public interest.89 As Southern Cross argues, Section 5 is
quite clear-cut, and it is impossible to finagle a
different conclusion even through overarching methods
of statutory construction. There is no safer nor better
settled canon of interpretation that when language is
clear and unambiguous it must be held to mean what it
plainly expresses:90 In the quotable words of an
illustrious member of this Court, thus:

Issue
of
Binding
Effect
Commission's
Factual
on DTI Secretary.

of
Tariff
Determination

The next issue for resolution is whether the factual

determination made by the Tariff Commission under
the SMA is binding on the DTI Secretary. Otherwise
stated, the question is whether the DTI Secretary may
impose general safeguard measures in the absence of
a positive final determination by the Tariff Commission.

[I]f a statute is clear, plain and free from

ambiguity, it must be given its literal meaning

and applied without attempted interpretation.

The verba legis or plain meaning rule rests on
the valid presumption that the words employed
by the legislature in a statute correctly express
its intent or will and preclude the court from
construing it differently. The legislature is
presumed to know the meaning of the words,
to have used words advisedly, and to have
expressed its intent by the use of such words
as are found in the statute.91
Moreover, Rule 5 of the Implementing Rules and
Regulations of the SMA,92 which interprets Section 5 of
the law, likewise requires a positive final determination
on the part of the Tariff Commission before the
application of the general safeguard measure.
The SMA establishes a distinct allocation of functions
between the Tariff Commission and the DTI Secretary.
The plain meaning of Section 5 shows that it is the
Tariff Commission that has the power to make a
"positive final determination." This power, which
belongs to the Tariff Commission, must be
distinguished from the power to impose general
safeguard measure properly vested on the DTI
Secretary. The distinction is vital, as a "positive final
determination" clearly antecedes, as a condition
precedent, the imposition of a general safeguard
measure. At the same time, a positive final
determination does not necessarily result in the
imposition of a general safeguard measure. Under
Section
5,
notwithstanding
the
positive
final
determination of the Tariff Commission, the DTI
Secretary is tasked to decide whether or not that the
application of the safeguard measures is in the public
interest.
It is also clear from Section 5 of the SMA that the
positive final determination to be undertaken by the
Tariff Commission does not entail a mere gathering of
statistical data. In order to arrive at such
determination, it has to establish causal linkages from
the statistics that it compiles and evaluates: after
finding there is an importation in increased quantities
of the product in question, that such importation is a
substantial cause of serious threat or injury to the
domestic industry.
The Court of Appeals relies heavily on the legislative
record of a congressional debate during deliberations
on the SMA to assert a purported legislative intent that
the findings of the Tariff Commission do not bind the
DTI Secretary. 93 Yet as explained earlier, the plain
meaning of Section 5 emphasizes that only if the Tariff
Commission renders a positive determination could the
DTI Secretary impose a safeguard measure. Resort to
the congressional records to ascertain legislative intent
is not warranted if a statute is clear, plain and free
from ambiguity. The legislature is presumed to know
the meaning of the words, to have used words
advisedly, and to have expressed its intent by the use
of such words as are found in the statute. 94
Indeed, the legislative record, if at all to be availed of,
should be approached with extreme caution, as
legislative debates and proceedings are powerless to

vary the terms of the statute when the meaning is

clear.95 Our holding in Civil Liberties Union v. Executive
Secretary96 on the resort to deliberations of the
constitutional convention to interpret the Constitution
is likewise appropriate in ascertaining statutory intent:
While it is permissible in this jurisdiction to
consult the debates and proceedings of the
constitutional convention in order to arrive at
the reason and purpose of the resulting
Constitution, resort thereto may be had only
when other guides fail as said proceedings are
powerless to vary the terms of the Constitution
when the meaning is clear. Debates in the
constitutional convention "are of value as
showing the views of the individual members,
and as indicating the reasons for their votes,
but they give us no light as to the views of the
large majority who did not talk xxx. We think it
safer to construe the constitution from what
appears upon its face."97
Moreover, it is easy to selectively cite passages,
sometimes out of their proper context, in order to
assert a misleading interpretation. The effect can be
dangerous. Minority or solitary views, anecdotal
ruminations, or even the occasional crude witticisms,
may improperly acquire the mantle of legislative intent
by the sole virtue of their publication in the
authoritative congressional record. Hence, resort to
legislative deliberations is allowable when the statute
is crafted in such a manner as to leave room for doubt
on the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict
the DTI Secretary's power to impose a general
safeguard measure by preconditioning such imposition
on a positive determination by the Tariff Commission.
Such legislative intent should be given full force and
effect, as the executive power to impose definitive
safeguard measures is but a delegated powerthe
power of taxation, by nature and by command of the
fundamental
law,
being
a
preserve
of
the
legislature.98 Section 28(2), Article VI of the 1987
Constitution confirms the delegation of legislative
power, yet ensures that the prerogative of Congress to
impose limitations and restrictions on the executive
exercise of this power:
The Congress may, by law, authorize the
President to fix within specified limits, and
subject to such limitations and restrictions as it
may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the
national
development
program
of
the
Government.99
The safeguard measures which the DTI Secretary may
impose under the SMA may take the following
variations, to wit: (a) an increase in, or imposition of
any duty on the imported product; (b) a decrease in or
the imposition of a tariff-rate quota on the product; (c)
a modification or imposition of any quantitative
restriction on the importation of the product into the
Philippines; (d) one or more appropriate adjustment

measures, including the provision of trade adjustment

assistance; and (e) any combination of the abovedescribed actions. Except for the provision of trade
adjustment assistance, the measures enumerated by
the SMA are essentially imposts, which precisely are
the subject of delegation under Section 28(2), Article VI
of the 1987 Constitution.100
This delegation of the taxation power by the legislative
to the executive is authorized by the Constitution
itself.101At the same time, the Constitution also grants
the delegating authority (Congress) the right to impose
restrictions and limitations on the taxation power
delegated to the President.102 The restrictions and
limitations imposed by Congress take on the mantle of
a constitutional command, which the executive branch
is obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of
the President,103 to impose definitive general safeguard
measures, which basically are tariff imposts of the type
spoken of in the Constitution. However, the law did not
grant him full, uninhibited discretion to impose such
measures. The DTI Secretary authority is derived from
the SMA; it does not flow from any inherent executive
power. Thus, the limitations imposed by Section 5 are
absolute, warranted as they are by a constitutional
fiat.104
Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to
assert that the DTI Secretary, having the final decision
on the safeguard measure, has the power to evaluate
the findings of the Tariff Commission and make an
independent
judgment
thereon.
Given
the
constitutional and statutory limitations governing the
present case, the citation is misplaced. Lamb pertained
to the discretion of the Insular Auditor of the Philippine
Islands, whom, as the Court recognized, "[t]he statutes
of the United States require[d] xxx to exercise his
judgment upon the legality xxx [of] provisions of law
and resolutions of Congress providing for the payment
of money, the means of procuring testimony upon
which he may act."106
Thus in Lamb, while the Court recognized the wide
latitude of discretion that may have been vested on the
Insular Auditor, it also recognized that such latitude
flowed from, and is consequently limited by, statutory
grant. However, in this case, the provision of the
Constitution in point expressly recognizes the authority
of Congress to prescribe limitations in the case of
tariffs, export/import quotas and other such safeguard
measures. Thus, the broad discretion granted to the
Insular Auditor of the Philippine Islands cannot be
analogous to the discretion of the DTI Secretary which
is circumscribed by Section 5 of the SMA.
For that matter, Cario v. Commissioner on Human
Rights,107 likewise cited by Philcemcor, is also
inapplicable owing to the different statutory regimes
prevailing over that case and the present petition.
In Cario, the Court ruled that the constitutional power
of the Commission on Human Rights (CHR) to
investigate human rights' violations did not extend to
adjudicating claims on the merits. 108 Philcemcor claims

that the functions of the Tariff Commission being "only

investigatory," it could neither decide nor adjudicate. 109
The applicable law governing the issue in Cario is
Section 18, Article XIII of the Constitution, which
delineates the powers and functions of the CHR. The
provision does not vest on the CHR the power to
adjudicate cases, but only to investigate all forms of
human rights violations.110 Yet, without modifying the
thorough disquisition of the Court in Cario on the
general limitations on the investigatory power, the
precedent is inapplicable because of the difference in
the involved statutory frameworks. The Constitution
does not repose binding effect on the results of the
CHR's investigation.111 On the other hand, through
Section 5 of the SMA and under the authority of
Section 28(2), Article VI of the Constitution, Congress
did intend to bind the DTI Secretary to the
determination made by the Tariff Commission. 112 It is of
no consequence that such determination results from
the exercise of investigatory powers by the Tariff
Commission since Congress is well within its
constitutional mandate to limit the authority of the DTI
Secretary to impose safeguard measures in the
manner that it sees fit.
The Court of Appeals and Philcemcor also rely on
Section 13 of the SMA and Rule 13 of the SMA's
Implementing Rules in support of the view that the DTI
Secretary
may
decide
independently
of
the
determination made by the Tariff Commission.
Admittedly, there are certain infelicities in the
language of Section 13 and Rule 13. But reliance
should not be placed on the textual imprecisions.
Rather, Section 13 and Rule 13 must be viewed in light
of the fundamental prescription imposed by Section
5. 113
Section 13 of the SMA lays down the procedure to be
followed after the Tariff Commission renders its report.
The provision reads in full:
SEC. 13. Adoption of Definitive Measures.
Upon
its
positive
determination,
the
Commission shall recommend to the Secretary
an appropriate definitive measure, in the form
of:
(a) An increase in, or imposition of, any duty on
the imported product;
(b) A decrease in or the imposition of a tariffrate quota (MAV) on the product;
(c) A modification or imposition of any
quantitative restriction on the importation of
the product into the Philippines;
(d) One or more appropriate adjustment
measures, including the provision of trade
adjustment assistance;
(e) Any combination of actions described in
subparagraphs (a) to (d).

The Commission may also recommend other

actions, including the initiation of international
negotiations to address the underlying cause of
the increase of imports of the product, to
alleviate the injury or threat thereof to the
domestic industry, and to facilitate positive
adjustment to import competition.
The general safeguard measure shall be limited
to the extent of redressing or preventing the
injury and to facilitate adjustment by the
domestic industry from the adverse effects
directly
attributed
to
the
increased
imports: Provided,
however, That
when
quantitative import restrictions are used, such
measures shall not reduce the quantity of
imports below the average imports for the
three (3) preceding representative years,
unless clear justification is given that a
different level is necessary to prevent or
remedy a serious injury.
A general safeguard measure shall not be
applied to a product originating from a
developing country if its share of total imports
of the product is less than three percent
(3%): Provided, however, That developing
countries with less than three percent (3%)
share collectively account for not more than
nine percent (9%) of the total imports.
The decision imposing a general safeguard
measure, the duration of which is more than
one (1) year, shall be reviewed at regular
intervals for purposes of liberalizing or
reducing its intensity. The industry benefiting
from the application of a general safeguard
measure shall be required to show positive
adjustment within the allowable period. A
general safeguard measure shall be terminated
where the benefiting industry fails to show any
improvement, as may be determined by the
Secretary.

respect to the same imports of the product

under consideration within one (1) year after
the date of rendering such a decision.
When the definitive safeguard measure is in
the form of a tariff increase, such increase shall
not be subject or limited to the maximum
levels of tariff as set forth in Section 401(a) of
the Tariff and Customs Code of the Philippines.
To better comprehend Section 13, note must be taken
of the distinction between the investigatory and
recommendatory functions of the Tariff Commission
under the SMA.
The word "determination," as used in the SMA, pertains
to the factual findings on whether there are increased
imports into the country of the product under
consideration, and on whether such increased imports
are a substantial cause of serious injury or threaten to
substantially cause serious injury to the domestic
industry.114The SMA explicitly authorizes the DTI
Secretary to make a preliminary determination, 115 and
the
Tariff
Commission
to
make
the
final
determination.116 The distinction is fundamental, as
these functions are not interchangeable. The Tariff
Commission makes its determination only after a
formal investigation process, with such investigation
initiated only if there is a positive preliminary
determination by the DTI Secretary under Section 7 of
the SMA.117 On the other hand, the DTI Secretary may
impose definitive safeguard measure only if there is a
positive final determination made by the Tariff
Commission.118

The Secretary shall issue a written instruction

to the heads of the concerned government
agencies to implement the appropriate general
safeguard measure as determined by the
Secretary within fifteen (15) days from receipt
of the report.

In contrast, a "recommendation" is a suggested

remedial measure submitted by the Tariff Commission
under Section 13 after making a positive final
determination in accordance with Section 5. The Tariff
Commission
is
not
empowered
to
make
a
recommendation absent a positive final determination
on its part.119 Under Section 13, the Tariff Commission
is required to recommend to the [DTI] Secretary an
"appropriate
definitive
measure."120 The
Tariff
Commission "may also recommend other actions,
including the initiation of international negotiations to
address the underlying cause of the increase of imports
of the products, to alleviate the injury or threat thereof
to the domestic industry and to facilitate positive
adjustment to import competition." 121

In the event of a negative final determination,

or if the cash bond is in excess of the definitive
safeguard duty assessed, the Secretary shall
immediately issue, through the Secretary of
Finance,
a
written
instruction
to
the
Commissioner of Customs, authorizing the
return of the cash bond or the remainder
thereof, as the case may be, previously
collected as provisional general safeguard
measure within ten (10) days from the date a
final decision has been made: Provided, That
the government shall not be liable for any
interest on the amount to be returned. The
Secretary shall not accept for consideration
another petition from the same industry, with

The recommendations of the Tariff Commission, as

rendered under Section 13, are not obligatory on the
DTI Secretary. Nothing in the SMA mandates the DTI
Secretary to adopt the recommendations made by the
Tariff Commission. In fact, the SMA requires that the
DTI Secretary establish that the application of such
safeguard measures is in the public interest,
notwithstanding
the
Tariff
Commission's
recommendation on the appropriate safeguard
measure
based
on
its
positive
final
determination.122 The non-binding force of the Tariff
Commission's recommendations is congruent with the
command of Section 28(2), Article VI of the 1987
Constitution that only the President may be
empowered by the Congress to impose appropriate

tariff rates, import/export quotas and other similar

measures.123 It is the DTI Secretary, as alter ego of the
President, who under the SMA may impose such
safeguard measures subject to the limitations imposed
therein. A contrary conclusion would in essence unduly
arrogate to the Tariff Commission the executive power
to impose the appropriate tariff measures. That is why
the SMA empowers the DTI Secretary to adopt
safeguard measures other than those recommended by
the Tariff Commission.
Unlike the recommendations of the Tariff Commission,
its determination has a different effect on the DTI
Secretary. Only on the basis of a positive final
determination made by the Tariff Commission under
Section 5 can the DTI Secretary impose a general
safeguard measure. Clearly, then the DTI Secretary
is bound by the determinationmade by the Tariff
Commission.
Some confusion may arise because the sixth paragraph
of Section 13124 uses the variant word "determined" in
a different context, as it contemplates "the appropriate
general safeguard measure as determined by the
Secretary within fifteen (15) days from receipt of the
report." Quite plainly, the word "determined" in this
context pertains to the DTI Secretary's power of choice
of the appropriate safeguard measure, as opposed to
the Tariff Commission's power to determine the
existence of conditions necessary for the imposition of
any safeguard measure. In relation to Section 5, such
choice also relates to the mandate of the DTI Secretary
to establish that the application of safeguard measures
is in the public interest, also within the fifteen (15) day
period. Nothing in Section 13 contradicts the
instruction in Section 5 that the DTI Secretary is
allowed to impose the general safeguard measures
only if there is a positive determination made by the
Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of
the SMA is captioned "Final Determination by the
Secretary." The assailed Decision and Philcemcor latch
on this phraseology to imply that the factual
determination rendered by the Tariff Commission under
Section 5 may be amended or reversed by the DTI
Secretary. Of course, implementing rules should
conform, not clash, with the law that they seek to
implement, for a regulation which operates to create a
rule out of harmony with the statute is a nullity. 125 Yet
imperfect draftsmanship aside, nothing in Rule 13.2
implies that the DTI Secretary can set aside the
determination made by the Tariff Commission under
the aegis of Section 5. This can be seen by examining
the specific provisions of Rule 13.2, thus:
RULE 13.2.
Secretary

Final

Determination

by

the

RULE 13.2.a. Within fifteen (15)

calendar days from receipt of the
Report
of
the
Commission,
the
Secretary shall make a decision, taking
into
consideration
the
measures
recommended by the Commission.

RULE 13.2.b. If the determination is

affirmative, the Secretary shall issue,
within two (2) calendar days after
making
his
decision,
a
written
instruction to the heads of the
concerned government agencies to
immediately
implement
the
appropriate general safeguard measure
as determined by him. Provided,
however, that in the case of nonagricultural products, the Secretary
shall first establish that the imposition
of the safeguard measure will be in the
public interest.
RULE 13.2.c. Within two (2) calendar
days after making his decision, the
Secretary
shall
also
order
its
publication in two (2) newspapers of
general circulation. He shall also
furnish a copy of his Order to the
petitioner and other interested parties,
whether
affirmative
or
negative.
(Emphasis supplied.)
Moreover, the DTI Secretary does not have the power
to review the findings of the Tariff Commission for it is
not subordinate to the Department of Trade and
Industry ("DTI"). It falls under the supervision, not of
the DTI nor of the Department of Finance (as
mistakenly asserted by Southern Cross), 126 but of
the National Economic Development Authority, an
independent planning agency of the government
of co-equal rank as the DTI. 127 As the supervision
and control of a Department Secretary is limited to the
bureaus, offices, and agencies under him,128 the DTI
Secretary generally cannot exercise review authority
over actions of the Tariff Commission. Neither does the
SMA specifically authorize the DTI Secretary to alter,
amend or modify in any way the determination made
by the Tariff Commission. The most that the DTI
Secretary could do to express displeasure over the
Tariff Commission's actions is to ignore its
recommendation, but not its determination.
The word "determination" as used in Rule 13.2 of the
Implementing Rules is dissonant with the same word as
employed in the SMA, which in the latter case is
undeviatingly in reference to the determination made
by the Tariff Commission. Beyond the resulting
confusion, however, the divergent use in Rule 13.2 is
explicable as the Rule textually pertains to the power
of the DTI Secretary to review the recommendations of
the Tariff Commission, not the latter's determination.
Indeed, an examination of the specific provisions show
that there is no real conflict to reconcile. Rule 13.2
respects the logical order imposed by the SMA. The
Rule does not remove the essential requirement under
Section 5 that a positive final determination be made
by the Tariff Commission before a definitive safeguard
measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the
Tariff Commission as merely recommendatory and
points to the DTI Secretary as the authority who
renders the final decision.129 At the same time,
Philcemcor asserts that the Tariff Commission's

functions are merely investigatory, and as such do not

include the power to decide or adjudicate. These
contentions, viewed in the context of the fundamental
requisite set forth by Section 5, are untenable. They
run counter to the statutory prescription that a positive
final determination made by the Tariff Commission
should first be obtained before the definitive safeguard
measures may be laid down.
Was it anomalous for Congress to have provided for a
system whereby the Tariff Commission may preclude
the DTI, an office of higher rank, from imposing a
safeguard measure? Of course, this Court does not
inquire into the wisdom of the legislature but only
charts the boundaries of powers and functions set in its
enactments. But then, it is not difficult to see the
internal logic of this statutory framework.
For one, as earlier stated, the DTI cannot exercise
review powers over the Tariff Commission which is not
its subordinate office.
Moreover, the mechanism established by Congress
establishes a measure of check and balance involving
two different governmental agencies with disparate
specializations. The matter of safeguard measures is of
such national importance that a decision either to
impose or not to impose then could have ruinous
effects on companies doing business in the Philippines.
Thus, it is ideal to put in place a system which affords
all due deliberation and calls to fore various
governmental agencies exercising their particular
specializations.
Finally, if this arrangement drawn up by Congress
makes it difficult to obtain a general safeguard
measure, it is because such safeguard measure is the
exception, rather than the rule. The Philippines is
obliged to observe its obligations under the GATT,
under whose framework trade liberalization, not
protectionism, is laid down. Verily, the GATT actually
prescribes conditions before a member-country may
impose a safeguard measure. The pertinent portion of
the GATT Agreement on Safeguards reads:
2. A Member may only apply a safeguard
measure to a product only if that member has
determined, pursuant to the provisions set out
below, that such product is being imported into
its territory in such increased quantities,
absolute or relative to domestic production,
and under such conditions as to cause or
threaten to cause serious injury to the
domestic industry that produces like or directly
competitive products.130
3. (a) A Member may apply a safeguard
measure only following an investigation by the
competent authorities of that Member pursuant
to procedures previously established and made
public in consonance with Article X of the GATT
1994.
This
investigation
shall
include
reasonable public notice to all interested
parties
and
public
hearings
or
other
appropriate means in which importers,
exporters and other interested parties could

