1. Land bank v. Cacayuran
All previous representations and warranties of Mayor
G.R. No. 191667 April 17, 2013
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
EDUARDO M. CACAYURAN, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this Petition for Review on Certiorari1 is the March 26, 2010
Decision2 of the Court of Appeals (CA) in CA-G.R. CV. No. 89732 which
affirmed with modification the April 10, 2007 Decision3 of the Regional Trial
Court (RTC) of Agoo, La Union, Branch 31, declaring inter alia the nullity of the
loan agreements entered into by petitioner Land Bank of the Philippines (Land
Bank) and the Municipality of Agoo, La Union (Municipality).
The Facts
From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed
certain resolutions to implement a multi-phased plan (Redevelopment Plan) to
redevelop the Agoo Public Plaza (Agoo Plaza) where the Imelda Garden and
Jose Rizal Monument were situated.
To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-
20054 on April 19, 2005, authorizing then Mayor Eufranio Eriguel (Mayor
Eriguel) to obtain a loan from Land Bank and incidental thereto, mortgage a
2,323.75 square meter lot situated at the southeastern portion of the Agoo
Plaza (Plaza Lot) as collateral. To serve as additional security, it further
authorized the assignment of a portion of its internal revenue allotment (IRA)
and the monthly income from the proposed project in favor of Land Bank.5 The
foregoing terms were confirmed, approved and ratified on October 4, 2005
through Resolution No. 139-2005.6 Consequently, on November 21, 2005,
Land Bank extended a ₱4,000,000.00 loan in favor of the Municipality (First
Loan),7 the proceeds of which were used to construct ten (10) kiosks at the
northern and southern portions of the Imelda Garden. After completion, these
kiosks were rented out.8
On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the
construction of a commercial center on the Plaza Lot as part of phase II of the
Redevelopment Plan. To finance the project, Mayor Eriguel was again
authorized to obtain a loan from Land Bank, posting as well the same securities
as that of the First Loan.
Eriguel related to the negotiation and obtention of the new loan10were ratified
on September 5, 2006 through Resolution No. 128-2006.11 In consequence,
Land Bank granted a second loan in favor of the Municipality on October 20,
2006 in the principal amount of ₱28,000,000.00 (Second Loan).12
Unlike phase 1 of the Redevelopment Plan, the construction of the commercial
center at the Agoo Plaza was vehemently objected to by some residents of the
Municipality. Led by respondent Eduardo Cacayuran (Cacayuran), these
residents claimed that the conversion of the Agoo Plaza into a commercial
center, as funded by the proceeds from the First and Second Loans (Subject
Loans), were "highly irregular, violative of the law, and detrimental to public
interests, and will result to wanton desecration of the said historical and public
park."13 The foregoing was embodied in a Manifesto,14 launched through a
signature campaign conducted by the residents and Cacayuran.
In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed to
Mayor Eriguel, Vice Mayor Antonio Eslao (Vice Mayor Eslao), and the
members of the SB namely, Violeta Laroya-Balbin, Jaime Boado, Jr., Rogelio
De Vera, James Dy, Crisogono Colubong, Ricardo Fronda, Josephus Komiya,
Erwina Eriguel, Felizardo Villanueva, and Gerard Mamuyac (Implicated
Officers), expressing the growing public clamor against the conversion of the
Agoo Plaza into a commercial center. He then requested the foregoing officers
to furnish him certified copies of various documents related to the
aforementioned conversion including, among others, the resolutions approving
the Redevelopment Plan as well as the loan agreements for the sake of public
information and transparency.
Unable to get any response, Cacayuran, invoking his right as a taxpayer, filed
a Complaint16 against the Implicated Officers and Land Bank, assailing, among
others, the validity of the Subject Loans on the ground that the Plaza Lot used
as collateral thereof is property of public dominion and therefore, beyond the
commerce of man.17
Upon denial of the Motion to Dismiss dated December 27, 2006,18 the
Implicated Officers and Land Bank filed their respective Answers.
For its part, Land Bank claimed that it is not privy to the Implicated Officers’
acts of destroying the Agoo Plaza. It further asserted that Cacayuran did not
have a cause of action against it since he was not privy to any of the Subject
Loans.19
During the pendency of the proceedings, the construction of the commercial
center was completed and the said structure later became known as the
Agoo’s People Center (APC).
On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007,20 declaring
the area where the APC stood as patrimonial property of the Municipality.
The Ruling of the RTC
In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran,
declaring the nullity of the Subject Loans.22 It found that the resolutions
approving the said loans were passed in a highly irregular manner and thus,
ultra vires; as such, the Municipality is not bound by the same.23 Moreover, it
found that the Plaza Lot is proscribed from collateralization given its nature as
property for public use.24
Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On the
other hand, the Implicated Officers’ appeal was deemed abandoned and
dismissed for their failure to file an appellants’ brief despite due notice.26 In this
regard, only Land Bank’s appeal was given due course by the CA.
Ruling of the CA
In its Decision dated March 26, 2010,27 the CA affirmed with modification the
RTC’s ruling, excluding Vice Mayor Eslao from any personal liability arising
from the Subject Loans.28
It held, among others, that: (1) Cacayuran had locus standi to file his complaint,
considering that (a) he was born, raised and a bona fide resident of the
Municipality; and (b) the issue at hand involved public interest of
transcendental importance;29 (2) Resolution Nos. 68-2005, 139-2005, 58-
2006, 128-2006 and all other related resolutions (Subject Resolutions) were
invalidly passed due to the SB’s non-compliance with certain sections of
Republic Act No. 7160, otherwise known as the "Local Government Code of
1991" (LGC); (3) the Plaza Lot, which served as collateral for the Subject
Loans, is property of public dominion and thus, cannot be appropriated either
by the State or by private persons;30 and (4) the Subject Loans are ultra vires
because they were transacted without proper authority and their
collateralization constituted improper disbursement of public funds.
Dissatisfied, Land Bank filed the instant petition.
Issues Before the Court
The following issues have been raised for the Court’s resolution: (1) whether
Cacayuran has standing to sue; (2) whether the Subject Resolutions were
validly passed; and (3) whether the Subject Loans are ultra vires.
The Court’s Ruling
The petition lacks merit.
A. Cacayuran’s standing to sue
Land Bank claims that Cacayuran did not have any standing to contest the
construction of the APC as it was funded through the proceeds coming from
the Subject Loans and not from public funds. Besides, Cacayuran was not
even a party to any of the Subject Loans and is thus, precluded from
questioning the same.
The argument is untenable.
It is hornbook principle that a taxpayer is allowed to sue where there is a claim
that public funds are illegally disbursed, or that public money is being deflected
to any improper purpose, or that there is wastage of public funds through the
enforcement of an invalid or unconstitutional law. A person suing as a
taxpayer, however, must show that the act complained of directly involves the
illegal disbursement of public funds derived from taxation. In other words, for
a taxpayer’s suit to prosper, two requisites must be met namely, (1) public
funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregularity is
committed; and (2) the petitioner is directly affected by the alleged act.31
Records reveal that the foregoing requisites are present in the instant case.
First, although the construction of the APC would be primarily sourced from
the proceeds of the Subject Loans, which Land Bank insists are not taxpayer’s
money, there is no denying that public funds derived from taxation are bound
to be expended as the Municipality assigned a portion of its IRA as a security
for the foregoing loans. Needless to state, the Municipality’s IRA, which serves
as the local government unit’s just share in the national taxes,32 is in the nature
of public funds derived from taxation. The Court believes, however, that
although these funds may be posted as a security, its collateralization should
only be deemed effective during the incumbency of the public officers who
approved the same, else those who succeed them be effectively deprived of
its use.
In any event, it is observed that the proceeds from the Subject Loans had
already been converted into public funds by the Municipality’s receipt thereof.
Funds coming from private sources become impressed with the characteristics
of public funds when they are under official custody.33
Accordingly, the first requisite has been clearly met.
Second, as a resident-taxpayer of the Municipality, Cacayuran is directly
affected by the conversion of the Agoo Plaza which was funded by the
proceeds of the Subject Loans. It is well-settled that public plazas are
properties for public use34 and therefore, belongs to the public dominion.35 As
such, it can be used by anybody and no one can exercise over it the rights of
a private owner.36 In this light, Cacayuran had a direct interest in ensuring that
the Agoo Plaza would not be exploited for commercial purposes through the
APC’s construction. Moreover, Cacayuran need not be privy to the Subject
Loans in order to proffer his objections thereto. In Mamba v. Lara, it has been
held that a taxpayer need not be a party to the contract to challenge its validity;
as long as taxes are involved, people have a right to question contracts
entered into by the government.37
Therefore, as the above-stated requisites obtain in this case, Cacayuran has
standing to file the instant suit.
B. Validity of the Subject Resolutions
Land Bank avers that the Subject Resolutions provided ample authority for
Mayor Eriguel to contract the Subject Loans. It posits that Section 444(b)(1)(vi)
of the LGC merely requires that the municipal mayor be authorized by the SB
concerned and that such authorization need not be embodied in an
ordinance.38
A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the
authorization of the municipal mayor need not be in the form of an ordinance,
the obligation which the said local executive is authorized to enter into must
be made pursuant to a law or ordinance, viz:
Sec. 444. The Chief Executive: Powers, Duties, Functions and Compensation.
- beyond the powers conferred upon it by law.43 There are two (2) types of ultra
xxxx
(b) For efficient, effective and economical governance the purpose of which is
the general welfare of the municipality and its inhabitants pursuant to Section
16 of this Code, the municipal mayor shall:
xxxx
(vi) Upon authorization by the sangguniang bayan, represent the municipality
in all its business transactions and sign on its behalf all bonds, contracts, and
obligations, and such other documents made pursuant to law or ordinance;
(Emphasis and underscoring supplied)
In the present case, while Mayor Eriguel’s authorization to contract the Subject
Loans was not contained – as it need not be contained – in the form of an
ordinance, the said loans and even the Redevelopment Plan itself were not
approved pursuant to any law or ordinance but through mere resolutions. The
distinction between ordinances and resolutions is well-perceived. While
ordinances are laws and possess a general and permanent character,
resolutions are merely declarations of the sentiment or opinion of a lawmaking
body on a specific matter and are temporary in nature.39 As opposed to
ordinances, "no rights can be conferred by and be inferred from a
resolution."40 In this accord, it cannot be denied that the SB violated Section
444(b)(1)(vi) of the LGC altogether.
Noticeably, the passage of the Subject Resolutions was also tainted with other
irregularities, such as (1) the SB’s failure to submit the Subject Resolutions to
the Sangguniang Panlalawigan of La Union for its review contrary to Section
56 of the LGC;41 and (2) the lack of publication and posting in contravention of
Section 59 of the LGC.42
In fine, Land Bank cannot rely on the Subject Resolutions as basis to validate
the Subject Loans.
C. Ultra vires nature of the Subject
Loans
Neither can Land Bank claim that the Subject Loans do not constitute ultra
vires acts of the officers who approved the same.
Generally, an ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore
vires acts. As held in Middletown Policemen's Benevolent Association v.
Township of Middletown:44
There is a distinction between an act utterly beyond the jurisdiction of a
municipal corporation and the irregular exercise of a basic power under the
legislative grant in matters not in themselves jurisdictional. The former are ultra
vires in the primary sense and void; the latter, ultra vires only in a secondary
sense which does not preclude ratification or the application of the doctrine of
estoppel in the interest of equity and essential justice. (Emphasis and
underscoring supplied)
In other words, an act which is outside of the municipality’s jurisdiction is
considered as a void ultra vires act, while an act attended only by an irregularity
but remains within the municipality’s power is considered as an ultra vires act
subject to ratification and/or validation. To the former belongs municipal
contracts which (a) are entered into beyond the express, implied or inherent
powers of the local government unit; and (b) do not comply with the substantive
requirements of law e.g., when expenditure of public funds is to be made, there
must be an actual appropriation and certificate of availability of funds; while to
the latter belongs those which (a) are entered into by the improper department,
board, officer of agent; and (b)do not comply with the formal requirements of a
written contract e.g., the Statute of Frauds.45
Applying these principles to the case at bar, it is clear that the Subject Loans
belong to the first class of ultra vires acts deemed as void.
Nevertheless, while the Subject Loans cannot bind the Municipality for being
ultra vires, the officers who authorized the passage of the Subject Resolutions
are personally liable. Case law states that public officials can be held
personally accountable for acts claimed to have been performed in connection
with official duties where they have acted ultra vires,55 as in this case.
WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010
Decision of the Court of Appeals in CA-G.R. CV. No. 89732 is hereby
AFFIRMED.
SO ORDERED.

