PASEO REALTY & DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF
APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.

DECISION
TINGA, J.:

The changes in the reportorial requirements and payment schedules of corporate

income taxes from annual to quarterly have created problems, especially on the
matter of tax refunds.[1] In this case, the Court is called to resolve the question of
whether alleged excess taxes paid by a corporation during a taxable year should be
refunded or credited against its tax liabilities for the succeeding year.
Paseo Realty and Development Corporation, a domestic corporation engaged in
the lease of two (2) parcels of land at Paseo de Roxas in Makati City, seeks a review
of the Decision[2] of the Court of Appeals dismissing its petition for review of the
resolution[3] of the Court of Tax Appeals (CTA) which, in turn, denied its claim for
refund.
The factual antecedents[4] are as follows:

On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring
a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an
income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00,
and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and
credit balance of P172,477.00.

On November 14, 1991, petitioner filed with respondent a claim for the refund of excess
creditable withholding and income taxes for the years 1989 and 1990 in the aggregate amount
of P147,036.15.

On December 27, 1991 alleging that the prescriptive period for refunds for 1989 would expire
on December 30, 1991 and that it was necessary to interrupt the prescriptive period, petitioner
filed with the respondent Court of Tax Appeals a petition for review praying for the refund
of P54,104.00 representing creditable taxes withheld from income payments of petitioner for
the calendar year ending December 31, 1989.

On February 25, 1992, respondent Commissioner filed an Answer and by way of special
and/or affirmative defenses averred the following: a) the petition states no cause of action for
failure to allege the dates when the taxes sought to be refunded were paid; b) petitioners claim
for refund is still under investigation by respondent Commissioner; c) the taxes claimed are
deemed to have been paid and collected in accordance with law and existing pertinent rules
and regulations; d) petitioner failed to allege that it is entitled to the refund or deductions
claimed; e) petitioners contention that it has available tax credit for the current and prior year
is gratuitous and does not ipso facto warrant the refund; f) petitioner failed to show that it has
complied with the provision of Section 230 in relation to Section 204 of the Tax Code.
After trial, the respondent Court rendered a decision ordering respondent Commissioner to
refund in favor of petitioner the amount of P54,104.00, representing excess creditable
withholding taxes paid for January to July1989.

Respondent Commissioner moved for reconsideration of the decision, alleging that

the P54,104.00 ordered to be refunded has already been included and is part and parcel of
the P172,477.00 which petitioner automatically applied as tax credit for the succeeding
taxable year 1990.

In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29,
1993 and dismissed the petition for review, stating that it has overlooked the fact that the
petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount
of P54,104.00 subject of petitioners claim for refund has already been included as part and
parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the
succeeding taxable year 1990.

Petitioner filed a Motion for Reconsideration which was denied by respondent Court on
March 10, 1994.[5]

Petitioner filed a Petition for Review[6] dated April 3, 1994 with the Court of
Appeals. Resolving the twin issues of whether petitioner is entitled to a refund
of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner
applied such creditable taxes withheld to its 1990 income tax liability, the appellate
court held that petitioner is not entitled to a refund because it had already elected to
apply the total amount of P172,447.00, which includes the P54,104.00 refund
claimed, against its income tax liability for 1990. The appellate court elucidated on the
reason for its dismissal of petitioners claim for refund, thus:

In the instant case, it appears that when petitioner filed its income tax return for the year 1989,
it filled up the box stating that the total amount of P172,477.00 shall be applied against its
income tax liabilities for the succeeding taxable year.

Petitioner did not specify in its return the amount to be refunded and the amount to be applied
as tax credit to the succeeding taxable year, but merely marked an x to the box indicating to be
applied as tax credit to the succeeding taxable year. Unlike what petitioner had done when it
filed its income tax return for the year 1988, it specifically stated that out of the P146,026.00
the entire refundable amount, only P64,623.00 will be made available as tax credit, while the
amount of P81,403.00 will be refunded.

In its 1989 income tax return, petitioner filled up the box to be applied as tax credit to
succeeding taxable year, which signified that instead of refund, petitioner will apply the total
amount of P172,447.00, which includes the amount of P54,104.00 sought to be refunded, as
tax credit for its tax liabilities in 1990. Thus, there is really nothing left to be refunded to
petitioner for the year 1989. To grant petitioners claim for refund is tantamount to granting
twice the refund herein sought to be refunded, to the prejudice of the Government.
 The Court of Appeals denied petitioners Motion for Reconsideration[7] dated
November 8, 1994 in its Resolution[8] dated February 21, 1995 because the motion
merely restated the grounds which have already been considered and passed upon
in its Decision.[9]
Petitioner thus filed the instant Petition for Review[10] dated April 14, 1995 arguing
that the evidence presented before the lower courts conclusively shows that it did not
apply the P54,104.00 to its 1990 income tax liability; that the Decision subject of the
instant petition is inconsistent with a final decision[11] of the Sixteenth Division of the
appellate court in C.A.-G.R. Sp. No. 32890 involving the same parties and subject
matter; and that the affirmation of the questioned Decision would lead to absurd
results in the manner of claiming refunds or in the application of prior years excess
tax credits.
The Office of the Solicitor General (OSG) filed a Comment[12] dated May 16, 1996
on behalf of respondents asserting that the claimed refund of P54,104.00 was, by
petitioners election in its Corporate Annual Income Tax Return for 1989, to be applied
against its tax liability for 1990. Not having submitted its tax return for 1990 to show
whether the said amount was indeed applied against its tax liability for 1990,
petitioners election in its tax return stands. The OSG also contends that petitioners
election to apply its overpaid income tax as tax credit against its tax liabilities for the
succeeding taxable year is mandatory and irrevocable.
On September 2, 1997, petitioner filed a Reply[13] dated August 31, 1996 insisting
that the issue in this case is not whether the amount of P54,104.00 was included as
tax credit to be applied against its 1990 income tax liability but whether the same
amount was actually applied as tax credit for 1990. Petitioner claims that there is no
need to show that the amount of P54,104.00 had not been automatically applied
against its 1990 income tax liability because the appellate courts decision in C.A.-
G.R. Sp. No. 32890 clearly held that petitioner charged its 1990 income tax liability
against its tax credit for 1988 and not 1989. Petitioner also disputes the OSGs
assertion that the taxpayers election as to the application of excess taxes is
irrevocable averring that there is nothing in the law that prohibits a taxpayer from
changing its mind especially if subsequent events leave the latter no choice but to
change its election.
The OSG filed a Rejoinder[14] dated March 5, 1997 stating that petitioners 1988
tax return shows a prior years excess credit of P81,403.00, creditable tax withheld
of P92,750.00 and tax due of P27,127.00. Petitioner indicated that the prior years
excess credit of P81,403.00 was to be refunded, while the remaining amount
of P64,623.00 (P92,750.00 - P27,127.00) shall be considered as tax credit for 1989.
However, in its 1989 tax return, petitioner included the P81,403.00 which had already
been segregated for refund in the computation of its excess credit, and specified that
the full amount of P172,479.00 (P81,403.00 + P64,623.00 + P54,104.00** -
P27,653.00***) be considered as its tax credit for 1990. Considering that it had
obtained a favorable ruling for the refund of its excess credit for 1988 in CA-G.R. SP.
No. 32890, its remaining tax credit for 1989 should be the excess credit to be applied
against its 1990 tax liability. In fine, the OSG argues that by its own election,
petitioner can no longer ask for a refund of its creditable taxes withheld in 1989 as the
same had been applied against its 1990 tax due.
In its Resolution[15] dated July 16, 1997, the Court gave due course to the petition
and required the parties to simultaneously file their respective memoranda within 30
days from notice. In compliance with this directive, petitioner submitted
its Memorandum[16] dated September 18, 1997 in due time, while the OSG filed
its Memorandum[17] dated April 27, 1998 only on April 29, 1998 after several
extensions.
The petition must be denied.
As a matter of principle, it is not advisable for this Court to set aside the
conclusion reached by an agency such as the CTA which is, by the very nature of its
functions, dedicated exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject, unless there has been an
abuse or improvident exercise of its authority.[18]
This interdiction finds particular application in this case since the CTA, after
careful consideration of the merits of the Commissioner of Internal Revenues motion
for reconsideration, reconsidered its earlier decision which ordered the latter to refund
the amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed
based, as it is, on the pertinent laws as applied to the facts.
Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00,
representing its 1988 excess credit of P146,026.00 and 1989 creditable tax
of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the
succeeding taxable year.[19]According to petitioner, it successively utilized this amount
when it obtained refunds in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300) and CTA
Case No. 4528 (C.A.-G.R. Sp. No. 32890), and applied its 1990 tax liability, leaving a
balance of P54,104.00, the amount subject of the instant claim for
refund.[20] Represented mathematically, petitioner accounts for its claim in this wise:

P172,477.00 Amount indicated in petitioners 1989 tax return to be applied as tax credit for the
succeeding taxable year

- 25,623.00 Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300)

P146,854.00 Balance as of April 16, 1990

- 59,510.00 Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890)

P87,344.00 Balance as of January 2, 1991

- 33,240.00 Income tax liability for calendar year 1990 applied as of April 15, 1991

P54,104.00 Balance as of April 15, 1991 now subject of the instant claim for
refund[21]
 Other than its own bare allegations, however, petitioner offers no proof to the
effect that its creditable tax of P172,477.00 was applied as claimed above. Instead, it
anchors its assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp.
No. 32890[22] involving the same parties to the effect that petitioner charged its 1990
income tax liability to its tax credit for 1988 and not its 1989 tax credit. Hence, its
excess creditable taxes withheld of P54,104.00 for 1989 was left untouched and may
be refunded.
Note should be taken, however, that nowhere in the case referred to by petitioner
did the Court of Appeals make a categorical determination that petitioners tax liability
for 1990 was applied against its 1988 tax credit. The statement adverted to by
petitioner was actually presented in the appellate courts decision in CA-G.R. Sp No.
32890 as part of petitioners own narration of facts. The pertinent portion of the
decision reads:

It would appear from petitioners submission as follows:

xxx since it has already applied to its prior years excess credit of P81,403.00 (which petitioner
wanted refunded when it filed its 1988 Income Tax Return on April 14, 1989) the income tax
liability for 1988 of P28,127.00 and the income tax liability for 1989 of P27,653.00, leaving a
balance refundable of P25,623.00 subject of C.T.A. Case No. 4439, the P92,750.00
(P64,623.00 plus P28,127.00, since this second amount was already applied to the amount
refundable of P81,403.00) should be the refundable amount. But since the taxpayer again used
part of it to satisfy its income tax liability of P33,240.00 for 1990, the amount refundable
was P59,510.00, which is the amount prayed for in the claim for refund and also in the
petitioner (sic) for review.

That the present claim for refund already consolidates its claims for refund for 1988, 1989,
and 1990, when it filed a claim for refund of P59,510.00 in this case (CTA Case No. 4528).
Hence, the present claim should be resolved together with the previous claims.[23]

The confusion as to petitioners entitlement to a refund could altogether have

been avoided had it presented its tax return for 1990. Such return would have shown
whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes
the P54,104.00 creditable taxes withheld for 1989 subject of the instant claim for
refund, against its 1990 tax liability as it had elected in its 1989 return, or at least,
whether petitioners tax credit of P172,477.00 was applied to its approved refunds as
it claims.
The return would also have shown whether there remained an excess credit
refundable to petitioner after deducting its tax liability for 1990. As it is, we only have
petitioners allegation that its tax due for 1990 was P33,240.00 and that this was
applied against its remaining tax credits using its own first in, first out method of
computation.
It would have been different had petitioner not included the P54,104.00 creditable
taxes for 1989 in the total amount it elected to apply against its 1990 tax liabilities.
Then, all that would have been required of petitioner are: proof that it filed a claim for
refund within the two (2)-year prescriptive period provided under Section 230 of the
NIRC; evidence that the income upon which the taxes were withheld was included in
its return; and to establish the fact of withholding by a copy of the statement (BIR
Form No. 1743.1) issued by the payor[24] to the payee showing the amount paid and
the amount of tax withheld therefrom. However, since petitioner opted to apply its
aggregate excess credits as tax credit for 1990, it was incumbent upon it to present
its tax return for 1990 to show that the claimed refund had not been automatically
credited and applied to its 1990 tax liabilities.
The grant of a refund is founded on the assumption that the tax return is
valid, i.e., that the facts stated therein are true and correct. [25]Without the tax return, it
is error to grant a refund since it would be virtually impossible to determine whether
the proper taxes have been assessed and paid.
Why petitioner failed to present such a vital piece of evidence confounds the
Court. Petitioner could very well have attached a copy of its final adjustment return for
1990 when it filed its claim for refund on November 13, 1991. Annex B of its Petition
for Review[26] dated December 26, 1991 filed with the CTA, in fact, states that its
annual tax return for 1990 was submitted in support of its claim. Yet, petitioners tax
return for 1990 is nowhere to be found in the records of this case.
Had petitioner presented its 1990 tax return in refutation of respondent
Commissioners allegation that it did not present evidence to prove that its claimed
refund had already been automatically credited against its 1990 tax liability, the CTA
would not have reconsidered its earlier Decision. As it is, the absence of petitioners
1990 tax return was the principal basis of the CTAs Resolution reconsidering its
earlier Decision to grant petitioners claim for refund.
Petitioner could even still have attached a copy of its 1990 tax return to its
petition for review before the Court of Appeals. The appellate court, being a trier of
facts, is authorized to receive it in evidence and would likely have taken it into
account in its disposition of the petition.
In BPI-Family Savings Bank v. Court of Appeals,[27] although petitioner failed to
present its 1990 tax return, it presented other evidence to prove its claim that it did
not apply and could not have applied the amount in dispute as tax credit. Importantly,
petitioner therein attached a copy of its final adjustment return for 1990 to its motion
for reconsideration before the CTA buttressing its claim that it incurred a net loss and
is thus entitled to refund. Considering this fact, the Court held that there is no reason
for the BIR to withhold the tax refund.
In this case, petitioners failure to present sufficient evidence to prove its claim for
refund is fatal to its cause. After all, it is axiomatic that a claimant has the burden of
proof to establish the factual basis of his or her claim for tax credit or refund. Tax
refunds, like tax exemptions, are construed strictly against the taxpayer. [28]
Section 69, Chapter IX, Title II of the National Internal Revenue Code of the
Philippines (NIRC) provides:
Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section 24 shall file a
final adjustment return covering the total net income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the
total tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable year. [Emphasis supplied]

Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies:

SEC. 7. Filing of final or adjustment return and final payment of income tax. A final or an
adjustment return on B.I.R. Form No. 1702 covering the total taxable income of the
corporation for the preceding calendar or fiscal year shall be filed on or before the 15 th day of
the fourth month following the close of the calendar or fiscal year. The return shall include all
the items of gross income and deductions for the taxable year. The amount of income tax to be
paid shall be the balance of the total income tax shown on the final or adjustment return after
deducting therefrom the total quarterly income taxes paid during the preceding first three
quarters of the same calendar or fiscal year.