present evidence and their views, including the

opportunity to respond to the presentations of
other parties and to submit their views, inter
alia, as to whether or not the application of a
safeguard measure would be in the public
interest. The competent authorities shall
publish a report setting forth their findings and
reasoned conclusions reached on all pertinent
issues of fact and law.131
The SMA was designed not to contradict the GATT, but
to complement it. The two requisites laid down in
Section 5 for a positive final determination are the
same conditions provided under the GATT Agreement
on Safeguards for the application of safeguard
measures by a member country. Moreover, the
investigatory procedure laid down by the SMA
conforms to the procedure required by the GATT
Agreement on Safeguards. Congress has chosen the
Tariff Commission as the competent authority to
conduct such investigation. Southern Cross stresses
that applying the provision of the GATT Agreement on
Safeguards,
the
Tariff
Commission
is
clearly
empowered to arrive at binding conclusions. 132 We
agree: binding on the DTI Secretary is the Tariff
Commission's determinations on whether a product is
imported in increased quantities, absolute or relative to
domestic production and whether any such increase is
a substantial cause of serious injury or threat thereof to
the domestic industry.133
Satisfied as we are with the proper statutory paradigm
within which the SMA should be analyzed, the flaws in
the reasoning of the Court of Appeals and in the
arguments of the respondents become apparent. To
better understand the dynamics of the procedure set
up by the law leading to the imposition of definitive
safeguard measures, a brief step-by-step recount
thereof is in order.
1. After the initiation of an action involving a general
safeguard measure,134 the DTI Secretary makes a
preliminary determination whether the increased
imports
of
the
product
under
consideration
substantially cause or threaten to substantially cause
serious injury to the domestic industry, 135 and whether
the imposition of a provisional measure is warranted
under Section 8 of the SMA.136 If the preliminary
determination is negative, it is implied that no further
action will be taken on the application.
2. When his preliminary determination is positive, the
Secretary immediately transmits the records covering
the application to the Tariff Commission for immediate
formal investigation.137
3. The Tariff Commission conducts its formal
investigation,
keyed
towards
making
a
final
determination. In the process, it holds public hearings,
providing interested parties the opportunity to present
evidence or otherwise be heard. 138 To repeat, Section 5
enumerates what the Tariff Commission is tasked to
determine: (a) whether a product is being imported
into the country in increased quantities, irrespective of
whether the product is absolute or relative to the
domestic production; and (b) whether the importation

in increased quantities is such that it causes serious

injury or threat to the domestic industry. 139 The findings
of the Tariff Commission as to these matters constitute
the final determination, which may be either positive or
negative.
4. Under Section 13 of the SMA, if the Tariff
Commission makes a positive determination, the Tariff
Commission "recommends to the [DTI] Secretary an
appropriate definitive measure." The Tariff Commission
"may also recommend other actions, including the
initiation of international negotiations to address the
underlying cause of the increase of imports of the
products, to alleviate the injury or threat thereof to the
domestic industry, and to facilitate positive adjustment
to import competition."140
5. If the Tariff Commission makes a positive final
determination, the DTI Secretary is then to decide,
within fifteen (15) days from receipt of the report, as to
what appropriate safeguard measures should he
impose.
6. However, if the Tariff Commission makes a negative
final determination, the DTI Secretary cannot impose
any definitive safeguard measure. Under Section 13,
he is instructed instead to return whatever cash bond
was paid by the applicant upon the initiation of the
action for safeguard measure.
The Effect of the Court's Decision
The Court of Appeals erred in remanding the case back
to the DTI Secretary, with the instruction that the DTI
Secretary may impose a general safeguard measure
even if there is no positive final determination from the
Tariff Commission. More crucially, the Court of Appeals
could not have acquired jurisdiction over Philcemcor's
petition for certiorari in the first place, as Section 29 of
the SMA properly vests jurisdiction on the CTA.
Consequently, the assailed Decision is an absolute
nullity, and we declare it as such.
What is the effect of the nullity of the
assailed Decision on the 5 June 2003 Decision of the
DTI Secretary imposing the general safeguard
measure? We have recognized that any initial judicial
review of a DTI ruling in connection with the imposition
of a safeguard measure belongs to the CTA. At the
same time, the Court also recognizes the fundamental
principle that a null and void judgment cannot produce
any legal effect. There is sufficient cause to establish
that the 5 June 2003 Decision of the DTI Secretary
resulted from the assailed Court of Appeals Decision,
even if the latter had not yet become final. Conversely,
it can be concluded that it was because of the putative
imprimatur of the Court of Appeals' Decision that the
DTI Secretary issued his ruling imposing the safeguard
measure. Since the 5 June 2003 Decision derives its
legal effect from the void Decision of the Court of
Appeals, this ruling of the DTI Secretary is
consequently void. The spring cannot rise higher than
the source.
The DTI Secretary himself acknowledged that he drew
stimulating
force
from
the
appellate

court's Decision for in his own 5 June 2003 Decision, he

declared:
From the aforementioned ruling, the CA has
remanded the case to the DTI Secretary for a
final decision. Thus, there is no legal
impediment for the Secretary to decide on the
application.141
The inescapable conclusion is that the DTI Secretary
needed the assailed Decision of the Court of Appeals to
justify his rendering a second Decision. He explicitly
invoked the Court of Appeals' Decision as basis for
rendering his 5 June 2003 ruling, and implicitly
recognized that without such Decision he would not
have the authority to revoke his previous ruling and
render a new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the
DTI Secretary is a product of the void Decision, it being
an attempt to carry out such null judgment. There is
therefore no choice but to declare it void as well, lest
we sanction the perverse existence of a fruit from a
non-existent tree. It does not even matter what the
disposition of the 25 June 2003 Decision was, its nullity
would be warranted even if the DTI Secretary chose to
uphold his earlier ruling denying the application for
safeguard measures.
It is also an unfortunate spectacle to behold the DTI
Secretary, seeking to enforce a judicial decision which
is not yet final and actually pending review on appeal.
Had it been a judge who attempted to enforce a
decision that is not yet final and executory, he or she
would have readily been subjected to sanction by this
Court. The DTI Secretary may be beyond the ambit of
administrative review by this Court, but we are
capacitated to allocate the boundaries set by the law of
the land and to exact fealty to the legal order,
especially from the instrumentalities and officials of
government.
WHEREFORE, the
petition
is
GRANTED.
The
assailed Decision of the Court of Appeals is DECLARED
NULL AND VOID and SET ASIDE. The Decision of the DTI
Secretary dated 25 June 2003 is also DECLARED NULL
AND VOID and SET ASIDE. No Costs.
SO ORDERED.
XII. Exemption from Real Property Taxes
G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented by
PEDRO
V.
BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First
Instance, Abra; ARMIN M. CARIAGA, Provincial
Treasurer, Abra; GASPAR V. BOSQUE, Municipal
Treasurer, Bangued, Abra; HEIRS OF PATERNO
MILLARE,respondents.

PARAS, J.:
This is a petition for review on certiorari of the
decision * of the defunct Court of First Instance of Abra,
Branch I, dated June 14, 1974, rendered in Civil Case
No. 656, entitled "Abra Valley Junior College, Inc.,
represented by Pedro V. Borgonia, plaintiff vs. Armin M.
Cariaga as Provincial Treasurer of Abra, Gaspar V.
Bosque as Municipal Treasurer of Bangued, Abra and
Paterno Millare, defendants," the decretal portion of
which reads:
IN VIEW OF ALL THE FOREGOING, the
Court hereby declares:
That the distraint seizure and sale by
the Municipal Treasurer of Bangued,
Abra, the Provincial Treasurer of said
province against the lot and building of
the Abra Valley Junior College, Inc.,
represented by Director Pedro Borgonia
located at Bangued, Abra, is valid;
That since the school is not exempt
from paying taxes, it should therefore
pay all back taxes in the amount of
P5,140.31
and
back
taxes
and
penalties from the promulgation of this
decision;
That the amount deposited by the
plaintaff him the sum of P60,000.00
before the trial, be confiscated to apply
for the payment of the back taxes and
for the redemption of the property in
question, if the amount is less than
P6,000.00, the remainder must be
returned to the Director of Pedro
Borgonia, who represents the plaintiff
herein;
That the deposit of the Municipal
Treasurer in the amount of P6,000.00
also before the trial must be returned
to said Municipal Treasurer of Bangued,
Abra;
And finally the case is hereby ordered
dismissed with costs against the
plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of
higher learning duly incorporated with the Securities
and Exchange Commission in 1948, filed a complaint
(Annex "1" of Answer by the respondents Heirs of
Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in
the court a quo to annul and declare void the "Notice of
Seizure' and the "Notice of Sale" of its lot and building
located at Bangued, Abra, for non-payment of real
estate taxes and penalties amounting to P5,140.31.
Said "Notice of Seizure" of the college lot and building
covered by Original Certificate of Title No. Q-83 duly
registered in the name of petitioner, plaintiff below, on

July 6, 1972, by respondents Municipal Treasurer and

Provincial Treasurer, defendants below, was issued for
the satisfaction of the said taxes thereon. The "Notice
of Sale" was caused to be served upon the petitioner
by the respondent treasurers on July 8, 1972 for the
sale at public auction of said college lot and building,
which sale was held on the same date. Dr. Paterno
Millare, then Municipal Mayor of Bangued, Abra, offered
the highest bid of P6,000.00 which was duly accepted.
The certificate of sale was correspondingly issued to
him.
On August 10, 1972, the respondent Paterno Millare
(now deceased) filed through counstel a motion to
dismiss the complaint.
On August 23, 1972, the respondent Provincial
Treasurer and Municipal Treasurer, through then
Provincial Fiscal Loreto C. Roldan, filed their answer
(Annex "2" of Answer by the respondents Heirs of
Patemo Millare; Rollo, pp. 98-100) to the complaint.
This was followed by an amended answer (Annex
"3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare
filed his answer (Annex "5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the
school premises at public auction, the respondent
Judge, Hon. Juan P. Aquino of the Court of First Instance
of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp.
109-110) the respondents provincial and municipal
treasurers to deliver to the Clerk of Court the proceeds
of the auction sale. Hence, on December 14, 1972,
petitioner, through Director Borgonia, deposited with
the trial court the sum of P6,000.00 evidenced by PNB
Check No. 904369.
On April 12, 1973, the parties entered into a stipulation
of facts adopted and embodied by the trial court in its
questioned decision. Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by
counsels, and to this Honorable Court
respectfully enter into the following
agreed stipulation of facts:
1. That the personal circumstances of
the parties as stated in paragraph 1 of
the complaint is admitted; but the
particular person of Mr. Armin M.
Cariaga is to be substituted, however,
by anyone who is actually holding the
position of Provincial Treasurer of the
Province of Abra;
2. That the plaintiff Abra Valley Junior
College, Inc. is the owner of the lot and
buildings thereon located in Bangued,
Abra under Original Certificate of Title
No. 0-83;

3. That the defendant Gaspar V.

Bosque, as Municipal treasurer of
Bangued, Abra caused to be served
upon the Abra Valley Junior College,
Inc. a Notice of Seizure on the property
of said school under Original Certificate
of Title No. 0-83 for the satisfaction of
real property taxes thereon, amounting
to P5,140.31; the Notice of Seizure
being the one attached to the
complaint as Exhibit A;

was sold to defendant Paterno Millare

who offered the highest bid of
P6,000.00 and a Certificate of Sale in
his favor was issued by the defendant
Municipal Treasurer.
5. That all other matters not
particularly and specially covered by
this stipulation of facts will be the
subject of evidence by the parties.
WHEREFORE, it is respectfully prayed
of the Honorable Court to consider and
admit this stipulation of facts on the
point agreed upon by the parties.

4. That on June 8, 1972 the above

properties of the Abra Valley Junior
College, Inc. was sold at public auction
for the satisfaction of the unpaid real
property taxes thereon and the same

.
Typ
Provincial
Counsel
Provincial
Abra
Treasurer of Bangued, Abra

Bangued, Abra, April 12, 1973.

Loreto
LORETO
for
Treasurer
and

the

Roldan
ROLDAN
Fiscal
Defendants
of
Municipal

Sgd. Demetrio V. Pre

Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo,
pp. 17-18
)
Aside from the Stipulation of Facts, the trial court
among others, found the following: (a) that the school
is recognized by the government and is offering
Primary, High School and College Courses, and has a
school population of more than one thousand students
all in all; (b) that it is located right in the heart of the
town of Bangued, a few meters from the plaza and
about 120 meters from the Court of First Instance
building; (c) that the elementary pupils are housed in a
two-storey building across the street; (d) that the high
school and college students are housed in the main
building; (e) that the Director with his family is in the
second floor of the main building; and (f) that the
annual gross income of the school reaches more than
one hundred thousand pesos.
From all the foregoing, the only issue left for the Court
to determine and as agreed by the parties, is whether
or not the lot and building in question are used
exclusively for educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon
and his Assistant, Hon. Eustaquio Z. Montero, filed a
Memorandum for the Government on March 25, 1974,
and a Supplemental Memorandum on May 7, 1974,
wherein they opined "that based on the evidence, the
laws applicable, court decisions and jurisprudence, the
school building and school lot used for educational
purposes of the Abra Valley College, Inc., are exempted

from the payment of taxes." (Annexes "B," "B-1" of

Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the
use of the second floor by the Director of petitioner
school for residential purposes. He thus ruled for the
government and rendered the assailed decision.
After having been granted by the trial court ten (10)
days from August 6, 1974 within which to perfect its
appeal (Per Order dated August 6, 1974; Annex "G" of
Petition; Rollo, p. 57) petitioner instead availed of the
instant petition for review on certiorari with prayer for
preliminary injunction before this Court, which petition
was filed on August 17, 1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court
resolved to give DUE COURSE to the petition (Rollo, p.
58). Respondents were required to answer said petition
(Rollo, p. 74).
Petitioner raised the following assignments of error:
I
THE COURT A QUO ERRED IN SUSTAINING AS VALID
THE SEIZURE AND SALE OF THE COLLEGE LOT AND
BUILDING USED FOR EDUCATIONAL PURPOSES OF THE
PETITIONER.

II
THE COURT A QUO ERRED IN DECLARING THAT THE
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES
MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES
IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE
NOT EXEMPT FROM PROPERTY TAXES AND IN
ORDERING PETITIONER TO PAY P5,140.31 AS REALTY
TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE
CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN
THE COURT BY PETITIONER AS PAYMENT OF THE
P5,140.31 REALTY TAXES. (See Brief for the Petitioner,
pp. 1-2)
The main issue in this case is the proper interpretation
of the phrase "used exclusively for educational
purposes."
Petitioner contends that the primary use of the lot and
building for educational purposes, and not the
incidental use thereof, determines and exemption from
property taxes under Section 22 (3), Article VI of the
1935 Constitution. Hence, the seizure and sale of
subject college lot and building, which are contrary
thereto as well as to the provision of Commonwealth
Act No. 470, otherwise known as the Assessment Law,
are without legal basis and therefore void.
On the other hand, private respondents maintain that
the college lot and building in question which were
subjected to seizure and sale to answer for the unpaid
tax are used: (1) for the educational purposes of the
college; (2) as the permanent residence of the
President and Director thereof, Mr. Pedro V. Borgonia,
and his family including the in-laws and grandchildren;
and (3) for commercial purposes because the ground
floor of the college building is being used and rented
by a commercial establishment, the Northern
Marketing Corporation (See photograph attached as
Annex "8" (Comment; Rollo, p. 90]).
Due to its time frame, the constitutional provision
which finds application in the case at bar is Section 22,
paragraph 3, Article VI, of the then 1935 Philippine
Constitution, which expressly grants exemption from
realty taxes for "Cemeteries, churches and parsonages
or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for
religious, charitable or educational purposes ...
Relative
thereto,
Section
54,
paragraph
c,
Commonwealth Act No. 470 as amended by Republic
Act No. 409, otherwise known as the Assessment Law,
provides:

The following are exempted from real

property tax under the Assessment
Law:
xxx xxx xxx
(c) churches and parsonages or
convents appurtenant thereto, and all
lands,
buildings,
and
improvements used
exclusively for
religious,
charitable,
scientific
or
educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of
the school lot and building is the basic and controlling
guide, norm and standard to determine tax exemption,
and not the mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of
lnternal Revenue, 33 Phil. 217 [1916], this Court ruled
that while it may be true that the YMCA keeps a
lodging and a boarding house and maintains a
restaurant for its members, still these do not constitute
business in the ordinary acceptance of the word, but an
institution used exclusively for religious, charitable and
educational purposes, and as such, it is entitled to be
exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial
Board of Ilocos Norte, 51 Phil. 352 [1972], this Court
included in the exemption a vegetable garden in an
adjacent lot and another lot formerly used as a
cemetery. It was clarified that the term "used
exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the
convent includes, not only the land actually occupied
by the building but also the adjacent garden devoted
to the incidental use of the parish priest. The lot which
is not used for commercial purposes but serves solely
as a sort of lodging place, also qualifies for exemption
because this constitutes incidental use in religious
functions.
The phrase "exclusively used for educational purposes"
was further clarified by this Court in the cases
of Herrera vs. Quezon City Board of assessment
Appeals, 3 SCRA 186 [1961] and Commissioner of
Internal Revenue vs. Bishop of the Missionary District,
14 SCRA 991 [1965], thus
Moreover, the exemption in favor of
property used exclusively for charitable
or educational purposes is 'not limited
to property actually indispensable'
therefor (Cooley on Taxation, Vol. 2, p.
1430), but extends to facilities which
are incidental to and reasonably
necessary for the accomplishment of
said purposes, such as in the case of
hospitals, "a school for training nurses,
a nurses' home, property use to
provide housing facilities for interns,
resident doctors, superintendents, and

other members of the hospital staff,

and recreational facilities for student
nurses, interns, and residents' (84 CJS
6621), such as "Athletic fields"
including "a firm used for the inmates
of the institution. (Cooley on Taxation,
Vol. 2, p. 1430).

used for purposes of commerce, it is only fair that half

of the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of
First Instance of Abra, Branch I, is hereby AFFIRMED
subject to the modification that half of the assessed
tax be returned to the petitioner.

The test of exemption from taxation is the use of the

property for purposes mentioned in the Constitution
(Apostolic Prefect v. City Treasurer of Baguio, 71 Phil,
547 [1941]).

SO ORDERED.

It must be stressed however, that while this Court

allows a more liberal and non-restrictive interpretation
of the phrase "exclusively used for educational
purposes" as provided for in Article VI, Section 22,
paragraph 3 of the 1935 Philippine Constitution,
reasonable emphasis has always been made that
exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of
the main purposes. Otherwise stated, the use of the
school building or lot for commercial purposes is
neither contemplated by law, nor by jurisprudence.
Thus, while the use of the second floor of the main
building in the case at bar for residential purposes of
the Director and his family, may find justification under
the concept of incidental use, which is complimentary
to the main or primary purposeeducational, the lease
of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination
be considered incidental to the purpose of education.

THE ROMAN CATHOLIC BISHOP OF NUEVA

SEGOVIA, as representative of the Roman
Catholic
Apostolic
Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET
AL., defendants-appellants.

It will be noted however that the aforementioned lease

appears to have been raised for the first time in this
Court. That the matter was not taken up in the to court
is really apparent in the decision of respondent Judge.
No mention thereof was made in the stipulation of
facts, not even in the description of the school building
by the trial judge, both embodied in the decision nor as
one of the issues to resolve in order to determine
whether or not said properly may be exempted from
payment of real estate taxes (Rollo, pp. 17-23). On the
other hand, it is noteworthy that such fact was not
disputed even after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower
court cannot be taken up for the first time on appeal.
Nonetheless, as an exception to the rule, this Court has
held that although a factual issue is not squarely raised
below, still in the interest of substantial justice, this
Court is not prevented from considering a pivotal
factual matter. "The Supreme Court is clothed with
ample authority to review palpable errors not assigned
as such if it finds that their consideration is necessary
in arriving at a just decision." (Perez vs. Court of
Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly
arrived at the conclusion that the school building as
well as the lot where it is built, should be taxed, not
because the second floor of the same is being used by
the Director and his family for residential purposes, but
because the first floor thereof is being used for
commercial purposes. However, since only a portion is

G.R. No. L-27588 December 31, 1927

Vicente Llanes and Proceso Coloma for plaintiffappellant.

Provincial Fiscal Santos for defendant-appellants.