Records disclose that the said loans were executed by the Municipality for the
purpose of funding the conversion of the Agoo Plaza into a commercial center
pursuant to the Redevelopment Plan. However, the conversion of the said
plaza is beyond the Municipality’s jurisdiction considering the property’s nature
as one for public use and thereby, forming part of the public dominion.
Accordingly, it cannot be the object of appropriation either by the State or by
private persons.46 Nor can it be the subject of lease or any other contractual
undertaking.47 In Villanueva v. Castañeda, Jr.,48 citing Espiritu v. Municipal
Council of Pozorrubio,49 the Court pronounced that:

x x x Town plazas are properties of public dominion, to be devoted to public

use and to be made available to the public in general. They are outside the
commerce of man and cannot be disposed of or even leased by the
municipality to private parties.1âwphi1

In this relation, Article 1409(1) of the Civil Code provides that a contract whose
purpose is contrary to law, morals, good customs, public order or public policy
is considered void50 and as such, creates no rights or obligations or any
juridical relations.51 Consequently, given the unlawful purpose behind the
Subject Loans which is to fund the commercialization of the Agoo Plaza
pursuant to the Redevelopment Plan, they are considered as ultra vires in the
primary sense thus, rendering them void and in effect, non-binding on the
Municipality.

At this juncture, it is equally observed that the land on which the Agoo Plaza is
situated cannot be converted into patrimonial property – as the SB tried to
when it passed Municipal Ordinance No. 02-200752 – absent any express grant
by the national government.53 As public land used for public use, the foregoing
lot rightfully belongs to and is subject to the administration and control of the
Republic of the Philippines.54 Hence, without the said grant, the Municipality
has no right to claim it as patrimonial property.
 2. Diaz v. Sec. of Finance 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the
1997 National Internal Revenue Code or the NIRC) at the House of
Representatives. Timbol, on the other hand, claims that she served as
Assistant Secretary of the Department of Trade and Industry and consultant of
RENATO V. DIAZ and G.R. No. 193007 the Toll Regulatory Board (TRB) in the past administration.
AURORA MA. F. TIMBOL,
Petitioners, Present: Petitioners allege that the BIR attempted during the administration of
President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition
CORONA, C.J.,
CARPIO, was deferred, however, in view of the consistent opposition of Diaz and other
VELASCO, JR., sectors to such move. But, upon President Benigno C. Aquino IIIs assumption
of office in 2010, the BIR revived the idea and would impose the challenged
LEONARDO-DE CASTRO,
BRION, tax on toll fees beginning August 16, 2010 unless judicially enjoined.
- versus - PERALTA,
Petitioners hold the view that Congress did not, when it enacted the
BERSAMIN,*
DEL CASTILLO, NIRC, intend to include toll fees within the meaning of sale of services that are
ABAD, subject to VAT; that a toll fee is a users tax, not a sale of services; that to
VILLARAMA, JR., impose VAT on toll fees would amount to a tax on public service; and that,
PEREZ, since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
MENDOZA, and
SERENO,** JJ.
THE SECRETARY OF FINANCE On August 13, 2010 the Court issued a temporary restraining order
(TRO), enjoining the implementation of the VAT. The Court required the
and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE, government, represented by respondents Cesar V. Purisima, Secretary of the
Respondents. July 19, 2011 Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal
Revenue, to comment on the petition within 10 days from notice.[2] Later, the
Court issued another resolution treating the petition as one for prohibition.[3]
x ---------------------------------------------------------------------------------------- x
On August 23, 2010 the Office of the Solicitor General filed the governments
DECISION comment.[4] The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the
law provides otherwise; that the Court should seek the meaning and intent of
ABAD, J.:
the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings
and circulars.[5]
May toll fees collected by tollway operators be subjected to value- added tax?
The government also argues that petitioners have no right to invoke
the non-impairment of contracts clause since they clearly have no personal
The Facts and the Case
interest in existing toll operating agreements (TOAs) between the government
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed and tollway operators. At any rate, the non-impairment clause cannot limit the
this petition for declaratory relief[1] assailing the validity of the impending States sovereign taxing power which is generally read into contracts.
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) Finally, the government contends that the non-inclusion of VAT in the
on the collections of tollway operators. parametric formula for computing toll rates cannot exempt tollway operators
from VAT. In any event, it cannot be claimed that the rights of tollway operators
Petitioners claim that, since the VAT would result in increased toll fees, to a reasonable rate of return will be impaired by the VAT since this is imposed
on top of the toll rate. Further, the imposition of VAT on toll fees would have
they have an interest as regular users of tollways in stopping the BIR
very minimal effect on motorists using the tollways.
action.Additionally, Diaz claims that he sponsored the approval of Republic Act