Any excess of the total quarterly payments over the actual income tax computed and shown in
the adjustment or final corporate income tax return shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax liabilities for
the quarters of the succeeding taxable year. The corporation must signify in its annual
corporate adjustment return its intention whether to request for refund of the overpaid
income tax or claim for automatic credit to be applied against its income tax liabilities
for the quarters of the succeeding taxable year by filling up the appropriate box on the
corporate tax return (B.I.R. Form No. 1702). [Emphasis supplied]

As clearly shown from the above-quoted provisions, in case the corporation is

entitled to a refund of the excess estimated quarterly income taxes paid, the
refundable amount shown on its final adjustment return may be credited against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding
year. The carrying forward of any excess or overpaid income tax for a given taxable
year is limited to the succeeding taxable year only.
In the recent case of AB Leasing and Finance Corporation v. Commissioner of
Internal Revenue,[29] where the Court declared that [T]he carrying forward of any
excess or overpaid income tax for a given taxable year then is limited to the
succeeding taxable year only, we ruled that since the case involved a claim for refund
of overpaid taxes for 1993, petitioner could only have applied the 1993 excess tax
credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess
tax credits is violative of Section 69 of the NIRC.
In this case, petitioner included its 1988 excess credit of P146,026.00 in the
computation of its total excess credit for 1989. It indicated this amount, plus the 1989
creditable taxes withheld of P54,104.00 or a total of P172,477.00, as its total excess
credit to be applied as tax credit for 1990. By its own disclosure, petitioner effectively
combined its 1988 and 1989 tax credits and applied its 1990 tax due of P33,240.00
against the total, and not against its creditable taxes for 1989 only as allowed by
Section 69. This is a clear admission that petitioners 1988 tax credit was incorrectly
and illegally applied against its 1990 tax liabilities.
Parenthetically, while a taxpayer is given the choice whether to claim for refund
or have its excess taxes applied as tax credit for the succeeding taxable year, such
election is not final. Prior verification and approval by the Commissioner of Internal
Revenue is required. The availment of the remedy of tax credit is not absolute and
mandatory. It does not confer an absolute right on the taxpayer to avail of the tax
credit scheme if it so chooses. Neither does it impose a duty on the part of the
government to sit back and allow an important facet of tax collection to be at the sole
control and discretion of the taxpayer.[30]
Contrary to petitioners assertion however, the taxpayers election, signified by the
ticking of boxes in Item 10 of BIR Form No. 1702, is not a mere technical exercise. It
aids in the proper management of claims for refund or tax credit by leading tax
authorities to the direction they should take in addressing the claim.
The amendment of Section 69 by what is now Section 76 of Republic Act No.
8424[31] emphasizes that it is imperative to indicate in the tax return or the final
adjustment return whether a tax credit or refund is sought by making the taxpayers
choice irrevocable. Section 76 provides:

SEC. 76. Final Adjustment Return.Every corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable income for the preceding calendar or fiscal
year. If the sum of the quarterly tax payments made during the said taxable year is not equal to
the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of the tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid, the excess amount shown on its final adjustment return may be carried
over and credited against the estimated quarterly income tax liabilities for the taxable quarters
of the succeeding taxable years. Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the taxable quarters of the succeeding
taxable years has been made, such option shall be considered irrevocable for that taxable
period and no application for cash refund or issuance of a tax credit certificate shall be
allowed therefore. [Emphasis supplied]

As clearly seen from this provision, the taxpayer is allowed three (3) options if the
sum of its quarterly tax payments made during the taxable year is not equal to the
total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the
excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid
excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in
its final adjustment return which may be carried over and applied against the
estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable years. However, once the taxpayer has exercised the option to carry-over and
to apply the excess quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years, such option is irrevocable for that taxable
period and no application for cash refund or issuance of a tax credit certificate shall
be allowed.
Had this provision been in effect when the present claim for refund was filed,
petitioners excess credits for 1988 could have been properly applied to its 1990 tax
liabilities. Unfortunately for petitioner, this is not the case.
Taxation is a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of
the government. And since taxes are what we pay for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. A claim of refund or exemption from tax
payments must be clearly shown and be based on language in the law too plain to be
mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the
exception.[32]
WHEREFORE, the instant petition is DENIED. The challenged decision of the
Court of Appeals is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
 THIRD DIVISION

FELS ENERGY, INC., G.R. No. 168557

Petitioner,

-versus-

THE PROVINCE OF BATANGAS and

THE OFFICE OF THE PROVINCIAL
ASSESSOR OF BATANGAS,
Respondents.
x----------------------------------------------------x
NATIONAL POWER CORPORATION, G.R. No. 170628
Petitioner,
LOCAL BOARD OF ASSESSMENT
APPEALS OF BATANGAS, LAURO C.
ANDAYA, in his capacity as the Assessor
of the Province of Batangas, and the
PROVINCE OF BATANGAS represented
by its Provincial Assessor, February 16, 2007
Respondents.
x----------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No.
170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National
Power Corporation (NPC), respectively. The first is a petition for review
on certiorari assailing the August 25, 2004 Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 67490 and its Resolution[2] dated June 20, 2005; the
second, also a petition for review on certiorari, challenges the February 9, 2005
Decision[3] and November 23, 2005Resolution[4] of the CA in CA-G.R. SP No.
67491. Both petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc.
over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca,
Batangas. The contract, denominated as an Energy Conversion
Agreement[5] (Agreement), was for a period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the

payment of (a) all taxes, import duties, fees, charges and other levies imposed
by the National Government of the Republic of the Philippines or any agency
or instrumentality thereof to which POLARmay be or become subject to or in
relation to the performance of their obligations under this agreement (other
than (i) taxes imposed or calculated on the basis of the net income
of POLAR and Personal Income Taxes of its employees and (ii) construction
permit fees, environmental permit fees and other similar fees and charges) and
(b) all real estate taxes and assessments, rates and other charges in respect of
the Power Barges.[6]

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement
to FELS. The NPC initially opposed the assignment of rights, citing paragraph
17.2 of Article 17 of the Agreement.

On August 7, 1995, FELS received an assessment of real property taxes

on the power barges from Provincial Assessor Lauro C. Andaya
of Batangas City. The assessed tax, which likewise covered those due for 1994,
amounted to P56,184,088.40 per annum. FELS referred the matter to NPC,
reminding it of its obligation under the Agreement to pay all real estate taxes. It
then gave NPC the full power and authority to represent it in any conference
regarding the real property assessment of the Provincial Assessor.
In a letter[7] dated September 7, 1995, NPC sought reconsideration of the
Provincial Assessors decision to assess real property taxes on the power barges.
However, the motion was denied on September 22, 1995, and the Provincial
Assessor advised NPC to pay the assessment.[8] This prompted NPC to file a
petition with the Local Board of Assessment Appeals (LBAA) for the setting
aside of the assessment and the declaration of the barges as non-taxable items; it
also prayed that should LBAA find the barges to be taxable, the Provincial
Assessor be directed to make the necessary corrections.[9]

In its Answer to the petition, the Provincial Assessor averred that the barges
were real property for purposes of taxation under Section 199(c) of Republic Act
(R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation,
informing the LBAA that the Department of Finance (DOF) had rendered an
opinion[10] dated May 20, 1996, where it is clearly stated that power barges are
not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution[11] denying the
petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay
the real estate tax in the amount of P56,184,088.40, for the year 1994.

SO ORDERED.[12]

The LBAA ruled that the power plant facilities, while they may be classified as
movable or personal property, are nevertheless considered real property for
taxation purposes because they are installed at a specific location with a
character of permanency. The LBAA also pointed out that the owner of the
bargesFELS, a private corporationis the one being taxed, not NPC. A mere
agreement making NPC responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a privilege can only be
granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled
that the petition was filed out of time.

Aggrieved, FELS appealed the LBAAs ruling to the Central Board of

Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice
of Levy and Warrant by Distraint[13] over the power barges, seeking to collect
real property taxes amounting to P232,602,125.91 as of July 31, 1996. The
notice and warrant was officially served to FELS on November 8, 1996. It then
filed a Motion to Lift Levy dated November 14, 1996, praying that the
Provincial Assessor be further restrained by the CBAA from enforcing the
disputed assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order[14] lifting the levy and
distraint on the properties of FELS in order not to preempt and render
ineffectual, nugatory and illusory any resolution or judgment which the Board
would issue.

Meantime, the NPC filed a Motion for Intervention[15] dated August 7, 1998 in
the proceedings before the CBAA. This was approved by the CBAA in an
Order[16] dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to
admit bond to guarantee the payment of real property taxes assessed by the
Provincial Assessor (in the event that the judgment be unfavorable to them). The
bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision[17] finding the power barges
exempt from real property tax. The dispositive portion reads:
 WHEREFORE, the Resolution of the Local Board of Assessment Appeals of
the Province of Batangas is hereby reversed. Respondent-appellee Provincial
Assessor of the Province of Batangas is hereby ordered to drop subject
property under ARP/Tax Declaration No. 018-00958 from the List of Taxable
Properties in the Assessment Roll. The Provincial Treasurer of Batangas is
hereby directed to act accordingly.

SO ORDERED.[18]

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges
belong to NPC; since they are actually, directly and exclusively used by it, the
power barges are covered by the exemptions under Section 234(c) of R.A. No.
7160.[19] As to the other jurisdictional issue, the CBAA ruled that prescription
did not preclude the NPC from pursuing its claim for tax exemption in
accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a
motion for reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution[20] on July 31,

2001 reversing its earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board

that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(c) The resolution of the Local Board of Assessment Appeals of Batangas

is hereby affirmed,

(d) The real property tax assessment on FELS by the Provincial Assessor
of Batangas is likewise hereby affirmed.

SO ORDERED.[21]

FELS and NPC filed separate motions for reconsideration, which were
timely opposed by the Provincial Assessor. The CBAA denied the said
motions in a Resolution[22] dated October 19, 2001.
 Dissatisfied, FELS filed a petition for review before the CA docketed as
CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as
CA-G.R. SP No. 67491.

On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation

in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-
G.R. SP No. 67491. In a Resolution[23] dated February 12, 2002, the appellate
court directed NPC to re-file its motion for consolidation with CA-G.R. SP No.
67491, since it is the ponente of the latter petition who should resolve the request
for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004,
the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP
No. 67490 denying the petition on the ground of prescription. The decretal
portion of the decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit
and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the
Central Board of Assessment Appeals are AFFIRMED.

SO ORDERED.[24]

On September 20, 2004, FELS timely filed a motion for reconsideration seeking
the reversal of the appellate courts decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this
Court, docketed as G.R. No. 165113, assailing the appellate courts decision in
CA-G.R. SP No. 67490. The petition was, however, denied in this Courts
Resolution[25] of November 8, 2004, for NPCs failure to sufficiently show that
the CA committed any reversible error in the challenged decision. NPC filed a
motion for reconsideration, which the Court denied with finality in a
Resolution[26] dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491.
It held that the right to question the assessment of the Provincial Assessor had
already prescribed upon the failure of FELS to appeal the disputed assessment to
the LBAA within the period prescribed by law. Since FELS had lost the right to
question the assessment, the right of the Provincial Government to collect the tax
was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking

reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No.
67491. The motion was denied in a Resolution[27] dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had
been earlier denied for lack of merit in a Resolution[28] dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557
before this Court, raising the following issues:
A.
Whether power barges, which are floating and movable, are personal properties
and therefore, not subject to real property tax.

B.
Assuming that the subject power barges are real properties, whether they are
exempt from real estate tax under Section 234 of the Local Government Code
(LGC).

C.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under
the law.

D.
Assuming arguendo that the subject power barges are real properties, whether
or not the same is subject to depreciation just like any other personal
properties.
 E.
Whether the right of the petitioner to question the patently null and void real
property tax assessment on the petitioners personal properties is
imprescriptible.[29]

On January 13, 2006, NPC filed its own petition for review before this
Court (G.R. No. 170628), indicating the following errors committed by the CA:

I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE
APPEAL TO THE LBAA WAS FILED OUT OF TIME.

II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY
TAXES.

III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.[30]

Considering that the factual antecedents of both cases are similar, the Court
ordered the consolidation of the two cases in a Resolution[31] dated March 8,
2006.

In an earlier Resolution dated February 1, 2006, the Court had required the
parties to submit their respective Memoranda within 30 days from notice.
Almost a year passed but the parties had not submitted their respective
memoranda. Considering that taxesthe lifeblood of our economyare involved in
the present controversy, the Court was prompted to dispense with the said
pleadings, with the end view of advancing the interests of justice and avoiding
further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was
not time-barred. FELS argues that when NPC moved to have the assessment
reconsidered on September 7, 1995, the running of the period to file an appeal
with the LBAA was tolled. For its part, NPC posits that the 60-day period for
appealing to the LBAA should be reckoned from its receipt of the denial of its
motion for reconsideration.

Petitioners contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government
Code of 1991, provides:

SECTION 226. Local Board of Assessment Appeals. Any owner or

person having legal interest in the property who is not satisfied with the action
of the provincial, city or municipal assessor in the assessment of his property
may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the province or city
by filing a petition under oath in the form prescribed for the purpose, together
with copies of the tax declarations and such affidavits or documents submitted
in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to
FELS on August 7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days
from the date of receipt hereof, appeal to the Board of Assessment Appeals of
the province by filing a petition under oath on the form prescribed for the
purpose, together with copies of ARP/Tax Declaration and such affidavits or
documents submitted in support of the appeal.[32]

Instead of appealing to the Board of Assessment Appeals (as stated in the

notice), NPC opted to file a motion for reconsideration of the Provincial
Assessors decision, a remedy not sanctioned by law.
 The remedy of appeal to the LBAA is available from an adverse ruling or
action of the provincial, city or municipal assessor in the assessment of the
property. It follows then that the determination made by the respondent
Provincial Assessor with regard to the taxability of the subject real properties
falls within its power to assess properties for taxation purposes subject to appeal
before the LBAA.[33]

We fully agree with the rationalization of the CA in both CA-G.R. SP No.

67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited
the case of Callanta v. Office of the Ombudsman,[34] where we ruled that under
Section 226 of R.A. No 7160,[35] the last action of the local assessor on a
particular assessment shall be the notice of assessment; it is this last
action which gives the owner of the property the right to appeal to the LBAA.
The procedure likewise does not permit the property owner the remedy of filing
a motion for reconsideration before the local assessor. The pertinent holding of
the Court in Callanta is as follows:

x x x [T]he same Code is equally clear that the aggrieved owners should
have brought their appeals before the LBAA. Unfortunately, despite the advice
to this effect contained in their respective notices of assessment, the owners
chose to bring their requests for a review/readjustment before the city assessor,
a remedy not sanctioned by the law. To allow this procedure would indeed
invite corruption in the system of appraisal and assessment. It conveniently
courts a graft-prone situation where values of real property may be initially set
unreasonably high, and then subsequently reduced upon the request of a
property owner. In the latter instance, allusions of a possible covert, illicit
trade-off cannot be avoided, and in fact can conveniently take place. Such
occasion for mischief must be prevented and excised from our system.[36]

For its part, the appellate court declared in CA-G.R. SP No. 67491:

x x x. The Court announces: Henceforth, whenever the local assessor

sends a notice to the owner or lawful possessor of real property of its revised
assessed value, the former shall no longer have any jurisdiction to entertain
any request for a review or readjustment. The appropriate forum where the
 aggrieved party may bring his appeal is the LBAA as provided by law. It
follows ineluctably that the 60-day period for making the appeal to the LBAA
runs without interruption. This is what We held in SP 67490 and reaffirm today
in SP 67491.[37]

To reiterate, if the taxpayer fails to appeal in due course, the right of

the local government to collect the taxes due with respect to the taxpayers
property becomes absolute upon the expiration of the period to appeal.[38] It also
bears stressing that the taxpayers failure to question the assessment in the LBAA
renders the assessment of the local assessor final, executory and demandable,
thus, precluding the taxpayer from questioning the correctness of the assessment,
or from invoking any defense that would reopen the question of its liability on
the merits.[39]

In fine, the LBAA acted correctly when it dismissed the petitioners appeal
for having been filed out of time; the CBAA and the appellate court were
likewise correct in affirming the dismissal. Elementary is the rule that the
perfection of an appeal within the period therefor is both mandatory and
jurisdictional, and failure in this regard renders the decision final and
executory.[40]

In the Comment filed by the Provincial Assessor, it is asserted that the

instant petition is barred by res judicata; that the final and executory judgment in
G.R. No. 165113 (where there was a final determination on the issue of
prescription), effectively precludes the claims herein; and that the filing of the
instant petition after an adverse judgment in G.R. No. 165113 constitutes forum
shopping.

FELS maintains that the argument of the Provincial Assessor is

completely misplaced since it was not a party to the erroneous petition which the
NPC filed in G.R. No. 165113. It avers that it did not participate in the aforesaid
proceeding, and the Supreme Court never acquired jurisdiction over it. As to the
issue of forum shopping, petitioner claims that no forum shopping could have
been committed since the elements of litis pendentia or res judicata are not
present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is

founded upon two grounds embodied in various maxims of common law,
namely: (1) public policy and necessity, which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the
hardship on the individual of being vexed twice for the same cause nemo debet
bis vexari et eadem causa. A conflicting doctrine would subject the public peace
and quiet to the will and dereliction of individuals and prefer the regalement of
the litigious disposition on the part of suitors to the preservation of the public
tranquility and happiness.[41] As we ruled in Heirs of Trinidad De Leon Vda. de
Roxas v. Court of Appeals:[42]

x x x An existing final judgment or decree rendered

upon the merits, without fraud or collusion, by a court of
competent jurisdiction acting upon a matter within its authority
is conclusive on the rights of the parties and their privies. This
ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the
points or matters in issue in the first suit.

xxx

Courts will simply refuse to reopen what has been decided. They will
not allow the same parties or their privies to litigate anew a question once it has
been considered and decided with finality. Litigations must end and terminate
sometime and somewhere. The effective and efficient administration of justice
requires that once a judgment has become final, the prevailing party should not
be deprived of the fruits of the verdict by subsequent suits on the same issues
filed by the same parties.
 This is in accordance with the doctrine of res judicata which has the
following elements: (1) the former judgment must be final; (2) the court which
rendered it had jurisdiction over the subject matter and the parties; (3) the
judgment must be on the merits; and (4) there must be between the first and the
second actions, identity of parties, subject matter and causes of action. The
application of the doctrine of res judicata does not require absolute
identity of parties but merely substantial identity of parties. There is
substantial identity of parties when there is community of interest or
privity of interest between a party in the first and a party in the second
case even if the first case did not implead the latter.[43]

To recall, FELS gave NPC the full power and authority to represent it in
any proceeding regarding real property assessment. Therefore, when petitioner
NPC filed its petition for review docketed as G.R. No. 165113, it did so not only
on its behalf but also on behalf of FELS. Moreover, the assailed decision in the
earlier petition for review filed in this Court was the decision of the appellate
court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the
decision in G.R. No. 165116 is binding on petitioner FELS under the principle of
privity of interest. In fine, FELS and NPC are substantially identical parties as to
warrant the application of res judicata. FELSs argument that it is not bound by
the erroneous petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor.