AVANCEA, J.:
The plaintiff, the Roman Catholic Apostolic Church,
represented by the Bishop of Nueva Segovia,
possesses and is the owner of a parcel of land in the
municipality of San Nicolas, Ilocos Norte, all four sides
of which face on public streets. On the south side is a
part of the churchyard, the convent and an adjacent lot
used for a vegetable garden, containing an area off
1,624 square meters, in which there is a stable and a
well for the use of the convent. In the center is the
remainder of the churchyard and the church. On the
north is an old cemetery with two of its walls still
standing, and a portion where formerly stood a tower,
the base of which still be seen, containing a total area
of 8,955 square meters.
As required by the defendants, on July 3, 1925 the
plaintiff paid, under protest, the land tax on the lot
adjoining the convent and the lot which formerly was
the cemetery with the portion where the tower stood.
The plaintiff filed this action for the recovery of the
sum paid by to the defendants by way of land tax,
alleging that the collection of this tax is illegal. The
lower court absolved the defendants from the
complaint in regard to the lot adjoining convent and
declared that the tax collected on the lot, which
formerly was the cemetery and on the portion where
the lower stood, was illegal. Both parties appealed
from this judgment.
The exemption in favor of the convent in the payment
of the land tax (sec. 344 [c] Administrative Code) refers
to the home of the parties who presides over the
church and who has to take care of himself in order to
discharge his duties. In therefore must, in the sense,
include not only the land actually occupied by the
church, but also the adjacent ground destined to the

ordinary incidental uses of man. Except in large cities

where the density of the population and the
development of commerce require the use of larger
tracts of land for buildings, a vegetable garden belongs
to a house and, in the case of a convent, it use is
limited to the necessities of the priest, which comes
under the exemption.lawphi1.net
In regard to the lot which formerly was the cemetery,
while it is no longer used as such, neither is it used for
commercial purposes and, according to the evidence,
is now being used as a lodging house by the people
who participate in religious festivities, which
constitutes an incidental use in religious functions,
which also comes within the exemption.
The judgment appealed from is reversed in all it parts
and it is held that both lots are exempt from land tax
and the defendants are ordered to refund to plaintiff
whatever was paid as such tax, without any special
pronouncement as to costs. So ordered.
Johnson, Street, Villamor, Ostrand, Johns and Villa-Real,
JJ., concur.
G.R. No. 144104

June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner,

vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his
capacity
as
City
Assessor
of
Quezon
City,respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45
of the Rules of Court, as amended, of the
Decision1 dated July 17, 2000 of the Court of Appeals in
CA-G.R. SP No. 57014 which affirmed the decision of
the Central Board of Assessment Appeals holding that
the lot owned by the petitioner and its hospital building
constructed thereon are subject to assessment for
purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a nonstock and non-profit entity established on January 16,
1981 by virtue of Presidential Decree No. 1823. 2 It is
the registered owner of a parcel of land, particularly
described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495,
located at Quezon Avenue corner Elliptical Road,
Central District, Quezon City. The lot has an area of
121,463 square meters and is covered by Transfer
Certificate of Title (TCT) No. 261320 of the Registry of
Deeds of Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of
the Philippines. A big space at the ground floor is being
leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners
who use the same as their private clinics for their
patients whom they charge for their professional
services. Almost one-half of the entire area on the left

side of the building along Quezon Avenue is vacant and

idle, while a big portion on the right side, at the corner
of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to a private enterprise known
as the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients.
It also renders medical services to out-patients, both
paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual
subsidies from the government.
On June 7, 1993, both the land and the hospital
building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City
Assessor of Quezon City. 3 Accordingly, Tax Declaration
Nos. C-021-01226 (16-2518) and C-021-01231 (152518-A) were issued for the land and the hospital
building, respectively.4 On August 25, 1993, the
petitioner filed a Claim for Exemption 5 from real
property taxes with the City Assessor, predicated on its
claim that it is a charitable institution. The petitioners
request was denied, and a petition was, thereafter,
filed before the Local Board of Assessment Appeals of
Quezon City (QC-LBAA, for brevity) for the reversal of
the resolution of the City Assessor. The petitioner
alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property
taxes. It averred that a minimum of 60% of its hospital
beds are exclusively used for charity patients and that
the major thrust of its hospital operation is to serve
charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered judgment
dismissing the petition and holding the petitioner liable
for real property taxes.6
The QC-LBAAs decision was, likewise, affirmed on
appeal by the Central Board of Assessment Appeals of
Quezon City (CBAA, for brevity) 7 which ruled that the
petitioner was not a charitable institution and that its
real properties were not actually, directly and
exclusively used for charitable purposes; hence, it was
not entitled to real property tax exemption under the
constitution and the law. The petitioner sought relief
from the Court of Appeals, which rendered judgment
affirming the decision of the CBAA.8
Undaunted, the petitioner filed its petition in this Court
contending that:
A. THE COURT A QUO ERRED IN DECLARING
PETITIONER AS NOT ENTITLED TO REALTY TAX
EXEMPTIONS ON THE GROUND THAT ITS LAND,
BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY
AND EXCLUSIVELY DEVOTED FOR CHARITABLE
PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS
REAL PROPERTY TAX EXEMPT UNDER ITS
CHARTER, PD 1823, SAID EXEMPTION MAY
NEVERTHELESS BE EXTENDED UPON PROPER
APPLICATION.

The petitioner avers that it is a charitable institution

within the context of Section 28(3), Article VI of the
1987 Constitution. It asserts that its character as a
charitable institution is not altered by the fact that it
admits paying patients and renders medical services to
them, leases portions of the land to private parties,
and rents out portions of the hospital to private
medical practitioners from which it derives income to
be used for operational expenses. The petitioner points
out that for the years 1995 to 1999, 100% of its outpatients were charity patients and of the hospitals
282-bed capacity, 60% thereof, or 170 beds, is allotted
to charity patients. It asserts that the fact that it
receives subsidies from the government attests to its
character as a charitable institution. It contends that
the "exclusivity" required in the Constitution does not
necessarily mean "solely." Hence, even if a portion of
its real estate is leased out to private individuals from
whom it derives income, it does not lose its character
as a charitable institution, and its exemption from the
payment of real estate taxes on its real property. The
petitioner cited our ruling in Herrera v. QC-BAA9 to
bolster its pose. The petitioner further contends that
even if P.D. No. 1823 does not exempt it from the
payment of real estate taxes, it is not precluded from
seeking tax exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver
that the petitioner is not a charitable entity. The
petitioners real property is not exempt from the
payment of real estate taxes under P.D. No. 1823 and
even under the 1987 Constitution because it failed to
prove that it is a charitable institution and that the said
property is actually, directly and exclusively used for
charitable purposes. The respondents noted that in a
newspaper report, it appears that graft charges were
filed with the Sandiganbayan against the director of
the petitioner, its administrative officer, and Zenaida
Rivera, the proprietress of the Elliptical Orchids and
Garden Center, for entering into a lease contract over
7,663.13 square meters of the property in 1990 for
only P20,000 a month, when the monthly rental should
beP357,000 a month as determined by the Commission
on Audit; and that instead of complying with the
directive of the COA for the cancellation of the contract
for being grossly prejudicial to the government, the
petitioner renewed the same on March 13, 1995 for a
monthly rental of only P24,000. They assert that the
petitioner uses the subsidies granted by the
government for charity patients and uses the rest of its
income from the property for the benefit of paying
patients, among other purposes. They aver that the
petitioner failed to adduce substantial evidence that
100% of its out-patients and 170 beds in the hospital
are reserved for indigent patients. The respondents
further assert, thus:
13. That the claims/allegations of the Petitioner
LCP do not speak well of its record of service.
That before a patient is admitted for treatment
in the Center, first impression is that it is paypatient and required to pay a certain amount
as deposit. That even if a patient is living below
the poverty line, he is charged with high
hospital bills. And, without these bills being
first settled, the poor patient cannot be allowed
to leave the hospital or be discharged without

first paying the hospital bills or issue a

promissory note guaranteed and indorsed by
an influential agency or person known only to
the Center; that even the remains of deceased
poor patients suffered the same fate.
Moreover, before a patient is admitted for
treatment as free or charity patient, one must
undergo a series of interviews and must submit
all the requirements needed by the Center,
usually accompanied by endorsement by an
influential agency or person known only to the
Center. These facts were heard and admitted
by the Petitioner LCP during the hearings
before the Honorable QC-BAA and Honorable
CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the
Center, they prefer to be treated at the Quezon
Institute. Can such practice by the Center be
called charitable?10
The Issues
The issues for resolution are the following: (a) whether
the petitioner is a charitable institution within the
context of Presidential Decree No. 1823 and the 1973
and 1987 Constitutions and Section 234(b) of Republic
Act No. 7160; and (b) whether the real properties of the
petitioner are exempt from real property taxes.
The Courts Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a
charitable institution within the context of the 1973
and 1987 Constitutions. To determine whether an
enterprise is a charitable institution/entity or not, the
elements which should be considered include the
statute creating the enterprise, its corporate purposes,
its constitution and by-laws, the methods of
administration, the nature of the actual work
performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and
occupation of the properties.11
In the legal sense, a charity may be fully defined as a
gift, to be applied consistently with existing laws, for
the benefit of an indefinite number of persons, either
by bringing their minds and hearts under the influence
of education or religion, by assisting them to establish
themselves in life or otherwise lessening the burden of
government.12 It may be applied to almost anything
that tend to promote the well-doing and well-being of
social man. It embraces the improvement and
promotion of the happiness of man. 13 The word
"charitable" is not restricted to relief of the poor or
sick.14 The test of a charity and a charitable
organization are in law the same. The test whether an
enterprise is charitable or not is whether it exists to
carry out a purpose reorganized in law as charitable or
whether it is maintained for gain, profit, or private
advantage.
Under P.D. No. 1823, the petitioner is a non-profit and
non-stock corporation which, subject to the provisions
of the decree, is to be administered by the Office of the

President of the Philippines with the Ministry of Health

and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino
people principally to help combat the high incidence of
lung and pulmonary diseases in the Philippines.
The raison detre for the creation of the petitioner is
stated in the decree, viz:
Whereas, for decades, respiratory diseases
have been a priority concern, having been the
leading cause of illness and death in the
Philippines, comprising more than 45% of the
total annual deaths from all causes, thus,
exacting a tremendous toll on human
resources, which ailments are likely to increase
and degenerate into serious lung diseases on
account of unabated pollution, industrialization
and unchecked cigarette smoking in the
country;lavvph!l.net
Whereas, the more common lung diseases are,
to a great extent, preventable, and curable
with early and adequate medical care,
immunization and through prompt and
intensive prevention and health education
programs;
Whereas, there is an urgent need to
consolidate and reinforce existing programs,
strategies and efforts at preventing, treating
and rehabilitating people affected by lung
diseases, and to undertake research and
training on the cure and prevention of lung
diseases, through a Lung Center which will
house and nurture the above and related
activities and provide tertiary-level care for
more difficult and problematical cases;
Whereas, to achieve this purpose, the
Government intends to provide material and
financial support towards the establishment
and maintenance of a Lung Center for the
welfare and benefit of the Filipino people. 15
The purposes for which the petitioner was created are
spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such
corporation is formed are as follows:
1. To construct, establish, equip,
maintain, administer and conduct an
integrated medical institution which
shall specialize in the treatment, care,
rehabilitation and/or relief of lung and
allied diseases in line with the concern
of the government to assist and
provide material and financial support
in the establishment and maintenance
of a lung center primarily to benefit the
people of the Philippines and in
pursuance of the policy of the State to
secure the well-being of the people by
providing them specialized health and
medical services and by minimizing the

incidence of lung diseases

country and elsewhere.

in

the

2. To promote the noble undertaking of

scientific research related to the
prevention of lung or pulmonary
ailments and the care of lung patients,
including the holding of a series of
relevant
congresses,
conventions,
seminars and conferences;
3. To stimulate and, whenever possible,
underwrite scientific researches on the
biological,
demographic,
social,
economic, eugenic and physiological
aspects of lung or pulmonary diseases
and their control; and to collect and
publish the findings of such research
for public consumption;
4. To facilitate the dissemination of
ideas and public acceptance of
information on lung consciousness or
awareness, and the development of
fact-finding, information and reporting
facilities for and in aid of the general
purposes
or
objects
aforesaid,
especially in human lung requirements,
general health and physical fitness,
and other relevant or related fields;
5. To encourage the training of
physicians, nurses, health officers,
social workers and medical and
technical personnel in the practical and
scientific implementation of services to
lung patients;
6. To assist universities and research
institutions in their studies about lung
diseases, to encourage advanced
training in matters of the lung and
related
fields
and
to
support
educational programs of value to
general health;
7. To encourage the formation of other
organizations
on
the
national,
provincial and/or city and local levels;
and to coordinate their various efforts
and activities for the purpose of
achieving
a
more
effective
programmatic
approach
on
the
common problems relative to the
objectives enumerated herein;
8. To seek and obtain assistance in any
form from both international and local
foundations and organizations; and to
administer grants and funds that may
be given to the organization;
9. To extend, whenever possible and
expedient, medical services to the
public and, in general, to promote and

protect the health of the masses of our

people,
which
has
long
been
recognized as an economic asset and a
social blessing;
10. To help prevent, relieve and
alleviate the lung or pulmonary
afflictions and maladies of the people
in any and all walks of life, including
those who are poor and needy, all
without regard to or discrimination,
because of race, creed, color or
political belief of the persons helped;
and to enable them to obtain treatment
when such disorders occur;
11. To participate, as circumstances
may warrant, in any activity designed
and carried on to promote the general
health of the community;
12. To acquire and/or borrow funds and
to own all funds or equipment,
educational materials and supplies by
purchase, donation, or otherwise and
to dispose of and distribute the same in
such manner, and, on such basis as the
Center shall, from time to time, deem
proper and best, under the particular
circumstances, to serve its general and
non-profit
purposes
and
objectives;lavvphil.net
13. To buy, purchase, acquire, own,
lease, hold, sell, exchange, transfer
and dispose of properties, whether real
or personal, for purposes herein
mentioned; and

[A]n institution does not lose its charitable

character, and consequent exemption from
taxation, by reason of the fact that those
recipients of its benefits who are able to pay
are required to do so, where no profit is made
by the institution and the amounts so received
are applied in furthering its charitable
purposes, and those benefits are refused to
none on account of inability to pay therefor.
The fundamental ground upon which all
exemptions in favor of charitable institutions
are based is the benefit conferred upon the
public by them, and a consequent relief, to
some extent, of the burden upon the state to
care for and advance the interests of its
citizens.20
As aptly stated by the State Supreme Court of South
Dakota in Lutheran Hospital Association of South
Dakota v. Baker:21
[T]he fact that paying patients are taken, the
profits derived from attendance upon these
patients being exclusively devoted to the
maintenance of the charity, seems rather to
enhance the usefulness of the institution to the
poor; for it is a matter of common observation
amongst those who have gone about at all
amongst the suffering classes, that the
deserving poor can with difficulty be persuaded
to enter an asylum of any kind confined to the
reception of objects of charity; and that their
honest pride is much less wounded by being
placed in an institution in which paying
patients are also received. The fact of receiving
money from some of the patients does not, we
think, at all impair the character of the charity,
so long as the money thus received is devoted
altogether to the charitable object which the
institution is intended to further. 22

14. To do everything necessary, proper,

advisable or convenient for the
accomplishment of any of the powers
herein set forth and to do every other
act and thing incidental thereto or
connected therewith.16

The money received by the petitioner becomes a part

of the trust fund and must be devoted to public trust
purposes and cannot be diverted to private profit or
benefit.23

Hence, the medical services of the petitioner are to be

rendered to the public in general in any and all walks of
life including those who are poor and the needy
without discrimination. After all, any person, the rich as
well as the poor, may fall sick or be injured or wounded
and become a subject of charity. 17

Under P.D. No. 1823, the petitioner is entitled to

receive donations. The petitioner does not lose its
character as a charitable institution simply because the
gift or donation is in the form of subsidies granted by
the government. As held by the State Supreme Court
of Utah in Yorgason v. County Board of Equalization of
Salt Lake County:24

As a general principle, a charitable institution does not

lose its character as such and its exemption from taxes
simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the
money received is devoted or used altogether to the
charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons
managing
or
operating
the
institution.18 In Congregational Sunday School, etc. v.
Board of Review,19 the State Supreme Court of Illinois
held, thus:

Second, the government subsidy payments

are provided to the project. Thus, those
payments are like a gift or donation of any
other kind except they come from the
government. In both Intermountain Health
Careand the present case, the crux is the
presence or absence of material reciprocity. It
is entirely irrelevant to this analysis that the
government, rather than a private benefactor,
chose to make up the deficit resulting from the
exchange between St. Marks Tower and the
tenants by making a contribution to the

landlord, just as it would have been irrelevant

in Intermountain Health Care if the patients
income supplements had come from private
individuals rather than the government.
Therefore, the fact that subsidization of part of
the cost of furnishing such housing is by the
government rather than private charitable
contributions does not dictate the denial of a
charitable exemption if the facts otherwise
support such an exemption, as they do here. 25
In this case, the petitioner adduced substantial
evidence that it spent its income, including the
subsidies from the government for 1991 and 1992 for
its patients and for the operation of the hospital. It
even incurred a net loss in 1991 and 1992 from its
operations.

from income and gift taxes, the same further

deductible in full for the purpose of
determining the maximum deductible amount
under Section 30, paragraph (h), of the
National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be
exempt from the payment of taxes, charges
and fees imposed by the Government or any
political subdivision or instrumentality thereof
with respect to equipment purchases made by,
or for the Lung Center.29
It is plain as day that under the decree, the petitioner
does not enjoy any property tax exemption privileges
for its real properties as well as the building
constructed thereon. If the intentions were otherwise,
the same should have been among the enumeration of
tax exempt privileges under Section 2:

Even as we find that the petitioner is a charitable

institution, we hold, anent the second issue, that those
portions of its real property that are leased to private
entities are not exempt from real property taxes as
these are not actually, directly and exclusively used for
charitable purposes.

It is a settled rule of statutory construction that

the express mention of one person, thing, or
consequence implies the exclusion of all
others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.

The settled rule in this jurisdiction is that laws granting

exemption
from
tax
are
construed strictissimi
juris against the taxpayer and liberally in favor of the
taxing power. Taxation is the rule and exemption is the
exception. The effect of an exemption is equivalent to
an appropriation. Hence, a claim for exemption from
tax payments must be clearly shown and based on
language in the law too plain to be mistaken. 26 As held
in Salvation Army v. Hoehn:27

The rule of expressio unius est exclusio

alterius is formulated in a number of ways. One
variation of the rule is the principle that what is
expressed puts an end to that which is
implied. Expressium facit cessare tacitum.
Thus, where a statute, by its terms, is expressly
limited to certain matters, it may not, by
interpretation or construction, be extended to
other matters.

An intention on the part of the legislature to

grant an exemption from the taxing power of
the state will never be implied from language
which will admit of any other reasonable
construction. Such an intention must be
expressed in clear and unmistakable terms, or
must appear by necessary implication from the
language used, for it is a well settled principle
that, when a special privilege or exemption is
claimed under a statute, charter or act of
incorporation, it is to be construed strictly
against the property owner and in favor of the
public. This principle applies with peculiar force
to a claim of exemption from taxation . 28
Section 2 of Presidential Decree No. 1823, relied upon
by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and
privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES.
Being a non-profit, non-stock corporation
organized primarily to help combat the high
incidence of lung and pulmonary diseases in
the Philippines, all donations, contributions,
endowments and equipment and supplies to be
imported by authorized entities or persons and
by the Board of Trustees of the Lung Center of
the Philippines, Inc., for the actual use and
benefit of the Lung Center, shall be exempt

...
The rule of expressio unius est exclusio
alterius and its variations are canons of
restrictive interpretation. They are based on
the rules of logic and the natural workings of
the human mind. They are predicated upon
ones own voluntary act and not upon that of
others. They proceed from the premise that the
legislature would not have made specified
enumeration in a statute had the intention
been not to restrict its meaning and confine its
terms to those expressly mentioned.30
The exemption must not be so enlarged by
construction since the reasonable presumption is that
the State has granted in express terms all it intended
to grant at all, and that unless the privilege is limited
to the very terms of the statute the favor would be
intended beyond what was meant.31
Section 28(3), Article VI
Constitution provides, thus:

of

the

1987

Philippine

(3) Charitable institutions, churches and

parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands,
buildings,
and
improvements, actually, directly and exclusivel

y used for religious, charitable or educational

purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision
covers property taxes only.33 As Chief Justice Hilario G.
Davide, Jr., then a member of the 1986 Constitutional
Commission, explained: ". . . what is exempted is not
the institution itself . . .; those exempted from real
estate taxes are lands, buildings and improvements
actually, directly and exclusively used for religious,
charitable or educational purposes."34
Consequently,
the
constitutional
provision
is
implemented by Section 234(b) of Republic Act No.
7160 (otherwise known as the Local Government Code
of 1991) as follows:
SECTION 234. Exemptions from Real Property
Tax. The following are exempted from
payment of the real property tax:
...
(b) Charitable institutions, churches,
parsonages or convents appurtenant
thereto,
mosques,
non-profit
or
religious cemeteries and all lands,
buildings,
and
improvements actually, directly,
andexclusively used
for
religious,
charitable or educational purposes.35
We note that under the 1935 Constitution, "... all lands,
buildings, and improvements used exclusively for
charitable purposes shall be exempt from
taxation."36 However, under the 1973 and the present
Constitutions, for "lands, buildings, and improvements"
of the charitable institution to be considered exempt,
the same should not only be "exclusively" used for
charitable purposes; it is required that such property
be used "actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the
Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment
Appeals which was promulgated on September 30,
1961 before the 1973 and 1987 Constitutions took
effect.38 As this Court held in Province of Abra v.
Hernando:39
Under the 1935 Constitution: "Cemeteries,
churches, and parsonages or convents
appurtenant thereto, and all lands, buildings,
and improvements used exclusively for
religious, charitable, or educational purposes
shall be exempt from taxation." The present
Constitution added "charitable institutions,
mosques, and non-profit cemeteries" and
required that for the exemption of "lands,
buildings, and improvements," they should not
only be "exclusively" but also "actually" and
"directly" used for religious or charitable
purposes.
The
Constitution
is
worded
differently. The change should not be ignored.
It must be duly taken into consideration.