In their reply[6] to the governments comment, petitioners point out that
tollway operators cannot be regarded as franchise grantees under the NIRC
since they do not hold legislative franchises. Further, the BIR intends to collect
the VAT by rounding off the toll rate and putting any excess collection in an
escrow account. But this would be illegal since only the Congress can modify
VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum
Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record
an accumulated input VAT of zero balance in their books as of August 16,
2010, contravenes Section 111 of the NIRC which grants entities that first
become liable to VAT a transitional input tax credit of 2% on beginning
inventory.For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief
as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to
file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT
coverage by including tollway operators and tollway operations in the terms
franchise grantees and sale of services under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a)
amounts to a tax on tax and not a tax on services; b) will impair the tollway
operators right to a reasonable return of investment under their TOAs; and c)
is not administratively feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition
as one for prohibition rather than one for declaratory relief, the characterization
that petitioners Diaz and Timbol gave their action. The government has sought
reconsideration of the Courts resolution,[7] however, arguing that petitioners
allegations clearly made out a case for declaratory relief, an action over which
the Court has no original jurisdiction. The government adds, moreover, that
the petition does not meet the requirements of Rule 65 for actions for
prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial
functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz
and Timbol has a plain, speedy, and adequate remedy in the ordinary course
of law against the BIR action in the form of an appeal to the Secretary of
Finance.
But there are precedents for treating a petition for declaratory relief as one for
prohibition if the case has far-reaching implications and raises questions that
need to be resolved for the public good.[8] The Court has also held that a
petition for prohibition is a proper remedy to prohibit or nullify acts of executive
officials that amount to usurpation of legislative authority.[9]
Here, the imposition of VAT on toll fees has far-reaching
implications. Its imposition would impact, not only on the more than half a
million motorists who use the tollways everyday, but more so on the
governments effort to raise revenue for funding various projects and for
reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the
challenged VAT has been imposed, could cause more mischief both to the tax-
paying public and the government. A belated declaration of nullity of the BIR
action would make any attempt to refund to the motorists what they paid an
administrative nightmare with no solution. Consequently, it is not only the right,
but the duty of the Court to take cognizance of and resolve the issues that the
petition raises.
Although the petition does not strictly comply with the requirements of
Rule 65, the Court has ample power to waive such technical requirements
when the legal questions to be resolved are of great importance to the public.
The same may be said of the requirement of locus standi which is a mere
procedural requisite.[10]
B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as
amended. VAT is levied, assessed, and collected, according to Section 108,
on the gross receipts derived from the sale or exchange of services as well as
from the use or lease of properties. The third paragraph of Section 108 defines
sale or exchange of services as follows:
The phrase sale or exchange of services means
the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration,
including those performed or rendered by construction
and service contractors; stock, real estate, commercial,
customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or
 repacking goods for others; proprietors, operators or
keepers of hotels, motels, resthouses, pension houses,
inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities;
lending investors; transportation contractors on their
transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of
goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation
companies, transmission, and distribution
companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life
insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or
not the performance thereof calls for the exercise or use
of the physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on all kinds of
services rendered in the Philippines for a fee, including those specified in the
list.The enumeration of affected services is not exclusive.[11] By qualifying
services with the words all kinds, Congress has given the term services an all-
encompassing meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VATs reach rather than establish
concrete limits to its application. Thus, every activity that can be imagined as
a form of service rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree
(P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the
services that tollway operators render. Essentially, tollway operators construct,
maintain, and operate expressways, also called tollways, at the operators
expense.Tollways serve as alternatives to regular public highways that
meander through populated areas and branch out to local roads. Traffic in the
regular public highways is for this reason slow-moving. In consideration for
constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such
operators could fully recover their expenses and earn reasonable returns from
their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latters use of the tollway facilities over which the operator enjoys private
proprietary rights[12] that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of
goods or cargoes, including persons who transport goods or
cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines.
It does not help petitioners cause that Section 108 subjects to VAT all
kinds of services rendered for a fee regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. This means that services to be subject to VAT need not fall under the
traditional concept of services, the personal or professional kinds that require
the use of human knowledge and skills.
And not only do tollway operators come under the broad term all kinds of
services, they also come under the specific class described in Section 108 as
all other franchise grantees who are subject to VAT, except those under
Section 119 of this Code.
Tollway operators are franchise grantees and they do not belong to
exceptions (the low-income radio and/or television broadcasting companies
with gross annual incomes of less than P10 million and gas and water utilities)
that Section 119[13] spares from the payment of VAT. The word franchise
broadly covers government grants of a special right to do an act or series of
acts of public concern.[14]
Petitioners of course contend that tollway operators cannot be
considered franchise grantees under Section 108 since they do not hold
legislative franchises. But nothing in Section 108 indicates that the franchise
grantees it speaks of are those who hold legislative franchises. Petitioners give
no reason, and the Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some other
government agency. The latter, properly constituted, may grant franchises.
Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as though the grant had been
made by Congress itself.[15] The term franchise has been broadly construed as
referring, not only to authorizations that Congress directly issues in the form of
a special law, but also to those granted by administrative agencies to which
the power to grant franchises has been delegated by Congress.[16]
Tollway operators are, owing to the nature and object of their
business, franchise grantees. The construction, operation, and maintenance
of toll facilities on public improvements are activities of public consequence
that necessarily require a special grant of authority from the state. Indeed,
Congress granted special franchise for the operation of tollways to the
Philippine National Construction Company, the former tollway concessionaire
for the North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the exercise of its
delegated powers under P.D. 1112.[17] The franchise in this case is evidenced
by a Toll Operation Certificate.[18]
Petitioners contend that the public nature of the services rendered by
tollway operators excludes such services from the term sale of services under
Section 108 of the Code. But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example
electric utilities, telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies rendering
public service for a fee to the imposition of VAT. Businesses of a public nature
such as public utilities and the collection of tolls or charges for its use or service
is a franchise.[19]
Nor can petitioners cite as binding on the Court statements made by
certain lawmakers in the course of congressional deliberations of the would-
be law. As the Court said in South African Airways v. Commissioner of Internal
Revenue,[20] statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law. The congressional will
is ultimately determined by the language of the law that the lawmakers voted
on. Consequently, the meaning and intention of the law must first be sought in
the words of the statute itself, read and considered in their natural, ordinary,
commonly accepted and most obvious significations, according to good and
approved usage and without resorting to forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT
on toll fees is tantamount to taxing a tax.[21] Actually, petitioners base this
argument on the following discussion in Manila International Airport Authority
(MIAA) v. Court of Appeals:[22]
No one can dispute that properties of public
dominion mentioned in Article 420 of the Civil Code,
like roads, canals, rivers, torrents, ports and bridges
constructed by the State, are owned by the State. The
term ports includes seaports and airports.
The MIAA Airport Lands and Buildings constitute a port
constructed by the State. Under Article 420 of the Civil
Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the
State or the Republic of the Philippines.
x x x The operation by the government of a tollway
does not change the character of the road as one for
public use. Someone must pay for the maintenance of the
road, either the public indirectly through the taxes they
pay the government, or only those among the public who
actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more
efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not
determine the character of the property whether it is for
public dominion or not. Article 420 of the Civil Code
defines property of public dominion as one intended for
public use. Even if the government collects toll fees, the
road is still intended for public use if anyone can use the
road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the kind
of vehicles that can use the road, the speed restrictions
and other conditions for the use of the road do not affect
the public character of the road.
The terminal fees MIAA charges to passengers, as
well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not
change the character of MIAA as an airport for public use.
Such fees are often termed users tax. This means taxing
those among the public who actually use a public facility
instead of taxing all the public including those who never
use the particular public facility. A users tax is more
equitable a principle of taxation mandated in the 1987
Constitution.[23] (Underscoring supplied)
 Petitioners assume that what the Court said above, equating terminal
fees to a users tax must also pertain to tollway fees. But the main issue in
the MIAA case was whether or not Paraaque City could sell airport lands and
buildings under MIAA administration at public auction to satisfy unpaid real
estate taxes. Since local governments have no power to tax the national