Forum shopping exists when, as a result of an adverse judgment in one forum, a
party seeks another and possibly favorable judgment in another forum other than
by appeal or special civil action or certiorari. There is also forum shopping
when a party institutes two or more actions or proceedings grounded on the same
cause, on the gamble that one or the other court would make a favorable
disposition.[44]

Petitioner FELS alleges that there is no forum shopping since the elements
of res judicata are not present in the cases at bar; however, as already
discussed, res judicata may be properly applied herein. Petitioners engaged in
forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition
for review in G.R. No. 165116. Indeed, petitioners went from one court to
another trying to get a favorable decision from one of the tribunals which
allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of

forum shopping is the vexation caused to the courts and the parties-litigants by
the filing of similar cases to claim substantially the same reliefs.[45] The rationale
against forum shopping is that a party should not be allowed to pursue
simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the
administration of justice, wreaks havoc upon orderly judicial procedure, and
adds to the congestion of the heavily burdened dockets of the courts.[46]

Thus, there is forum shopping when there exist: (a) identity of parties, or
at least such parties as represent the same interests in both actions, (b) identity of
rights asserted and relief prayed for, the relief being founded on the same facts,
and (c) the identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other.[47]

Having found that the elements of res judicata and forum shopping are
present in the consolidated cases, a discussion of the other issues is no longer
necessary. Nevertheless, for the peace and contentment of petitioners, we shall
shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are
real property and are thus subject to real property tax. This is also the inevitable
conclusion, considering that G.R. No. 165113 was dismissed for failure to
sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.[48] Besides, factual findings of administrative bodies, which
have acquired expertise in their field, are generally binding and conclusive upon
the Court; we will not assume to interfere with the sensible exercise of the
judgment of men especially trained in appraising property. Where the judicial
mind is left in doubt, it is a sound policy to leave the assessment
undisturbed.[49] We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City

of New York, et al.,[50] a power company brought an action to review property tax
assessment. On the citys motion to dismiss, the Supreme Court of New
York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel
oil to the power plant barges, and the accessory equipment mounted on the
barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that [d]ocks
and structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake, or coast are considered immovable
property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by
the owner for an industry or work which may be carried on in a building or on a
piece of land and which tend directly to meet the needs of said industry or
work.[51]

Petitioners maintain nevertheless that the power barges are exempt from
real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually,
directly and exclusively used by petitioner NPC, a government- owned and
controlled corporation engaged in the supply, generation, and transmission of
electric power.
 We affirm the findings of the LBAA and CBAA that the owner of the
taxable properties is petitioner FELS, which in fine, is the entity being taxed by
the local government. As stipulated under Section 2.11, Article 2 of the
Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power

Barges and all the fixtures, fittings, machinery and equipment on the Site used
in connection with the Power Barges which have been supplied by it at its own
cost. POLAR shall operate, manage and maintain the Power Barges for the
purpose of converting Fuel of NAPOCOR into electricity.[52]

It follows then that FELS cannot escape liability from the payment of
realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160,
which reads:

SECTION 234. Exemptions from Real Property Tax. The following

are exempted from payment of the real property tax:

xxx

(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or
controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; x x x

Indeed, the law states that the machinery must be actually, directly and
exclusively used by the government owned or controlled corporation;
nevertheless, petitioner FELS still cannot find solace in this provision because
Section 5.5, Article 5 of the Agreement provides:

OPERATION. POLAR undertakes that until the end of the Lease

Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to
 the other provisions hereof, it will operate the Power Barges to convert such
Fuel into electricity in accordance with Part A of Article 7.[53]

It is a basic rule that obligations arising from a contract have the force of
law between the parties. Not being contrary to law, morals, good customs, public
order or public policy, the parties to the contract are bound by its terms and
conditions.[54]

Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception.[55] The law does not look with favor on tax
exemptions and the entity that would seek to be thus privileged must justify it by
words too plain to be mistaken and too categorical to be misinterpreted. [56] Thus,
applying the rule of strict construction of laws granting tax exemptions, and the
rule that doubts should be resolved in favor of provincial corporations, we hold
that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the

Agreement, that it shall be responsible for the payment of all real estate taxes
and assessments, does not justify the exemption. The privilege granted to
petitioner NPC cannot be extended to FELS. The covenant is between FELS and
NPC and does not bind a third person not privy thereto, in this case,
the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has
seriously resulted in the local governments deprivation of revenues. The power
to tax is an incident of sovereignty and is unlimited in its magnitude,
acknowledging in its very nature no perimeter so that security against its abuse is
to be found only in the responsibility of the legislature which imposes the tax on
the constituency who are to pay for it.[57] The right of local government units to
collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the autonomy of
local governments[58] and the objective of the Local Government Code that they
enjoy genuine and meaningful local autonomy to empower them to achieve their
fullest development as self-reliant communities and make them effective
partners in the attainment of national goals.[59]

In conclusion, we reiterate that the power to tax is the most potent

instrument to raise the needed revenues to finance and support myriad activities
of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people.[60]

WHEREFORE, the Petitions are DENIED and the assailed Decisions

and Resolutions AFFIRMED.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 120082. September 11, 1996]

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs. HON. FERDINAND J. MARCOS, in his capacity as the
Presiding Judge of the Regional Trial Court, Branch 20, Cebu City,
THE CITY OF CEBU, represented by its Mayor, HON. TOMAS R.
OSMEA, and EUSTAQUIO B. CESA, respondents.

DECISION
DAVIDE, JR., J.:

For review under Rule 45 of the Rules of Court on a pure question of

law are the decision of 22 March 1995[1] of the Regional Trial Court (RTC)
of Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil
Case No. CEB-16900, entitled Mactan Cebu International Airport Authority
vs. City of Cebu, and its order of 4 May 1995[2]denying the motion to
reconsider the decision.
We resolved to give due course to this petition for it raises issues
dwelling on the scope of the taxing power of local government units and the
limits of tax exemption privileges of government-owned and controlled
corporations.
The uncontradicted factual antecedents are summarized in the instant
petition as follows:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by

virtue of Republic Act No. 6958, mandated to principally undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in
Cebu City, x x x and such other airports as may be established in the Province of
Cebu x x x (Sec. 3, RA 6958). It is also mandated to:

a) encourage, promote and develop international and domestic air traffic in the
Central Visayas and Mindanao regions as a means of making the regions centers of
international trade and tourism, and accelerating the development of the means of
transportation and communication in the country; and,
b) upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption
from payment of realty taxes in accordance with Section 14 of its Charter:

Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions, agencies
and instrumentalities x x x.

On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office

of the Treasurer of the City of Cebu, demanded payment for realty taxes on several
parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A,
989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-
A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount of P2,229,078.79.

Petitioner objected to such demand for payment as baseless and unjustified,

claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from
payment of realty taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing Section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local
government units:

Section 133. Common Limitations on the Taxing Powers of Local Government

Units. -- Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:

a) x x x

xxx

o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioners realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
Local Government Code that took effect on January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege. 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 RA
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.(underscoring supplied)

xxx

Section 234. Exemptions from Real Property Taxes. x x x

(a) x x x

xxx

(e) x x x

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account under protest and
thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of
Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the
taxing powers of local government units do not extend to the levy of taxes or fees
of any kind on an instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it nonetheless stands on the
same footing as an agency or instrumentality of the national government by the
very nature of its powers and functions.

Respondent City, however, asserted that MCIAA is not an instrumentality of the

government but merely a government-owned corporation performing proprietary
functions. As such, all exemptions previously granted to it were deemed withdrawn
by operation of law, as provided under Sections 193 and 234 of the Local
Government Code when it took effect on January 1, 1992.[3]

The petition for declaratory relief was docketed as Civil Case No. CEB-
16900.
In its decision of 22 March 1995,[4] the trial court dismissed the petition in
light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160 provides
the express cancellation and withdrawal of exemption of taxes by government-
owned and controlled corporation per Sections after the effectivity of said Code
on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]

Petitioners claimed that its real properties assessed by respondent City Government
of Cebu are exempted from paying realty taxes in view of the exemption granted
under RA 6958 to pay the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and administrative
regulations, or part of parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly. (/f/, Section
534, RA 7160).

With that repealing clause in RA 7160, it is safe to infer and state that the tax
exemption provided for in RA 6958 creating petitioner had been expressly repealed
by the provisions of the New Local Government Code of 1991.

So that petitioner in this case has to pay the assessed realty tax of its properties
effective after January 1, 1992 until the present.

This Courts ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. It is hereby
declared the policy of the State that the territorial and political subdivisions of the
State shall enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them more effective
partners in the attainment of national goals.Toward this end, the State shall provide
for a more responsive and accountable local government structure instituted
through a system of decentralization whereby local government units shall be given
more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local
government units. x x x[5]

Its motion for reconsideration having been denied by the trial court in its
4 May 1995 order, the petitioner filed the instant petition based on the
following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER
IS VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE
IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF
THE GOVERNMENT.
 II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO
PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.

Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation, it is mandated to perform
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people.[6] Considering its task not merely to efficiently operate and manage
the Mactan-Cebu International Airport, but more importantly, to carry out the
Government policies of promoting and developing the Central Visayas and
Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country,[7] and that it is an attached agency of the
Department of Transportation and Communication (DOTC),[8] the petitioner
may stand in [sic] the same footing as an agency or instrumentality of the
national government. Hence, its tax exemption privilege under Section 14 of
its Charter cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof
specifically states that the `taxing powers of local government units shall not
extend to the levy of taxes or fees or charges of any kind on the national
government, its agencies and instrumentalities.
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no
power nor authority to impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation:[9]

Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stock are owned by the National
Government. . . .

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role
is governmental, which places it in the category of an agency or instrumentality of
the Government. Being an instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government.

The states have no power by taxation or otherwise, to retard, impede, burden or in

any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal
government. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local
governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them.
(Antieau, Modern Constitutional Law, Vol. 2, p. 140)

Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as a tool for regulation (U.S. v. Sanchez, 340 US
42). The power to tax which was called by Justice Marshall as the power to destroy
(Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. (underscoring
supplied)

It then concludes that the respondent Judge cannot therefore correctly

say that the questioned provisions of the Code do not contain any
distinction between a government corporation performing governmental
functions as against one performing merely proprietary ones such that the
exemption privilege withdrawn under the said Code would apply
to all government corporations. For it is clear from Section 133, in relation to
Section 234, of the LGC that the legislature meant to
exclude instrumentalities of the national government from the taxing powers
of the local government units.
In its comment, respondent City of Cebu alleges that as a local
government unit and a political subdivision, it has the power to impose, levy,
assess, and collect taxes within its jurisdiction. Such power is guaranteed
by the Constitution[10] and enhanced further by the LGC.While it may be true
that under its Charter the petitioner was exempt from the payment of realty
taxes,[11] this exemption was withdrawn by Section 234 of the LGC. In
response to the petitioners claim that such exemption was not repealed
because being an instrumentality of the National Government, Section 133
of the LGC prohibits local government units from imposing taxes, fees, or
charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234
thereof does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary
functions. Respondent City of Cebu urges this Court to apply by analogy its
ruling that the Manila International Airport Authority is a government-owned
corporation,[12] and to reject the application of Basco because it was
promulgated . . . before the enactment and the signing into law of R.A. No.
7160, and was not, therefore, decided in the light of the spirit and intention
of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people
through their Constitutions.[13] Our Constitution, for instance, provides that
the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation.[14]So potent indeed is the power
that it was once opined that the power to tax involves the power to
destroy.[15] Verily, taxation is a destructive power which interferes with the
personal and property rights of the people and takes from them a portion of
their property for the support of the government. Accordingly, tax statutes
must be construed strictly against the government and liberally in favor of
the taxpayer.[16] But since taxes are what we pay for civilized society,[17] or
are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.[18] A
claim of exemption from tax payments must be clearly shown and based on
language in the law too plain to be mistaken.[19] Elsewise stated, taxation is
the rule, exemption therefrom is the exception.[20] However, if the grantee of
the exemption is a political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect of the exemption is
merely to reduce the amount of money that has to be handled by the
government in the course of its operations.[21]
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely
by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution.[22] Under the latter, the
exercise of the power may be subject to such guidelines and limitations as
the Congress may provide which, however, must be consistent with the
basic policy of local autonomy.
 There can be no question that under Section 14 of R.A. No. 6958 the
petitioner is exempt from the payment of realty taxes imposed by the
National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus covered by
the non-impairment clause of the Constitution.[23]
The LGC, enacted pursuant to Section 3, Article X of the Constitution,
provides for the exercise by local government units of their power to tax, the
scope thereof or its limitations, and the exemptions from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing
powers of local government units as follows:

SEC. 133. Common Limitations on the Taxing Power of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage
dues, and all other kinds of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of,
or passing through, the territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees
or charges in any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from
the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
 (j) Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air,
land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except
as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered
Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the
Cooperatives Code of the Philippines respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)
Needless to say, the last item (item o) is pertinent to this case. The taxes,
fees or charges referred to are of any kind; hence, they include all of these,
unless otherwise provided by the LGC. The term taxes is well understood
so as to need no further elaboration, especially in light of the above
enumeration. The term fees means charges fixed by law or ordinance for
the regulation or inspection of business or activity,[24]while charges are
pecuniary liabilities such as rents or fees against persons or property.[25]
Among the taxes enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:

SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality
within the Metropolitan Manila Area may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not hereafter
specifically exempted.

Section 234 of the LGC provides for the exemptions from payment of
real property taxes and withdraws previous exemptions therefrom granted
to natural and juridical persons, including government-owned and controlled
corporations, except as provided therein. It provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for
consideration or otherwise, to a taxable person;
 (b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power;
(d) All real property owned by duly registered cooperatives as provided for under
R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental
protection.

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

These exemptions are based on the ownership, character, and use of

the property. Thus:
(a) Ownership Exemptions. Exemptions from real property taxes on the basis
of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a
city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-
profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual,
direct and exclusive use to which they are devoted are: (i) all lands, buildings and
improvements which are actually directly and exclusively used for religious,
charitable or educational purposes; (ii) all machineries and equipment actually,
directly and exclusively used by local water districts or by government-owned or
controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; and (iii) all machinery and
equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the

country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural

or juridical persons including government-owned or controlled corporations are
withdrawn upon the effectivity of the Code.[26]
 Section 193 of the LGC is the general provision on withdrawal of tax
exemption privileges. It provides:

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

On the other hand, the LGC authorizes local government units to grant
tax exemption privileges. Thus, Section 192 thereof provides:

SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units
may, through ordinances duly approved, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem necessary.

The foregoing sections of the LGC speak of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions or provisos in these sections, as shown by the
following clauses:
(1) unless otherwise provided herein in the opening paragraph of Section 133;
(2) Unless otherwise provided in this Code in Section 193;
(3) not hereafter specifically exempted in Section 232; and
(4) Except as provided herein in the last paragraph of Section 234

initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded.
Instead of the clause unless otherwise provided herein, with the herein to
mean, of course, the section, it should have used the clause unless
otherwise provided in this Code. The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a) which excepts
income taxes when levied on banks and other financial institutions; item (d)
which excepts wharfage on wharves constructed and maintained by the
local government unit concerned; and item (1) which excepts taxes, fees
and charges for the registration and issuance of licenses or permits for the
driving of tricycles. It may also be observed that within the body itself of the
section, there are exceptions which can be found only in other parts of the
LGC, but the section interchangeably uses therein the clause except as
otherwise provided herein as in items (c) and (i), or the clause except as
provided in this Code in item (j). These clauses would be obviously
unnecessary or mere surplusages if the opening clause of the section were
Unless otherwise provided in this Code instead of Unless otherwise
provided herein. In any event, even if the latter is used, since under Section
232 local government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC, we
conclude that as a general rule, as laid down in Section 133, the taxing
powers of local government units cannot extend to the levy of, inter alia,
taxes, fees and charges of any kind on the National Government, its
agencies and instrumentalities, and local government units; however,
pursuant to Section 232, provinces, cities, and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter
alia, real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person, as provided in
item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz., they
are withdrawn upon the effectivity of the LGC, exceptthose granted to local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption
insofar as real property taxes are concerned by limiting the retention only to
those enumerated therein; all others not included in the enumeration lost
the privilege upon the effectivity of the LGC. Moreover, even as to real
property owned by the Republic of the Philippines or any of its political
subdivisions covered by item (a) of the first paragraph of Section 234, the
exemption is withdrawn if the beneficial use of such property has been
granted to a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon
the effectivity of the LGC, exemptions from payment of real property taxes
granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily
follows that its exemption from such tax granted it in Section 14 of its
Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can
only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since,
as shown above, the said section is qualified by Sections 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section
133 that the taxing powers of the local government units cannot extend to
the levy of:

(o) taxes, fees or charges of any kind on the National Government, its agencies or
instrumentalities, and local government units.