Reliance on past decisions would have sufficed

were the words "actually" as well as "directly"
not added. There must be proof therefore of
the actual and direct use
of
the
lands,
buildings, and improvements for religious or
charitable purposes to be exempt from
taxation.
Under the 1973 and 1987 Constitutions and Rep. Act
No. 7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution;
and
(b)
its
real
properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of others;
debarred from participation or enjoyment; and
"exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively." 40 If real property is
used for one or more commercial purposes, it is not
exclusively used for the exempted purposes but is
subject to taxation.41 The words "dominant use" or
"principal use" cannot be substituted for the words
"used exclusively" without doing violence to the
Constitutions and the law.42 Solely is synonymous with
exclusively.43
What is meant by actual, direct and exclusive use of
the property for charitable purposes is the direct and
immediate and actual application of the property itself
to the purposes for which the charitable institution is
organized. It is not the use of the income from the real
property that is determinative of whether the property
is used for tax-exempt purposes.44
The petitioner failed to discharge its burden to prove
that the entirety of its real property is actually, directly
and exclusively used for charitable purposes. While
portions of the hospital are used for the treatment of
patients and the dispensation of medical services to
them, whether paying or non-paying, other portions
thereof are being leased to private individuals for their
clinics and a canteen. Further, a portion of the land is
being leased to a private individual for her business
enterprise under the business name "Elliptical Orchids
and Garden Center." Indeed, the petitioners evidence
shows that it collected P1,136,483.45 as rentals in
1991 and P1,679,999.28 for 1992 from the said
lessees.
Accordingly, we hold that the portions of the land
leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt
from such taxes.45 On the other hand, the portions of
the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or nonpaying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition
is PARTIALLY GRANTED. The respondent Quezon City
Assessor is hereby DIRECTED to determine, after due
hearing, the precise portions of the land and the area
thereof which are leased to private persons, and to
compute the real property taxes due thereon as
provided for by law.

SO ORDERED.
G.R. No. 195909

facilities,
personnel,
funds,
requirements that are available;

or

other

September 26, 2012

COMMISSIONER
OF
INTERNAL
REVENUE, PETITIONER,
vs.
ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.

(d) To cooperate with organized medical

societies, agencies of both government and
private sector; establish rules and regulations
consistent with the highest professional ethics;
xxxx

x-----------------------x
G.R. No. 195960
ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
vs.
COMMISSIONER
OF
INTERNAL
REVENUE, RESPONDENT.
DECISION
CARPIO, J.:

On 16 December 2002, the Bureau of Internal Revenue

(BIR) assessed St. Luke's deficiency taxes amounting
toP76,063,116.06 for 1998, comprised of deficiency
income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. The BIR
reduced the amount to P63,935,351.57 during trial in
the First Division of the CTA. 4
On 14 January 2003, St. Luke's filed an administrative
protest with the BIR against the deficiency tax
assessments. The BIR did not act on the protest within
the 180-day period under Section 228 of the NIRC.
Thus, St. Luke's appealed to the CTA.

The Case
These are consolidated 1 petitions for review on
certiorari under Rule 45 of the Rules of Court assailing
the Decision of 19 November 2010 of the Court of Tax
Appeals (CTA) En Banc and its Resolution 2 of 1 March
2011 in CTA Case No. 6746. This Court resolves this
case on a pure question of law, which involves the
interpretation of Section 27(B) vis--vis Section 30(E)
and (G) of the National Internal Revenue Code of the
Philippines (NIRC), on the income tax treatment of
proprietary non-profit hospitals.
The Facts
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital
organized as a non-stock and non-profit corporation.
Under its articles of incorporation, among its corporate
purposes are:
(a) To establish, equip, operate and maintain a
non-stock, non-profit Christian, benevolent,
charitable and scientific hospital which shall
give curative, rehabilitative and spiritual care
to the sick, diseased and disabled persons;
provided that purely medical and surgical
services shall be performed by duly licensed
physicians and surgeons who may be freely
and individually contracted by patients;

The BIR argued before the CTA that Section 27(B) of

the NIRC, which imposes a 10% preferential tax rate on
the income of proprietary non-profit hospitals, should
be applicable to St. Luke's. According to the BIR,
Section 27(B), introduced in 1997, "is a new provision
intended to amend the exemption on non-profit
hospitals that were previously categorized as nonstock, non-profit corporations under Section 26 of the
1997 Tax Code x x x." 5 It is a specific provision which
prevails over the general exemption on income tax
granted under Section 30(E) and (G) for non-stock,
non-profit charitable institutions and civic organizations
promoting social welfare. 6
The BIR claimed that St. Luke's was actually operating
for profit in 1998 because only 13% of its revenues
came from charitable purposes. Moreover, the
hospital's board of trustees, officers and employees
directly benefit from its profits and assets. St. Luke's
had
total
revenues
of P1,730,367,965
or
approximately P1.73 billion from patient services in
1998. 7
St. Luke's contended that the BIR should not consider
its total revenues, because its free services to patients
wasP218,187,498 or 65.20% of its 1998 operating
income (i.e., total revenues less operating expenses)
ofP334,642,615. 8 St. Luke's also claimed that its
income does not inure to the benefit of any individual.

(b) To provide a career of health science

education and provide medical services to the
community through organized clinics in such
specialties as the facilities and resources of the
corporation make possible;

St. Luke's maintained that it is a non-stock and nonprofit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It
argued that the making of profit per se does not
destroy its income tax exemption.

(c) To carry on educational activities related to

the maintenance and promotion of health as
well as provide facilities for scientific and
medical researches which, in the opinion of the
Board of Trustees, may be justified by the

The petition of the BIR before this Court in G.R. No.

195909 reiterates its arguments before the CTA that
Section 27(B) applies to St. Luke's. The petition raises
the sole issue of whether the enactment of Section
27(B) takes proprietary non-profit hospitals out of the

income tax exemption under Section 30 of the NIRC

and instead, imposes a preferential rate of 10% on
their taxable income. The BIR prays that St. Luke's be
ordered to payP57,659,981.19 as deficiency income
and expanded withholding tax for 1998 with
surcharges and interest for late payment.
The petition of St. Luke's in G.R. No. 195960 raises
factual matters on the treatment and withholding of a
part of its income, 9 as well as the payment of
surcharge and delinquency interest. There is no ground
for this Court to undertake such a factual review. Under
the Constitution 10 and the Rules of Court, 11 this Court's
review power is generally limited to "cases in which
only an error or question of law is involved." 12 This
Court cannot depart from this limitation if a party fails
to invoke a recognized exception.
The Ruling of the Court of Tax Appeals
The CTA En Banc Decision on 19 November 2010
affirmed in toto the CTA First Division Decision dated
23 February 2009 which held:
WHEREFORE, the Amended Petition for Review [by St.
Luke's] is hereby PARTIALLY GRANTED. Accordingly, the
1998 deficiency VAT assessment issued by respondent
against petitioner in the amount of P110,000.00 is
hereby CANCELLED and WITHDRAWN. However,
petitioner is hereby ORDERED to PAY deficiency income
tax and deficiency expanded withholding tax for the
taxable year 1998 in the respective amounts
of P5,496,963.54 andP778,406.84 or in the sum
of P6,275,370.38, x x x.
xxxx
In addition, petitioner is hereby ORDERED to PAY
twenty percent (20%) delinquency interest on the total
amount of P6,275,370.38 counted from October 15,
2003 until full payment thereof, pursuant to Section
249(C)(3) of the NIRC of 1997.
SO ORDERED.

13

The deficiency income tax of P5,496,963.54, ordered

by the CTA En Banc to be paid, arose from the failure of
St. Luke's to prove that part of its income in 1998
(declared as "Other Income-Net") 14 came from
charitable activities. The CTA cancelled the remainder
of the P63,113,952.79 deficiency assessed by the BIR
based on the 10% tax rate under Section 27(B) of the
NIRC, which the CTA En Banc held was not applicable to
St. Luke's. 15

documents
institution.

17

identifying St. Luke's as a charitable

The CTA adopted the test in Hospital de San Juan de

Dios, Inc. v. Pasay City, 18 which states that "a
charitable institution does not lose its charitable
character and its consequent exemption from taxation
merely because recipients of its benefits who are able
to pay are required to do so, where funds derived in
this manner are devoted to the charitable purposes of
the institution x x x." 19 The generation of income from
paying patients does not per se destroy the charitable
nature of St. Luke's.
Hospital de San Juan cited Jesus Sacred Heart College
v. Collector of Internal Revenue, 20 which ruled that the
old
NIRC
(Commonwealth
Act
No.
466,
as
amended) 21 "positively exempts from taxation those
corporations or associations which, otherwise, would
be subject thereto, because of the existence of x x x
net income." 22 The NIRC of 1997 substantially
reproduces the provision on charitable institutions of
the old NIRC. Thus, in rejecting the argument that tax
exemption is lost whenever there is net income, the
Court in Jesus Sacred Heart College declared: "[E]very
responsible organization must be run to at least insure
its existence, by operating within the limits of its own
resources, especially its regular income. In other words,
it should always strive, whenever possible, to have a
surplus." 23
The CTA held that Section 27(B) of the present NIRC
does not apply to St. Luke's. 24 The CTA explained that
to apply the 10% preferential rate, Section 27(B)
requires a hospital to be "non-profit." On the other
hand, Congress specifically used the word "non-stock"
to qualify a charitable "corporation or association" in
Section 30(E) of the NIRC. According to the CTA, this is
unique in the present tax code, indicating an intent to
exempt this type of charitable organization from
income tax. Section 27(B) does not require that the
hospital be "non-stock." The CTA stated, "it is clear that
non-stock, non-profit hospitals operated exclusively for
charitable purpose are exempt from income tax on
income received by them as such, applying the
provision of Section 30(E) of the NIRC of 1997, as
amended." 25
The Issue
The sole issue is whether St. Luke's is liable for
deficiency income tax in 1998 under Section 27(B) of
the NIRC, which imposes a preferential tax rate of 10%
on the income of proprietary non-profit hospitals.
The Ruling of the Court

The CTA ruled that St. Luke's is a non-stock and nonprofit charitable institution covered by Section 30(E)
and (G) of the NIRC. This ruling would exempt all
income derived by St. Luke's from services to its
patients, whether paying or non-paying. The CTA
reiterated its earlier decision in St. Luke's Medical
Center,
Inc.
v.
Commissioner
of
Internal
Revenue, 16 which examined the primary purposes of
St. Luke's under its articles of incorporation and various

St. Luke's Petition in G.R. No. 195960

As a preliminary matter, this Court denies the petition
of St. Luke's in G.R. No. 195960 because the petition
raises factual issues. Under Section 1, Rule 45 of the
Rules of Court, "[t]he petition shall raise only questions
of law which must be distinctly set forth." St. Luke's
cites Martinez v. Court of Appeals 26 which permits

factual review "when the Court of Appeals [in this case,

the CTA] manifestly overlooked certain relevant facts
not disputed by the parties and which, if properly
considered, would justify a different conclusion." 27
This Court does not see how the CTA overlooked
relevant facts. St. Luke's itself stated that the CTA
"disregarded the testimony of [its] witness, Romeo B.
Mary, being allegedly self-serving, to show the nature
of the 'Other Income-Net' x x x." 28 This is not a case of
overlooking or failing to consider relevant evidence.
The CTA obviously considered the evidence and
concluded that it is self-serving. The CTA declared that
it has "gone through the records of this case and found
no other evidence aside from the self-serving affidavit
executed by [the] witnesses [of St. Luke's] x x x." 29
The deficiency tax on "Other Income-Net" stands. Thus,
St. Luke's is liable to pay the 25% surcharge under
Section 248(A)(3) of the NIRC. There is "[f]ailure to pay
the deficiency tax within the time prescribed for its
payment in the notice of assessment[.]" 30 St. Luke's is
also liable to pay 20% delinquency interest under
Section 249(C)(3) of the NIRC. 31 As explained by the
CTA En Banc, the amount of P6,275,370.38 in the
dispositive portion of the CTA First Division Decision
includes only deficiency interest under Section 249(A)
and (B) of the NIRC and not delinquency interest. 32
The Main Issue
The issue raised by the BIR is a purely legal one. It
involves the effect of the introduction of Section 27(B)
in the NIRC of 1997 vis--vis Section 30(E) and (G) on
the income tax exemption of charitable and social
welfare institutions. The 10% income tax rate under
Section 27(B) specifically pertains to proprietary
educational institutions and proprietary non-profit
hospitals. The BIR argues that Congress intended to
remove the exemption that non-profit hospitals
previously enjoyed under Section 27(E) of the NIRC of
1977, which is now substantially reproduced in Section
30(E) of the NIRC of 1997. 33 Section 27(B) of the
present NIRC provides:
SEC. 27. Rates
Corporations. -

of

Income

Tax

on

Domestic

xxxx
(B) Proprietary Educational Institutions and Hospitals. Proprietary educational institutions and hospitals which
are non-profit shall pay a tax of ten percent (10%) on
their taxable income except those covered by
Subsection (D) hereof: Provided, That if the gross
income from unrelated trade, business or other activity
exceeds fifty percent (50%) of the total gross income
derived by such educational institutions or hospitals
from all sources, the tax prescribed in Subsection (A)
hereof shall be imposed on the entire taxable income.
For purposes of this Subsection, the term 'unrelated
trade, business or other activity' means any trade,
business or other activity, the conduct of which is not
substantially related to the exercise or performance by
such educational institution or hospital of its primary
purpose or function. A 'proprietary educational

institution' is any private school maintained and

administered by private individuals or groups with an
issued permit to operate from the Department of
Education, Culture and Sports (DECS), or the
Commission on Higher Education (CHED), or the
Technical Education and Skills Development Authority
(TESDA), as the case may be, in accordance with
existing laws and regulations. (Emphasis supplied)
St. Luke's claims tax exemption under Section 30(E)
and (G) of the NIRC. It contends that it is a charitable
institution and an organization promoting social
welfare. The arguments of St. Luke's focus on the
wording of Section 30(E) exempting from income tax
non-stock, non-profit charitable institutions. 34 St.
Luke's asserts that the legislative intent of introducing
Section 27(B) was only to remove the exemption for
"proprietary non-profit" hospitals. 35 The relevant
provisions of Section 30 state:
SEC. 30. Exemptions from Tax on Corporations. - The
following organizations shall not be taxed under this
Title in respect to income received by them as such:
xxxx
(E) Nonstock corporation or association organized and
operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall
belong to or inure to the benefit of any member,
organizer, officer or any specific person;
xxxx
(G) Civic league or organization not organized for profit
but operated exclusively for the promotion of social
welfare;
xxxx
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under this Code. (Emphasis supplied)
The Court partly grants the petition of the BIR but on a
different ground. We hold that Section 27(B) of the
NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E)
and (G). Section 27(B) on one hand, and Section 30(E)
and (G) on the other hand, can be construed together
without the removal of such tax exemption. The effect
of the introduction of Section 27(B) is to subject the
taxable income of two specific institutions, namely,
proprietary non-profit educational institutions 36 and
proprietary non-profit hospitals, among the institutions
covered by Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary 30%
corporate rate under the last paragraph of Section 30
in relation to Section 27(A)(1).

Section 27(B) of the NIRC imposes a 10% preferential

tax rate on the income of (1) proprietary non-profit
educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that
they must be proprietary and non-profit. "Proprietary"
means private, following the definition of a "proprietary
educational institution" as "any private school
maintained and administered by private individuals or
groups" with a government permit. "Non-profit" means
no net income or asset accrues to or benefits any
member or specific person, with all the net income or
asset devoted to the institution's purposes and all its
activities conducted not for profit.
"Non-profit" does not necessarily mean "charitable." In
Collector of Internal Revenue v. Club Filipino Inc. de
Cebu,37 this Court considered as non-profit a sports
club organized for recreation and entertainment of its
stockholders and members. The club was primarily
funded by membership fees and dues. If it had profits,
they were used for overhead expenses and improving
its golf course. 38 The club was non-profit because of its
purpose and there was no evidence that it was
engaged in a profit-making enterprise. 39
The sports club in Club Filipino Inc. de Cebu may be
non-profit, but it was not charitable. The Court defined
"charity" in Lung Center of the Philippines v. Quezon
City 40 as "a gift, to be applied consistently with
existing laws, for the benefit of an indefinite number of
persons, either by bringing their minds and hearts
under the influence of education or religion, by
assisting them to establish themselves in life or [by]
otherwise lessening the burden of government." 41 A
non-profit club for the benefit of its members fails this
test. An organization may be considered as non-profit if
it does not distribute any part of its income to
stockholders or members. However, despite its being a
tax exempt institution, any income such institution
earns from activities conducted for profit is taxable, as
expressly provided in the last paragraph of Section 30.
To be a charitable institution, however, an organization
must meet the substantive test of charity in Lung
Center. The issue in Lung Center concerns exemption
from real property tax and not income tax. However, it
provides for the test of charity in our jurisdiction.
Charity is essentially a gift to an indefinite number of
persons which lessens the burden of government. In
other words, charitable institutions provide for free
goods and services to the public which would otherwise
fall on the shoulders of government. Thus, as a matter
of efficiency, the government forgoes taxes which
should have been spent to address public needs,
because certain private entities already assume a part
of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes
by the government is compensated by its relief from
doing public works which would have been funded by
appropriations from the Treasury. 42
Charitable institutions, however, are not ipso facto
entitled to a tax exemption. The requirements for a tax
exemption are specified by the law granting it. The
power of Congress to tax implies the power to exempt
from tax. Congress can create tax exemptions, subject
to the constitutional provision that "[n]o law granting

any tax exemption shall be passed without the

concurrence of a majority of all the Members of
Congress." 43 The requirements for a tax exemption are
strictly construed against the taxpayer 44 because an
exemption restricts the collection of taxes necessary
for the existence of the government.
The Court in Lung Center declared that the Lung Center
of the Philippines is a charitable institution for the
purpose of exemption from real property taxes. This
ruling uses the same premise as Hospital de San
Juan 45 and Jesus Sacred Heart College 46 which says
that receiving income from paying patients does not
destroy the charitable nature of a hospital.
As a general principle, a charitable institution does not
lose its character as such and its exemption from taxes
simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the
money received is devoted or used altogether to the
charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons
managing or operating the institution. 47
For real property taxes, the incidental generation of
income is permissible because the test of exemption is
the use of the property. The Constitution provides that
"[c]haritable institutions, churches and personages or
convents appurtenant thereto, mosques, non-profit
cemeteries,
and
all
lands,
buildings,
and
improvements, actually, directly, and exclusively used
for religious, charitable, or educational purposes shall
be exempt from taxation." 48The test of exemption is
not strictly a requirement on the intrinsic nature or
character of the institution. The test requires that the
institution use the property in a certain way, i.e. for a
charitable purpose. Thus, the Court held that the Lung
Center of the Philippines did not lose its charitable
character when it used a portion of its lot for
commercial purposes. The effect of failing to meet the
use requirement is simply to remove from the tax
exemption that portion of the property not devoted to
charity.
The Constitution exempts charitable institutions only
from real property taxes. In the NIRC, Congress decided
to extend the exemption to income taxes. However,
the way Congress crafted Section 30(E) of the NIRC is
materially different from Section 28(3), Article VI of the
Constitution. Section 30(E) of the NIRC defines the
corporation or association that is exempt from income
tax. On the other hand, Section 28(3), Article VI of the
Constitution does not define a charitable institution,
but requires that the institution "actually, directly and
exclusively" use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable
institution must be:
(1) A non-stock corporation or association;
(2) Organized
purposes;

exclusively

for

charitable

(3) Operated
purposes; and

exclusively

for

charitable

(4) No part of its net income or asset shall

belong to or inure to the benefit of any
member, organizer, officer or any specific
person.
Thus, both the organization and operations of the
charitable institution must be devoted "exclusively" for
charitable purposes. The organization of the institution
refers to its corporate form, as shown by its articles of
incorporation,
by-laws
and
other
constitutive
documents. Section 30(E) of the NIRC specifically
requires that the corporation or association be nonstock, which is defined by the Corporation Code as
"one where no part of its income is distributable as
dividends to its members, trustees, or officers" 49 and
that any profit "obtain[ed] as an incident to its
operations shall, whenever necessary or proper, be
used for the furtherance of the purpose or purposes for
which the corporation was organized." 50 However,
under Lung Center, any profit by a charitable institution
must not only be plowed back "whenever necessary or
proper," but must be "devoted or used altogether to
the charitable object which it is intended to achieve." 51
The operations of the charitable institution generally
refer to its regular activities. Section 30(E) of the NIRC
requires that these operations be exclusive to charity.
There is also a specific requirement that "no part of
[the] net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any
specific person." The use of lands, buildings and
improvements of the institution is but a part of its
operations.
There is no dispute that St. Luke's is organized as a
non-stock and non-profit charitable institution.
However, this does not automatically exempt St. Luke's
from paying taxes. This only refers to the organization
of St. Luke's. Even if St. Luke's meets the test of
charity, a charitable institution is not ipso facto tax
exempt. To be exempt from real property taxes, Section
28(3), Article VI of the Constitution requires that a
charitable institution use the property "actually,
directly and exclusively" for charitable purposes. To be
exempt from income taxes, Section 30(E) of the NIRC
requires that a charitable institution must be
"organized and operated exclusively" for charitable
purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution
be "operated exclusively" for social welfare.
However, the last paragraph of Section 30 of the NIRC
qualifies the words "organized and operated
exclusively" by providing that:
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under this Code. (Emphasis supplied)