government, the Court held that the City could not proceed with the auction
sale. MIAA forms part of the national government although not integrated in
the department framework.[24] Thus, its airport lands and buildings are
properties of public dominion beyond the commerce of man under Article
420(1)[25] of the Civil Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll
fees was made, not to establish a rule that tollway fees are users tax, but to
make the point that airport lands and buildings are properties of public
dominion and that the collection of terminal fees for their use does not make
them private properties. Tollway fees are not taxes. Indeed, they are not
assessed and collected by the BIR and do not go to the general coffers of the
government.
It would of course be another matter if Congress enacts a law imposing
a users tax, collectible from motorists, for the construction and maintenance of
certain roadways. The tax in such a case goes directly to the government for
the replenishment of resources it spends for the roadways. This is not the case
here. What the government seeks to tax here are fees collected from tollways
that are constructed, maintained, and operated by private tollway operators at
their own expense under the build, operate, and transfer scheme that the
government has adopted for expressways.[26] Except for a fraction given to the
government, the toll fees essentially end up as earnings of the tollway
operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are
not taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures.[27] Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure
them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, therefore, they are not government exactions that can
be properly treated as a tax. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.[28]
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due
to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made
between the liability for the tax and burden of the tax. The seller who is liable
for the VAT may shift or pass on the amount of VAT it paid on goods, properties
or services to the buyer. In such a case, what is transferred is not the sellers
liability but merely the burden of the VAT.[29]
Thus, the seller remains directly and legally liable for payment of the
VAT, but the buyer bears its burden since the amount of VAT paid by the
former is added to the selling price. Once shifted, the VAT ceases to be a
tax[30] and simply becomes part of the cost that the buyer must pay in order to
purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the
tollway user, but on the tollway operator. Under Section 105 of the
Code, [31] VAT is imposed on any person who, in the course of trade or
business, sells or renders services for a fee. In other words, the seller of
services, who in this case is the tollway operator, is the person liable for VAT.
The latter merely shifts the burden of VAT to the tollway user as part of the toll
fees.
For this reason, VAT on tollway operations cannot be a tax on tax even
if toll fees were deemed as a users tax. VAT is assessed against the tollway
operators gross receipts and not necessarily on the toll fees. Although the
tollway operator may shift the VAT burden to the tollway user, it will not make
the latter directly liable for the VAT. The shifted VAT burden simply becomes
part of the toll fees that one has to pay in order to use the tollways.[32]
Three. Petitioner Timbol has no personality to invoke the non-impairment of
contract clause on behalf of private investors in the tollway projects. She will
neither be prejudiced by nor be affected by the alleged diminution in return of
investments that may result from the VAT imposition. She has no interest at
all in the profits to be earned under the TOAs. The interest in and right to
recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will
be adversely affected by imposing VAT on tollway operations is purely
speculative. Equally presumptuous is her assertion that a stipulation in the
TOAs known as the Material Adverse Grantor Action will be activated if VAT is
thus imposed. The Court cannot rule on matters that are manifestly
conjectural. Neither can it prohibit the State from exercising its sovereign
taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements
for claiming input VAT make the VAT on tollway operations impractical and
incapable of implementation. They cite the fact that, in order to claim input
VAT, the name, address and tax identification number of the tollway user must
be indicated in the VAT receipt or invoice. The manner by which the BIR
intends to implement the VAT by rounding off the toll rate and putting any
excess collection in an escrow account is also illegal, while the alternative of
giving change to thousands of motorists in order to meet the exact toll rate
would be a logistical nightmare. Thus, according to them, the VAT on tollway
operations is not administratively feasible.[33]
Administrative feasibility is one of the canons of a sound tax system.
It simply means that the tax system should be capable of being effectively
administered and enforced with the least inconvenience to the taxpayer. Non-
observance of the canon, however, will not render a tax imposition invalid
except to the extent that specific constitutional or statutory limitations are
impaired.[34] Thus, even if the imposition of VAT on tollway operations may
seem burdensome to implement, it is not necessarily invalid unless some
aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually
implement the VAT on tollway operations. Any declaration by the Court that
the manner of its implementation is illegal or unconstitutional would be
premature. Although the transcript of the August 12, 2010 Senate hearing
provides some clue as to how the BIR intends to go about it,[35] the facts
pertaining to the matter are not sufficiently established for the Court to pass
judgment on. Besides, any concern about how the VAT on tollway operations
will be enforced must first be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests. The Court cannot
preempt the BIRs discretion on the matter, absent any clear violation of law or
the Constitution.
For the same reason, the Court cannot prematurely declare as illegal,
BIR RMC 63-2010 which directs toll companies to record an accumulated input
VAT of zero balance in their books as of August 16, 2010, the date when the
VAT imposition was supposed to take effect. The issuance allegedly violates
Section 111(A)[36] of the Code which grants first time VAT payers a transitional
input VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually
the product of negotiations with tollway operators who have been assessed
VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by
now can no longer be collected. The tollway operators agreed to waive the 2%
transitional input VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input VAT belongs to
the tollway operators who have not questioned the circulars validity. They are
thus the ones who have a right to challenge the circular in a direct and proper
action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative
prerogative or expand the VAT laws coverage when she sought to impose VAT
on tollway operations. Section 108(A) of the Code clearly states that services
of all other franchise grantees are subject to VAT, except as may be provided
under Section 119 of the Code. Tollway operators are not among the franchise
grantees subject to franchise tax under the latter provision. Neither are their
services among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as
petitioners so strongly allege, then it would have been well for the law to clearly
say so. Tax exemptions must be justified by clear statutory grant and based
on language in the law too plain to be mistaken.[37] But as the law is written, no
such exemption obtains for tollway operators. The Court is thus duty-bound to
simply apply the law as it is found.
Lastly, the grant of tax exemption is a matter of legislative policy that
is within the exclusive prerogative of Congress. The Courts role is to merely
uphold this legislative policy, as reflected first and foremost in the language of
the tax statute. Thus, any unwarranted burden that may be perceived to result
from enforcing such policy must be properly referred to Congress. The Court
has no discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since
1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed. It
is only now, however, that the executive has earnestly pursued the VAT
imposition against tollway operators. The executive exercises exclusive
discretion in matters pertaining to the implementation and execution of tax
laws. Consequently, the executive is more properly suited to deal with the
immediate and practical consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance
and Commissioner of Internal Revenues motion for reconsideration of its
August 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and
Aurora Ma. F. Timbols petition for lack of merit, and SETS ASIDE the Courts
temporary restraining order dated August 13, 2010.
SO ORDERED.
 3. Angeles University Foundation v. Angeles City office issued a Building Permit Fee Assessment in the amount
of P126,839.20. An Order of Payment was also issued by the City Planning
and Development Office, Zoning Administration Unit requiring petitioner to pay
the sum of P238,741.64 as Locational Clearance Fee.[5]
ANGELES UNIVERSITY G.R. No. 189999
FOUNDATION, In separate letters dated November 15, 2005 addressed to
Petitioner, Present: respondents City Treasurer Juliet G. Quinsaat and Acting City Building Official
Donato N. Dizon, petitioner claimed that it is exempt from the payment of the
LEONARDO-DE CASTRO,J.,* building permit and locational clearance fees, citing legal opinions rendered by
- versus - Acting Chairperson, the Department of Justice (DOJ). Petitioner also reminded the respondents
BERSAMIN, that they have previously issued building permits acknowledging such
VILLARAMA, JR., exemption from payment of building permit fees on the construction of
CITY OF ANGELES, JULIET G. PEREZ,** and petitioners 4-storey AUF Information Technology Center building and the AUF
QUINSAAT, in her capacity as PERLAS-BERNABE,*** JJ. Professional Schools building on July 27, 2000 and March 15, 2004,
Treasurer of Angeles City and ENGR. respectively.[6]
DONATO N. DIZON, in his capacity as Promulgated:
Acting Angeles City Building Official,
Respondents. June 27, 2012 Respondent City Treasurer referred the matter to the Bureau of Local
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x Government Finance (BLGF) of the Department of Finance, which in turn
endorsed the query to the DOJ. Then Justice Secretary Raul M. Gonzalez, in
DECISION his letter-reply dated December 6, 2005, cited previous issuances of his office
(Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982) declaring petitioner to
VILLARAMA, JR., J.: be exempt from the payment of building permit fees. Under the 1stIndorsement
dated January 6, 2006, BLGF reiterated the aforesaid opinion of the DOJ stating
Before us is a petition for review on certiorari under Rule 45 of further that xxx the Department of Finance, thru this Bureau, has no authority to
the 1997 Rules of Civil Procedure, as amended, which seeks to reverse and review the resolution or the decision of the DOJ.[7]
set aside the Decision[1] dated July 28, 2009 and Resolution[2] dated October
12, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA Petitioner wrote the respondents reiterating its request to reverse the
reversed the Decision[3] dated September 21, 2007 of the Regional Trial Court disputed assessments and invoking the DOJ legal opinions which have been
of Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt affirmed by Secretary Gonzalez. Despite petitioners plea, however, respondents
from the payment of building permit and other fees and ordering respondents refused to issue the building permits for the construction of the AUF Medical
to refund the same with interest at the legal rate. Center in the main campus and renovation of a school building located at Marisol
Village. Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin
The factual antecedents: but no written response was received by petitioner.[8]