It must show that the parcels of land in question, which are real property,
are any one of those enumerated in Section 234, either by virtue of
ownership, character, or use of the property. Most likely, it could only be the
first, but not under any explicit provision of the said section, for none
exists. In light of the petitioners theory that it is an instrumentality of the
Government, it could only be within the first item of the first paragraph of the
section by expanding the scope of the term Republic of the Philippines to
embrace its instrumentalities and agencies. For expediency, we quote:

(a) real property owned by the Republic of the Philippines, or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.

This view does not persuade us. In the first place, the petitioners claim
that it is an instrumentality of the Government is based on Section 133(o),
which expressly mentions the word instrumentalities; and, in the second
place, it fails to consider the fact that the legislature used the phrase
National Government, its agencies and instrumentalities in Section 133(o),
but only the phrase Republic of the Philippines or any of its political
subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government
of the Republic of the Philippines which the Administrative Code of 1987
defines as the corporate governmental entity through which the functions of
government are exercised throughout the Philippines, including, save as the
contrary appears from the context, the various arms through which political
authority is made affective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or barangay subdivisions
or other forms of local government.[27] These autonomous regions,
provincial, city, municipal or barangay subdivisions are the political
subdivisions.[28]
On the other hand, National Government refers to the entire machinery
of the central government, as distinguished from the different forms of local
governments.[29] The National Government then is composed of the three
great departments: the executive, the legislative and the judicial.[30]
An agency of the Government refers to any of the various units of the
Government, including a department, bureau, office, instrumentality, or
government-owned or controlled corporation, or a local government or a
distinct unit therein;[31] while an instrumentality refers to any agency of the
National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned and
controlled corporations.[32]
If Section 234(a) intended to extend the exception therein to the
withdrawal of the exemption from payment of real property taxes under the
last sentence of the said section to the agencies and instrumentalities of the
National Government mentioned in Section 133(o), then it should have
restated the wording of the latter. Yet, it did not. Moreover, that Congress
did not wish to expand the scope of the exemption in Section 234(a) to
include real property owned by other instrumentalities or agencies of the
government including government-owned and controlled corporations is
further borne out by the fact that the source of this exemption is Section
40(a) of P.D. No. 464, otherwise known as The Real Property Tax Code,
which reads:

SEC. 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporation so exempt by its
charter: Provided, however, That this exemption shall not apply to real property of
the above-mentioned entities the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person.

Note that as reproduced in Section 234(a), the phrase and any government-
owned or controlled corporation so exempt by its charter was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of the general
provision on withdrawal of tax exemption privileges in Section 193 and the
special provision on withdrawal of exemption from payment of real property
taxes in the last paragraph of Section 234. These policy considerations are
consistent with the State policy to ensure autonomy to local
governments[33] and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them effective partners
in the attainment of national goals.[34] The power to tax is the most effective
instrument to raise needed revenues to finance and support myriad
activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. It may also be relevant to
recall that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other
units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated enterprises,
and there was a need for these entities to share in the requirements of
development, fiscal or otherwise, by paying the taxes and other charges
due from them.[35]
The crucial issues then to be addressed are: (a) whether the parcels of
land in question belong to the Republic of the Philippines whose beneficial
use has been granted to the petitioner, and (b) whether the petitioner is a
taxable person.
Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public
airport facilities, runways, lands, buildings and other properties, movable or
immovable, belonging to or presently administered by the airports, and all assets,
powers, rights, interests and privileges relating on airport works or air operations,
including all equipment which are necessary for the operations of air navigation,
aerodrome control towers, crash, fire, and rescue facilities are hereby transferred to
the Authority: Provided, however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways communication,
the approach control office, and the area control center shall be retained by the Air
Transportation Office. No equipment, however, shall be removed by the Air
Transportation Office from Mactan without the concurrence of the Authority. The
Authority may assist in the maintenance of the Air Transportation Office
equipment.
 The airports referred to are the Lahug Air Port in Cebu City and the
Mactan International Airport in the Province of Cebu,[36] which belonged to
the Republic of the Philippines, then under the Air Transportation Office
(ATO).[37]
It may be reasonable to assume that the term lands refer to lands in
Cebu City then administered by the Lahug Air Port and includes the parcels
of land the respondent City of Cebu seeks to levy on for real property
taxes. This section involves a transfer of the lands, among other things, to
the petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
This transfer is actually an absolute conveyance of the ownership
thereof because the petitioners authorized capital stock consists of, inter
alia, the value of such real estate owned and/or administered by the
airports.[38] Hence, the petitioner is now the owner of the land in question
and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a taxable person
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive
proof of the legislative intent to make it a taxable person subject to all taxes,
except real property tax.
Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the foregoing disquisitions, it had
already become, even if it be conceded to be an agency or instrumentality
of the Government, a taxable person for such purpose in view of the
withdrawal in the last paragraph of Section 234 of exemptions from the
payment of real property taxes, which, as earlier adverted to, applies to the
petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Philippine Amusement and Gaming Corporation[39]is unavailing
since it was decided before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to
tax. Where it is done precisely to fulfill a constitutional mandate and national
policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision
and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No.
CEB-16900 are AFFIRMED.
No pronouncement as to costs.
 G.R. No. L-24693 July 31, 1967

ERMITA-MALATE HOTEL AND MOTEL OPERATORS ASSOCIATION, INC.,

HOTEL DEL MAR INC. and GO CHIU,

petitioners-appellees,
vs.
THE HONORABLE CITY MAYOR OF MANILA, respondent-appellant.
VICTOR ALABANZA, intervenor-appellee.

Panganiban, Abad and Associates Law Office for respondent-appellant.

J. M. Aruego, Tenchavez and Associates for intervenor-appellee.

FERNANDO, J.:

The principal question in this appeal from a judgment of the lower court in an action
for prohibition is whether Ordinance No. 4760 of the City of Manila is violative of the
due process clause. The lower court held that it is and adjudged it "unconstitutional,
and, therefore, null and void." For reasons to be more specifically set forth, such
judgment must be reversed, there being a failure of the requisite showing to sustain
an attack against its validity.

The petition for prohibition against Ordinance No. 4760 was filed on July 5, 1963 by
the petitioners, Ermita-Malate Hotel and Motel Operators Association, one of its
members, Hotel del Mar Inc., and a certain Go Chiu, who is "the president and
general manager of the second petitioner" against the respondent Mayor of the City
of Manila who was sued in his capacity as such "charged with the general power and
duty to enforce ordinances of the City of Manila and to give the necessary orders for
the faithful execution and enforcement of such ordinances." (par. 1). It was alleged
that the petitioner non-stock corporation is dedicated to the promotion and protection
of the interest of its eighteen (18) members "operating hotels and motels,
characterized as legitimate businesses duly licensed by both national and city
authorities, regularly paying taxes, employing and giving livelihood to not less than
2,500 person and representing an investment of more than P3 million." 1 (par. 2). It
was then alleged that on June 13, 1963, the Municipal Board of the City of Manila
enacted Ordinance No. 4760, approved on June 14, 1963 by the then Vice-Mayor
Herminio Astorga, who was at the time acting as Mayor of the City of Manila. (par. 3).

After which the alleged grievances against the ordinance were set forth in detail.
There was the assertion of its being beyond the powers of the Municipal Board of the
City of Manila to enact insofar as it would regulate motels, on the ground that in the
revised charter of the City of Manila or in any other law, no reference is made to
motels; that Section 1 of the challenged ordinance is unconstitutional and void for
being unreasonable and violative of due process insofar as it would impose
P6,000.00 fee per annum for first class motels and P4,500.00 for second class
motels; that the provision in the same section which would require the owner,
manager, keeper or duly authorized representative of a hotel, motel, or lodging house
to refrain from entertaining or accepting any guest or customer or letting any room or
other quarter to any person or persons without his filling up the prescribed form in a
lobby open to public view at all times and in his presence, wherein the surname,
given name and middle name, the date of birth, the address, the occupation, the sex,
the nationality, the length of stay and the number of companions in the room, if any,
with the name, relationship, age and sex would be specified, with data furnished as to
his residence certificate as well as his passport number, if any, coupled with a
certification that a person signing such form has personally filled it up and affixed his
signature in the presence of such owner, manager, keeper or duly authorized
representative, with such registration forms and records kept and bound together, it
also being provided that the premises and facilities of such hotels, motels and lodging
houses would be open for inspection either by the City Mayor, or the Chief of Police,
or their duly authorized representatives is unconstitutional and void again on due
process grounds, not only for being arbitrary, unreasonable or oppressive but also for
being vague, indefinite and uncertain, and likewise for the alleged invasion of the
right to privacy and the guaranty against self-incrimination; that Section 2 of the
challenged ordinance classifying motels into two classes and requiring the
maintenance of certain minimum facilities in first class motels such as a telephone in
each room, a dining room or, restaurant and laundry similarly offends against the due
process clause for being arbitrary, unreasonable and oppressive, a conclusion which
applies to the portion of the ordinance requiring second class motels to have a dining
room; that the provision of Section 2 of the challenged ordinance prohibiting a person
less than 18 years old from being accepted in such hotels, motels, lodging houses,
tavern or common inn unless accompanied by parents or a lawful guardian and
making it unlawful for the owner, manager, keeper or duly authorized representative
of such establishments to lease any room or portion thereof more than twice every 24
hours, runs counter to the due process guaranty for lack of certainty and for its
unreasonable, arbitrary and oppressive character; and that insofar as the penalty
provided for in Section 4 of the challenged ordinance for a subsequent conviction
would, cause the automatic cancellation of the license of the offended party, in effect
causing the destruction of the business and loss of its investments, there is once
again a transgression of the due process clause.

There was a plea for the issuance of preliminary injunction and for a final judgment
declaring the above ordinance null and void and unenforceable. The lower court on
July 6, 1963 issued a writ of preliminary injunction ordering respondent Mayor to
refrain from enforcing said Ordinance No. 4760 from and after July 8, 1963.

In the a answer filed on August 3, 1963, there was an admission of the personal
circumstances regarding the respondent Mayor and of the fact that petitioners are
licensed to engage in the hotel or motel business in the City of Manila, of the
provisions of the cited Ordinance but a denial of its alleged nullity, whether on
statutory or constitutional grounds. After setting forth that the petition did fail to state a
cause of action and that the challenged ordinance bears a reasonable relation, to a
proper purpose, which is to curb immorality, a valid and proper exercise of the police
power and that only the guests or customers not before the court could complain of
the alleged invasion of the right to privacy and the guaranty against self incrimination,
with the assertion that the issuance of the preliminary injunction ex parte was contrary
to law, respondent Mayor prayed for, its dissolution and the dismissal of the petition.

Instead of evidence being offered by both parties, there was submitted a stipulation of
facts dated September 28, 1964, which reads:

1. That the petitioners Ermita-Malate Hotel and Motel Operators Association,

Inc. and Hotel del Mar Inc. are duly organized and existing under the laws of
the Philippines, both with offices in the City of Manila, while the petitioner Go
Chin is the president and general manager of Hotel del Mar Inc., and the
intervenor Victor Alabanza is a resident of Baguio City, all having the capacity
to sue and be sued;

2. That the respondent Mayor is the duly elected and incumbent City Mayor
and chief executive of the City of Manila charged with the general power and
duty to enforce ordinances of the City of Manila and to give the necessary
orders for the faithful execution and enforcement of such ordinances;

3. That the petitioners are duly licensed to engage in the business of operating
hotels and motels in Malate and Ermita districts in Manila;

4. That on June 13, 1963, the Municipal Board of the City of Manila enacted
Ordinance No. 4760, which was approved on June 14, 1963, by Vice-Mayor
Herminio Astorga, then the acting City Mayor of Manila, in the absence of the
respondent regular City Mayor, amending sections 661, 662, 668-a, 668-b and
669 of the compilation of the ordinances of the City of Manila besides inserting
therein three new sections. This ordinance is similar to the one vetoed by the
respondent Mayor (Annex A) for the reasons stated in its 4th Indorsement
dated February 15, 1963 (Annex B);

5. That the explanatory note signed by then Councilor Herminio Astorga was
submitted with the proposed ordinance (now Ordinance 4760) to the Municipal
Board, copy of which is attached hereto as Annex C;

6. That the City of Manila derived in 1963 an annual income of P101,904.05

from license fees paid by the 105 hotels and motels (including herein
petitioners) operating in the City of Manila.1äwphï1.ñët

Thereafter came a memorandum for respondent on January 22, 1965, wherein stress
was laid on the presumption of the validity of the challenged ordinance, the burden of
showing its lack of conformity to the Constitution resting on the party who assails it,
citing not only U.S. v. Salaveria, but likewise applicable American authorities. Such a
memorandum likewise refuted point by point the arguments advanced by petitioners
against its validity. Then barely two weeks later, on February 4, 1965, the
memorandum for petitioners was filed reiterating in detail what was set forth in the
petition, with citations of what they considered to be applicable American authorities
and praying for a judgment declaring the challenged ordinance "null and void and
unenforceable" and making permanent the writ of preliminary injunction issued.

After referring to the motels and hotels, which are members of the petitioners
association, and referring to the alleged constitutional questions raised by the party,
the lower court observed: "The only remaining issue here being purely a question of
law, the parties, with the nod of the Court, agreed to file memoranda and thereafter,
to submit the case for decision of the Court." It does appear obvious then that without
any evidence submitted by the parties, the decision passed upon the alleged infirmity
on constitutional grounds of the challenged ordinance, dismissing as is undoubtedly
right and proper the untenable objection on the alleged lack of authority of the City of
Manila to regulate motels, and came to the conclusion that "the challenged Ordinance
No. 4760 of the City of Manila, would be unconstitutional and, therefore, null and
void." It made permanent the preliminary injunction issued against respondent Mayor
and his agents "to restrain him from enforcing the ordinance in question." Hence this
appeal.

As noted at the outset, the judgment must be reversed. A decent regard for
constitutional doctrines of a fundamental character ought to have admonished the
lower court against such a sweeping condemnation of the challenged ordinance. Its
decision cannot be allowed to stand, consistently with what has hitherto been the
accepted standards of constitutional adjudication, in both procedural and substantive
aspects.

Primarily what calls for a reversal of such a decision is the absence of any evidence
to offset the presumption of validity that attaches to a challenged statute or ordinance.
As was expressed categorically by Justice Malcolm: "The presumption is all in favor
of validity x x x . The action of the elected representatives of the people cannot be
lightly set aside. The councilors must, in the very nature of things, be familiar with the
necessities of their particular municipality and with all the facts and circumstances
which surround the subject and necessitate action. The local legislative body, by
enacting the ordinance, has in effect given notice that the regulations are essential to
the well being of the people x x x . The Judiciary should not lightly set aside
legislative action when there is not a clear invasion of personal or property rights
under the guise of police regulation.2

It admits of no doubt therefore that there being a presumption of validity, the

necessity for evidence to rebut it is unavoidable, unless the statute or ordinance is
void on its face which is not the case here. The principle has been nowhere better
expressed than in the leading case of O'Gorman & Young v. Hartford Fire Insurance
Co.,3 where the American Supreme Court through Justice Brandeis tersely and
succinctly summed up the matter thus: The statute here questioned deals with a
subject clearly within the scope of the police power. We are asked to declare it void
on the ground that the specific method of regulation prescribed is unreasonable and
hence deprives the plaintiff of due process of law. As underlying questions of fact
may condition the constitutionality of legislation of this character, the resumption of
constitutionality must prevail in the absence of some factual foundation of record for
overthrowing the statute." No such factual foundation being laid in the present case,
the lower court deciding the matter on the pleadings and the stipulation of facts, the
presumption of validity must prevail and the judgment against the ordinance set
aside.