In short, the last paragraph of Section 30 provides that

if a tax exempt charitable institution conducts "any"
activity for profit, such activity is not tax exempt even
as its not-for-profit activities remain tax exempt. This
paragraph qualifies the requirements in Section 30(E)
that the "[n]on-stock corporation or association [must
be] organized and operated exclusively for x x x
charitable x x x purposes x x x." It likewise qualifies the
requirement in Section 30(G) that the civic organization
must be "operated exclusively" for the promotion of
social welfare.
Thus, even if the charitable institution must be
"organized and operated exclusively" for charitable
purposes, it is nevertheless allowed to engage in
"activities conducted for profit" without losing its tax
exempt status for its not-for-profit activities. The only
consequence is that the "income of whatever kind and
character" of a charitable institution "from any of its
activities conducted for profit, regardless of the
disposition made of such income, shall be subject to
tax." Prior to the introduction of Section 27(B), the tax
rate on such income from for-profit activities was the
ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%.
In
1998,
St.
Luke's
had
total
revenues
of P1,730,367,965 from services to paying patients. It
cannot be disputed that a hospital which receives
approximately P1.73 billion from paying patients is not
an institution "operated exclusively" for charitable
purposes. Clearly, revenues from paying patients are
income received from "activities conducted for
profit." 52 Indeed, St. Luke's admits that it derived
profits
from
its
paying
patients.
St.
Luke's
declared P1,730,367,965 as "Revenues from Services
to Patients" in contrast to its "Free Services"
expenditure ofP218,187,498. In its Comment in G.R.
No. 195909, St. Luke's showed the following
"calculation" to support its claim that 65.20% of its
"income after expenses was allocated to free or
charitable services" in 1998. 53
REVENUES
FROM P1,730,367,965.0
SERVICES TO PATIENTS 0

OPERATING EXPENSES
Professional
patients

care

of P1,016,608,394.0
0

Administrative

287,319,334.00

Household and Property

91,797,622.00
P1,395,725,350.0
0

INCOME
OPERATIONS
Free Services

FROM P334,642,615.00
-

100%
-

218,187,498.00
INCOME
FROM P116,455,117.00
OPERATIONS, Net of FREE
SERVICES

OTHER INCOME

65.20%
34.80%

17,482,304.00

EXCESS OF REVENUES P133,937,421.0

OVER EXPENSES
0

In Lung Center, this Court declared:

"[e]xclusive" is defined as possessed and enjoyed to
the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner
to exclude; as enjoying a privilege exclusively." x x x
The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without
doing violence to the Constitution and the law. Solely is
synonymous with exclusively. 54
The Court cannot expand the meaning of the words
"operated exclusively" without violating the NIRC.
Services to paying patients are activities conducted for
profit. They cannot be considered any other way. There
is a "purpose to make profit over and above the cost"
of services. 55 The P1.73 billion total revenues from
paying patients is not even incidental to St. Luke's
charity expenditure of P218,187,498 for non-paying
patients.
St. Luke's claims that its charity expenditure
of P218,187,498 is 65.20% of its operating income in
1998. However, if a part of the remaining 34.80% of
the operating income is reinvested in property,
equipment or facilities used for services to paying and
non-paying patients, then it cannot be said that the
income is "devoted or used altogether to the charitable
object which it is intended to achieve." 56 The income is
plowed back to the corporation not entirely for
charitable purposes, but for profit as well. In any case,
the last paragraph of Section 30 of the NIRC expressly
qualifies that income from activities for profit is taxable
"regardless of the disposition made of such income."
Jesus Sacred Heart College declared that there is no
official legislative record explaining the phrase "any
activity conducted for profit." However, it quoted a
deposition of Senator Mariano Jesus Cuenco, who was a
member of the Committee of Conference for the
Senate, which introduced the phrase "or from any
activity conducted for profit."
P. Cuando ha hablado de la Universidad de Santo
Toms que tiene un hospital, no cree Vd. que es una
actividad
esencial
dicho
hospital
para
el

funcionamiento del colegio de medicina de dicha

universidad?
xxxx
R. Si el hospital se limita a recibir enformos pobres, mi
contestacin seria afirmativa; pero considerando que el
hospital tiene cuartos de pago, y a los mismos
generalmente van enfermos de buena posicin social
econmica, lo que se paga por estos enfermos debe
estar sujeto a 'income tax', y es una de las razones que
hemos tenido para insertar las palabras o frase 'or
from any activity conducted for profit.' 57
The question was whether having a hospital is
essential to an educational institution like the College
of Medicine of the University of Santo Tomas. Senator
Cuenco answered that if the hospital has paid rooms
generally occupied by people of good economic
standing, then it should be subject to income tax. He
said that this was one of the reasons Congress inserted
the phrase "or any activity conducted for profit."
The question in Jesus Sacred Heart College involves an
educational institution. 58 However, it is applicable to
charitable institutions because Senator Cuenco's
response shows an intent to focus on the activities of
charitable institutions. Activities for profit should not
escape the reach of taxation. Being a non-stock and
non-profit corporation does not, by this reason alone,
completely exempt an institution from tax. An
institution cannot use its corporate form to prevent its
profitable activities from being taxed.
The Court finds that St. Luke's is a corporation that is
not "operated exclusively" for charitable or social
welfare purposes insofar as its revenues from paying
patients are concerned. This ruling is based not only on
a strict interpretation of a provision granting tax
exemption, but also on the clear and plain text of
Section 30(E) and (G). Section 30(E) and (G) of the
NIRC requires that an institution be "operated
exclusively" for charitable or social welfare purposes to
be completely exempt from income tax. An institution
under Section 30(E) or (G) does not lose its tax
exemption if it earns income from its for-profit
activities. Such income from for-profit activities, under
the last paragraph of Section 30, is merely subject to
income tax, previously at the ordinary corporate rate
but now at the preferential 10% rate pursuant to
Section 27(B).
A tax exemption is effectively a social subsidy granted
by the State because an exempt institution is spared
from sharing in the expenses of government and yet
benefits from them. Tax exemptions for charitable
institutions should therefore be limited to institutions
beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to
exploit this subsidy to the detriment of the government
and other taxpayers.1wphi1
St. Luke's fails to meet the requirements under Section
30(E) and (G) of the NIRC to be completely tax exempt
from all its income. However, it remains a proprietary
non-profit hospital under Section 27(B) of the NIRC as

long as it does not distribute any of its profits to its

members and such profits are reinvested pursuant to
its corporate purposes. St. Luke's, as a proprietary nonprofit hospital, is entitled to the preferential tax rate of
10% on its net income from its for-profit activities.
St. Luke's is therefore liable for deficiency income tax
in 1998 under Section 27(B) of the NIRC. However, St.
Luke's has good reasons to rely on the letter dated 6
June 1990 by the BIR, which opined that St. Luke's is "a
corporation for purely charitable and social welfare
purposes"59 and thus exempt from income tax. 60 In
Michael J. Lhuillier, Inc. v. Commissioner of Internal
Revenue, 61 the Court said that "good faith and honest
belief that one is not subject to tax on the basis of
previous interpretation of government agencies tasked
to implement the tax law, are sufficient justification to
delete the imposition of surcharges and interest." 62
WHEREFORE, the petition of the Commissioner of
Internal Revenue in G.R. No. 195909 is PARTLY
GRANTED. The Decision of the Court of Tax Appeals En
Banc dated 19 November 2010 and its Resolution
dated 1 March 2011 in CTA Case No. 6746 are
MODIFIED. St. Luke's Medical Center, Inc. is ORDERED
TO PAY the deficiency income tax in 1998 based on the
10% preferential income tax rate under Section 27(B)
of the National Internal Revenue Code. However, it is
not liable for surcharges and interest on such
deficiency income tax under Sections 248 and 249 of
the National Internal Revenue Code. All other parts of
the Decision and Resolution of the Court of Tax Appeals
are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R.
No. 195960 is DENIED for violating Section 1, Rule 45
of the Rules of Court.
SO ORDERED.
XVII. Religious Freedom
G.R. No. 115455 October 30, 1995
ARTURO
M.
vs.
THE
SECRETARY
OF
COMMISSIONER
REVENUE, respondents.

TOLENTINO, petitioner,
FINANCE
OF

and
THE
INTERNAL

RAUL S. ROCO and the INTEGRATED BAR OF THE

PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF
FINANCE; THE COMMISSIONERS OF THE BUREAU
OF INTERNAL REVENUE AND BUREAU OF
CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE
PRESS
INSTITUTE,
INC.;
EGP
PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.;
JOSE
L.
PAVIA;
and
OFELIA
L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner
of
Internal
Revenue;
HON.
TEOFISTO T. GUINGONA, JR., in his capacity as
Executive Secretary; and HON. ROBERTO B. DE
OCAMPO, in his capacity as Secretary of
Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS
ASSOCIATIONS,
INC.,
(CREBA), petitioner,
vs.
THE
COMMISSIONER
OF
INTERNAL
REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A.
RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR.,
JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE
L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO,
JOSE
CUNANAN,
QUINTIN
S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM,
INC.
("MABINI"),
FREEDOM
FROM
DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY,
INC.
and
WIGBERTO
TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF
FINANCE, THE COMMISSIONER OF INTERNAL
REVENUE
and
THE
COMMISSIONER
OF
CUSTOMS, respondents.

G.R. No. 115525 October 30, 1995

G.R. No. 115852 October 30, 1995

JUAN
T.
DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive
Secretary; ROBERTO DE OCAMPO, as Secretary of
Finance;
LIWAYWAY
VINZONS-CHATO,
as
Commissioner of Internal Revenue; and their
AUTHORIZED
AGENTS
OR
REPRESENTATIVES, respondents.

PHILIPPINE
AIRLINES,
INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER
OF INTERNAL REVENUE, respondents.

G.R. No. 115543 October 30, 1995

G.R. No. 115873 October 30, 1995

COOPERATIVE
UNION
OF
THE
PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner
of
Internal
Revenue,
HON.
TEOFISTO T. GUINGONA, JR., in his capacity as

Executive Secretary, and HON. ROBERTO B. DE

OCAMPO, in his capacity as Secretary of
Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE
EDUCATIONAL
PUBLISHERS
ASSOCIATION,
INC.
and
ASSOCIATION
OF
PHILIPPINE
BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary
of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON.
GUILLERMO PARAYNO, JR., in his capacity as the
Commissioner of Customs, respondents.
RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our
decision dismissing the petitions filed in these cases for
the declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax
Law. The motions, of which there are 10 in all, have
been filed by the several petitioners in these cases,
with the exception of the Philippine Educational
Publishers Association, Inc. and the Association of
Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents,
filed a consolidated comment, to which the Philippine
Airlines, Inc., petitioner in G.R. No. 115852, and the
Philippine Press Institute, Inc., petitioner in G.R. No.
115544, and Juan T. David, petitioner in G.R. No.
115525, each filed a reply. In turn the Solicitor General
filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for
resolution.
I. Power of the Senate to propose amendments to
revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and
Chamber of Real Estate and Builders Association
(CREBA)) reiterate previous claims made by them that
R.A. No. 7716 did not "originate exclusively" in the
House of Representatives as required by Art. VI, 24 of
the Constitution. Although they admit that H. No.
11197 was filed in the House of Representatives where
it passed three readings and that afterward it was sent
to the Senate where after first reading it was referred
to the Senate Ways and Means Committee, they
complain that the Senate did not pass it on second and
third readings. Instead what the Senate did was to pass
its own version (S. No. 1630) which it approved on May
24, 1994. Petitioner Tolentino adds that what the
Senate committee should have done was to amend H.
No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it
is said, "the bill remains a House bill and the Senate
version just becomes the text (only the text) of the
House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance
in which the Senate proposed an amendment to a
House revenue bill by enacting its own version of a
revenue bill. On at least two occasions during
the Eighth Congress, the Senate passed its own version
of revenue bills, which, in consolidation with House bills
earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS
INVESTMENTS CODE OF 1987 BY EXTENDING FROM
FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX
AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on
April 10, 1992. This Act is actually a consolidation of H.
No. 34254, which was approved by the House on
January 29, 1992, and S. No. 1920, which was
approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which
was approved by the President on May 22, 1992. This
Act is a consolidation of H. No. 22232, which was
approved by the House of Representatives on August
2, 1989, and S. No. 807, which was approved by the
Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue
laws which were also the result of the consolidation of
House and Senate bills. These are the following, with
indications of the dates on which the laws were
approved by the President and dates the separate bills
of the two chambers of Congress were respectively
passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES
FOR TAX EVASION, AMENDING FOR
THIS
PURPOSE
THE
PERTINENT
SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN
ACT
TO
EMPOWER
THE
COMMISSIONER OF INTERNAL REVENUE
TO REQUIRE THE PAYMENT OF THE
VALUE-ADDED TAX EVERY MONTH AND
TO ALLOW LOCAL GOVERNMENT UNITS
TO SHARE IN VAT REVENUE, AMENDING
FOR THIS PURPOSE CERTAIN SECTIONS
OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992)
House Bill No. 1503, September 3,
1992

Senate Bill No. 968, December 7, 1992

SPECIFIC PROGRAMS, AND FOR OTHER

PURPOSES (December 23, 1993)

3. R.A. NO. 7646

House Bill No. 7789, May 31, 1993
AN
ACT
AUTHORIZING
THE
COMMISSIONER OF INTERNAL REVENUE
TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE
TAXES
BY
LARGE
TAXPAYERS,
AMENDING
FOR
THIS
PURPOSE
CERTAIN
PROVISIONS
OF
THE
NATIONAL INTERNAL REVENUE CODE,
AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT
OR
ANY
OF
ITS
POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR
AGENCIES INCLUDING GOVERNMENTOWNED
OR
CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT
AND WITHHOLD THE VALUE-ADDED
TAX DUE AT THE RATE OF THREE
PERCENT (3%) ON GROSS PAYMENT
FOR THE PURCHASE OF GOODS AND
SIX PERCENT (6%) ON GROSS RECEIPTS
FOR
SERVICES
RENDERED
BY
CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENTOWNED
OR
CONTROLLED
CORPORATIONS
TO
DECLARE
DIVIDENDS
UNDER
CERTAIN
CONDITIONS
TO
THE
NATIONAL
GOVERNMENT,
AND
FOR
OTHER
PURPOSES (November 9, 1993)

Senate Bill No. 1330, November 18,

1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE,
BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH
THE LOCAL STOCK EXCHANGE OR
THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE
NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, BY INSERTING A NEW
SECTION AND REPEALING CERTAIN
SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only
instance in which the Senate, in the exercise of its
power to propose amendments to bills required to
originate in the House, passed its own version of a
House revenue measure. It is noteworthy that, in the
particular case of S. No. 1630, petitioners Tolentino and
Roco, as members of the Senate, voted to approve it
on second and third readings.
On the other hand, amendment by substitution, in the
manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what
substantial difference it would make if, as the Senate
actually did in this case, a separate bill like S. No. 1630
is instead enacted as a substitute measure, "taking
into Consideration . . . H.B. 11197."
Indeed, so far as
Senate only provide:

pertinent,

the

Rules

of

the

RULE XXIX
AMENDMENTS

House Bill No. 11024, November 3,

1993
Senate Bill No. 1168, November 3,
1993

xxx xxx xxx

68. Not more than one amendment to
the original amendment shall be
considered.

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE
STRUCTURE AND ADMINISTRATION OF
THE
DOCUMENTARY
STAMP
TAX,
AMENDING FOR THE PURPOSE CERTAIN
PROVISIONS
OF
THE
NATIONAL
INTERNAL
REVENUE
CODE,
AS
AMENDED, ALLOCATING FUNDS FOR

No amendment by substitution shall be

entertained unless the text thereof is
submitted in writing.
Any of said amendments may be
withdrawn before a vote is taken
thereon.

69. No amendment which seeks the

inclusion of a legislative provision
foreign to the subject matter of a bill
(rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be
amended by substituting it with
another which covers a subject distinct
from that proposed in the original bill
or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with
regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of
textual differences between constitutional provisions
giving them the power to propose or concur with
amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall
originate
in
the
House
of
Representatives; but the Senate may
propose or concur with amendments as
on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills,
bills authorizing increase of the public
debt, bills of local application, and
private bills shall originate exclusively
in the House of Representatives, but
the Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to
petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose
amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills
were not to be like other bills but must be treated as a
special kind."
The history of this provision does not support this
contention. The supposed indicia of constitutional
intent
are
nothing
but
the
relics
of
an
unsuccessful attempt to limit the power of the Senate.
It will be recalled that the 1935 Constitution originally
provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral
legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House
of
Representatives.
The
work
of
proposing
amendments to the Constitution was done by the
National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the
Assembly's lawmaking powers, sought to curtail the

powers of the proposed Senate. Accordingly they

proposed the following provision:
All bills appropriating public funds,
revenue or tariff bills, bills of local
application, and private bills shall
originate exclusively in the Assembly,
but the Senate may propose or concur
with
amendments.
In
case
of
disapproval by the Senate of any such
bills, the Assembly may repass the
same by a two-thirds vote of all its
members, and thereupon, the bill so
repassed shall be deemed enacted and
may be submitted to the President for
corresponding action. In the event that
the Senate should fail to finally act on
any such bills, the Assembly may, after
thirty days from the opening of the
next regular session of the same
legislative term, reapprove the same
with a vote of two-thirds of all the
members of the Assembly. And upon
such reapproval, the bill shall be
deemed
enacted
and
may
be
submitted
to
the
President
for
corresponding action.
The special committee on the revision of laws of the
Second National Assembly vetoed the proposal. It
deleted everything after the first sentence. As
rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as
amended by Resolution No. 73. (J. ARUEGO, KNOW
YOUR CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and ratified
by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935
Constitution, from which Art. VI, 24 of the present
Constitution was derived. It explains why the word
"exclusively" was added to the American text from
which the framers of the Philippine Constitution
borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the
power of the Senate to propose amendments must be
understood to be full, plenary and complete "as on
other Bills." Thus, because revenue bills are required to
originate exclusively in the House of Representatives,
the Senate cannot enact revenue measures of its own
without such bills. After a revenue bill is passed and
sent over to it by the House, however, the Senate
certainly can pass its own version on the same subject
matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of
the scope of the Senate's power to concur is clear from
the following commentaries:
The power of the Senate to propose or
concur with amendments is apparently
without restriction. It would seem that
by virtue of this power, the Senate can
practically re-write a bill required to
come from the House and leave only a

trace of the original bill. For example, a

general revenue bill passed by the
lower house of the United States
Congress contained provisions for the
imposition of an inheritance tax . This
was changed by the Senate into a
corporation
tax.
The
amending
authority of the Senate was declared
by the United States Supreme Court to
be sufficiently broad to enable it to
make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed.
389].
(L.
TAADA
AND
F.
CARREON,
POLITICAL LAW OF THE PHILIPPINES
247 (1961))
The
above-mentioned
bills
are
supposed to be initiated by the House
of Representatives because it is more
numerous in membership and therefore
also more representative of the people.
Moreover, its members are presumed
to be more familiar with the needs of
the country in regard to the enactment
of the legislation involved.
The Senate is, however, allowed much
leeway in the exercise of its power to
propose or concur with amendments to
the bills initiated by the House of
Representatives. Thus, in one case, a
bill introduced in the U.S. House of
Representatives was changed by the
Senate to make a proposed inheritance
tax a corporation tax. It is also
accepted practice for the Senate to
introduce what is known as an
amendment by substitution, which may
entirely replace the bill initiated in the
House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW
144-145 (1993)).
In sum, while Art. VI, 24 provides that all
appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application,
and private bills must "originate exclusively in the
House of Representatives," it also adds, "but the
Senate may propose or concur with amendments." In
the exercise of this power, the Senate may propose an
entirely new bill as a substitute measure. As petitioner
Tolentino states in a high school text, a committee to
which a bill is referred may do any of the following:
(1) to endorse the bill without changes;
(2) to make changes in the bill omitting
or adding sections or altering its
language; (3) to make and endorse an
entirely new bill as a substitute, in
which case it will be known as
a committee bill; or (4) to make no
report at all.