Petitioner Angeles University Foundation (AUF) is an educational Consequently, petitioner paid under protest[9] the following:
institution established on May 25, 1962 and was converted into a non-stock,
non-profit education foundation under the provisions of Republic Act (R.A.) No. Medical Center (new construction)
6055[4] on December 4, 1975.
Building Permit and Electrical Fee P 217,475.20
Locational Clearance Fee 283,741.64
Sometime in August 2005, petitioner filed with the Office of the City Fire Code Fee 144,690.00
Building Official an application for a building permit for the construction of an Total - P 645,906.84
11-storey building of the Angeles University Foundation Medical Center in its
main campus located at MacArthur Highway, Angeles City, Pampanga. Said School Building (renovation)

Building Permit and Electrical Fee P 37,857.20
Locational Clearance Fee 6,000.57
Fire Code Fee 5,967.74
Total - P 49,825.51
Petitioner likewise paid the following sums as required by the City
Assessors Office:
Real Property Tax Basic Fee P 86,531.10
SEF 43,274.54
Locational Clearance Fee 1,125.00
Total P130,930.64[10]
[GRAND TOTAL - P 826,662.99]
By reason of the above payments, petitioner was issued the corresponding
Building Permit, Wiring Permit, Electrical Permit and Sanitary Building
Permit.On June 9, 2006, petitioner formally requested the respondents to
refund the fees it paid under protest. Under letters dated June 15, 2006 and
August 7, 2006, respondent City Treasurer denied the claim for refund.[11]
On August 31, 2006, petitioner filed a Complaint[12] before the trial court
seeking the refund of P826,662.99 plus interest at the rate of 12% per annum,
and also praying for the award of attorneys fees in the amount of P300,000.00
and litigation expenses.
In its Answer,[13] respondents asserted that the claim of petitioner cannot be
granted because its structures are not among those mentioned in Sec. 209 of
the National Building Code as exempted from the building permit
fee. Respondents argued that R.A. No. 6055 should be considered repealed
on the basis of Sec. 2104 of the National Building Code. Since the disputed
assessments are regulatory in nature, they are not taxes from which petitioner
is exempt. As to the real property taxes imposed on petitioners property
located in Marisol Village, respondents pointed out that said premises will be
used as a school dormitory which cannot be considered as a use exclusively
for educational activities.
Petitioner countered that the subject building permit are being collected on the
basis of Art. 244 of the Implementing Rules and Regulations of the Local
Government Code, which impositions are really taxes considering that they
are provided under the chapter on Local Government Taxation in reference to
the revenue raising power of local government units (LGUs). Moreover,
petitioner contended that, as held in Philippine Airlines, Inc. v. Edu,[14] fees
may be regarded as taxes depending on the purpose of its exaction. In any
case, petitioner pointed out that the Local Government Code of 1991 provides
in Sec. 193 that non-stock and non-profit educational institutions like petitioner
retained the tax exemptions or incentives which have been granted to
them. Under Sec. 8 of R.A. No. 6055 and applicable jurisprudence and DOJ
rulings, petitioner is clearly exempt from the payment of building permit fees.[15]
On September 21, 2007, the trial court rendered judgment in favor of the
petitioner and against the respondents. The dispositive portion of the trial
courts decision[16] reads:
WHEREFORE, premises considered, judgment is
rendered as follows:
a. Plaintiff is exempt from the payment of
building permit and other fees Ordering the
Defendants to refund the total amount of Eight
Hundred Twenty Six Thousand Six Hundred Sixty
Two Pesos and 99/100 Centavos (P826,662.99) plus
legal interest thereon at the rate of twelve percent
(12%) per annum commencing on the date of extra-
judicial demand or June 14, 2006, until the aforesaid
amount is fully paid.
b. Finding the Defendants liable for attorneys
fees in the amount of Seventy Thousand Pesos
(Php70,000.00), plus litigation expenses.
c. Ordering the Defendants to pay the costs
of the suit.
SO ORDERED.[17]
Respondents appealed to the CA which reversed the trial court, holding that
while petitioner is a tax-free entity, it is not exempt from the payment of regulatory
fees. The CA noted that under R.A. No. 6055, petitioner was granted exemption
only from income tax derived from its educational activities and real property
used exclusively for educational purposes. Regardless of the repealing clause
in the National Building Code, the CA held that petitioner is still not exempt
because a building permit cannot be considered as the other charges mentioned
in Sec. 8 of R.A. No. 6055 which refers to impositions in the nature of tax, import
duties, assessments and other collections for revenue purposes, following
the ejusdem generisrule. The CA further stated that petitioner has not shown
that the fees collected were excessive and more than the cost of surveillance,
inspection and regulation. And while petitioner may be exempt from the payment
of real property tax, petitioner in this case merely alleged that the subject
property is to be used actually, directly and exclusively for educational purposes,
declaring merely that such premises is intended to house the sports and other
facilities of the university but by reason of the occupancy of informal settlers on
the area, it cannot yet utilize the same for its intended use. Thus, the CA
concluded that petitioner is not entitled to the refund of building permit and
related fees, as well as real property tax it paid under protest.
Petitioner filed a motion for reconsideration which was denied by the CA.
Hence, this petition raising the following grounds:
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR AND DECIDED A QUESTION OF SUBSTANCE IN
A WAY NOT IN ACCORDANCE WITH LAW AND THE
APPLICABLE DECISIONS OF THE HONORABLE COURT
AND HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS NECESSITATING
THE HONORABLE COURTS EXERCISE OF ITS POWER
OF SUPERVISION CONSIDERING THAT:
I. IN REVERSING THE TRIAL COURTS DECISION DATED
21 SEPTEMBER 2007, THE COURT OF APPEALS
EFFECTIVELY WITHDREW THE PRIVILEGE OF
EXEMPTION GRANTED TO NON-STOCK, NON-
PROFIT EDUCATIONAL FOUNDATIONS BY VIRTUE
OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE
AUTHORITY OF THE COURT OF APPEALS TO DO.
A. INDEED, RA 6055 REMAINS VALID AND IS IN
FULL FORCE AND EFFECT. HENCE, THE
COURT OF APPEALS ERRED WHEN IT
RULED IN THE QUESTIONED DECISION THAT
NON-STOCK, NON-PROFIT EDUCATIONAL
FOUNDATIONS ARE NOT EXEMPT.
B. THE COURT OF APPEALS APPLICATION OF THE
PRINCIPLE OF EJUSDEM GENERIS IN
RULING IN THE QUESTIONED DECISION
THAT THE TERM OTHER CHARGES IMPOSED
BY THE GOVERNMENT UNDER SECTION 8
OF RA 6055 DOES NOT INCLUDE BUILDING
PERMIT AND OTHER RELATED FEES AND/OR
CHARGES IS BASED ON ITS ERRONEOUS
AND UNWARRANTED ASSUMPTION THAT
THE TAXES, IMPORT DUTIES AND
ASSESSMENTS AS PART OF THE PRIVILEGE
OF EXEMPTION GRANTED TO NON-STOCK,
NON-PROFIT EDUCATIONAL FOUNDATIONS
ARE LIMITED TO COLLECTIONS FOR
REVENUE PURPOSES.
C. EVEN ASSUMING THAT THE BUILDING PERMIT
AND OTHER RELATED FEES AND/OR
CHARGES ARE NOT INCLUDED IN THE TERM
OTHER CHARGES IMPOSED BY THE
GOVERNMENT UNDER SECTION 8 OF RA
6055, ITS IMPOSITION IS GENERALLY A TAX
MEASURE AND THEREFORE, STILL
COVERED UNDER THE PRIVILEGE OF
EXEMPTION.
II. THE COURT OF APPEALS DENIAL OF PETITIONER
AUFS EXEMPTION FROM REAL PROPERTY TAXES
CONTAINED IN ITS QUESTIONED DECISION AND
QUESTIONED RESOLUTION IS CONTRARY TO
APPLICABLE LAW AND JURISPRUDENCE.[18]
Petitioner stresses that the tax exemption granted to educational stock
corporations which have converted into non-profit foundations was broadened
to include any other charges imposed by the Government as one of the
incentives for such conversion. These incentives necessarily included
exemption from payment of building permit and related fees as otherwise there
would have been no incentives for educational foundations if the privilege were
only limited to exemption from taxation, which is already provided under
the Constitution.
Petitioner further contends that this Court has consistently held in
several cases that the primary purpose of the exaction determines its
nature. Thus, a charge of a fixed sum which bears no relation to the cost of
inspection and which is payable into the general revenue of the state is a tax
rather than an exercise of the police power. The standard set by law in the
determination of the amount that may be imposed as license fees is such that
is commensurate with the cost of regulation, inspection and licensing. But in
this case, the amount representing the building permit and related fees and/or
charges is such an exorbitant amount as to warrant a valid imposition; such
amount exceeds the probable cost of regulation. Even with the alleged criteria
submitted by the respondents (e.g., character of occupancy or use of
building/structure, cost of construction, floor area and height), and the
construction by petitioner of an 11-storey building, the costs of inspection will
not amount to P645,906.84, presumably for the salary of inspectors or
employees, the expenses of transportation for inspection and the preparation
and reproduction of documents. Petitioner thus concludes that the disputed
fees are substantially and mainly for purposes of revenue rather than
regulation, so that even these fees cannot be deemed charges mentioned in
Sec. 8 of R.A. No. 6055, they should properly be treated as tax from which
petitioner is exempt.
In their Comment, respondents maintain that petitioner is not exempt from the
payment of building permit and related fees since the only exemptions
provided in the National Building Code are public buildings and traditional
indigenous family dwellings. Inclusio unius est exclusio alterius. Because the
law did not include petitioners buildings from those structures exempt from the
payment of building permit fee, it is therefore subject to the regulatory fees
imposed under the National Building Code.
Respondents assert that the CA correctly distinguished a building permit fee
from those other charges mentioned in Sec. 8 of R.A. No. 6055. As stated by
petitioner itself, charges refer to pecuniary liability, as rents, and fees against
persons or property. Respondents point out that a building permit is classified
under the term fee. A fee is generally imposed to cover the cost of regulation
as activity or privilege and is essentially derived from the exercise of police
power; on the other hand, impositions for services rendered by the local
government units or for conveniences furnished, are referred to as service
charges.
Respondents also disagreed with petitioners contention that the fees imposed
and collected are exorbitant and exceeded the probable expenses of
regulation.These fees are based on computations and assessments made by
the responsible officials of the City Engineers Office in accordance with the
Schedule of Fees and criteria provided in the National Building Code. The