Nor may petitioners assert with plausibility that on its face the ordinance is fatally
defective as being repugnant to the due process clause of the Constitution. The
mantle of protection associated with the due process guaranty does not cover
petitioners. This particular manifestation of a police power measure being specifically
aimed to safeguard public morals is immune from such imputation of nullity resting
purely on conjecture and unsupported by anything of substance. To hold otherwise
would be to unduly restrict and narrow the scope of police power which has been
properly characterized as the most essential, insistent and the least limitable of
powers,4 extending as it does "to all the great public needs." 5 It would be, to
paraphrase another leading decision, to destroy the very purpose of the state if it
could be deprived or allowed itself to be deprived of its competence to promote public
health, public morals, public safety and the genera welfare. 6 Negatively put, police
power is "that inherent and plenary power in the State which enables it to prohibit all
that is hurt full to the comfort, safety, and welfare of society.7

There is no question but that the challenged ordinance was precisely enacted to
minimize certain practices hurtful to public morals. The explanatory note of the
Councilor Herminio Astorga included as annex to the stipulation of facts, speaks of
the alarming increase in the rate of prostitution, adultery and fornication in Manila
traceable in great part to the existence of motels, which "provide a necessary
atmosphere for clandestine entry, presence and exit" and thus become the "ideal
haven for prostitutes and thrill-seekers." The challenged ordinance then proposes to
check the clandestine harboring of transients and guests of these establishments by
requiring these transients and guests to fill up a registration form, prepared for the
purpose, in a lobby open to public view at all times, and by introducing several other
amendatory provisions calculated to shatter the privacy that characterizes the
registration of transients and guests." Moreover, the increase in the licensed fees was
intended to discourage "establishments of the kind from operating for purpose other
than legal" and at the same time, to increase "the income of the city government." It
would appear therefore that the stipulation of facts, far from sustaining any attack
against the validity of the ordinance, argues eloquently for it.

It is a fact worth noting that this Court has invariably stamped with the seal of its
approval, ordinances punishing vagrancy and classifying a pimp or procurer as a
vagrant;8 provide a license tax for and regulating the maintenance or operation of
public dance halls;9 prohibiting gambling;10 prohibiting jueteng;11 and
12
monte; prohibiting playing of panguingui on days other than Sundays or legal
holidays;13 prohibiting the operation of pinball machines;14 and prohibiting any person
from keeping, conducting or maintaining an opium joint or visiting a place where
opium is smoked or otherwise used,15 all of which are intended to protect public
morals.

On the legislative organs of the government, whether national or local, primarily rest
the exercise of the police power, which, it cannot be too often emphasized, is the
power to prescribe regulations to promote the health, morals, peace, good order,
safety and general welfare of the people. In view of the requirements of due process,
equal protection and other applicable constitutional guaranties however, the exercise
of such police power insofar as it may affect the life, liberty or property of any person
is subject to judicial inquiry. Where such exercise of police power may be considered
as either capricious, whimsical, unjust or unreasonable, a denial of due process or a
violation of any other applicable constitutional guaranty may call for correction by the
courts.

We are thus led to considering the insistent, almost shrill tone, in which the objection
is raised to the question of due process.16 There is no controlling and precise
definition of due process. It furnishes though a standard to which the governmental
action should conform in order that deprivation of life, liberty or property, in each
appropriate case, be valid. What then is the standard of due process which must exist
both as a procedural and a substantive requisite to free the challenged ordinance, or
any governmental action for that matter, from the imputation of legal infirmity
sufficient to spell its doom? It is responsiveness to the supremacy of reason,
obedience to the dictates of justice. Negatively put, arbitrariness is ruled out and
unfairness avoided. To satisfy the due process requirement, official action, to
paraphrase Cardozo, must not outrun the bounds of reason and result in sheer
oppression. Due process is thus hostile to any official action marred by lack of
reasonableness. Correctly it has been identified as freedom from arbitrariness. It is
the embodiment of the sporting idea of fair play.17 It exacts fealty "to those strivings
for justice" and judges the act of officialdom of whatever branch "in the light of reason
drawn from considerations of fairness that reflect [democratic] traditions of legal and
political thought."18 It is not a narrow or "technical conception with fixed content
unrelated to time, place and circumstances," 19 decisions based on such a clause
requiring a "close and perceptive inquiry into fundamental principles of our
society."20 Questions of due process are not to be treated narrowly or pedantically in
slavery to form or phrases.21

It would thus be an affront to reason to stigmatize an ordinance enacted precisely to

meet what a municipal lawmaking body considers an evil of rather serious proportion
an arbitrary and capricious exercise of authority. It would seem that what should be
deemed unreasonable and what would amount to an abdication of the power to
govern is inaction in the face of an admitted deterioration of the state of public morals.
To be more specific, the Municipal Board of the City of Manila felt the need for a
remedial measure. It provided it with the enactment of the challenged ordinance. A
strong case must be found in the records, and, as has been set forth, none is even
attempted here to attach to an ordinance of such character the taint of nullity for an
alleged failure to meet the due process requirement. Nor does it lend any semblance
even of deceptive plausibility to petitioners' indictment of Ordinance No. 4760 on due
process grounds to single out such features as the increased fees for motels and
hotels, the curtailment of the area of freedom to contract, and, in certain particulars,
its alleged vagueness.

Admittedly there was a decided increase of the annual license fees provided for by
the challenged ordinance for hotels and motels, 150% for the former and over 200%
for the latter, first-class motels being required to pay a P6,000 annual fee and
second-class motels, P4,500 yearly. It has been the settled law however, as far back
as 1922 that municipal license fees could be classified into those imposed for
regulating occupations or regular enterprises, for the regulation or restriction of non-
useful occupations or enterprises and for revenue purposes only. 22 As was explained
more in detail in the above Cu Unjieng case: (2) Licenses for non-useful occupations
are also incidental to the police power and the right to exact a fee may be implied
from the power to license and regulate, but in fixing amount of the license fees the
municipal corporations are allowed a much wider discretion in this class of cases than
in the former, and aside from applying the well-known legal principle that municipal
ordinances must not be unreasonable, oppressive, or tyrannical, courts have, as a
general rule, declined to interfere with such discretion. The desirability of imposing
restraint upon the number of persons who might otherwise engage in non-useful
enterprises is, of course, generally an important factor in the determination of the
amount of this kind of license fee. Hence license fees clearly in the nature of privilege
taxes for revenue have frequently been upheld, especially in of licenses for the sale
of liquors. In fact, in the latter cases the fees have rarely been declared
unreasonable.23

Moreover in the equally leading case of Lutz v. Araneta24 this Court affirmed the
doctrine earlier announced by the American Supreme Court that taxation may be
made to implement the state's police power. Only the other day, this Court had
occasion to affirm that the broad taxing authority conferred by the Local Autonomy
Act of 1959 to cities and municipalities is sufficiently plenary to cover a wide range of
subjects with the only limitation that the tax so levied is for public purposes, just and
uniform.25

As a matter of fact, even without reference to the wide latitude enjoyed by the City of
Manila in imposing licenses for revenue, it has been explicitly held in one case that
"much discretion is given to municipal corporations in determining the amount," here
the license fee of the operator of a massage clinic, even if it were viewed purely as a
police power measure.26 The discussion of this particular matter may fitly close with
this pertinent citation from another decision of significance: "It is urged on behalf of
the plaintiffs-appellees that the enforcement of the ordinance could deprive them of
their lawful occupation and means of livelihood because they can not rent stalls in the
public markets. But it appears that plaintiffs are also dealers in refrigerated or cold
storage meat, the sale of which outside the city markets under certain conditions is
permitted x x x . And surely, the mere fact, that some individuals in the community
may be deprived of their present business or a particular mode of earning a living
cannot prevent the exercise of the police power. As was said in a case, persons
licensed to pursue occupations which may in the public need and interest be affected
by the exercise of the police power embark in these occupations subject to the
disadvantages which may result from the legal exercise of that power." 27

Nor does the restriction on the freedom to contract, insofar as the challenged
ordinance makes it unlawful for the owner, manager, keeper or duly authorized
representative of any hotel, motel, lodging house, tavern, common inn or the like, to
lease or rent room or portion thereof more than twice every 24 hours, with a proviso
that in all cases full payment shall be charged, call for a different conclusion. Again,
such a limitation cannot be viewed as a transgression against the command of due
process. It is neither unreasonable nor arbitrary. Precisely it was intended to curb the
opportunity for the immoral or illegitimate use to which such premises could be, and,
according to the explanatory note, are being devoted. How could it then be arbitrary
or oppressive when there appears a correspondence between the undeniable
existence of an undesirable situation and the legislative attempt at correction.
Moreover, petitioners cannot be unaware that every regulation of conduct amounts to
curtailment of liberty which as pointed out by Justice Malcolm cannot be absolute.
Thus: "One thought which runs through all these different conceptions of liberty is
plainly apparent. It is this: 'Liberty' as understood in democracies, is not license; it is
'liberty regulated by law.' Implied in the term is restraint by law for the good of the
individual and for the greater good of the peace and order of society and the general
well-being. No man can do exactly as he pleases. Every man must renounce
unbridled license. The right of the individual is necessarily subject to reasonable
restraint by general law for the common good x x x The liberty of the citizen may be
restrained in the interest of the public health, or of the public order and safety, or
otherwise within the proper scope of the police power." 28

A similar observation was made by Justice Laurel: "Public welfare, then, lies at the
bottom of the enactment of said law, and the state in order to promote the general
welfare may interfere with personal liberty, with property, and with business and
occupations. Persons and property may be subjected to all kinds of restraints and
burdens, in order to secure the general comfort, health, and prosperity of the state x x
x To this fundamental aim of our Government the rights of the individual are
subordinated. Liberty is a blessing without which life is a misery, but liberty should not
be made to prevail over authority because then society will fall into anarchy. Neither
should authority be made to prevail over liberty because then the individual will fall
into slavery. The citizen should achieve the required balance of liberty and authority
in his mind through education and personal discipline, so that there may be
established the resultant equilibrium, which means peace and order and happiness
for all.29

It is noteworthy that the only decision of this Court nullifying legislation because of
undue deprivation of freedom to contract, People v. Pomar,30 no longer "retains its
virtuality as a living principle. The policy of laissez faire has to some extent given way
to the assumption by the government of the right of intervention even in contractual
relations affected with public interest.31 What may be stressed sufficiently is that if the
liberty involved were freedom of the mind or the person, the standard for the validity
of governmental acts is much more rigorous and exacting, but where the liberty
curtailed affects at the most rights of property, the permissible scope of regulatory
measure is wider.32 How justify then the allegation of a denial of due process?

Lastly, there is the attempt to impugn the ordinance on another due process ground
by invoking the principles of vagueness or uncertainty. It would appear from a recital
in the petition itself that what seems to be the gravamen of the alleged grievance is
that the provisions are too detailed and specific rather than vague or uncertain.
Petitioners, however, point to the requirement that a guest should give the name,
relationship, age and sex of the companion or companions as indefinite and uncertain
in view of the necessity for determining whether the companion or companions
referred to are those arriving with the customer or guest at the time of the registry or
entering the room With him at about the same time or coming at any indefinite time
later to join him; a proviso in one of its sections which cast doubt as to whether the
maintenance of a restaurant in a motel is dependent upon the discretion of its owners
or operators; another proviso which from their standpoint would require a guess as to
whether the "full rate of payment" to be charged for every such lease thereof means a
full day's or merely a half-day's rate. It may be asked, do these allegations suffice to
render the ordinance void on its face for alleged vagueness or uncertainty? To ask
the question is to answer it. From Connally v. General Construction Co.33 to Adderley
v. Florida,34 the principle has been consistently upheld that what makes a statute
susceptible to such a charge is an enactment either forbidding or requiring the doing
of an act that men of common intelligence must necessarily guess at its meaning and
differ as to its application. Is this the situation before us? A citation from Justice
Holmes would prove illuminating: "We agree to all the generalities about not
supplying criminal laws with what they omit but there is no canon against using
common sense in construing laws as saying what they obviously mean." 35

That is all then that this case presents. As it stands, with all due allowance for the
arguments pressed with such vigor and determination, the attack against the validity
of the challenged ordinance cannot be considered a success. Far from it. Respect for
constitutional law principles so uniformly held and so uninterruptedly adhered to by
this Court compels a reversal of the appealed decision.

Wherefore, the judgment of the lower court is reversed and the injunction issued lifted
forthwith. With costs.

Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Angeles, JJ.,
concur.
Concepcion, C.J. and Dizon, J., are on leave.
ROMEO P. GEROCHI, G.R. No. 159796
KATULONG NG BAYAN (KB)
and ENVIRONMENTALIST Present:
CONSUMERS NETWORK, INC.
(ECN), PUNO, C.J.,
Petitioners, QUISUMBING,
YNARES-SANTIAGO,
-versus- SANDOVAL-GUTIERREZ,
CARPIO,
DEPARTMENT OF ENERGY AUSTRIA-MARTINEZ,
(DOE), ENERGY REGULATORY CORONA,
COMMISSION (ERC), CARPIO MORALES,
NATIONAL POWER AZCUNA,
CORPORATION (NPC), POWER TINGA,
SECTOR ASSETS AND CHICO-NAZARIO,
LIABILITIES MANAGEMENT GARCIA,
GROUP (PSALM Corp.), VELASCO, JR. and
STRATEGIC POWER NACHURA, JJ.
UTILITIES GROUP (SPUG),
and PANAYELECTRIC Promulgated:
COMPANY INC. (PECO),
Respondents. July 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

NACHURA, J.:

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist

Consumers Network, Inc. (ECN) (petitioners), come before this Court in this
original action praying that Section 34 of Republic Act (RA) 9136, otherwise
known as the Electric Power Industry Reform Act of 2001 (EPIRA), imposing
the Universal Charge,[1] and Rule 18 of the Rules and Regulations (IRR)[2]which
seeks to implement the said imposition, be declared unconstitutional. Petitioners
also pray that the Universal Charge imposed upon the consumers be refunded
and that a preliminary injunction and/or temporary restraining order (TRO) be
issued directing the respondents to refrain from implementing, charging, and
collecting the said charge.[3] The assailed provision of law reads:

SECTION 34. Universal Charge. Within one (1) year from the
effectivity of this Act, a universal charge to be determined, fixed and
approved by the ERC, shall be imposed on all electricity end-users for
the following purposes:

(a) Payment for the stranded debts[4] in excess of the amount assumed
by the National Government and stranded contract costs of
NPC[5]and as well as qualified stranded contract costs of
distribution utilities resulting from the restructuring of the
industry;

(b) Missionary electrification;[6]

(c) The equalization of the taxes and royalties applied to indigenous or

renewable sources of energy vis--vis imported energy fuels;

(d) An environmental charge equivalent to one-fourth of one centavo

per kilowatt-hour (P0.0025/kWh), which shall accrue to an
environmental fund to be used solely for watershed rehabilitation
and management. Said fund shall be managed by NPC under
existing arrangements; and

(e) A charge to account for all forms of cross-subsidies for a period

not exceeding three (3) years.

The universal charge shall be a non-bypassable charge which shall be

passed on and collected from all end-users on a monthly basis by the
distribution utilities. Collections by the distribution utilities and the
TRANSCO in any given month shall be remitted to the PSALM Corp.
on or before the fifteenth (15th) of the succeeding month, net of any
amount due to the distribution utility. Any end-user or self-generating
entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The
PSALM Corp., as administrator of the fund, shall create a Special
Trust Fund which shall be disbursed only for the purposes specified
herein in an open and transparent manner. All amount collected for the
universal charge shall be distributed to the respective beneficiaries
within a reasonable period to be provided by the ERC.
 The Facts

Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]

On April 5, 2002, respondent National Power Corporation-Strategic Power

Utilities Group[8] (NPC-SPUG) filed with respondent Energy Regulatory
Commission (ERC) a petition for the availment from the Universal Charge of its
share for Missionary Electrification, docketed as ERC Case No. 2002-165.[9]

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case
No. 2002-194, praying that the proposed share from the Universal Charge for the
Environmental charge of P0.0025 per kilowatt-hour (/kWh), or a total
of P119,488,847.59, be approved for withdrawal from the Special
Trust Fund (STF) managed by respondent Power Sector Assets and

Liabilities Management Group (PSALM)[10] for the rehabilitation and

management of watershed areas.[11]

On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165
provisionally approving the computed amount of P0.0168/kWh as the share of
the NPC-SPUG from the Universal Charge for Missionary Electrification and
authorizing the National Transmission Corporation (TRANSCO) and
Distribution Utilities to collect the same from its end-users on a monthly basis.