(A. TOLENTINO, THE GOVERNMENT OF

THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills
which are required to originate in the House by
prescribing that the number of the House bill and its
other parts up to the enacting clause must be
preserved although the text of the Senate amendment
may be incorporated in place of the original body of
the bill is to insist on a mere technicality. At any rate
there is no rule prescribing this form. S. No. 1630, as a
substitute measure, is therefore as much an
amendment of H. No. 11197 as any which the Senate
could have made.
II. S. No. 1630 a mere amendment of H. No. 11197.
Petitioners' basic error is that they assume that S. No.
1630 is an independent and distinct bill. Hence their
repeated references to its certification that it was
passed by the Senate "in substitution of S.B. No. 1129,
taking
into
consideration P.S.
Res.
No.
734
and H.B. No. 11197," implying that there is something
substantially different between the reference to S. No.
1129 and the reference to H. No. 11197. From this
premise, they conclude that R.A. No. 7716 originated
both in the House and in the Senate and that it is the
product of two "half-baked bills because neither H. No.
11197 nor S. No. 1630 was passed by both houses of
Congress."
In point of fact, in several instances the provisions of S.
No. 1630, clearly appear to be mere amendments of
the corresponding provisions of H. No. 11197. The very
tabular comparison of the provisions of H. No. 11197
and S. No. 1630 attached as Supplement A to the basic
petition of petitioner Tolentino, while showing
differences between the two bills, at the same time
indicates that the provisions of the Senate bill were
precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have
enacted S. No. 1630. Because the Senate bill was a
mere amendment of the House bill, H. No. 11197 in its
original form did not have to pass the Senate on
second and three readings. It was enough that after it
was passed on first reading it was referred to the
Senate Committee on Ways and Means. Neither was it
required that S. No. 1630 be passed by the House of
Representatives before the two bills could be referred
to the Conference Committee.
There is legislative precedent for what was done in the
case of H. No. 11197 and S. No. 1630. When the House
bill and Senate bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank deposits), were
referred to a conference committee, the question was
raised whether the two bills could be the subject of
such conference, considering that the bill from one
house had not been passed by the other and vice
versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this
question of order as to procedure: If a
House bill is passed by the House but
not passed by the Senate, and a
Senate bill of a similar nature is passed

in the Senate but never passed in the

House, can the two bills be the subject
of a conference, and can a law be
enacted from these two bills? I
understand that the Senate bill in this
particular instance does not refer to
investments in government securities,
whereas the bill in the House, which
was introduced by the Speaker, covers
two
subject
matters:
not
only
investigation of deposits in banks but
also investigation of investments in
government securities. Now, since the
two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker
Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in order. It is
precisely in cases like this where a
conference should be had. If the House
bill had been approved by the Senate,
there would have been no need of a
conference; but precisely because the
Senate passed another bill on the
same subject matter, the conference
committee had to be created, and we
are now considering the report of that
committee.
(2 CONG. REC. NO. 13, July 27, 1955,
pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking
that H. No. 11197 and S. No. 1630 are distinct and
unrelated measures also accounts for the petitioners'
(Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the
immediate enactment of these measures, his
certification was ineffectual and void. The certification
had to be made of the version of the same revenue bill
which at the momentwas being considered. Otherwise,
to follow petitioners' theory, it would be necessary for
the President to certify as many bills as are presented
in a house of Congress even though the bills are
merely versions of the bill he has already certified. It is
enough that he certifies the bill which, at the time he
makes the certification, is under consideration. Since
on March 22, 1994 the Senate was considering S. No.
1630, it was that bill which had to be certified. For that
matter on June 1, 1993 the President had earlier
certified H. No. 9210 for immediate enactment because
it was the one which at that time was being considered
by the House. This bill was later substituted, together
with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we
have already explained in the main decision that the
phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI,
26 (2) qualifies not only the requirement that "printed
copies [of a bill] in its final form [must be] distributed
to the members three days before its passage" but also
the requirement that before a bill can become a law it

must have passed "three readings on separate days."

There is not only textual support for such construction
but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally
provided:
(2) No bill shall be passed by either
House unless it shall have been printed
and copies thereof in its final form
furnished its Members at least three
calendar days prior to its passage,
except when the President shall have
certified to the necessity of its
immediate enactment. Upon the last
reading of a bill, no amendment
thereof shall be allowed and the
question upon its passage shall be
taken immediately thereafter, and
the yeas and nays entered
on
the
Journal.
When the 1973 Constitution was adopted, it was
provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it
has passed three readings on separate
days, and printed copies thereof in its
final form have been distributed to the
Members three
days before its
passage, except when the Prime
Minister certifies to the necessity of its
immediate enactment to meet a public
calamity or emergency. Upon the last
reading of a bill, no amendment
thereto shall be allowed, and the vote
thereon shall be taken immediately
thereafter,
and
the yeas and nays entered
in
the
Journal.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, 26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall
become a law unless it has passed
three readings on separate days, and
printed copies thereof in its final form
have been distributed to its Members
three days before its passage, except
when the President certifies to the
necessity of its immediate enactment
to meet a public calamity or
emergency. Upon the last reading of a
bill, no amendment thereto shall be
allowed, and the vote thereon shall be
taken immediately thereafter, and
the yeasand nays entered
in
the
Journal.
The exception is based on the prudential consideration
that if in all cases three readings on separate days are
required and a bill has to be printed in final form before
it can be passed, the need for a law may be rendered

academic by the occurrence of the very emergency or

public calamity which it is meant to address.
Petitioners further contend that a "growing budget
deficit" is not an emergency, especially in a country
like the Philippines where budget deficit is a chronic
condition. Even if this were the case, an enormous
budget deficit does not make the need for R.A. No.
7716 any less urgent or the situation calling for its
enactment any less an emergency.
Apparently, the members of the Senate (including
some of the petitioners in these cases) believed that
there was an urgent need for consideration of S. No.
1630, because they responded to the call of the
President by voting on the bill on second and third
readings on the same day. While the judicial
department is not bound by the Senate's acceptance of
the President's certification, the respect due coequal
departments of the government in matters committed
to them by the Constitution and the absence of a clear
showing of grave abuse of discretion caution a stay of
the judicial hand.
At any rate, we are satisfied that S. No. 1630 received
thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance
in its final printed form was actually dispensed with by
holding the voting on second and third readings on the
same day (March 24, 1994). Otherwise, sufficient time
between the submission of the bill on February 8, 1994
on second reading and its approval on March 24, 1994
elapsed before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on separate days
is required is said to be two-fold: (1) to inform the
members of Congress of what they must vote on and
(2) to give them notice that a measure is progressing
through the enacting process, thus enabling them and
others interested in the measure to prepare their
positions with reference to it. (1 J. G. SUTHERLAND,
STATUTES AND STATUTORY CONSTRUCTION 10.04, p.
282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended
(principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism,
Inc. (MABINI)) that in violation of the constitutional
policy of full public disclosure and the people's right to
know (Art. II, 28 and Art. III, 7) the Conference
Committee met for two days in executive session with
only the conferees present.
As pointed out in our main decision, even in the United
States it was customary to hold such sessions with only
the conferees and their staffs in attendance and it was
only in 1975 when a new rule was adopted requiring
open sessions. Unlike its American counterpart, the
Philippine Congress has not adopted a rule prescribing
open hearings for conference committees.
It is nevertheless claimed that in the United States,
before the adoption of the rule in 1975, at least staff
members were present. These were staff members of

the Senators and Congressmen, however, who may be

presumed to be their confidential men, not
stenographers as in this case who on the last two days
of the conference were excluded. There is no showing
that the conferees themselves did not take notes of
their proceedings so as to give petitioner Kilosbayan
basis for claiming that even in secret diplomatic
negotiations involving state interests, conferees keep
notes of their meetings. Above all, the public's right to
know was fully served because the Conference
Committee in this case submitted a report showing the
changes made on the differing versions of the House
and the Senate.
Petitioners cite the rules of both houses which provide
that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes
in or other amendments." These changes are shown in
the bill attached to the Conference Committee Report.
The members of both houses could thus ascertain what
changes had been made in the original bills without the
need of a statement detailing the changes.
The same question now presented was raised when the
bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee.
Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that
it is out of order to consider the report
of
the
conference
committee
regarding House Bill No. 2557 by
reason of the provision of Section 11,
Article XII, of the Rules of this House
which provides specifically that the
conference
report
must
be
accompanied by a detailed statement
of the effects of the amendment on the
bill of the House. This conference
committee report is not accompanied
by that detailed statement, Mr.
Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader,
answered:
MR. TOLENTINO. Mr. Speaker, I should
just like to say a few words in
connection with the point of order
raised
by
the
gentleman
from
Pangasinan.
There is no question about the
provision of the Rule cited by the
gentleman from Pangasinan, but this
provision applies to those cases where
only portions of the bill have been
amended. In this case before us an
entire bill is presented; therefore, it
can be easily seen from the reading of
the bill what the provisions are.
Besides, this procedure has been an
established practice.
After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr.

Speaker, we have to look into the
reason for the provisions of the Rules,
and the reason for the requirement in
the provision cited by the gentleman
from Pangasinan is when there are only
certain words or phrases inserted in or
deleted from the provisions of the bill
included in the conference report, and
we cannot understand what those
words and phrases mean and their
relation to the bill. In that case, it is
necessary
to
make
a
detailed
statement on how those words and
phrases will affect the bill as a
whole; but when the entire bill itself is
copied verbatim in the conference
report, that is not necessary. So when
the reason for the Rule does not exist,
the Rule does not exist.
(2 CONG. REC. NO.
(emphasis added))

2,

p.

4056.

Congressman Tolentino was sustained by the chair. The

record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House
was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these
are germane to the subject of the conference. As this
Court held in Philippine Judges Association v. Prado,
227 SCRA 703 (1993), in an opinion written by then
Justice Cruz, the jurisdiction of the conference
committee is not limited to resolving differences
between the Senate and the House. It may propose an
entirely new provision. What is important is that its
report is subsequently approved by the respective
houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had
been added by the conference committee, there was
thereby a violation of the constitutional injunction that
"upon the last reading of a bill, no amendment thereto
shall be allowed."
Applying
these
principles,
we
shall decline to
look
into
the
petitioners'
charges that
an
amendment was made upon the last
reading of the bill that eventually
became
R.A.
No.
7354
and
that copiesthereof in its final form were
not distributed among the members of
each House. Both the enrolled bill and
the legislative journals certify that the
measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2)
of the Constitution. We are bound by
such official assurances from a
coordinate
department
of
the
government, to which we owe, at the
very least, a becoming courtesy.
(Id. at 710. (emphasis added))

It is interesting to note the following description of

conference committees in the Philippines in a 1979
study:
Conference committees may be of two
types: free or instructed. These
committees may be given instructions
by their parent bodies or they may be
left without instructions. Normally the
conference committees are without
instructions, and this is why they are
often critically referred to as "the little
legislatures." Once bills have been sent
to them, the conferees have almost
unlimited authority to change the
clauses of the bills and in fact
sometimes introduce new measures
that were not in the original legislation.
No minutes are kept, and members'
activities on conference committees
are
difficult
to
determine.
One
congressman known for his idealism
put it this way: "I killed a bill on export
incentives for my interest group [copra]
in the conference committee but I
could not have done so anywhere
else." The conference committee
submits a report to both houses, and
usually it is accepted. If the report is
not accepted, then the committee is
discharged and new members are
appointed.
(R. Jackson, Committees in the
Philippine Congress, in COMMITTEES
AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M.
SHAW, eds.)).
In citing this study, we pass no judgment on the
methods of conference committees. We cite it only to
say that conference committees here are no different
from their counterparts in the United States whose vast
powers we noted in Philippine Judges Association
v. Prado, supra. At all events, under Art. VI, 16(3) each
house has the power "to determine the rules of its
proceedings," including those of its committees. Any
meaningful change in the method and procedures of
Congress or its committees must therefore be sought
in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL
maintains that R.A. No. 7716 violates Art. VI, 26 (1) of
the Constitution which provides that "Every bill passed
by Congress shall embrace only one subject which shall
be expressed in the title thereof." PAL contends that
the amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of
the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise
tax of 2% on its gross revenue "in lieu of all other
taxes, duties, royalties, registration, license and other
fees and charges of any kind, nature, or description,
imposed, levied, established, assessed or collected by

any municipal, city, provincial or national authority or

government agency, now or in the future."
PAL was exempted from the payment of the VAT along
with other entities by 103 of the National Internal
Revenue Code, which provides as follows:
103. Exempt transactions. The
following shall be exempt from the
value-added tax:
xxx xxx xxx
(q) Transactions which are exempt
under special laws or international
agreements to which the Philippines is
a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions,
including that granted to PAL, by amending 103, as
follows:
103. Exempt transactions. The
following shall be exempt from the
value-added tax:
xxx xxx xxx
(q) Transactions which are exempt
under special laws, except those
granted under Presidential Decree Nos.
66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A.
No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUEADDED TAX (VAT) SYSTEM, WIDENING
ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, AND FOR OTHER
PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE]
THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING
ITS TAX BASE AND ENHANCING ITS ADMINISTRATION,
AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED
AND FOR OTHER PURPOSES," Congress thereby clearly
expresses its intention to amend any provision of the
NIRC which stands in the way of accomplishing the
purpose of the law.
PAL asserts that the amendment of its franchise must
be reflected in the title of the law by specific reference
to P.D. No. 1590. It is unnecessary to do this in order to
comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is
103(q), in order to widen the base of the VAT. Actually,

it is the bill which becomes a law that is required to

express in its title the subject of legislation. The titles
of H. No. 11197 and S. No. 1630 in fact specifically
referred to 103 of the NIRC as among the provisions
sought to be amended. We are satisfied that sufficient
notice had been given of the pendency of these bills in
Congress before they were enacted into what is now
R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a
similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING
THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS
POWERS,
FUNCTIONS
AND
RESPONSIBILITIES,
PROVIDING FOR REGULATION OF THE INDUSTRY AND
FOR OTHER PURPOSES CONNECTED THEREWITH. It
contained a provision repealing all franking privileges.
It was contended that the withdrawal of franking
privileges was not expressed in the title of the law. In
holding that there was sufficient description of the
subject of the law in its title, including the repeal of
franking privileges, this Court held:
To require every end and means
necessary for the accomplishment of
the general objectives of the statute to
be expressed in its title would not only
be unreasonable but would actually
render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p.
297] As has been correctly explained:
The
details
of
a
legislative act need not
be specifically stated in
its title, but matter
germane to the subject
as expressed in the
title, and adopted to
the accomplishment of
the object in view, may
properly be included in
the act. Thus, it is
proper to create in the
same
act
the
machinery by which
the act is to be
enforced, to prescribe
the penalties for its
infraction,
and
to
remove obstacles in
the
way
of
its
execution.
If
such
matters are properly
connected
with
the
subject as expressed in
the
title,
it
is
unnecessary that they
should
also
have
special mention in the
title. (Southern Pac. Co.
v. Bartine, 170 Fed.
725)
(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We

have held that, as a general proposition, the press is
not exempt from the taxing power of the State and that
what the constitutional guarantee of free press
prohibits are laws which single out the press or target a
group belonging to the press for special treatment or
which in any way discriminate against the press on the
basis of the content of the publication, and R.A. No.
7716 is none of these.
Now it is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against
the press. At any rate, it is averred, "even
nondiscriminatory
taxation
of
constitutionally
guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to
say that since the law granted the press a privilege,
the law could take back the privilege anytime without
offense to the Constitution. The reason is simple: by
granting exemptions, the State does not forever waive
the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely
subjects the press to the same tax burden to which
other businesses have long ago been subject. It is thus
different from the tax involved in the cases invoked by
the PPI. The license tax in Grosjean v. American Press
Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross
advertising receipts only of newspapers whose weekly
circulation was over 20,000, with the result that the tax
applied only to 13 out of 124 publishers in Louisiana.
These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the
license tax. The censorial motivation for the law was
thus evident.
On the other hand, in Minneapolis Star & Tribune
Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75
L. Ed. 2d 295 (1983), the tax was found to be
discriminatory because although it could have been
made liable for the sales tax or, in lieu thereof, for the
use tax on the privilege of using, storing or consuming
tangible goods, the press was not. Instead, the press
was exempted from both taxes. It was, however, later
made to pay a special use tax on the cost of paper and
ink which made these items "the only items subject to
the use tax that were component of goods to be sold at
retail." The U.S. Supreme Court held that the
differential treatment of the press "suggests that the
goal of regulation is not related to suppression of
expression,
and
such
goal
is
presumptively
unconstitutional." It would therefore appear that even a
law that favors the press is constitutionally suspect.
(See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously
granted by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from
the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with
the Export Processing Zone Authority, and many more
are likewise totally withdrawn, in addition to

exemptions which are partially withdrawn, in an effort

to broaden the base of the tax.
The PPI says that the discriminatory treatment of the
press is highlighted by the fact that transactions, which
are profit oriented, continue to enjoy exemption under
R.A. No. 7716. An enumeration of some of these
transactions will suffice to show that by and large this
is not so and that the exemptions are granted for a
purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage
agricultural production and, in other cases, for the
personal benefit of the end-user rather than for profit.
The exempt transactions are:
(a) Goods for consumption or use
which are in their original state
(agricultural,
marine
and
forest
products, cotton seeds in their original
state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and
poultry feeds) and goods or services to
enhance agriculture (milling of palay,
corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b)
Goods
used
for
personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) or for professional use,
like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services
subject to percentage tax.
(d) Educational services, medical,
dental,
hospital
and
veterinary
services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations
sold by the artist himself.
(f)
Transactions
special
laws,
agreements.

exempted
under
or
international

(g) Export-sales by persons not VATregistered.

(h) Goods or services with gross annual
sale
or
receipt
not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)

The PPI asserts that it does not really matter that the
law does not discriminate against the press because
"even nondiscriminatory taxation on constitutionally
guaranteed freedom is unconstitutional." PPI cites in
support of this assertion the following statement
in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed.
1292 (1943):
The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First
Amendment is not so restricted. A
license tax certainly does not acquire
constitutional
validity
because
it
classifies the privileges protected by
the First Amendment along with the
wares and merchandise of hucksters
and peddlers and treats them all alike.
Such equality in treatment does not
save the ordinance. Freedom of press,
freedom of speech, freedom of religion
are in preferred position.
The Court was speaking in that case of a license tax,
which, unlike an ordinary tax, is mainly for regulation.
Its imposition on the press is unconstitutional because
it lays a prior restraint on the exercise of its right.
Hence, although its application to others, such those
selling goods, is valid, its application to the press or to
religious groups, such as the Jehovah's Witnesses, in
connection with the latter's sale of religious books and
pamphlets, is unconstitutional. As the U.S. Supreme
Court put it, "it is one thing to impose a tax on income
or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American
Bible Society v. City of Manila, 101 Phil. 386 (1957)
which invalidated a city ordinance requiring a business
license fee on those engaged in the sale of general
merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible
Society without restraining the free exercise of its right
to propagate.
The VAT is, however, different. It is not a license tax. It
is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter,
lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any
more than to make the press pay income tax or subject
it to general regulation is not to violate its freedom
under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims
that although it sells bibles, the proceeds derived from
the sales are used to subsidize the cost of printing
copies which are given free to those who cannot afford
to pay so that to tax the sales would be to increase the
price, while reducing the volume of sale. Granting that
to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult
to differentiate it from any other economic imposition
that might make the right to disseminate religious

doctrines costly. Otherwise, to follow the petitioner's

argument, to increase the tax on the sale of vestments
would be to lay an impermissible burden on the right of
the preacher to make a sermon.
On the other hand the registration fee of P1,000.00
imposed by 107 of the NIRC, as amended by 7 of R.A.
No. 7716, although fixed in amount, is really just to pay
for the expenses of registration and enforcement of
provisions such as those relating to accounting in 108
of the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it
from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal
protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs
the obligations of contracts, (2) classifies transactions
as covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is claimed that
the application of the tax to existing contracts of the
sale of real property by installment or on deferred
payment basis would result in substantial increases in
the monthly amortizations to be paid because of the
10% VAT. The additional amount, it is pointed out, is
something that the buyer did not anticipate at the time
he entered into the contract.
The short answer to this is the one given by this Court
in an early case: "Authorities from numerous sources
are cited by the plaintiffs, but none of them show that
a lawful tax on a new subject, or an increased tax on
an old one, interferes with a contract or impairs its
obligation, within the meaning of the Constitution.
Even though such taxation may affect particular
contracts, as it may increase the debt of one person
and lessen the security of another, or may impose
additional burdens upon one class and release the
burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it
impairs the obligation of any existing contract in its
true legal sense." (La Insular v. Machuca Go-Tauco and
Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the
essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (PhilippineAmerican Life Ins. Co. v. Auditor General, 22 SCRA 135,
147 (1968)) Contracts must be understood as having
been made in reference to the possible exercise of the
rightful authority of the government and no obligation
of contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885
(1935)).
It is next pointed out that while 4 of R.A. No. 7716
exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale

of real property which is equally essential. The sale of

real property for socialized and low-cost housing is
exempted from the tax, but CREBA claims that real
estate transactions of "the less poor," i.e., the middle
class, who are equally homeless, should likewise be
exempted.
The sale of food items, petroleum, medical and
veterinary services, etc., which are essential goods and
services was already exempt under 103, pars. (b) (d)
(1) of the NIRC before the enactment of R.A. No. 7716.
Petitioner is in error in claiming that R.A. No. 7716
granted exemption to these transactions, while
subjecting those of petitioner to the payment of the
VAT. Moreover, there is a difference between the
"homeless poor" and the "homeless less poor" in the
example given by petitioner, because the second group
or middle class can afford to rent houses in the
meantime that they cannot yet buy their own homes.
The two social classes are thus differently situated in
life. "It is inherent in the power to tax that the State be
free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a
singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'" (Lutz
v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of
Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v.
Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,
163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted,
that R.A. No. 7716 also violates Art. VI, 28(1) which
provides that "The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive
system of taxation."
Equality and uniformity of taxation means that all
taxable articles or kinds of property of the same class
be taxed at the same rate. The taxing power has the
authority
to
make
reasonable
and
natural
classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance
applies equally to all persons, forms and corporations
placed in similar situation. (City of Baguio v. De
Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273
long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the
original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,
163 SCRA 383 (1988) on grounds similar to those made
in these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art.
VI, 28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all
the requirements of a valid tax. It is
uniform. . . .
The sales tax adopted in EO 273 is
applied similarly on all goods and
services sold to the public, which are

not exempt, at the constant rate of 0%

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

fingerlings, fish, prawn livestock and

poultry feeds) and goods or services to
enhance agriculture (milling of palay,
corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of
feeds).
(b)
Goods
used
for
personal
consumption or use (household and
personal effects of citizens returning to
the Philippines) and or professional
use, like professional instruments and
implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products
subject to excise tax and services
subject to percentage tax.
(d) Educational services, medical,
dental,
hospital
and
veterinary
services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations
sold by the artist himself.
(f)
Transactions
special
laws,
agreements.

exempted
under
or
international

(g) Export-sales by persons not VATregistered.