bases of assessment cited by petitioner (e.g. salary of employees, expenses
of transportation and preparation and reproduction of documents) refer to
charges and fees on business and occupation under Sec. 147 of the Local
Government Code, which do not apply to building permit fees. The parameters
set by the National Building Code can be considered as complying with the
reasonable cost of regulation in the assessment and collection of building
permit fees. Respondents likewise contend that the presumption of regularity
in the performance of official duty applies in this case. Petitioner should have
presented evidence to prove its allegations that the amounts collected are
exorbitant or unreasonable.
For resolution are the following issues: (1) whether petitioner is exempt from
the payment of building permit and related fees imposed under the National
Building Code; and (2) whether the parcel of land owned by petitioner which
has been assessed for real property tax is likewise exempt.
R.A. No. 6055 granted tax exemptions to educational institutions like petitioner
which converted to non-stock, non-profit educational foundations. Section 8 of
said law provides:
SECTION 8. The Foundation shall be exempt from
the payment of all taxes, import duties, assessments,
and other charges imposed by the Government
onallincome derived from or property, real or personal,
used exclusively for the educational activities of the
Foundation.(Emphasis supplied.)
On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting
the National Building Code of the Philippines. The said Code requires every
person, firm or corporation, including any agency or instrumentality of the
government to obtain a building permit for any construction, alteration or repair of
any building or structure.[19]Building permit refers to a document issued by the
Building Official x x x to an owner/applicant to proceed with the construction,
installation, addition, alteration, renovation, conversion, repair, moving, demolition
or other work activity of a specific project/building/structure or portions thereof
after the accompanying principal plans, specifications and other pertinent
documents with the duly notarized application are found satisfactory and
substantially conforming with the National Building Code of the Philippines x x
x and its Implementing Rules and Regulations (IRR).[20] Building permit fees
refers to the basic permit fee and other charges imposed under the National
Building Code.
Exempted from the payment of building permit fees are: (1) public buildings
and (2) traditional indigenous family dwellings.[21] Not being expressly included
in the enumeration of structures to which the building permit fees do not apply,
petitioners claim for exemption rests solely on its interpretation of the term
other charges imposed by the National Government in the tax exemption
clause of R.A. No. 6055.
A charge is broadly defined as the price of, or rate for, something,
while the word fee pertains to a charge fixed by law for services of public
officers or for use of a privilege under control of government.[22] As used in the
Local Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary
liability, as rents or fees against persons or property, while fee means a charge
fixed by law or ordinance for the regulation or inspection of a business or
activity.[23]
That charges in its ordinary meaning appears to be a general term
which could cover a specific fee does not support petitioners position that
building permit fees are among those other charges from which it was
expressly exempted. Note that the other charges mentioned in Sec. 8 of R.A.
No. 6055 is qualified by the words imposed by the Government on all x x x
property used exclusively for the educational activities of the
foundation. Building permit fees are not impositions on property but on the
activity subject of government regulation. While it may be argued that the fees
relate to particular properties, i.e., buildings and structures, they are actually
imposed on certain activities the owner may conduct either to build such
structures or to repair, alter, renovate or demolish the same. This is evident
from the following provisions of the National Building Code:
Section 102. Declaration of Policy
It is hereby declared to be the policy of the State to safeguard
life, health, property, and public welfare, consistent with
theprinciples of sound environmental management and
control; and tothis end, make it the purpose of this Code to
provide for allbuildings and structures, a framework of
minimum standards and requirements to regulate and
control their location, site, design quality of materials,
construction, use, occupancy, and maintenance.
Section 103. Scope and Application
(a) The provisions of this Code shall apply to the
design,location, sitting, construction, alteration,
repair,conversion, use, occupancy, maintenance, moving,
demolitionof, and addition to public and private buildings
andstructures, except traditional indigenous family
dwellingsas defined herein.
xxxx
Section 301. Building Permits
No person, firm or corporation, including any agency
orinstrumentality of the government shall erect, construct,
alter, repair, move, convert or demolish any building or
structure or causethe same to be done without first obtaining
a building permittherefor from the Building Official assigned in
the place where thesubject building is located or the building
work is to be done. (Italics supplied.)
That a building permit fee is a regulatory imposition is highlighted by the
fact that in processing an application for a building permit, the Building Official shall
see to it that the applicant satisfies and conforms with approved standard
requirements on zoning and land use, lines and grades, structural design, sanitary
and sewerage, environmental health, electrical and mechanical safety as well as
with other rules and regulations implementing the National Building Code.[24]Thus,
ancillary permits such as electrical permit, sanitary permit and zoning clearance
must also be secured and the corresponding fees paid before a building permit
may be issued. And as can be gleaned from the implementing rules and
regulations of the National Building Code, clearances from various government
authorities exercising and enforcing regulatory functions affecting
buildings/structures, like local government units, may be further required before a
building permit may be issued.[25]
Since building permit fees are not charges on property, they are not
impositions from which petitioner is exempt.
As to petitioners argument that the building permit fees collected by
respondents are in reality taxes because the primary purpose is to raise
revenues for the local government unit, the same does not hold water.
A charge of a fixed sum which bears no relation at all to the cost of
inspection and regulation may be held to be a tax rather than an exercise of
the police power.[26] In this case, the Secretary of Public Works and Highways
who is mandated to prescribe and fix the amount of fees and other charges
that the Building Official shall collect in connection with the performance of
regulatory functions,[27] has promulgated and issued the Implementing Rules
and Regulations[28] which provide for the bases of assessment of such fees,
as follows:
1. Character of occupancy or use of building
2. Cost of construction 10,000/sq.m (A,B,C,D,E,G,H,I),
8,000 (F), 6,000 (J)
3. Floor area
4. Height
Petitioner failed to demonstrate that the above bases of assessment
were arbitrarily determined or unrelated to the activity being regulated. Neither
has petitioner adduced evidence to show that the rates of building permit fees
imposed and collected by the respondents were unreasonable or in excess of
the cost of regulation and inspection.
 In Chevron Philippines, Inc. v. Bases Conversion Development
Authority,[29] this Court explained:
In distinguishing tax and regulation as a form of police
power, the determining factor is the purpose of the
implemented measure. If the purpose is primarily to raise
revenue, then it will be deemed a tax even though the
measure results in some form of regulation. On the other
hand, if the purpose is primarily to regulate, then it is
deemed a regulation and an exercise of the police power
of the state, even though incidentally, revenue is
generated. Thus, in Gerochi v. Department of Energy, the
Court stated:
The conservative and pivotal
distinction between these two (2) powers
rests in the purpose for which the charge is
made. If generation of revenue is the primary
purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the
primary purpose, the fact that revenue is
incidentally raised does not make the
imposition a tax.[30] (Emphasis supplied.)
Concededly, in the case of building permit fees imposed by the
National Government under the National Building Code, revenue is
incidentally generated for the benefit of local government units. Thus:
Section 208. Fees
Every Building Official shall keep a permanent record
and accurate account of all fees and other charges fixed and
authorized by the Secretary to be collected and received
under this Code.
Subject to existing budgetary, accounting and
auditing rules and regulations, the Building Official is hereby
authorized to retain not more than twenty percent of his
collection for the operating expenses of his office.
The remaining eighty percent shall be deposited with
the provincial, city or municipal treasurer and shall accrue to
the General Fund of the province, city or municipality
concerned.
Petitioners reliance on Sec. 193 of the Local Government Code of
1991 is likewise misplaced. Said provision states:
SECTION 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. (Emphasis
supplied.)
Considering that exemption from payment of regulatory fees was not among
those incentives granted to petitioner under R.A. No. 6055, there is no such
incentive that is retained under the Local Government Code of
1991. Consequently, no reversible error was committed by the CA in ruling that
petitioner is liable to pay the subject building permit and related fees.
Now, on petitioners claim that it is exempted from the payment of real property
tax assessed against its real property presently occupied by informal settlers.
Section 28(3), Article VI of the 1987 Constitution provides:
xxxx
(3) Charitable institutions, churches and parsonages
or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be
exempt from taxation.
x x x x (Emphasis supplied.)
Section 234(b) of the Local Government Code of 1991 implements the
foregoing constitutional provision by declaring that --
SECTION 234. Exemptions from Real Property
Tax. The following are exempted from payment of the real
property tax:
xxxx
 (b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
purposes. The respondents correctly assessed the land for real property taxes
for the taxable period during which the land is not being devoted solely to
petitioners educational activities. Accordingly, the CA did not err in ruling that
petitioner is likewise not entitled to a refund of the real property tax it paid under
protest.