On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002-
165) modifying its Order of December 20, 2002, thus:

WHEREFORE, the foregoing premises considered, the

provisional authority granted to petitioner National Power
Corporation-Strategic Power Utilities Group (NPC-SPUG) in the
Order dated December 20, 2002 is hereby modified to the effect that
an additional amount of P0.0205 per kilowatt-hour should be added to
the P0.0168 per kilowatt-hour provisionally authorized by the
Commission in the said Order. Accordingly, a total amount of P0.0373
 per kilowatt-hour is hereby APPROVED for withdrawal from the
Special Trust Fund managed by PSALM as its share from the
Universal Charge for Missionary Electrification (UC-ME) effective on
the following billing cycles:

(a) June 26-July 25, 2003 for National Transmission

Corporation (TRANSCO); and
(b) July 2003 for Distribution Utilities (Dus).

Relative thereto, TRANSCO and Dus are directed to collect the

UC-ME in the amount of P0.0373 per kilowatt-hour and remit the
same to PSALM on or before the 15th day of the succeeding month.

In the meantime, NPC-SPUG is directed to submit, not later

than April 30, 2004, a detailed report to include Audited Financial
Statements and physical status (percentage of completion) of the
projects using the prescribed format.

Let copies of this Order be furnished petitioner NPC-SPUG and

all distribution utilities (Dus).

SO ORDERED.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the
ERC, among others,[14] to set aside the above-mentioned Decision, which the
ERC granted in its Order dated October 7, 2003, disposing:

WHEREFORE, the foregoing premises considered, the Motion for

Reconsideration filed by petitioner National Power Corporation-Small
Power Utilities Group (NPC-SPUG) is hereby GRANTED.
Accordingly, the Decision dated June 26, 2003 is hereby modified
accordingly.

Relative thereto, NPC-SPUG is directed to submit a quarterly report

on the following:

1. Projects for CY 2002 undertaken;

2. Location
3. Actual amount utilized to complete the project;
4. Period of completion;
 5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if
any.
SO ORDERED.[15]

Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194,

authorizing the NPC to draw up to P70,000,000.00 from PSALM for its 2003
Watershed Rehabilitation Budget subject to the availability of funds for the
Environmental Fund component of the Universal Charge.[16]

On the basis of the said ERC decisions, respondent Panay Electric Company,
Inc. (PECO) charged petitioner Romeo P. Gerochi and all other

end-users with the Universal Charge as reflected in their respective electric bills
starting from the month of July 2003.[17]
Hence, this original action.

Petitioners submit that the assailed provision of law and its IRR which sought to
implement the same are unconstitutional on the following grounds:

1) The universal charge provided for under Sec. 34 of the EPIRA and
sought to be implemented under Sec. 2, Rule 18 of the IRR of the
said law is a tax which is to be collected from all electric end-users
and self-generating entities. The power to tax is strictly a
legislative function and as such, the delegation of said power to
any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The assailed
provision clearly provides that the Universal Charge is to be
determined, fixed and approved by the ERC, hence leaving to the
latter complete discretionary legislative authority.

2) The ERC is also empowered to approve and determine where the

funds collected should be used.

3) The imposition of the Universal Charge on all end-users is

oppressive and confiscatory and amounts to taxation without
 representation as the consumers were not given a chance to be
heard and represented.[18]

Petitioners contend that the Universal Charge has the characteristics of a

tax and is collected to fund the operations of the NPC. They argue that the
cases[19] invoked by the respondents clearly show the regulatory purpose of the
charges imposed therein, which is not so in the case at bench. In said cases, the
respective funds[20] were created in order to balance and stabilize the prices of oil
and sugar, and to act as buffer to counteract the changes and adjustments in
prices, peso devaluation, and other variables which cannot be adequately and
timely monitored by the legislature. Thus, there was a need to delegate powers to
administrative bodies.[21] Petitioners posit that the Universal Charge is imposed
not for a similar purpose.
On the other hand, respondent PSALM through the Office of the Government
Corporate Counsel (OGCC) contends that unlike a tax which is imposed to
provide income for public purposes, such as support of the government,
administration of the law, or payment of public expenses, the assailed Universal
Charge is levied for a specific regulatory purpose, which is to ensure the
viability of the country's electric power industry. Thus, it is exacted by the State
in the exercise of its inherent police power. On this premise, PSALM submits
that there is no undue delegation of legislative power to the ERC since the latter
merely exercises a limited authority or discretion as to the execution and
implementation of the provisions of the EPIRA.[22]

Respondents Department of Energy (DOE), ERC, and NPC, through the Office
of the Solicitor General (OSG), share the same view that the Universal Charge is
not a tax because it is levied for a specific regulatory purpose, which is to ensure
the viability of the country's electric power industry, and is, therefore, an
exaction in the exercise of the State's police power. Respondents further contend
that said Universal Charge does not possess the essential characteristics of a tax,
that its imposition would redound to the benefit of the electric power industry
and not to the public, and that its rate is uniformly levied on electricity end-
users, unlike a tax which is imposed based on the individual taxpayer's ability to
pay. Moreover, respondents deny that there is undue delegation of legislative
power to the ERC since the EPIRA sets forth sufficient determinable standards
which would guide the ERC in the exercise of the powers granted to it. Lastly,
respondents argue that the imposition of the Universal Charge is not oppressive
and confiscatory since it is an exercise of the police power of the State and it
complies with the requirements of due process.[23]

On its part, respondent PECO argues that it is duty-bound to collect and remit
the amount pertaining to the Missionary Electrification and Environmental Fund
components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the
Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could
be held liable under Sec. 46[24] of the EPIRA, which imposes fines and penalties
for any violation of its provisions or its IRR.[25]

The Issues

The ultimate issues in the case at bar are:

1) Whether or not, the Universal Charge imposed under Sec. 34 of

the EPIRA is a tax; and

2) Whether or not there is undue delegation of legislative power to

tax on the part of the ERC.[26]

Before we discuss the issues, the Court shall first deal with an obvious
procedural lapse.

Petitioners filed before us an original action particularly denominated as a

Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the
Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners
have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA
because they sustained a direct injury as a result of the imposition of the
Universal Charge as reflected in their electric bills.
 However, petitioners violated the doctrine of hierarchy of courts when
they filed this Complaint directly with us. Furthermore, the Complaint is bereft
of any allegation of grave abuse of discretion on the part of the ERC or any of
the public respondents, in order for the Court to consider it as a petition
for certiorari or prohibition.

Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically
provides that:

SECTION 5. The Supreme Court shall have the following

powers:

1. Exercise original jurisdiction over cases affecting ambassadors,

other public ministers and consuls, and over petitions for
certiorari, prohibition, mandamus, quo warranto, and habeas
corpus.
2. Review, revise, reverse, modify, or affirm on appeal or certiorari,
as the law or the rules of court may provide, final judgments and
orders of lower courts in:

(a) All cases in which the constitutionality or validity of

any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.

But this Court's jurisdiction to issue writs of certiorari,

prohibition, mandamus, quo warranto, and habeas corpus, while concurrent
with that of the regional trial courts and the Court of Appeals, does not give
litigants unrestrained freedom of choice of forum from which to seek such
relief.[28] It has long been established that this Court will not entertain direct
resort to it unless the redress desired cannot be obtained in the appropriate
courts, or where exceptional and compelling circumstances justify availment of a
remedy within and call for the exercise of our primary jurisdiction.[29] This
circumstance alone warrants the outright dismissal of the present action.

This procedural infirmity notwithstanding, we opt to resolve the

constitutional issue raised herein. We are aware that if the constitutionality of
Sec. 34 of the EPIRA is not resolved now, the issue will certainly resurface in
the near future, resulting in a repeat of this litigation, and probably involving the
same parties. In the public interest and to avoid unnecessary delay, this Court
renders its ruling now.

The instant complaint is bereft of merit.

The First Issue

To resolve the first issue, it is necessary to distinguish the States power of

taxation from the police power.

The power to tax is an incident of sovereignty and is unlimited in its range,

acknowledging in its very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which imposes the tax on
the constituency that is to pay it.[30] It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain availability is an
imperious need.[31] Thus, the theory behind the exercise of the power to tax
emanates from necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.[32]

On the other hand, police power is the power of the state to promote public
welfare by restraining and regulating the use of liberty and property. [33] It is the
most pervasive, the least limitable, and the most demanding of the three
fundamental powers of the State. The justification is found in the Latin
maxims salus populi est suprema lex (the welfare of the people is the supreme
law) and sic utere tuo ut alienum non laedas (so use your property as not to
injure the property of others). As an inherent attribute of sovereignty which
virtually extends to all public needs, police power grants a wide panoply of
instruments through which the State, as parens patriae, gives effect to a host of
its regulatory powers.[34] We have held that the power to "regulate" means the
power to protect, foster, promote, preserve, and control, with due regard for the
interests, first and foremost, of the public, then of the utility and of its patrons.[35]

The conservative and pivotal distinction between these two 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.[36]
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the
State's police power, particularly its regulatory dimension, is invoked. Such can
be deduced from Sec. 34 which enumerates the purposes for which the Universal
Charge is imposed[37] and which can be amply discerned as regulatory in
character. The EPIRA resonates such regulatory purposes, thus:

SECTION 2. Declaration of Policy. It is hereby declared the policy of

the State:

(a) To ensure and accelerate the total electrification of the country;

(b) To ensure the quality, reliability, security and affordability of the
supply of electric power;
(c) To ensure transparent and reasonable prices of electricity in a
regime of free and fair competition and full public accountability
to achieve greater operational and economic efficiency and
enhance the competitiveness of Philippine products in the global
market;
(d) To enhance the inflow of private capital and broaden the
ownership base of the power generation, transmission and
distribution sectors;
(e) To ensure fair and non-discriminatory treatment of public and
private sector entities in the process of restructuring the electric
power industry;
(f) To protect the public interest as it is affected by the rates and
services of electric utilities and other providers of electric power;
(g) To assure socially and environmentally compatible energy sources
and infrastructure;
 (h) To promote the utilization of indigenous and new and renewable
energy resources in power generation in order to reduce
dependence on imported energy;
(i) To provide for an orderly and transparent privatization of the assets
and liabilities of the National Power Corporation (NPC);
(j) To establish a strong and purely independent regulatory body and
system to ensure consumer protection and enhance the
competitive operation of the electricity market; and
(k) To encourage the efficient use of energy and other modalities of
demand side management.

From the aforementioned purposes, it can be gleaned that the assailed Universal
Charge is not a tax, but an exaction in the exercise of the State's police power.
Public welfare is surely promoted.

Moreover, it is a well-established doctrine that the taxing power may be used as

an implement of police power.[38] In Valmonte v. Energy Regulatory Board, et
al.[39] and in Gaston v. Republic Planters Bank,[40] this Court held that the Oil
Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were
exactions made in the exercise of the police power. The doctrine was reiterated
in Osmea v. Orbos[41] with respect to the OPSF. Thus, we disagree with
petitioners that the instant case is different from the aforementioned cases. With
the Universal Charge, a Special Trust Fund (STF) is also created under the
administration of PSALM.[42] The STF has some notable characteristics similar
to the OPSF and the SSF, viz.:

1) In the implementation of stranded cost recovery, the ERC shall

conduct a review to determine whether there is under-recovery or
over recovery and adjust (true-up) the level of the stranded cost
recovery charge. In case of an over-recovery, the ERC shall ensure
that any excess amount shall be remitted to the STF. A separate
account shall be created for these amounts which shall be held in
trust for any future claims of distribution utilities for stranded cost
recovery. At the end of the stranded cost recovery period, any
remaining amount in this account shall be used to reduce the
electricity rates to the end-users.[43]
 2) With respect to the assailed Universal Charge, if the total amount
collected for the same is greater than the actual availments against
it, the PSALM shall retain the balance within the STF to pay for
periods where a shortfall occurs.[44]

3) Upon expiration of the term of PSALM, the administration of the

STF shall be transferred to the DOF or any of the DOF attached
agencies as designated by the DOF Secretary.[45]

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust

Fund, under the last paragraph of Section 34, R.A. No. 9136, is well
within the pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and well-
being of the community, that comprehensive sovereign authority we
designate as the police power of the State.[46]

This feature of the Universal Charge further boosts the position that the same is
an exaction imposed primarily in pursuit of the State's police objectives. The
STF reasonably serves and assures the attainment and perpetuity of the purposes
for which the Universal Charge is imposed, i.e., to ensure the viability of the
country's electric power industry.

The Second Issue

The principle of separation of powers ordains that each of the three

branches of government has exclusive cognizance of and is supreme in matters
falling within its own constitutionally allocated sphere. A logical corollary to the
doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim potestas delegata non delegari potest (what has
been delegated cannot be delegated). This is based on the ethical principle that
such delegated power constitutes not only a right but a duty to be performed by
the delegate through the instrumentality of his own judgment and not through the
intervening mind of another. [47]
In the face of the increasing complexity of modern life, delegation of legislative
power to various specialized administrative agencies is allowed as an exception
to this principle.[48] Given the volume and variety of interactions in today's
society, it is doubtful if the legislature can promulgate laws that will deal
adequately with and respond promptly to the minutiae of everyday life.Hence,
the need to delegate to administrative bodies - the principal agencies tasked to
execute laws in their specialized fields - the authority to promulgate rules and
regulations to implement a given statute and effectuate its policies. All that is
required for the valid exercise of this power of subordinate legislation is that the
regulation be germane to the objects and purposes of the law and that the
regulation be not in contradiction to, but in conformity with, the standards
prescribed by the law. These requirements are denominated as the completeness
test and the sufficient standard test.

Under the first test, the law must be complete in all its terms and conditions
when it leaves the legislature such that when it reaches the delegate, the only
thing he will have to do is to enforce it. The second test mandates adequate
guidelines or limitations in the law to determine the boundaries of the delegate's
authority and prevent the delegation from running riot.[49]

The Court finds that the EPIRA, read and appreciated in its entirety, in relation
to Sec. 34 thereof, is complete in all its essential terms and conditions, and that it
contains sufficient standards.

Although Sec. 34 of the EPIRA merely provides that within one (1) year from
the effectivity thereof, a Universal Charge to be determined, fixed and approved
by the ERC, shall be imposed on all electricity end-users, and therefore, does not
state the specific amount to be paid as Universal Charge, the amount
nevertheless is made certain by the legislative parameters provided in the law
itself. For one, Sec. 43(b)(ii) of the EPIRA provides:

SECTION 43. Functions of the ERC. The ERC shall promote

competition, encourage market development, ensure customer choice
and penalize abuse of market power in the restructured electricity
 industry. In appropriate cases, the ERC is authorized to issue cease
and desist order after due notice and hearing. Towards this end, it shall
be responsible for the following key functions in the restructured
industry:

xxxx

(b) Within six (6) months from the effectivity of this Act, promulgate
and enforce, in accordance with law, a National Grid Code and a
Distribution Code which shall include, but not limited to the
following:

xxxx

(ii) Financial capability standards for the generating companies, the

TRANSCO, distribution utilities and suppliers: Provided, That in the
formulation of the financial capability standards, the nature and
function of the entity shall be considered: Provided, further, That such
standards are set to ensure that the electric power industry participants
meet the minimum financial standards to protect the public interest.
Determine, fix, and approve, after due notice and public hearings the
universal charge, to be imposed on all electricity end-users pursuant to
Section 34 hereof;

Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide
latitude of discretion in the determination of the Universal Charge. Sec. 51(d)
and (e) of the EPIRA[50] clearly provides:

SECTION 51. Powers. The PSALM Corp. shall, in the performance of

its functions and for the attainment of its objective, have the following
powers:

xxxx

(d) To calculate the amount of the stranded debts and stranded

contract costs of NPC which shall form the basis for ERC in the
determination of the universal charge;
 (e) To liquidate the NPC stranded contract costs, utilizing the
proceeds from sales and other property contributed to it,
including the proceeds from the universal charge.

Thus, the law is complete and passes the first test for valid delegation of
legislative power.

As to the second test, this Court had, in the past, accepted as sufficient standards
the following: "interest of law and order;"[51]"adequate and efficient
instruction;"[52] "public interest;"[53] "justice and equity;"[54] "public convenience
and welfare;"[55]"simplicity, economy and efficiency;"[56] "standardization and
regulation of medical education;"[57] and "fair and equitable employment
practices."[58] Provisions of the EPIRA such as, among others, to ensure the total
electrification of the country and the quality, reliability, security and
affordability of the supply of electric power[59] and watershed rehabilitation and
management[60]meet the requirements for valid delegation, as they provide the
limitations on the ERCs power to formulate the IRR. These are sufficient
standards.