(h) Goods or services with gross annual
sale
or
receipt
not
exceeding P500,000.00.
(Respondents' Consolidated Comment
on the Motions for Reconsideration, pp.
58-60)
On the other hand, the transactions which are subject
to the VAT are those which involve goods and services
which are used or availed of mainly by higher income
groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of
trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right
or privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs,
radio, television, satellite transmission and cable
television time, hotels, restaurants and similar places,
securities, lending investments, taxicabs, utility cars
for rent, tourist buses, and other common carriers,
services of franchise grantees of telephone and
telegraph.
The problem with CREBA's petition is that it presents
broad claims of constitutional violations by tendering
issues not at retail but at wholesale and in the
abstract. There is no fully developed record which can

impart to adjudication the impact of actuality. There is

no factual foundation to show in the concrete the
application of the law to actual contracts and exemplify
its effect on property rights. For the fact is that
petitioner's members have not even been assessed the
VAT. Petitioner's case is not made concrete by a series
of hypothetical questions asked which are no different
from those dealt with in advisory opinions.
The difficulty confronting petitioner is
thus apparent. He alleges arbitrariness.
A mere allegation, as here, does not
suffice. There must be a factual
foundation of such unconstitutional
taint. Considering that petitioner here
would condemn such a provision as
void on its face, he has not made out a
case. This is merely to adhere to the
authoritative doctrine that where the
due process and equal protection
clauses are invoked, considering that
they are not fixed rules but rather
broad standards, there is a need for
proof of such persuasive character as
would lead to such a conclusion.
Absent
such
a
showing,
the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the
development of a concrete case. It may be that
postponement of adjudication would result in a
multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such
a case. A test case, provided it is an actual case and
not an abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an adequate
justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of
advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to
decide whenever a claim is made that "there has been
a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or
instrumentality of the government." This duty can only
arise if an actual case or controversy is before us.
Under Art . VIII, 5 our jurisdiction is defined in terms of
"cases" and all that Art. VIII, 1, 2 can plausibly mean
is that in the exercise of that jurisdiction we have
the judicial power to determine questions of grave
abuse of discretion by any branch or instrumentality of
the government.
Put in another way, what is granted in Art. VIII, 1, 2 is
"judicial power," which is "the power of a court to hear
and decide cases pending between parties who have
the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive power.
This power cannot be directly appropriated until it is
apportioned among several courts either by the
Constitution, as in the case of Art. VIII, 5, or by

statute, as in the case of the Judiciary Act of 1948 (R.A.

No. 296) and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned constitutes
the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take
cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an
actual case coming within its jurisdiction, this Court
cannot inquire into any allegation of grave abuse of
discretion by the other departments of the
government.
VIII. Alleged violation of policy towards cooperatives.
On the other hand, the Cooperative Union of the
Philippines (CUP), after briefly surveying the course of
legislation, argues that it was to adopt a definite policy
of granting tax exemption to cooperatives that the
present
Constitution
embodies
provisions
on
cooperatives. To subject cooperatives to the VAT would
therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was
promulgated exempting cooperatives from the
payment of income taxes and sales taxes but in 1984,
because of the crisis which menaced the national
economy, this exemption was withdrawn by P.D. No.
1955; that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales taxes
until December 31, 1991, but, in the same year, E.O.
No. 93 revoked the exemption; and that finally in 1987
the framers of the Constitution "repudiated the
previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and
instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions,"
by providing the following in Art. XII:

organizations, shall be encouraged to

broaden the base of their ownership.
15. The Congress shall create an
agency to promote the viability and
growth of cooperatives as instruments
for social justice and economic
development.
Petitioner's contention has no merit. In the first place,
it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from
income and sales taxes under P.D. No. 175, 5. What
P.D. No. 1955, 1 did was to withdraw the exemptions
and preferential treatments theretofore granted to
private business enterprises in general, in view of the
economic crisis which then beset the nation. It is true
that after P.D. No. 2008, 2 had restored the tax
exemptions of cooperatives in 1986, the exemption
was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions
were withdrawn. The withdrawal of tax incentives
applied to all, including government and private
entities. In the second place, the Constitution does not
really require that cooperatives be granted tax
exemptions in order to promote their growth and
viability. Hence, there is no basis for petitioner's
assertion that the government's policy toward
cooperatives had been one of vacillation, as far as the
grant of tax privileges was concerned, and that it was
to put an end to this indecision that the constitutional
provisions cited were adopted. Perhaps as a matter of
policy cooperatives should be granted tax exemptions,
but that is left to the discretion of Congress. If
Congress does not grant exemption and there is no
discrimination to cooperatives, no violation of any
constitutional policy can be charged.

1. The goals of the national economy

are a more equitable distribution of
opportunities, income, and wealth; a
sustained increase in the amount of
goods and services produced by the
nation for the benefit of the people;
and an expanding productivity as the
key to raising the quality of life for all,
especially the underprivileged.

Indeed, petitioner's theory amounts to saying that

under the Constitution cooperatives are exempt from
taxation. Such theory is contrary to the Constitution
under which only the following are exempt from
taxation:
charitable
institutions,
churches
and
parsonages, by reason of Art. VI, 28 (3), and nonstock, non-profit educational institutions by reason of
Art. XIV, 4 (3).

The
State
shall
promote
industrialization and full employment
based
on
sound
agricultural
development and agrarian reform,
through industries that make full and
efficient use of human and natural
resources, and which are competitive
in both domestic and foreign markets.
However, the State shall protect
Filipino enterprises against unfair
foreign
competition
and
trade
practices.

CUP's further ground for seeking the invalidation of

R.A. No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are
exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that
there is greater need to provide cheaper electric power
to as many people as possible, especially those living
in the rural areas, than there is to provide them with
other necessities in life. We cannot say that such
classification is unreasonable.

In the pursuit of these goals, all sectors

of the economy and all regions of the
country shall be given optimum
opportunity
to
develop.
Private
enterprises, including corporations,
cooperatives, and similar collective

We have carefully read the various arguments raised

against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining
its enforcement pending resolution of these cases. We
have now come to the conclusion that the law suffers
from none of the infirmities attributed to it by

petitioners and that its enactment by the other

branches of the government does not constitute a
grave abuse of discretion. Any question as to its
necessity, desirability or expediency must be
addressed to Congress as the body which is electorally
responsible, remembering that, as Justice Holmes has
said, "legislators are the ultimate guardians of the
liberties and welfare of the people in quite as great a
degree as are the courts." (Missouri, Kansas & Texas Ry.
Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner in G.R. No. 115543
does in arguing that we should enforce the public
accountability of legislators, that those who took part
in passing the law in question by voting for it in
Congress should later thrust to the courts the burden
of reviewing measures in the flush of enactment. This
Court does not sit as a third branch of the legislature,
much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are
denied with finality and the temporary restraining
order previously issued is hereby lifted.
SO ORDERED.
G.R. No. L-9637

April 30, 1957

AMERICAN
BIBLE
SOCIETY, plaintiff-appellant,
vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for
appellant.
Assistant City Fiscal Arsenio Naawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit,
religious, missionary corporation duly registered and
doing business in the Philippines through its Philippine
agency established in Manila in November, 1898, with
its principal office at 636 Isaac Peral in said City. The
defendant appellee is a municipal corporation with
powers that are to be exercised in conformity with the
provisions of Republic Act No. 409, known as the
Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine
agency has been distributing and selling bibles and/or
gospel portions thereof (except during the Japanese
occupation) throughout the Philippines and translating
the same into several Philippine dialects. On May 29
1953, the acting City Treasurer of the City of Manila
informed plaintiff that it was conducting the business
of general merchandise since November, 1945, without
providing itself with the necessary Mayor's permit and
municipal license, in violation of Ordinance No. 3000,
as amended, and Ordinances Nos. 2529, 3028 and
3364, and required plaintiff to secure, within three
days, the corresponding permit and license fees,
together with compromise covering the period from the
4th quarter of 1945 to the 2nd quarter of 1953, in the
total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the

City Treasurer demanded that plaintiff deposit and pay
under protest the sum of P5,891.45, if suit was to be
taken in court regarding the same (Annex B). To avoid
the closing of its business as well as further fines and
penalties in the premises on October 24, 1953, plaintiff
paid to the defendant under protest the said permit
and license fees in the aforementioned amount, giving
at the same time notice to the City Treasurer that suit
would be taken in court to question the legality of the
ordinances under which, the said fees were being
collected (Annex C), which was done on the same date
by filing the complaint that gave rise to this action. In
its complaint plaintiff prays that judgment be rendered
declaring the said Municipal Ordinance No. 3000, as
amended, and Ordinances Nos. 2529, 3028 and 3364
illegal and unconstitutional, and that the defendant be
ordered to refund to the plaintiff the sum of P5,891.45
paid under protest, together with legal interest
thereon, and the costs, plaintiff further praying for such
other relief and remedy as the court may deem just
equitable.
Defendant answered the complaint, maintaining in turn
that said ordinances were enacted by the Municipal
Board of the City of Manila by virtue of the power
granted to it by section 2444, subsection (m-2) of the
Revised Administrative Code, superseded on June 18,
1949, by section 18, subsection (1) of Republic Act No.
409, known as the Revised Charter of the City of
Manila, and praying that the complaint be dismissed,
with costs against plaintiff. This answer was replied by
the plaintiff reiterating the unconstitutionality of the
often-repeated ordinances.
Before trial the parties
stipulation of facts:

submitted

the

following

COME NOW the parties in the above-entitled

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

Amount of Sales

4th quarter 1945

P1,244.21

1st quarter 1946

2,206.85

2nd quarter 1946

1,950.38

3rd quarter 1946

2,235.99

4th quarter 1946

3,256.04

1st quarter 1947

13,241.07

2nd quarter 1947

15,774.55

3rd quarter 1947

14,654.13

4th quarter 1947

12,590.94

1st quarter 1948

11,143.90

2nd quarter 1948

14,715.26

3rd quarter 1948

38,333.83

4th quarter 1948

16,179.90

1st quarter 1949

23,975.10

2nd quarter 1949

17,802.08

3rd quarter 1949

16,640.79

4th quarter 1949

15,961.38

1st quarter 1950

18,562.46

2nd quarter 1950

21,816.32

3rd quarter 1950

25,004.55

4th quarter 1950

45,287.92

1st quarter 1951

37,841.21

2nd quarter 1951

29,103.98

3rd quarter 1951

20,181.10

4th quarter 1951

22,968.91

1st quarter 1952

23,002.65

2nd quarter 1952

17,626.96

3rd quarter 1952

17,921.01

4th quarter 1952

24,180.72

1st quarter 1953

29,516.21

2. That the parties hereby reserve the right to

present evidence of other facts not herein
stipulated.
WHEREFORE, it is respectfully prayed that this
case be set for hearing so that the parties may
present further evidence on their behalf.
(Record on Appeal, pp. 15-16).
When the case was set for hearing, plaintiff proved,
among other things, that it has been in existence in the
Philippines since 1899, and that its parent society is in
New York, United States of America; that its,
contiguous real properties located at Isaac Peral are

exempt from real estate taxes; and that it was never

required to pay any municipal license fee or tax before
the war, nor does the American Bible Society in the
United States pay any license fee or sales tax for the
sale of bible therein. Plaintiff further tried to establish
that it never made any profit from the sale of its bibles,
which are disposed of for as low as one third of the
cost, and that in order to maintain its operating cost it
obtains substantial remittances from its New York office
and voluntary contributions and gifts from certain
churches, both in the United States and in the
Philippines, which are interested in its missionary work.
Regarding plaintiff's contention of lack of profit in the
sale of bibles, defendant retorts that the admissions of
plaintiff-appellant's lone witness who testified on crossexamination that bibles bearing the price of 70 cents
each from plaintiff-appellant's New York office are sold
here by plaintiff-appellant at P1.30 each; those bearing
the price of $4.50 each are sold here at P10 each;
those bearing the price of $7 each are sold here at P15
each; and those bearing the price of $11 each are sold
here at P22 each, clearly show that plaintiff's
contention that it never makes any profit from the sale
of its bible, is evidently untenable.
After hearing the Court rendered judgment, the last
part of which is as follows:
As may be seen from the repealed section (m2) of the Revised Administrative Code and the
repealing portions (o) of section 18 of Republic
Act No. 409, although they seemingly differ in
the way the legislative intent is expressed, yet
their meaning is practically the same for the
purpose of taxing the merchandise mentioned
in said legal provisions, and that the taxes to
be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of
Ordinance No. 3000, as amended, and Sec. 1,
Group 2, of Ordinance No. 2529, as amended
by Ordinance No. 3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS,
this Court is of the opinion and so holds that
this case should be dismissed, as it is hereby
dismissed, for lack of merits, with costs against
the plaintiff.
Not satisfied with this verdict plaintiff took up the
matter to the Court of Appeals which certified the case
to Us for the reason that the errors assigned to the
lower Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and
3000, as respectively amended, are not
unconstitutional;
2. In holding that subsection m-2 of Section
2444 of the Revised Administrative Code under
which Ordinances Nos. 2592 and 3000 were
promulgated, was not repealed by Section 18
of Republic Act No. 409;

3. In not holding that an ordinance providing

for taxes based on gross sales or receipts, in
order to be valid under the new Charter of the
City of Manila, must first be approved by the
President of the Philippines; and
4. In holding that, as the sales made by the
plaintiff-appellant have assumed commercial
proportions, it cannot escape from the
operation of said municipal ordinances under
the cloak of religious privilege.
The issues. As may be seen from the proceeding
statement of the case, the issues involved in the
present controversy may be reduced to the following:
(1) whether or not the ordinances of the City of Manila,
Nos. 3000, as amended, and 2529, 3028 and 3364, are
constitutional and valid; and (2) whether the provisions
of said ordinances are applicable or not to the case at
bar.
Section 1, subsection (7) of Article III of the
Constitution of the Republic of the Philippines, provides
that:
(7) No law shall be made respecting an
establishment of religion, or prohibiting the
free exercise thereof, and the free exercise and
enjoyment of religious profession and worship,
without discrimination or preference, shall
forever be allowed. No religion test shall be
required for the exercise of civil or political
rights.
Predicated on this constitutional mandate, plaintiffappellant contends that Ordinances Nos. 2529 and
3000, as respectively amended, are unconstitutional
and illegal in so far as its society is concerned, because
they provide for religious censorship and restrain the
free exercise and enjoyment of its religious profession,
to wit: the distribution and sale of bibles and other
religious literature to the people of the Philippines.
Before entering into a discussion of the constitutional
aspect of the case, We shall first consider the
provisions of the questioned ordinances in relation to
their application to the sale of bibles, etc. by appellant.
The records, show that by letter of May 29, 1953
(Annex A), the City Treasurer required plaintiff to
secure a Mayor's permit in connection with the
society's alleged business of distributing and selling
bibles, etc. and to pay permit dues in the sum of P35
for the period covered in this litigation, plus the sum of
P35 for compromise on account of plaintiff's failure to
secure the permit required by Ordinance No. 3000 of
the City of Manila, as amended. This Ordinance is of
general application and not particularly directed
against institutions like the plaintiff, and it does not
contain any provisions whatever prescribing religious
censorship nor restraining the free exercise and
enjoyment of any religious profession. Section 1 of
Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. It shall be
unlawful for any person or entity to conduct or
engage in any of the businesses, trades, or

occupations enumerated in Section 3 of this

Ordinance or other businesses, trades, or
occupations for which a permit is required for
the proper supervision and enforcement of
existing laws and ordinances governing the
sanitation, security, and welfare of the public
and the health of the employees engaged in
the business specified in said section 3
hereof, WITHOUT FIRST HAVING OBTAINED A
PERMIT THEREFOR FROM THE MAYOR AND THE
NECESSARY
LICENSE
FROM
THE
CITY
TREASURER.
The business, trade or occupation of the plaintiff
involved in this case is not particularly mentioned in
Section 3 of the Ordinance, and the record does not
show that a permit is required therefor under existing
laws and ordinances for the proper supervision and
enforcement of their provisions governing the
sanitation, security and welfare of the public and the
health of the employees engaged in the business of the
plaintiff. However, sections 3 of Ordinance 3000
contains item No. 79, which reads as follows:
79. All other businesses, trades or occupations
not
mentioned in this Ordinance, except those
upon
which
the
City is not empowered to license or to tax
P5.00
Therefore, the necessity of the permit is made to
depend upon the power of the City to license or tax
said business, trade or occupation.
As to the license fees that the Treasurer of the City of
Manila required the society to pay from the 4th quarter
of 1945 to the 1st quarter of 1953 in the sum of
P5,821.45, including the sum of P50 as compromise,
Ordinance No. 2529, as amended by Ordinances Nos.
2779, 2821 and 3028 prescribes the following:
SEC. 1. FEES. Subject to the provisions of
section 578 of the Revised Ordinances of the
City of Manila, as amended, there shall be paid
to the City Treasurer for engaging in any of the
businesses or occupations below enumerated,
quarterly, license fees based on gross sales or
receipts realized during the preceding quarter
in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged
in any businesses or occupation for the first
time shall pay the initial license fee based on
the probable gross sales or receipts for the first
quarter beginning from the date of the opening
of the business as indicated herein for the
corresponding business or occupation.
xxx

xxx

xxx

GROUP 2. Retail dealers in new (not yet

used) merchandise, which dealers are not yet
subject to the payment of any municipal tax,
such
as
(1) retail
dealers
in
general
merchandise; (2) retail dealers exclusively

engaged in the sale of . . . books, including

stationery.
xxx

xxx

xxx

As may be seen, the license fees required to be paid

quarterly in Section 1 of said Ordinance No. 2529, as
amended, are not imposed directly upon any religious
institution but upon those engaged in any of the
business or occupations therein enumerated, such as
retail "dealers in general merchandise" which, it is
alleged, cover the business or occupation of selling
bibles, books, etc.
Chapter 60 of the Revised Administrative Code which
includes section 2444, subsection (m-2) of said legal
body, as amended by Act No. 3659, approved on
December 8, 1929, empowers the Municipal Board of
the City of Manila:
(M-2) To tax and fix the license fee on (a)
dealers in new automobiles or accessories or
both, and (b) retail dealers in new (not yet
used) merchandise, which dealers are not yet
subject to the payment of any municipal tax.
For the purpose of taxation, these retail dealers
shall be classified as (1) retail dealers in
general merchandise, and (2) retail dealers
exclusively engaged in the sale of (a) textiles . .
. (e) books, including stationery, paper and
office
supplies,
.
.
.:
PROVIDED,
HOWEVER, That the combined total tax of any
debtor or manufacturer, or both, enumerated
under these subsections (m-1) and (m-2),
whether dealing in one or all of the articles
mentioned herein, SHALL NOT BE IN EXCESS
OF FIVE HUNDRED PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances
Nos. 2529 and 3000, as amended, were enacted in
virtue of the power that said Act No. 3669 conferred
upon the City of Manila. Appellant, however, contends
that said ordinances are longer in force and effect as
the law under which they were promulgated has been
expressly repealed by Section 102 of Republic Act No.
409 passed on June 18, 1949, known as the Revised
Manila Charter.
Passing upon this point the lower Court categorically
stated that Republic Act No. 409 expressly repealed the
provisions of Chapter 60 of the Revised Administrative
Code but in the opinion of the trial Judge, although
Section 2444 (m-2) of the former Manila Charter and
section 18 (o) of the new seemingly differ in the way
the legislative intent was expressed, yet their meaning
is practically the same for the purpose of taxing the
merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as
amended, are to be considered as still in full force and
effect uninterruptedly up to the present.
Often the legislature, instead of simply
amending the pre-existing statute, will repeal
the old statute in its entirety and by the same