x x x x (Emphasis supplied.)
WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and
Resolution dated October 12, 2009 of the Court of Appeals in CA-G.R. CV No.
In Lung Center of the Philippines v. Quezon City,[31] this Court held that only 90591 are AFFIRMED.
portions of the hospital actually, directly and exclusively used for charitable
purposes are exempt from real property taxes, while those portions leased to No pronouncement as to costs.
private entities and individuals are not exempt from such taxes. We explained
the condition for the tax exemption privilege of charitable and educational
SO ORDERED.
institutions, as follows:

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. 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. The words dominant use or principal use cannot
be substituted for the words used exclusively without doing
violence to the Constitutions and the law. Solely is
synonymous with exclusively.

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.[32] (Emphasis and underscoring
supplied.)

Petitioner failed to discharge its burden to prove that its real property is
actually, directly and exclusively used for educational purposes. While there is
no allegation or proof that petitioner leases the land to its present occupants,
still there is no compliance with the constitutional and statutory requirement
that said real property is actually, directly and exclusively used for educational
 4. Tolentino v. Sec. of Finance vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

G.R. No. 115455 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME
ARTURO M. TOLENTINO, petitioner, CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM
vs. TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO,
REVENUE, respondents. JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS
FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"),
FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE
G.R. No. 115525 October 30, 1995
SOCIETY, INC. and WIGBERTO TAÑADA, petitioners,
vs.
JUAN T. DAVID, petitioner, THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
vs. COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE CUSTOMS, respondents.
OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-CHATO, as
Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
G.R. No. 115852 October 30, 1995
REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995 PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL
RAUL S. ROCO and the INTEGRATED BAR OF THE REVENUE, respondents.
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE G.R. No. 115873 October 30, 1995
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
BUREAU OF CUSTOMS, respondents. COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
G.R. No. 115544 October 30, 1995 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
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; capacity as Secretary of Finance, respondents.
KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS,
INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
G.R. No. 115931 October 30, 1995
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal
Revenue; HON. TEOFISTO T. GUINGONA, JR., in his capacity as PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and
Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his ASSOCIATION OF PHILIPPINE BOOK SELLERS, petitioners,
capacity as Secretary of Finance, respondents. vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON.
LIWAYWAY V. CHATO, as the Commissioner of Internal Revenue; and
G.R. No. 115754 October 30, 1995
HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner
of Customs, respondents.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
RESOLUTION
 R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE
OF 1987 BY EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE
MENDOZA, J.: PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on April 10, 1992. This
These are motions seeking reconsideration of our decision dismissing the Act is actually a consolidation of H. No. 34254, which was approved by the
petitions filed in these cases for the declaration of unconstitutionality of R.A. House on January 29, 1992, and S. No. 1920, which was approved by the
No. 7716, otherwise known as the Expanded Value-Added Tax Law. The Senate on February 3, 1992.
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 R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER
Association, Inc. and the Association of Philippine Booksellers, petitioners in SHALL GIVE REWARD TO ANY FILIPINO ATHLETE WINNING A MEDAL IN
G.R. No. 115931. 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
The Solicitor General, representing the respondents, filed a consolidated
comment, to which the Philippine Airlines, Inc., petitioner in G.R. No. 115852, by the Senate on October 21, 1991.
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 On the other hand, the Ninth Congress passed revenue laws which were also
General filed on June 1, 1995 a rejoinder to the PPI's reply. 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
On June 27, 1995 the matter was submitted for resolution. President and dates the separate bills of the two chambers of Congress were
respectively passed:
I. Power of the Senate to propose amendments to revenue bills. Some of the
petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and 1. R.A. NO. 7642
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 AN ACT INCREASING THE PENALTIES FOR TAX
House of Representatives as required by Art. VI, §24 of the Constitution. EVASION, AMENDING FOR THIS PURPOSE THE
Although they admit that H. No. 11197 was filed in the House of PERTINENT SECTIONS OF THE NATIONAL INTERNAL
Representatives where it passed three readings and that afterward it was sent REVENUE CODE (December 28, 1992).
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 House Bill No. 2165, October 5, 1992
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 Senate Bill No. 32, December 7, 1992
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. 2. R.A. NO. 7643
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."
AN ACT TO EMPOWER THE COMMISSIONER OF
INTERNAL REVENUE TO REQUIRE THE PAYMENT OF
The contention has no merit.
THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW
LOCAL GOVERNMENT UNITS TO SHARE IN VAT
The enactment of S. No. 1630 is not the only instance in which the Senate REVENUE, AMENDING FOR THIS PURPOSE CERTAIN
proposed an amendment to a House revenue bill by enacting its own version SECTIONS OF THE NATIONAL INTERNAL REVENUE
of a revenue bill. On at least two occasions during the Eighth Congress, the CODE (December 28, 1992)
Senate passed its own version of revenue bills, which, in consolidation with
House bills earlier passed, became the enrolled bills. These were: House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF
INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE
TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS
POLITICAL SUBDIVISIONS, INSTRUMENTALITIES OR
AGENCIES INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT
AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE
RATE OF THREE PERCENT (3%) ON GROSS PAYMENT
FOR THE PURCHASE OF GOODS AND SIX PERCENT
(6%) ON GROSS RECEIPTS FOR SERVICES RENDERED
BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES
(November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE
AND ADMINISTRATION OF THE DOCUMENTARY STAMP
TAX, AMENDING FOR THE PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, ALLOCATING FUNDS FOR
SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES
(December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR
EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR
THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR
THE PURPOSE THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING A NEW SECTION
AND REPEALING CERTAIN SUBSECTIONS THEREOF
(May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the
Senate, in the exercise of its power to propose amendments to bills required
to originate in the House, passed its own version of a House revenue measure.
It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino
and Roco, as members of the Senate, voted to approve it on second and third
readings.
On the other hand, amendment by substitution, in the manner urged by
petitioner Tolentino, concerns a mere matter of form. Petitioner has not shown
what substantial difference it would make if, as the Senate actually did in this
case, a separate bill like S. No. 1630 is instead enacted as a substitute
measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
 AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original
amendment shall be considered.
No amendment by substitution shall be entertained unless the
text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is
taken thereon.
§69. No amendment which seeks the inclusion of a legislative
provision foreign to the subject matter of a bill (rider) shall be
entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be amended by substituting
it with another which covers a subject distinct from that
proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills,
the Philippine Senate possesses less power than the U.S. Senate because of
textual differences between constitutional provisions giving them the power to
propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with
amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.
The addition of the word "exclusively" in the Philippine Constitution and the
decision to drop the phrase "as on other Bills" in the American version,
according to petitioners, shows the intention of the framers of our Constitution
to restrict the Senate's power to propose amendments to revenue bills.
Petitioner Tolentino contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills' (sic) were eliminated so
as to show that these bills were not to be like other bills but must be treated as
a special kind."
The history of this provision does not support this contention. The
supposed indicia of constitutional intent are nothing but the relics of an
unsuccessful attempt to limit the power of the Senate. It will be recalled that
the 1935 Constitution originally provided for a unicameral National Assembly.
When it was decided in 1939 to change to a bicameral legislature, it became
necessary to provide for the procedure for lawmaking by the Senate and the
House of Representatives. The work of proposing amendments to the
Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's
lawmaking powers, sought to curtail the powers of the proposed Senate.
Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills
of local application, and private bills shall originate exclusively
in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any
such bills, the Assembly may repass the same by a two-thirds
vote of all its members, and thereupon, the bill so repassed
shall be deemed enacted and may be submitted to the
President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the Assembly
may, after thirty days from the opening of the next regular
session of the same legislative term, reapprove the same with
a vote of two-thirds of all the members of the Assembly. And
upon such reapproval, the bill shall be deemed enacted and
may be submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National
Assembly vetoed the proposal. It deleted everything after the first sentence.
As rewritten, the proposal was approved by the National Assembly and
embodied in Resolution No. 38, as amended by Resolution No. 73. (J.
ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and ratified by them in the elections
held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art.
VI, §24 of the present Constitution was derived. It explains why the word
"exclusively" was added to the American text from which the framers of the
Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to
propose amendments must be understood to be full, plenary and complete "as
on other Bills." Thus, because revenue bills are required to originate
exclusively in the House of Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill is passed and sent
over to it by the House, however, the Senate certainly can pass its own version
on the same subject matter. This follows from the coequality of the two
chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's
power to concur is clear from the following commentaries:
The power of the Senate to propose or concur with
amendments is apparently without restriction. It would seem
that by virtue of this power, the Senate can practically 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. TAÑADA 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 moment was 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 yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three
readings on separate days are required and a bill has to be printed in final form
before it can be passed, the need for a law may be rendered academic by the
occurrence of the very emergency or public calamity which it is meant to
address.
Petitioners further contend that a "growing budget deficit" is not an emergency,
especially in a country like the Philippines where budget deficit is a chronic
condition. Even if this were the case, an enormous budget deficit does not
make the need for R.A. No. 7716 any less urgent or the situation calling for its
enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in
these cases) believed that there was an urgent need for consideration of S.
No. 1630, because they responded to the call of the President by voting on the
bill on second and third readings on the same day. While the judicial
department is not bound by the Senate's acceptance of the President's
certification, the respect due coequal departments of the government in
matters committed to them by the Constitution and the absence of a clear
showing of grave abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration
in the Senate where it was discussed for six days. Only its distribution in
advance in its final printed form was actually dispensed with by holding the
voting on second and third readings on the same day (March 24, 1994).
Otherwise, sufficient time between the submission of the bill on February 8,
1994 on second reading and its approval on March 24, 1994 elapsed before it
was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to
be two-fold: (1) to inform the members of Congress of what they must vote on
and (2) to give them notice that a measure is progressing through the enacting
process, thus enabling them and others interested in the measure to prepare
their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These purposes were
substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan,
Inc. and the Movement of Attorneys for Brotherhood, Integrity and Nationalism,
Inc. (MABINI)) that in violation of the constitutional policy of full public
disclosure and the people's right to know (Art. II, §28 and Art. III, §7) the
Conference Committee met for two days in executive session with only the
conferees present.
As pointed out in our main decision, even in the United States it was customary
to hold such sessions with only the conferees and their staffs in attendance
and it was only in 1975 when a new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine Congress has not adopted a
rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the
rule in 1975, at least staff members were present. These were staff members
of the Senators and Congressmen, however, who may be presumed to be their
confidential men, not stenographers as in this case who on the last two days
of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner
Kilosbayan basis for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their meetings. Above all, the
public's right to know was fully served because the Conference Committee in
this case submitted a report showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference
committee reports must contain "a detailed, sufficiently explicit statement of
the changes in or other amendments." These changes are shown in the bill
attached to the Conference Committee Report. The members of both houses
could thus ascertain what changes had been made in the original bills without
the need of a statement detailing the changes.
The same question now presented was raised when the bill which became
R.A. No. 1400 (Land Reform Act of 1955) was reported by the Conference
Committee. Congressman Bengzon raised a point of order. He said:
 MR. BENGZON. My point of order is that it is out of order to
consider the report of the conference committee
regarding House Bill No. 2557 by reason of the provision of
Section 11, Article XII, of the Rules of this House which
provides specifically that the conference report must be
accompanied by a detailed statement of the effects of the
amendment on the bill of the House. This conference
committee report is not accompanied by that detailed
statement, Mr. Speaker. Therefore it is out of order to consider
it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few
words in connection with the point of order raised by the
gentleman from Pangasinan.
There is no question about the provision of the Rule cited by
the gentleman from Pangasinan, but this provision applies to
those cases where only portions of the bill have been
amended. In this case before us an entire bill is
presented; therefore, it can be easily seen from the reading of
the bill what the provisions are. Besides, this procedure has
been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to
look into the reason for the provisions of the Rules, and the
reason for the requirement in the provision cited by the
gentleman from Pangasinan is when there are only certain
words or phrases inserted in or deleted from the provisions of
the bill included in the conference report, and we cannot
understand what those words and phrases mean and their
relation to the bill. In that case, it is necessary to make a
detailed statement on how those words and phrases will affect
the bill as a whole; but when the entire bill itself is copied
verbatim in the conference report, that is not necessary. So
when the reason for the Rule does not exist, the Rule does
not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that
when the ruling was appealed, it was upheld by viva voce and when a division
of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert
new provisions as long as these are germane to the subject of the conference.
As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703
(1993), in an opinion written by then Justice Cruz, the jurisdiction of the
conference committee is not limited to resolving differences between the
Senate and the House. It may propose an entirely new provision. What is
important is that its report is subsequently approved by the respective houses
of Congress. This Court ruled that it would not entertain allegations that,
because new provisions had been added by the conference committee, there
was thereby a violation of the constitutional injunction that "upon the last
reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the
petitioners' charges that an amendment was made upon the
last reading of the bill that eventually became R.A. No. 7354
and that copies thereof 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 VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-
ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its intention to amend any
provision of the NIRC which stands in the way of accomplishing the purpose
of the law.
PAL asserts that the amendment of its franchise must be reflected in the title
of the law by specific reference to P.D. No. 1590. It is unnecessary to do this
in order to comply with the constitutional requirement, since it is already stated
in the title that the law seeks to amend the pertinent provisions of the NIRC,
among which is §103(q), in order to widen the base of the VAT. Actually, it is
the bill which becomes a law that is required to express in its title the subject
of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically
referred to §103 of the NIRC as among the provisions sought to be amended.
We are satisfied that sufficient notice had been given of the pendency of these
bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that
now made by PAL was rejected. R.A. No. 7354 is entitled AN ACT CREATING
THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION
OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED
THEREWITH. It contained a provision repealing all franking privileges. It was
contended that the withdrawal of franking privileges was not expressed in the