It may be noted that this is not the first time that the ERC's conferred powers
were challenged. In Freedom from Debt Coalition v. Energy Regulatory
Commission,[61] the Court had occasion to say:

In determining the extent of powers possessed by the ERC, the

provisions of the EPIRA must not be read in separate parts. Rather,
the law must be read in its entirety, because a statute is passed as a
whole, and is animated by one general purpose and intent. Its meaning
cannot to be extracted from any single part thereof but from a general
consideration of the statute as a whole. Considering the intent of
Congress in enacting the EPIRA and reading the statute in its entirety,
it is plain to see that the law has expanded the jurisdiction of the
regulatory body, the ERC in this case, to enable the latter to
implement the reforms sought to be accomplished by the EPIRA.
When the legislators decided to broaden the jurisdiction of the ERC,
 they did not intend to abolish or reduce the powers already conferred
upon ERC's predecessors. To sustain the view that the ERC possesses
only the powers and functions listed under Section 43 of the EPIRA is
to frustrate the objectives of the law.

In his Concurring and Dissenting Opinion[62] in the same case, then Associate
Justice, now Chief Justice, Reynato S. Puno described the immensity of police
power in relation to the delegation of powers to the ERC and its regulatory
functions over electric power as a vital public utility, to wit:

Over the years, however, the range of police power was no

longer limited to the preservation of public health, safety and morals,
which used to be the primary social interests in earlier times. Police
power now requires the State to "assume an affirmative duty to
eliminate the excesses and injustices that are the concomitants of an
unrestrained industrial economy." Police power is now exerted "to
further the public welfare a concept as vast as the good of society
itself." Hence, "police power is but another name for the
governmental authority to further the welfare of society that is the
basic end of all government." When police power is delegated to
administrative bodies with regulatory functions, its exercise should be
given a wide latitude. Police power takes on an even broader
dimension in developing countries such as ours, where the State must
take a more active role in balancing the many conflicting interests in
society. The Questioned Order was issued by the ERC, acting as an
agent of the State in the exercise of police power. We should have
exceptionally good grounds to curtail its exercise. This approach is
more compelling in the field of rate-regulation of electric power
rates. Electric power generation and distribution is a traditional
instrument of economic growth that affects not only a few but the
entire nation. It is an important factor in encouraging investment and
promoting business. The engines of progress may come to a
screeching halt if the delivery of electric power is impaired. Billions of
pesos would be lost as a result of power outages or unreliable electric
power services. The State thru the ERC should be able to exercise its
police power with great flexibility, when the need arises.
This was reiterated in National Association of Electricity Consumers for Reforms
v. Energy Regulatory Commission[63] where the Court held that the ERC, as
regulator, should have sufficient power to respond in real time to changes
wrought by multifarious factors affecting public utilities.

From the foregoing disquisitions, we therefore hold that there is no undue

delegation of legislative power to the ERC.

Petitioners failed to pursue in their Memorandum the contention in the

Complaint that the imposition of the Universal Charge on all end-users is
oppressive and confiscatory, and amounts to taxation without representation.
Hence, such contention is deemed waived or abandoned per Resolution[64] of
August 3, 2004.[65] Moreover, the determination of whether or not a tax is
excessive, oppressive or confiscatory is an issue which essentially involves
questions of fact, and thus, this Court is precluded from reviewing the same.[66]

As a penultimate statement, it may be well to recall what this Court said of

EPIRA:

One of the landmark pieces of legislation enacted by Congress in

recent years is the EPIRA. It established a new policy, legal structure
and regulatory framework for the electric power industry. The new
thrust is to tap private capital for the expansion and improvement of
the industry as the large government debt and the highly capital-
intensive character of the industry itself have long been acknowledged
as the critical constraints to the program. To attract private investment,
largely foreign, the jaded structure of the industry had to be addressed.
While the generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with over 130
utilities, mostly small and uneconomic. The pervasive flaws have
caused a low utilization of existing generation capacity; extremely
high and uncompetitive power rates; poor quality of service to
consumers; dismal to forgettable performance of the government
power sector; high system losses; and an inability to develop a clear
strategy for overcoming these shortcomings.
 Thus, the EPIRA provides a framework for the restructuring of the
industry, including the privatization of the assets of the National
Power Corporation (NPC), the transition to a competitive structure,
and the delineation of the roles of various government agencies and
the private entities. The law ordains the division of the industry into
four (4) distinct
sectors, namely: generation, transmission, distribution and supply.
Corollarily, the NPC generating plants have to privatized and its
transmission business spun off and privatized thereafter.[67]

Finally, every law has in its favor the presumption of constitutionality, and to
justify its nullification, there must be a clear and unequivocal breach of the
Constitution and not one that is doubtful, speculative, or
argumentative.[68] Indubitably, petitioners failed to overcome this presumption in
favor of the EPIRA. We find no clear violation of the Constitution which would
warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are
unconstitutional and void.

WHEREFORE, the instant case is hereby DISMISSED for lack of merit.

G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP
AGENCIES INC., and COURT OF TAX APPEALS, respondents.

PUNO, J.:

For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is
entitled to a refund or tax credit for amounts representing pre-payment of income and
common carrier's taxes under the National Internal Revenue Code, section 24 (b) (2),
as amended.1

Private respondent is a foreign corporation represented in the Philippines by

Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel
M/V Gardenia. In December 1980, NASUTRA2 chartered M/V Gardenia to load
16,500 metric tons of raw sugar in the Philippines.3 On December 23, 1980, Mr.
Edilberto Lising, the operations supervisor of Soriamont Agency, 4 paid the required
income and common carrier's taxes in the respective sums of FIFTY-NINE
THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE
CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED
NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED SEVEN THOUSAND
ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS
(P107,142.75) based on the expected gross receipts of the vessel. 5 Upon arriving,
however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On
January 10, 1981, NASUTRA and private respondent's agent mutually agreed to
have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier's taxes as erroneous since
no receipt was realized from the charter agreement, private respondent instituted a
claim for tax credit or refund of the sum ONE HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75)
before petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner
failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed
a petition for review6 before public respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the
following: that taxes are presumed to have been collected in accordance with law;
that in an action for refund, the burden of proof is upon the taxpayer to show that
taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said
burden is fatal to the action for refund; and that claims for refund are construed strictly
against tax claimants.7
After trial, respondent tax court decided in favor of the private respondent. It held:

It has been shown in this case that 1) the petitioner has complied with
the mentioned statutory requirement by having filed a written claim for
refund within the two-year period from date of payment; 2) the
respondent has not issued any deficiency assessment nor disputed the
correctness of the tax returns and the corresponding amounts of
prepaid income and percentage taxes; and 3) the chartered vessel
sailed out of the Philippine port with absolutely no cargo laden on board
as cleared and certified by the Customs authorities; nonetheless 4)
respondent's apparent bit of reluctance in validating the legal merit of
the claim, by and large, is tacked upon the "examiner who is
investigating petitioner's claim for refund which is the subject matter of
this case has not yet submitted his report. Whether or not respondent
will present his evidence will depend on the said report of the
examiner." (Respondent's Manifestation and Motion dated September
7, 1982). Be that as it may the case was submitted for decision by
respondent on the basis of the pleadings and records and by petitioner
on the evidence presented by counsel sans the respective
memorandum.

An examination of the records satisfies us that the case presents no

dispute as to relatively simple material facts. The circumstances
obtaining amply justify petitioner's righteous indignation to a more
expeditious action. Respondent has offered no reason nor made effort
to submit any controverting documents to bash that patina of legitimacy
over the claim. But as might well be, towards the end of some two and a
half years of seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue would furnish the
satisfaction of ultimate solution by manifesting that "it is now his turn to
present evidence, however, the Appellate Division of the BIR has
already recommended the approval of petitioner's claim for refund
subject matter of this petition. The examiner who examined this case
has also recommended the refund of petitioner's claim. Without
prejudice to withdrawing this case after the final approval of petitioner's
claim, the Court ordered the resetting to September 7, 1983." (Minutes
of June 9, 1983 Session of the Court) We need not fashion any further
issue into an apparently settled legal situation as far be it from a
comedy of errors it would be too much of a stretch to hold and deny the
refund of the amount of prepaid income and common carrier's taxes for
which petitioner could no longer be made accountable.

On August 3, 1984, respondent court denied petitioner's motion for reconsideration,

hence, this petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its
claim of refund; (2) it failed to prove that it did not realize any receipt from its charter
agreement; and (3) it suppressed evidence when it did not present its charter
agreement.

We find no merit in the petition.

There is no dispute about the applicable law. It is section 24 (b) (2) of the National
Internal Revenue Code which at that time provides as follows:

A corporation organized, authorized, or existing under the laws of any

foreign country, engaged in trade or business within the Philippines,
shall be taxable as provided in subsection (a) of this section upon the
total net income derived in the preceding taxable year from all sources
within the Philippines: Provided, however, That international carriers
shall pay a tax of two and one-half per cent (2 1/2%) on their gross
Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier
doing business in the Philippines of passage documents sold therein,
whether for passenger, excess baggage or mail, provided the cargo or
mail originates from the Philippines. The gross revenue realized from
the said cargo or mail include the gross freight charge up to final
destination. Gross revenue from chartered flights originating from the
Philippines shall likewise form part of "Gross Philippine Billings"
regardless of the place or payment of the passage documents . . . . .

Pursuant to this provision, a resident foreign corporation engaged in the transport of

cargo is liable for taxes depending on the amount of income it derives from sources
within the Philippines. Thus, before such a tax liability can be enforced the taxpayer
must be shown to have earned income sourced from the Philippines.

We agree with petitioner that a claim for refund is in the nature of a claim for
exemption8 and should be construed in strictissimi juris against the
taxpayer.9 Likewise, there can be no disagreement with petitioner's stance that
private respondent has the burden of proof to establish the factual basis of its claim
for tax refund.

The pivotal issue involves a question of fact — whether or not the private respondent
was able to prove that it derived no receipts from its charter agreement, and hence is
entitled to a refund of the taxes it pre-paid to the government.

The respondent court held that sufficient evidence has been adduced by the private
respondent proving that it derived no receipt from its charter agreement with
NASUTRA. This finding of fact rests on a rational basis, and hence must be
sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V
"Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load and
returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance
Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo
while Exhibit "F" is the Certification by the Officer-in-Charge, Export Division of the
Bureau of Customs Iloilo. The correctness of the contents of these documents
regularly issued by officials of the Bureau of Customs cannot be doubted as indeed,
they have not been contested by the petitioner. The records also reveal that in the
course of the proceedings in the court a quo, petitioner hedged and hawed when its
turn came to present evidence. At one point, its counsel manifested that the BIR
examiner and the appellate division of the BIR have both recommended the approval
of private respondent's claim for refund. The same counsel even represented that the
government would withdraw its opposition to the petition after final approval of private
respondents' claim. The case dragged on but petitioner never withdrew its opposition
to the petition even if it did not present evidence at all. The insincerity of petitioner's
stance drew the sharp rebuke of respondent court in its Decision and for good
reason. Taxpayers owe honesty to government just as government owes fairness to
taxpayers.

In its last effort to retain the money erroneously prepaid by the private respondent,
petitioner contends that private respondent suppressed evidence when it did not
present its charter agreement with NASUTRA. The contention cannot succeed. It
presupposes without any basis that the charter agreement is prejudicial evidence
against the private respondent. 10 Allegedly, it will show that private respondent
earned a charter fee with or without transporting its supposed cargo from Iloilo to
Japan. The allegation simply remained an allegation and no court of justice will
regard it as truth. Moreover, the charter agreement could have been presented by
petitioner itself thru the proper use of a subpoena duces tecum. It never did either
because of neglect or because it knew it would be of no help to bolster its
position. 11 For whatever reason, the petitioner cannot take to task the private
respondent for not presenting what it mistakenly calls "suppressed evidence."

We cannot but bewail the unyielding stance taken by the government in refusing to
refund the sum of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY
TWO PESOS AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously prepaid
by private respondent. The tax was paid way back in 1980 and despite the clear
showing that it was erroneously paid, the government succeeded in delaying its
refund for fifteen (15) years. After fifteen (15) long years and the expenses of
litigation, the money that will be finally refunded to the private respondent is just worth
a damaged nickel. This is not, however, the kind of success the government,
especially the BIR, needs to increase its collection of taxes. Fair deal is expected by
our taxpayers from the BIR and the duty demands that BIR should refund without any
unreasonable delay what it has erroneously collected. Our ruling in Roxas v. Court of
Tax Appeals 12 is apropos to recall:

The power of taxation is sometimes called also the power to destroy.

Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
 uniformly, lest the tax collector kill the "hen that lays the golden egg."
And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated
September 15, 1983, is AFFIRMED in toto. No costs.

SO ORDERED.
G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION,

petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of
Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner
National Power Corporation (NPC) liable to pay franchise tax to respondent City of
Cabanatuan.

Petitioner is a government-owned and controlled corporation created under

Commonwealth Act No. 120, as amended.4 It is tasked to undertake the
"development of hydroelectric generations of power and the production of electricity
from nuclear, geothermal and other sources, as well as, the transmission of electric
power on a nationwide basis."5 Concomitant to its mandated duty, petitioner has,
among others, the power to construct, operate and maintain power plants, auxiliary
plants, power stations and substations for the purpose of developing hydraulic power
and supplying such power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan
City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of
Ordinance No. 165-92,8 the respondent assessed the petitioner a franchise tax
amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for
the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has
no authority to impose tax on government entities. Petitioner also contended that as a
non-profit organization, it is exempted from the payment of all forms of taxes,
charges, duties or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as
amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes,

Duties, Fees, Imposts and Other Charges by Government and Governmental
Instrumentalities.- The Corporation shall be non-profit and shall devote all its
return from its capital investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its indebtedness
and obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and
service fees in any court or administrative proceedings in which it may be a
 party, restrictions and duties to the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and
projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization, and sale of electric
power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City,
demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to
25% of the amount of tax, and 2% monthly interest.13Respondent alleged that
petitioner's exemption from local taxes has been repealed by section 193 of Rep. Act
No. 7160,14 which reads as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code."

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled
that the tax exemption privileges granted to petitioner subsist despite the passage of
Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law
and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section
193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored;
and (3) local governments have no power to tax instrumentalities of the national
government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a

subsequent law is a matter of legislative intent. The lawmakers may expressly
repeal a law by incorporating therein repealing provisions which expressly and
specifically cite(s) the particular law or laws, and portions thereof, that are
intended to be repealed. A declaration in a statute, usually in its repealing
clause, that a particular and specific law, identified by its number or title is
repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A.
No. 7160 is an implied repealing clause because it fails to identify the act or
acts that are intended to be repealed. It is a well-settled rule of statutory
construction that repeals of statutes by implication are not favored. The
presumption is against inconsistency and repugnancy for the legislative is
presumed to know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that, generally,
general law does not repeal a special law unless it clearly appears that the
legislative has intended by the latter general act to modify or repeal the earlier
special law. Thus, despite the passage of R.A. No. 7160 from which the
questioned Ordinance No. 165-92 was based, the tax exemption privileges of
defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme
Court in the case of Basco vs. Philippine Amusement and Gaming
Corporation, 197 SCRA 52, where it was held that:

'Local governments have no power to tax instrumentalities of the

National Government. PAGCOR is a government owned or controlled
corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. xxx Being an instrumentality of
the government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation

with an original charter and its shares of stocks owned by the National
Government, is beyond the taxing power of the Local Government. Corollary to
this, it should be noted here that in the NPC Charter's declaration of Policy,
Congress declared that: 'xxx (2) the total electrification of the Philippines
through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are
primary objectives of the nations which shall be pursued coordinately and
supported by all instrumentalities and agencies of the government, including its
financial institutions.' (underscoring supplied). To allow plaintiff to subject
defendant to its tax-ordinance would be to impede the avowed goal of this
government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its
taxing power is limited to that which is provided for in its charter or other
statute. Any grant of taxing power is to be construed strictly, with doubts
resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very
clear that the plaintiff could not impose the subject tax on the defendant." 16
On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.18 It ordered the petitioner to pay the respondent
city government the following: (a) the sum of P808,606.41 representing the franchise
tax due based on gross receipts for the year 1992, (b) the tax due every year
thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as
litigation expense.19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of
Appeal's Decision. This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments
reiterated therein that the taxing power of the province under Art. 137 (sic) of
the Local Government Code refers merely to private persons or corporations in
which category it (NPC) does not belong, and that the LGC (RA 7160) which is
a general law may not impliedly repeal the NPC Charter which is a special
law—finds the answer in Section 193 of the LGC to the effect that '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 xxx are hereby withdrawn.' The repeal
is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC,

A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE
TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S

EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY
THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE
ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW,
CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING

THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION
SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a
franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any

law or other special law, the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth
(1/20) of one percent (1%) of the capital investment. In the succeeding
calendar year, regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding calendar year, or any
fraction thereof, as provided herein." (emphasis supplied)

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this

Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities
shall accrue to them and distributed in accordance with the provisions of this
Code.