enactment re-enact all or certain portions of

the preexisting law. Of course, the problem
created by this sort of legislative action
involves mainly the effect of the repeal upon
rights and liabilities which accrued under the
original statute. Are those rights and liabilities
destroyed or preserved? The authorities are
divided as to the effect of simultaneous repeals
and re-enactments. Some adhere to the view
that the rights and liabilities accrued under the
repealed act are destroyed, since the statutes
from
which
they
sprang
are actually
terminated, even though for only a very short
period of time. Others, and they seem to be in
the majority, refuse to accept this view of the
situation, and consequently maintain that all
rights an liabilities which have accrued under
the original statute are preserved and may be
enforced, since the re-enactment neutralizes
the repeal, therefore, continuing the law in
force without interruption. (Crawford-Statutory
Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of
Republic Act No, 409 introduces a new and wider
concept of taxation and is different from the provisions
of Section 2444(m-2) that the former cannot be
considered as a substantial re-enactment of the
provisions of the latter. We have quoted above the
provisions of section 2444(m-2) of the Revised
Administrative Code and We shall now copy hereunder
the provisions of Section 18, subdivision (o) of Republic
Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in
general merchandise, including importers and
indentors, except those dealers who may be
expressly subject to the payment of some
other municipal tax under the provisions of this
section.
Dealers in general merchandise shall be
classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail
dealers,
general
merchandise
shall
be
classified into four main classes: namely (1)
luxury articles, (2) semi-luxury articles, (3)
essential commodities, and (4) miscellaneous
articles. A separate license shall be prescribed
for each class but where commodities of
different classes are sold in the same
establishment, it shall not be compulsory for
the owner to secure more than one license if
he pays the higher or highest rate of tax
prescribed by ordinance. Wholesale dealers
shall pay the license tax as such, as may be
provided by ordinance.
For purposes of this section, the term "General
merchandise" shall include poultry and
livestock, agricultural products, fish and other
allied products.
The only essential difference that We find between
these two provisions that may have any bearing on the
case at bar, is that, while subsection (m-2) prescribes

that the combined total tax of any dealer or

manufacturer, or both, enumerated under subsections
(m-1) and (m-2), whether dealing in one or all of the
articles mentioned therein,shall not be in excess of
P500 per annum, the corresponding section 18,
subsection (o) of Republic Act No. 409, does not
contain any limitation as to the amount of tax or
license fee that the retail dealer has to pay per annum.
Hence, and in accordance with the weight of the
authorities above referred to that maintain that "all
rights and liabilities which have accrued under the
original statute are preserved and may be enforced,
since the reenactment neutralizes the repeal, therefore
continuing the law in force without interruption", We
hold that the questioned ordinances of the City of
Manila are still in force and effect.
Plaintiff, however, argues that the questioned
ordinances, to be valid, must first be approved by the
President of the Philippines as per section 18,
subsection (ii) of Republic Act No. 409, which reads as
follows:
(ii) To tax, license and regulate any business,
trade or occupation being conducted within the
City of Manila,not otherwise enumerated in the
preceding subsections, including percentage
taxes based on gross sales or receipts, subject
to the approval of the PRESIDENT, except
amusement taxes.
but this requirement of the President's approval was
not contained in section 2444 of the former Charter of
the City of Manila under which Ordinance No. 2529 was
promulgated. Anyway, as stated by appellee's counsel,
the business of "retail dealers in general merchandise"
is expressly enumerated in subsection (o), section 18
of Republic Act No. 409; hence, an ordinance
prescribing a municipal tax on said business does not
have to be approved by the President to be effective,
as it is not among those referred to in said subsection
(ii). Moreover, the questioned ordinances are still in
force, having been promulgated by the Municipal Board
of the City of Manila under the authority granted to it
by law.
The question that now remains to be determined is
whether said ordinances are inapplicable, invalid or
unconstitutional if applied to the alleged business of
distribution and sale of bibles to the people of the
Philippines by a religious corporation like the American
Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by
Ordinances Nos. 2779, 2821 and 3028, appellant
contends that it is unconstitutional and illegal because
it restrains the free exercise and enjoyment of the
religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of
the Philippines aforequoted, guarantees the freedom of
religious profession and worship. "Religion has been
spoken of as a profession of faith to an active power
that binds and elevates man to its Creator" (Aglipay vs.
Ruiz, 64 Phil., 201).It has reference to one's views of
his relations to His Creator and to the obligations they

impose of reverence to His being and character, and

obedience to His Will (Davis vs. Beason, 133 U.S., 342).
The constitutional guaranty of the free exercise and
enjoyment of religious profession and worship carries
with it the right to disseminate religious information.
Any restraints of such right can only be justified like
other restraints of freedom of expression on the
grounds that there is a clear and present danger of any
substantive evil which the State has the right to
prevent". (Taada and Fernando on the Constitution of
the Philippines, Vol. 1, 4th ed., p. 297). In the case at
bar the license fee herein involved is imposed upon
appellant for its distribution and sale of bibles and
other religious literature:
In the case of Murdock vs. Pennsylvania, it was
held that an ordinance requiring that a license
be obtained before a person could canvass or
solicit orders for goods, paintings, pictures,
wares or merchandise cannot be made to apply
to members of Jehovah's Witnesses who went
about from door to door distributing literature
and soliciting people to "purchase" certain
religious books and pamphlets, all published by
the Watch Tower Bible & Tract Society. The
"price" of the books was twenty-five cents
each, the "price" of the pamphlets five cents
each. It was shown that in making the
solicitations there was a request for additional
"contribution" of twenty-five cents each for the
books and five cents each for the pamphlets.
Lesser sum were accepted, however, and
books were even donated in case interested
persons were without funds.
On the above facts the Supreme Court held
that it could not be said that petitioners were
engaged in commercial rather than a religious
venture. Their activities could not be described
as embraced in the occupation of selling books
and pamphlets. Then the Court continued:
"We do not mean to say that religious groups
and the press are free from all financial
burdens of government. See Grosjean vs.
American Press Co., 297 U.S., 233, 250, 80 L.
ed. 660, 668, 56 S. Ct. 444. We have here
something quite different, for example, from a
tax on the income of one who engages in
religious activities or a tax on property used or
employed in connection with activities. It is one
thing to impose a tax on the income or
property of a preacher. It is quite another to
exact a tax from him for the privilege of
delivering a sermon. The tax imposed by the
City of Jeannette is a flat license tax, payment
of which is a condition of the exercise of these
constitutional privileges. The power to tax the
exercise of a privilege is the power to control or
suppress its enjoyment. . . . Those who can tax
the exercise of this religious practice can make
its exercise so costly as to deprive it of the
resources necessary for its maintenance. Those
who can tax the privilege of engaging in this
form of missionary evangelism can close all its
doors to all those who do not have a full purse.
Spreading religious beliefs in this ancient and

honorable manner would thus be denied the

needy. . . .
It is contended however that the fact that the
license tax can suppress or control this activity
is unimportant if it does not do so. But that is
to disregard the nature of this tax. It is a
license tax a flat tax imposed on the
exercise of a privilege granted by the Bill of
Rights . . . The power to impose a license tax
on the exercise of these freedom is indeed as
potent as the power of censorship which this
Court has repeatedly struck down. . . . It is not
a nominal fee imposed as a regulatory measure
to defray the expenses of policing the activities
in question. It is in no way apportioned. It is flat
license tax levied and collected as a condition
to the pursuit of activities whose enjoyment is
guaranteed by the constitutional liberties of
press and religion and inevitably tends to
suppress their exercise. That is almost
uniformly recognized as the inherent vice and
evil of this flat license tax."
Nor
could
dissemination
of
religious
information be conditioned upon the approval
of an official or manager even if the town were
owned by a corporation as held in the case
of Marsh vs. State of Alabama (326 U.S. 501),
or by the United States itself as held in the
case of Tucker vs. Texas (326 U.S. 517). In the
former case the Supreme Court expressed the
opinion that the right to enjoy freedom of the
press and religion occupies a preferred position
as against the constitutional right of property
owners.
"When we balance the constitutional rights of
owners of property against those of the people
to enjoy freedom of press and religion, as we
must here, we remain mindful of the fact that
the latter occupy a preferred position. . . . In
our view the circumstance that the property
rights to the premises where the deprivation of
property here involved, took place, were held
by others than the public, is not sufficient to
justify the State's permitting a corporation to
govern a community of citizens so as to restrict
their
fundamental
liberties
and
the
enforcement of such restraint by the
application of a State statute." (Taada and
Fernando on the Constitution of the Philippines,
Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise
known as the National Internal Revenue Code,
provides:
SEC. 27. EXEMPTIONS FROM TAX ON
CORPORATIONS. The following organizations
shall not be taxed under this Title in respect to
income received by them as such
(e) Corporations or associations organized and
operated exclusively for religious, charitable, . .
. or educational purposes, . . .: Provided,

however, That the income of whatever kind

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

Wherefore, and on the strength of the foregoing

considerations, We hereby reverse the decision
appealed from, sentencing defendant return to plaintiff
the sum of P5,891.45 unduly collected from it. Without
pronouncement as to costs. It is so ordered.

included the franchise tax imposed by the Provincial

Tax Ordinance. MERALCO, contended that the
imposition of a franchise tax under Section 2.09 of
Laguna Provincial Ordinance No. 01-92, insofar as it
concerned MERALCO, contravened the provisions of
Section 1 of P.D. 551 which read:

XVIII. Non-impairment of Contracts

G.R. No. 131359 May 5, 1999
MANILA
ELECTRIC
COMPANY, petitioner,
vs.
PROVINCE OF LAGUNA and BENITO R. BALAZO, in
his
capacity
as
Provincial
Treasurer
of
Laguna,respondents.

VITUG, J.:
On various dates, certain municipalities of the Province
of Laguna, including, Bian, Sta. Rosa, San Pedro,
Luisiana, Calauan and Cabuyao, by virtue of existing
laws then in effect, issued resolutions through their
respective municipal councils granting franchise in
favor
of
petitioner
Manila
Electric
Company
("MERALCO") for the supply of electric light, heat and
power within their concerned areas. On 19 January
1983, MERALCO was likewise granted a franchise by
the National Electrification Administration to operate
an electric light and power service in the Municipality
of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160,
otherwise known as the "Local Government Code of
1991," was enacted to take effect on 01 January 1992
enjoining local government units to create their own
sources of revenue and to levy taxes, fees and
charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy.
Pursuant to the provisions of the Code, respondent
province enacted Laguna Provincial Ordinance No. 0192, effective 01 January 1993, providing, in part, as
follows:
Sec. 2.09. Franchise Tax. There is
hereby imposed a tax on businesses
enjoying a franchise, at a rate of fifty
percent (50%) of one percent (1%) of
the gross annual receipts, which shall
include both cash sales and sales on
account realized during the preceding
calendar year within this province,
including the territorial limits on any
city located in the province.
On the basis of the above ordinance, respondent
Provincial Treasurer sent a demand letter to MERALCO
for the corresponding tax payment. Petitioner
MERALCO paid the tax, which then amounted to
P19,520.628.42, under protest. A formal claim for
refund was thereafter sent by MERALCO to the
Provincial Treasurer of Laguna claiming that the
franchise tax it had paid and continued to pay to the
National Government pursuant to P.D. 551 already

Any provision of law or local ordinance

to the contrary notwithstanding, the
franchise tax payable by all grantees of
franchises to generate, distribute and
sell electric current for light, heat and
power shall be two per cent (2%) of
their gross receipts received from the
sale of electric current and from
transactions incident to the generation,
distribution and sale of electric current.
Such franchise tax shall be payable to
the Commissioner of Internal Revenue
or his duly authorized representative
on or before the twentieth day of the
month following the end of each
calendar quarter or month, as may be
provided in the respective franchise or
pertinent municipal regulation and
shall, any provision of the Local Tax
Code or any other law to the contrary
notwithstanding, be in lieu of all taxes
and assessments of whatever nature
imposed by any national or local
authority on earnings, receipts, income
and privilege of generation, distribution
and sale of electric current.
On 28 August 1995, the claim for refund of petitioner
was denied in a letter signed by Governor Jose D. Lina
relied on a more recent law, i.e. Republic Act No. 7160
or the Local Government Code of 1991, than the old
decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with
the Regional Trial Court of Sta. Cruz, Laguna, a
complaint for refund, with a prayer for the issuance of
a writ of preliminary injunction and/or temporary
restraining order, against the Province of Laguna and
also Benito R. Balazo in his capacity as the Provincial
Treasurer of Laguna. Aside from the amount of
P19,520,628.42 for which petitioner MERALCO had
priorly made a formal request for refund, petitioner
thereafter likewise made additional payments under
protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September
1997, dismissed the complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE
FOREGOING
CONSIDERATIONS,
JUDGMENT is hereby rendered in favor
of the defendants and against the
plaintiff, by:
1. Ordering the
Complaint; and

dismissal

of

the

2. Declaring Laguna Provincial Tax

Ordinance No. 01-92 as valid, binding,
reasonable and enforceable. 2
In the instant petition, MERALCO assails the above
ruling and brings up the following issues; viz:
1. Whether the imposition of a
franchise tax under Section 2.09 of
Laguna Provincial Ordinance No. 01-92,
insofar as petitioner is concerned, is
violative of the non-impairment clause
of the Constitution and Section 1 of
Presidential Decree No. 551.
2. Whether Republic Act No. 7160,
otherwise known Local Government
Code of 1991, has repealed, amended
or modified Presidential Decree No.
551.
3.
Whether
the
doctrine
of
administrative remedies is applicable in
this case. 3
The petition lacks merit.
Prefatorily, it might be well to recall that local
governments do not have the inherent power to
tax 4 except to the extent that such power might be
delegated to them either by the basic law or by
statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has
been given in favor of local government units. Thus:
Sec. 3. The Congress shall enact a local
government code which shall provide
for a more responsive and accountable
local government structure instituted
through a system of decentralization
with effective mechanisms of recall,
initiative, and referendum, allocate
among the different local government
units their powers, responsibilities, and
resources,
and
provide
for
the
qualifications, election, appointment
and removal, term, salaries, powers
and functions, and duties of local
officials, and all other matters relating
to the organization and operation of
the local units.
xxx xxx xxx
Sec. 5. Each local government unit
shall have the power to create its own
sources of revenues and to levy taxes,
fees, and charges subject to such
guidelines and limitations as the
Congress may provide, consistent with
the basic policy of local autonomy.
Such taxes, fees, and charges shall
accrue
exclusively
to
the
local
governments.

The 1987 Constitution has a counterpart

provision in the 1973 Constitution which did
come out with a similar delegation of revenue
making powers to local governments. 5
Under regime of the 1935 Constitution no similar
delegation of tax powers was provided, and local
government units instead derived their tax powers
under a limited statutory authority. Whereas, then, the
delegation of tax powers granted at that time by
statute to local governments was confined and defined
(outside of which the power was deemed withheld), the
present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax
powers subject only to specific exceptions that the law
might prescribe.
Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax
power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The
basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units
by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional;
the constitutional objective obviously is to ensure that,
while the local government units are being
strengthened and made more autonomous, 6 the
legislature must still see to it that (a) the taxpayer will
not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government
unit will have its fair share of available resources; (c)
the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair,
uniform, and just.
The Local Government Code of 1991 has incorporated
and adopted, by and large, the provisions of the now
repealed Local Tax Code, which had been in effect
since 01 July 1973, promulgated into law by
Presidential
Decree
No. 231 7 pursuant to the then provisions of Section 2,
Article XI, of the 1973 Constitution. The 1991 Code
explicitly
authorizes
provincial
governments,
notwithstanding "any exemption granted by any law or
other special law, . . . (to) impose a tax on businesses
enjoying a franchise." Section 137 thereof provides:
Sec.
137.
Franchise
Tax Notwithstanding any exemption
granted by any law or other special
law, the province may impose a tax on
businesses enjoying a franchise, at a
rate not exceeding fifty percent (50%)
of one percent (1%) of the gross annual
receipts for the preceding calendar
year based on the incoming receipt, or
realized,
within
its
territorial
jurisdiction. In the case of a newly
started business, the tax shall not
exceed one-twentieth (1/20) of one
percent (1%) of the capital investment.
In the succeeding calendar year,
regardless of when the business
started to operate, the tax shall be
based on the gross receipts for the

preceding calendar year, or any

fraction thereof, as provided herein.
(Underscoring supplied for emphasis)
Indicative of the legislative intent to carry out the
Constitutional mandate of vesting broad tax powers to
local government units, the Local Government Code
has effectively withdrawn under Section 193 thereof,
tax exemptions or incentives theretofore enjoyed by
certain entities. This law states:
Sec. 193. Withdrawal of Tax Exemption
Privileges Unless otherwise provided
in this Code, tax exemptions or
incentives granted to, or presently
enjoyed by all persons, whether
natural
or
juridical,
including
government-owned
or
controlled
corporations,
except
local
water
districts, cooperatives duly registered
under R.A. No. 6938, non-stock and
non-profit hospitals and educational
institutions, are
hereby
withdrawn
upon the effectivity of this Code.
(Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing
clause in its Section 534; thus:
Sec. 534. Repealing Clause. . . .
(f) All general and special laws, acts,
city
charters,
decrees,
executive
orders,
proclamations
and
administrative regulations, or part or
parts thereof which are inconsistent
with any of the provisions of this Code
are hereby repealed or modified
accordingly. (Underscoring supplied for
emphasis) 8
To exemplify, in Mactan Cebu International Airport
Authority vs. Marcos, 9 the Court upheld the withdrawal
of the real estate tax exemption previously enjoyed by
Mactan Cebu International Airport Authority. The Court
ratiocinated:
. . . These policy considerations are
consistent with the State policy to
ensure autonomy to local governments
and the objective of the LGC that they
enjoy genuine and meaningful local
autonomy to enable them to attain
their fullest development as self-reliant
communities and make them effective
partners in the attainment of national
goals. The power to tax is the most
effective instrument to raise needed
revenues to finance and support
myriad activities if local government
units for the delivery of basic services
essential to the promotion of the
general welfare and the enhancement
of peace, progress, and prosperity of
the people. It may also be relevant to
recall that the original reasons for the

withdrawal of tax exemption privileges

granted to government-owned and
controlled corporations and all other
units of government were that such
privilege resulted in serious tax base
erosion and distortions in the tax
treatment
of
similarity
situated
enterprises, and there was a need for
these entities to share in the
requirements of development, fiscal or
otherwise, by paying the taxes and
other charges due from them. 10
Petitioner in its complaint before the Regional Trial
Court cited the ruling of this Court in Province of
Misamis Oriental vs. Cagayan Electric Power and Light
Company, Inc.; 11 thus:
In an earlier case, the phrase "shall be
in lieu of all taxes and at any time
levied, established by, or collected by
any authority" found in the franchise of
the Visayan Electric Company was held
to exempt the company from payment
of the 5% tax on corporate franchise
provided in Section 259 of the Internal
Revenue Code (Visayan Electric Co. vs.
David, 49 O.G. [No. 4] 1385)
Similarly, we ruled that the provision:
"shall be in lieu of all taxes of every
name and nature" in the franchise of
the Manila Railroad (Subsection 12,
Section 1, Act No. 1510) exempts the
Manila Railroad from payment of
internal
revenue
tax
for
its
importations of coal and oil under Act
No. 2432 and the Amendatory Acts of
the Philippine Legislature (Manila
Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise
of the Philippine Railway Co. (Sec. 13,
Act No. 1497) justified the exemption of
the Philippine Railway Company from
payment of the tax on its corporate
franchise under Section 259 of the
Internal Revenue Code, as amended by
R.A. No. 39 (Philippine Railway Co vs.
Collector of Internal Revenue, 91 Phil.
35).
Those magic words, "shall be in lieu of
all taxes" also excused the Cotabato
Light and Ice Plant Company from the
payment of the tax imposed by
Ordinance No. 7 of the City of Cotabato
(Cotabato Light and Power Co. vs. City
of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor
of the Carcar Electric and Ice Plant
Company when it was required to pay
the corporate franchise tax under
Section 259 of the Internal Revenue
Code, as amended by R.A. No. 39

(Carcar Electric & Ice Plant vs. Collector

of Internal Revenue, 53 O.G. [No. 4].
1068). This Court pointed out that such
exemption is part of the inducement for
the acceptance of the franchise and
the rendition of public service by the
grantee. 2
In the recent case of the City Government of San
Pablo, etc., et al.
vs. Hon.
Bienvenido
V.
Reyes, et al., 13 the Court has held that the phrase in
lieu of all taxes "have to give way to the peremptory
language of the Local Government Code specifically
providing for the withdrawal of such exemptions,
privileges," and that "upon the effectivity of the Local
Government Code all exemptions except only as
provided therein can no longer be invoked by MERALCO
to disclaim liability for the local tax." In fine, the Court
has viewed its previous rulings as laying stress more on
the legislative intent of the amendatory law whether
the tax exemption privilege is to be withdrawn or not
rather than on whether the law can withdraw, without
violating the Constitution, the tax exemption or not.
While the Court has, not too infrequently, referred to
tax exemptions contained in special franchises as
being in the nature of contracts and a part of the
inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly
contractual in nature. Contractual tax exemptions, in
the real sense of the term and where the nonimpairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government
bonds or debentures, lawfully entered into by them
under enabling laws in which the government, acting in
its private capacity, sheds its cloak of authority and
waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without
impairing the obligations of contracts. 14 These
contractual tax exemptions, however, are not to be
confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment
clause of the Constitution. 15 Indeed, Article XII, Section
11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is
explicit that no franchise for the operation of a public
utility shall be granted except under the condition that
such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the
common good so requires.
WHEREFORE, the instant petition is hereby DISMISSED.
No costs.1wphi1.nt
SO ORDERED.