title of the law. In holding that there was sufficient description of the subject of
the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the
accomplishment of the general objectives of the statute to be
expressed in its title would not only be unreasonable but
would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been
correctly explained:
The details of a legislative act need not be
specifically stated in its title, but matter
germane to the subject as expressed in the
title, and adopted to the accomplishment of
the object in view, may properly be included
in the act. Thus, it is proper to create in the
same act the machinery by which the act is to
be enforced, to prescribe the penalties for its
infraction, and to remove obstacles in the way
of its execution. If such matters are properly
connected with the subject as expressed in
the title, it is unnecessary that they should
also have special mention in the title.
(Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a
general proposition, the press is not exempt from the taxing power of the State
and that what the constitutional guarantee of free press prohibits are laws
which single out the press or target a group belonging to the press for special
treatment or which in any way discriminate against the press on the basis of
the content of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press
from the VAT while maintaining those granted to others, the law discriminates
against the press. At any rate, it is averred, "even nondiscriminatory taxation
of constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law
granted the press a privilege, the law could take back the privilege anytime
without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign
prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the
same tax burden to which other businesses have long ago been subject. It is
thus different from the tax involved in the cases invoked by the PPI. The license
tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936)
was found to be discriminatory because it was laid on the gross advertising
receipts only of newspapers whose weekly circulation was over 20,000, with
the result that the tax applied only to 13 out of 124 publishers in Louisiana.
These large papers were critical of Senator Huey Long who controlled the state
legislature which enacted the license tax. The censorial motivation for the law
was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of
Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was found to be
discriminatory because although it could have been made liable for the sales
tax or, in lieu thereof, for the use tax on the privilege of using, storing or
consuming tangible goods, the press was not. Instead, the press was
exempted from both taxes. It was, however, later made to pay a special use
tax on the cost of paper and ink which made these items "the only items subject
to the use tax that were component of goods to be sold at retail." The U.S.
Supreme Court held that the differential treatment of the press "suggests that
the goal of regulation is not related to suppression of expression, and such
goal is presumptively unconstitutional." It would therefore appear that even a
law that favors the press is constitutionally suspect. (See the dissent of
Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions
from the VAT, such as those previously granted to PAL, petroleum
concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to
exemptions which are partially withdrawn, in an effort to broaden the base of
the tax.
The PPI says that the discriminatory treatment of the press is highlighted by
the fact that transactions, which are profit oriented, continue to enjoy
exemption under R.A. No. 7716. An enumeration of some of these transactions
will suffice to show that by and large this is not so and that the exemptions are
granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other
cases, for the personal benefit of the end-user rather than for profit. The
exempt transactions are:
(a) Goods for consumption or use which are in their original
state (agricultural, marine and forest products, cotton seeds in
their original state, fertilizers, seeds, seedlings, fingerlings,
fish, prawn livestock and poultry feeds) and goods or services
 to enhance agriculture (milling of palay, corn, sugar cane and
raw sugar, livestock, poultry feeds, fertilizer, ingredients used
for the manufacture of feeds).
(b) Goods used for personal consumption or use (household
and personal effects of citizens returning to the Philippines) or
for professional use, like professional instruments and
implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products or
to be used for manufacture of petroleum products subject to
excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international
agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate
against the press because "even nondiscriminatory taxation on constitutionally
guaranteed freedom is unconstitutional." PPI cites in support of this assertion
the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed.
1292 (1943):
The fact that the ordinance is "nondiscriminatory" is
immaterial. The protection afforded by the First Amendment
is not so restricted. A license tax certainly does not acquire
constitutional validity because it classifies the privileges
protected by the First Amendment along with the wares and
merchandise of hucksters and peddlers and treats them all
alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are
in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary
tax, is mainly for regulation. Its imposition on the press is unconstitutional
because it lays a prior restraint on the exercise of its right. Hence, although its
application to others, such those selling goods, is valid, its application to the
press or to religious groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is unconstitutional. As
the U.S. Supreme Court put it, "it is one thing to impose a tax on income or
property of a preacher. It is quite another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of
Manila, 101 Phil. 386 (1957) which invalidated a city ordinance requiring a
business license fee on those engaged in the sale of general merchandise. It
was held that the tax could not be imposed on the sale of bibles by the
American Bible Society without restraining the free exercise of its right to
propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the
exercise of a privilege, much less a constitutional right. It is imposed on the
sale, barter, lease or exchange of goods or properties or the sale or exchange
of services and the lease of properties purely for revenue purposes. To subject
the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to
violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells
bibles, the proceeds derived from the sales are used to subsidize the cost of
printing copies which are given free to those who cannot afford to pay so that
to tax the sales would be to increase the price, while reducing the volume of
sale. Granting that to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult to differentiate it from
any other economic imposition that might make the right to disseminate
religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of the
NIRC, as amended by §7 of R.A. No. 7716, although fixed in amount, is really
just to pay for the expenses of registration and enforcement of provisions such
as those relating to accounting in §108 of the NIRC. That the PBS distributes
free bibles and therefore is not liable to pay the VAT does not excuse it from
the payment of this fee because it also sells some copies. At any rate whether
the PBS is liable for the VAT must be decided in concrete cases, in the event
it is assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract
clauses and the rule on taxation. CREBA asserts that R.A. No. 7716 (1) impairs
the obligations of contracts, (2) classifies transactions as covered or exempt
without reasonable basis and (3) violates the rule that taxes should be uniform
and equitable and that Congress shall "evolve a progressive system of
taxation."
With respect to the first contention, it is claimed that the application of the tax
to existing contracts of the sale of real property by installment or on deferred
payment basis would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The additional amount, it is
pointed out, is something that the buyer did not anticipate at the time he
entered into the contract.
The short answer to this is the one given by this Court in an early case:
"Authorities from numerous sources are cited by the plaintiffs, but none of them
show that a lawful tax on a new subject, or an increased tax on an old one,
interferes with a contract or impairs its obligation, within the meaning of the
Constitution. Even though such taxation may affect particular contracts, as it
may increase the debt of one person and lessen the security of another, or
may impose additional burdens upon one class and release the burdens of
another, still the tax must be paid unless prohibited by the Constitution, nor
can it be said that it impairs the obligation of any existing contract in its true
legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil.
567, 574 (1919)). Indeed not only existing laws but also "the reservation of the
essential attributes of sovereignty, is . . . read into contracts as a postulate of
the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made
in reference to the possible exercise of the rightful authority of the government
and no obligation of contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions
as the sale of agricultural products, food items, petroleum, and medical and
veterinary services, it grants no exemption on the sale of real property which
is equally essential. The sale of real property for socialized and low-cost
housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally
homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which
are essential goods and services was already exempt under §103, pars. (b)
(d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error
in claiming that R.A. No. 7716 granted exemption to these transactions, while
subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the
example given by petitioner, because the second group or middle class can
afford to rent houses in the meantime that they cannot yet buy their own
homes. The two social classes are thus differently situated in life. "It is inherent
in the power to tax that the State be free to select the subjects of taxation, and
it has been repeatedly held that 'inequalities which result from a singling out of
one particular class for taxation, or exemption infringe no constitutional
limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio
v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663
(1984); Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v.
Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also
violates Art. VI, §28(1) which provides that "The rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of
taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of
property of the same class be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation. To satisfy this requirement it is enough that the statute or ordinance
applies equally to all persons, forms and corporations placed in similar
situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No.
7716 was enacted. R.A. No. 7716 merely expands the base of the tax. The
validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod
sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds
similar to those made in these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI, §28(1) of the
Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of
a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not exempt,
at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engaged in business
with an aggregate gross annual sales exceeding
 P200,000.00. Small corner sari-sari stores are consequently
exempt from its application. Likewise exempt from the tax are
sales of farm and marine products, so that the costs of basic
food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and
within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the
Cooperative Union of the Philippines, Inc. (CUP), while petitioner Juan T.
David argues that the law contravenes the mandate of Congress to provide for
a progressive system of taxation because the law imposes a flat rate of 10%
and thus places the tax burden on all taxpayers without regard to their ability
to pay.
The Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The constitutional provision has
been interpreted to mean simply that "direct taxes are . . . to be preferred [and]
as much as possible, indirect taxes should be minimized." (E. FERNANDO,
THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)).
Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest
form of indirect taxes, would have been prohibited with the proclamation of Art.
VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was
taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because
it is difficult, if not impossible, to avoid them by imposing such taxes according
to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103
of the NIRC).
Thus, the following transactions involving basic and essential goods and
services are exempted from the VAT:
(a) Goods for consumption or use which are in their original
state (agricultural, marine and forest products, cotton seeds in
their original state, fertilizers, seeds, seedlings, fingerlings,
fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and
raw sugar, livestock, poultry feeds, fertilizer, ingredients used
for the manufacture of feeds).
(b) Goods used for personal consumption or use (household
and personal effects of citizens returning to the Philippines)
and or professional use, like professional instruments and
implements, by persons coming to the Philippines to settle
here.
(c) Goods subject to excise tax such as petroleum products or
to be used for manufacture of petroleum products subject to
excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under employer-
employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international
agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those
which involve goods and services which are used or availed of mainly by higher
income groups. These include real properties held primarily for sale to
customers or for lease in the ordinary course of trade or business, the right or
privilege to use patent, copyright, and other similar property or right, the right
or privilege to use industrial, commercial or scientific equipment, motion picture
films, tapes and discs, radio, television, satellite transmission and cable
television time, hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses, and other common
carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of
constitutional violations by tendering issues not at retail but at wholesale and
in the abstract. There is no fully developed record which can impart to
adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its
effect on property rights. For the fact is that petitioner's members have not
even been assessed the VAT. Petitioner's case is not made concrete by a
series of hypothetical questions asked which are no different from those dealt
with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would
condemn such a provision as void on its face, he has not
made out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must
prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete
case. It may be that postponement of adjudication would result in a multiplicity
of suits. This need not be the case, however. Enforcement of the law may give
rise to such a case. A test case, provided it is an actual case and not an
abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating
abstract issues. Otherwise, adjudication would be no different from the giving
of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim
is made that "there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
government." This duty can only arise if an actual case or controversy is before
us. Under Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, §1, ¶2 can plausibly mean is that in the exercise of that jurisdiction we
have the judicial power to determine questions of grave abuse of discretion by
any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which
is "the power of a court to hear and decide cases pending between parties who
have the right to sue and be sued in the courts of law and equity" (Lamb v.
Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and
executive power. This power cannot be directly appropriated until it is
apportioned among several courts either by the Constitution, as in the case of
Art. VIII, §5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No.
296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power
thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an
actual case coming within its jurisdiction, this Court cannot inquire into any
allegation of grave abuse of discretion by the other departments of the
government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP), after briefly surveying the course
of legislation, argues that it was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution embodies provisions
on cooperatives. To subject cooperatives to the VAT would therefore be to
infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was
promulgated exempting cooperatives from the payment of income taxes and
sales taxes but in 1984, because of the crisis which menaced the national
economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D.
No. 2008 again granted cooperatives exemption from income and sales taxes
until December 31, 1991, but, in the same year, E.O. No. 93 revoked the
exemption; and that finally in 1987 the framers of the Constitution "repudiated
the previous actions of the government adverse to the interests of the
cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the
cooperatives by way of the grant of tax exemptions," by providing the following
in Art. XII:
§1. The goals of the national economy are a more equitable
distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the
nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all,
especially the underprivileged.
The State shall promote industrialization and full employment
based on sound agricultural development and agrarian
reform, through industries that make full and efficient use of
human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall
protect Filipino enterprises against unfair foreign competition
and trade practices.
In the pursuit of these goals, all sectors of the economy and
all regions of the country shall be given optimum opportunity
 to develop. Private enterprises, including corporations,
cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.
§15. The Congress shall create an agency to promote the
viability and growth of cooperatives as instruments for social
justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D.
No. 1955 singled out cooperatives by withdrawing their exemption from income
and sales taxes under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to
withdraw the exemptions and preferential treatments theretofore granted to
private business enterprises in general, in view of the economic crisis which
then beset the nation. It is true that after P.D. No. 2008, §2 had restored the
tax exemptions of cooperatives in 1986, the exemption was again repealed by
E.O. No. 93, §1, but then again cooperatives were not the only ones whose
exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution
does not really require that cooperatives be granted tax exemptions in order
to promote their growth and viability. Hence, there is no basis for petitioner's
assertion that the government's policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges was concerned, and that it was
to put an end to this indecision that the constitutional provisions cited were
adopted. Perhaps as a matter of policy cooperatives should be granted tax
exemptions, but that is left to the discretion of Congress. If Congress does not
grant exemption and there is no discrimination to cooperatives, no violation of
any constitutional policy can be charged.
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.

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 non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

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