The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the
respondent city government. It contends that sections 137 and 151 of the LGC in
relation to section 131, limit the taxing power of the respondent city government to
private entities that are engaged in trade or occupation for profit. 22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with
public interest which is conferred upon private persons or corporations, under such
terms and conditions as the government and its political subdivisions may impose in
the interest of the public welfare, security and safety." From the phraseology of this
provision, the petitioner claims that the word "private" modifies the terms "persons"
and "corporations." Hence, when the LGC uses the term "franchise," petitioner
submits that it should refer specifically to franchises granted to private natural
persons and to private corporations.23 Ergo, its charter should not be considered a
"franchise" for the purpose of imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or
commercial activity regularly engaged in as means of livelihood or with a view to
profit." Petitioner claims that it is not engaged in an activity for profit, in as much as its
charter specifically provides that it is a "non-profit organization." In any case,
petitioner argues that the accumulation of profit is merely incidental to its operation;
all these profits are required by law to be channeled for expansion and improvement
of its facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government, 25 and

as such, may not be taxed by the respondent city government. It cites the doctrine
in Basco vs. Philippine Amusement and Gaming Corporation 26where this Court held
that local governments have no power to tax instrumentalities of the National
Government, viz:

"Local governments have no power to tax instrumentalities of the National

Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter
role is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control
by a mere local government.

'The states have no power by taxation or otherwise, to retard, impede,

burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)'

This doctrine emanates from the 'supremacy' of the National Government over
local governments.

'Justice Holmes, speaking for the Supreme Court, made reference to

the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even
seriously burden it from accomplishment of them.' (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, italics supplied)

Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as ' a tool regulation' (U.S. v.
Sanchez, 340 US 42).
 The power to tax which was called by Justice Marshall as the 'power to
destroy' (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power to
wield it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled corporations, is in the nature of an
implied repeal. A special law, its charter cannot be amended or modified impliedly by
the local government code which is a general law. Consequently, petitioner claims
that its exemption from all taxes, fees or charges under its charter subsists despite
the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by

implication are not favored and as much as possible, effect must be given to all
enactments of the legislature. Moreover, it has to be conceded that the charter
of the NPC constitutes a special law. Republic Act No. 7160, is a general law.
It is a basic rule in statutory construction that the enactment of a later
legislation which is a general law cannot be construed to have repealed a
special law. Where there is a conflict between a general law and a special
statute, the special statute should prevail since it evinces the legislative intent
more clearly than the general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police
power, should prevail over the LGC. It alleges that the power of the local government
to impose franchise tax is subordinate to petitioner's exemption from taxation; "police
power being the most pervasive, the least limitable and most demanding of all
powers, including the power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, 31 the exercise of taxing
power derives its source from the very existence of the state whose social contract
with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; 32 without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-being
of the people.

In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the protection of local
industries as well as public welfare and similar objectives. 33 Taxation assumes even
greater significance with the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other charges 34 pursuant to Article
X, section 5 of the 1987 Constitution, viz:
 "Section 5.- Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."

This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance. For a long time, the country's highly centralized government structure
has bred a culture of dependence among local government leaders upon the national
leadership. It has also "dampened the spirit of initiative, innovation and imaginative
resilience in matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal, section 3 of Article
X of the 1987 Constitution mandates Congress to enact a local government code that
will, consistent with the basic policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government structure
instituted through a system of decentralization with effective mechanisms of
recall, initiative, and referendum, allocate among the different local
government units their powers, responsibilities, and resources, and provide for
the qualifications, election, appointment and removal, term, salaries, powers
and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote
local autonomy. These include the Barrio Charter of 1959, 37 the Local Autonomy Act
of 1959,38 the Decentralization Act of 196739 and the Local Government Code of
1983.40 Despite these initiatives, however, the shackles of dependence on the
national government remained. Local government units were faced with the same
problems that hamper their capabilities to participate effectively in the national
development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal
control over external sources of income, (c) limited authority to prioritize and approve
development projects, (d) heavy dependence on external sources of income, and (e)
limited supervisory control over personnel of national line agencies.41

Considered as the most revolutionary piece of legislation on local autonomy, 42 the

LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws such as the
imposition of taxes on forest products, forest concessionaires, mineral products,
mining operations, and the like. The LGC likewise provides enough flexibility to
impose tax rates in accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax rates and
leaves the determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e., when specific provisions of
the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local

Government Units.- Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units." (emphasis
supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation44 relied upon by the petitioner to support its
claim no longer applies. To emphasize, the Basco case was decided prior to the
effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court
ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or
agencies of the government performing governmental functions may be subject to
tax.46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities
and agencies of government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although an instrumentality of the
national government, was subject to real property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude
that as a general rule, as laid down in section 133, the taxing power of local
governments cannot extend to the levy of inter alia, 'taxes, fees and charges of
any kind on the national government, its agencies and instrumentalities, and
local government units'; however, pursuant to section 232, provinces, cities
and municipalities in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, 'real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted for consideration or otherwise, to a taxable person
as provided in the item (a) of the first paragraph of section 12.'" 47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes
the respondent city government to impose on the petitioner the franchise tax in
question.

In its general signification, a franchise is a privilege conferred by government

authority, which does not belong to citizens of the country generally as a matter of
common right.48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to
exist as a corporation, by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation.49 The right under a primary or
general franchise is vested in the individuals who compose the corporation and not in
the corporation itself.50 On the other hand, the latter refers to the right or privileges
conferred upon an existing corporation such as the right to use the streets of a
municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a
secondary or special franchise are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to dispose of
its property, except such special or secondary franchises as are charged with a public
use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the
sense of a secondary or special franchise. This is to avoid any confusion when the
word franchise is used in the context of taxation. As commonly used, a franchise
tax is "a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state."53 It is not levied on the corporation simply
for existing as a corporation, upon its property54 or its income,55 but on its exercise of
the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its
franchise.56 It is within this context that the phrase "tax on businesses enjoying a
franchise" in section 137 of the LGC should be interpreted and understood. Verily, to
determine whether the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a "franchise" in the sense of
a secondary or special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep.
Act No. 7395, constitutes petitioner's primary and secondary franchises. It serves as
the petitioner's charter, defining its composition, capitalization, the appointment and
the specific duties of its corporate officers, and its corporate life span. 57 As its
secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner
the following powers which are not available to ordinary corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power
in any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall
in the Philippines, for the purposes specified in this Act; to intercept and divert
the flow of waters from lands of riparian owners and from persons owning or
interested in waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten, obstruct or increase
the flow of water in streams or water channels intersecting or connecting
therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is,
directly or indirectly, adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams,
reservoirs, pipes, mains, transmission lines, power stations and substations,
and other works for the purpose of developing hydraulic power from any river,
creek, lake, spring and waterfall in the Philippines and supplying such power to
the inhabitants thereof; to acquire, construct, install, maintain, operate, and
improve gas, oil, or steam engines, and/or other prime movers, generators and
machinery in plants and/or auxiliary plants for the production of electric power;
to establish, develop, operate, maintain and administer power and lighting
systems for the transmission and utilization of its power generation; to sell
electric power in bulk to (1) industrial enterprises, (2) city, municipal or
provincial systems and other government institutions, (3) electric cooperatives,
(4) franchise holders, and (5) real estate subdivisions x x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber
and otherwise dispose of property incident to, or necessary, convenient or
proper to carry out the purposes for which the Corporation was created:
Provided, That in case a right of way is necessary for its transmission lines,
easement of right of way shall only be sought: Provided, however, That in case
the property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal,

ditch, flume, street, avenue, highway or railway of private and public
ownership, as the location of said works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the
manner provided by law for instituting condemnation proceedings by the
national, provincial and municipal governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the
National Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding

the reservoirs of plants and/or projects constructed or proposed to be
 constructed by the Corporation. Upon determination by the Corporation of the
areas required for watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon written
advice by the Corporation, forthwith surrender jurisdiction to the Corporation of
all areas embraced within the watersheds, subject to existing private rights, the
needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall
adopt measures to prevent environmental pollution and promote the
conservation, development and maximum utilization of natural resources xxx
"58

With these powers, petitioner eventually had the monopoly in the generation and
distribution of electricity. This monopoly was strengthened with the issuance of Pres.
Decree No. 40,59 nationalizing the electric power industry. Although Exec. Order No.
21560 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city
government's territorial jurisdiction pursuant to the powers granted to it by
Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling
both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax
simply because its stocks are wholly owned by the National Government, and its
charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise
by the corporation of a privilege to do business. The taxable entity is the corporation
which exercises the franchise, and not the individual stockholders. By virtue of its
charter, petitioner was created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name, 61 and can exercise all the
powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does
not necessarily imply that petitioner is not engaged in business. Section 2 of Pres.
Decree No. 202963 classifies government-owned or controlled corporations (GOCCs)
into those performing governmental functions and those performing proprietary
functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which
is directly chartered by special law or if organized under the general
 corporation law is owned or controlled by the government directly, or indirectly
through a parent corporation or subsidiary corporation, to the extent of at least
a majority of its outstanding voting capital stock x x x." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and

as such, are treated as absolute obligation on the part of the state to perform while
proprietary functions are those that are undertaken only by way of advancing the
general interest of society, and are merely optional on the government. 64 Included in
the class of GOCCs performing proprietary functions are "business-like" entities such
as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System
(GSIS), and the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of

power and the production of electricity from nuclear, geothermal and other sources,
as well as the transmission of electric power on a nationwide basis." 66 Pursuant to
this mandate, petitioner generates power and sells electricity in bulk. Certainly, these
activities do not partake of the sovereign functions of the government. They are
purely private and commercial undertakings, albeit imbued with public interest. The
public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public
utilities like telephone and telegraph companies, railroad companies, water supply
and irrigation companies, gas, coal or light companies, power plants, ice plant among
others; all of which are declared by this Court as ministrant or proprietary functions of
government aimed at advancing the general interest of society.67

A closer reading of its charter reveals that even the legislature treats the character of
the petitioner's enterprise as a "business," although it limits petitioner's profits to
twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or

necessary for the proper transaction of its business or to carry out the
purposes for which it was organized, to contract indebtedness and issue bonds
subject to approval of the President upon recommendation of the Secretary of
Finance;

(o) To exercise such powers and do such things as may be reasonably

necessary to carry out the business and purposes for which it was organized,
or which, from time to time, may be declared by the Board to be necessary,
useful, incidental or auxiliary to accomplish the said purpose xxx."(emphases
supplied)

It is worthy to note that all other private franchise holders receiving at least sixty
percent (60%) of its electricity requirement from the petitioner are likewise imposed
the cap of twelve percent (12%) on profits.69 The main difference is that the petitioner
is mandated to devote "all its returns from its capital investment, as well as excess
revenues from its operation, for expansion" 70 while other franchise holders have the
option to distribute their profits to its stockholders by declaring dividends. We do not
see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual
stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under
its charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal
provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act
No. 6395 exempting from, among others, "all income taxes, franchise taxes and
realty taxes to be paid to the National Government, its provinces, cities, municipalities
and other government agencies and instrumentalities." However, section 193 of the
LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously
enjoyed by private and public corporations. Contrary to the contention of petitioner,
section 193 of the LGC is an express, albeit general, repeal of all statutes granting
tax exemptions from local taxes.72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise

provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.73 Not being a local water district, a
cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or
educational institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the
LGUs can impose franchise tax "notwithstanding any exemption granted by any law
or other special law." This particular provision of the LGC does not admit any
exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's
exemption from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:
 "It is our view that petitioners correctly rely on provisions of Sections 137 and
193 of the LGC to support their position that MERALCO's tax exemption has
been withdrawn. The explicit language of section 137 which authorizes the
province to impose franchise tax 'notwithstanding any exemption granted by
any law or other special law' is all-encompassing and clear. The franchise tax
is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By

stating that 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 (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-
stock and non-profit hospitals and educational institutions, are withdrawn upon
the effectivity of this code, the obvious import is to limit the exemptions to the
three enumerated entities. It is a basic precept of statutory construction that
the express mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est exclusio
alterius. In the absence of any provision of the Code to the contrary, and we
find no other provision in point, any existing tax exemption or incentive enjoyed
by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under
the LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or
charter is clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been
used."76(emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs. 77 But in
enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or other special law," the respondent
city government clearly did not intend to exempt the petitioner from the coverage
thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues
to finance and support myriad activities of the local government units for the delivery
of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. As this Court
observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all
other units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated enterprises." 78 With
the added burden of devolution, it is even more imperative for government entities to
share in the requirements of development, fiscal or otherwise, by paying taxes or
other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001,
respectively, are hereby AFFIRMED.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection
should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business
expenses in its income tax returns. The corollary issue is whether or not the appeal of the private
respondent from the decision of the Collector of Internal Revenue was made on time and in
accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the
petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the
years 1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in the office of the
petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless.
Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who
deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR
was not taking any action on the protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a
petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No.
1125, the appeal may be made within thirty days after receipt of the decision or ruling
challenged.7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the
assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an
outright denial thereof and makes the said request deemed rejected." 10 But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of
the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at
all, considered by the tax authorities. During the intervening period, the warrant was premature
and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on
January 18, 1965, when it was filed, the reglementary period which started on the date the
assessment was received, viz., January 14, 1965. The period started running again only on April
7, 1965, when the private respondent was definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23,
1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional
fees to be personal holding company income 12 but later conformed to the decision of the
respondent court rejecting this assertion.13 In fact, as the said court found, the amount was earned
through the joint efforts of the persons among whom it was distributed It has been established
that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority,
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to
invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that the P75,000.00 promotional
fees were paid to the aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also
found, after examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members
of the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of
such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not
made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It
should be remembered that this was a family corporation where strict business procedures were
not applied and immediate issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal.
This arrangement was understandable, however, in view of the close relationship among the
persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in
accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and

necessary expenses paid or incurred in carrying on any trade or business may be
included a reasonable allowance for salaries or other compensation for personal
services actually rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This
test and its practical application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase
price of services, is not deductible. (a) An ostensible salary paid by a corporation
may be a distribution of a dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services,
and the excessive payment correspond or bear a close relationship to the
stockholdings of the officers of employees, it would seem likely that the salaries
are not paid wholly for services rendered, but the excessive payments are a
distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G.
No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an experimental enterprise and involve themselves in a
new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.
G.R. No. 134062 April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

CORONA, J.:

This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA)
dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the
decision3 and resolution4 of the Court of Tax Appeals (CTA) dated November 16,
1995 and May 27, 1996, respectively, in CTA Case No. 4715.

In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue
(CIR) assessed respondent Bank of the Philippine Islands’ (BPI’s) deficiency
percentage and documentary stamp taxes for the year 1986 in the total amount of
₱129,488,656.63:

1986 – Deficiency Percentage Tax

Deficiency percentage tax ₱ 7, 270,892.88

Add: 25% surcharge 1,817,723.22
20% interest from 1-21-87 to 10-28-88 3,215,825.03
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND

₱12,319,441.13
COLLECTIBLE

1986 – Deficiency Documentary Stamp Tax

Deficiency percentage tax ₱93,723,372.40

Add: 25% surcharge 23,430,843.10
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND

₱117,169,215.50.5
COLLECTIBLE
Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been
assessed as shown above. Said assessment has been based on return – (filed by
you) – (as verified) – (made by this Office) – (pending investigation) – (after
investigation). You are requested to pay the above amount to this Office or to our
Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx6

In a letter dated December 10, 1988, BPI, through counsel, replied as follows:

1. Your "deficiency assessments" are no assessments at all. The taxpayer is

not informed, even in the vaguest terms, why it is being assessed a deficiency.
The very purpose of a deficiency assessment is to inform taxpayer why he has
incurred a deficiency so that he can make an intelligent decision on whether to
pay or to protest the assessment. This is all the more so when the assessment
involves astronomical amounts, as in this case.

We therefore request that the examiner concerned be required to state, even

in the briefest form, why he believes the taxpayer has a deficiency
documentary and percentage taxes, and as to the percentage tax, it is
important that the taxpayer be informed also as to what particular percentage
tax the assessment refers to.

2. As to the alleged deficiency documentary stamp tax, you are aware of the
compromise forged between your office and the Bankers Association of the
Philippines [BAP] on this issue and of BPI’s submission of its computations
under this compromise. There is therefore no basis whatsoever for this
assessment, assuming it is on the subject of the BAP compromise. On the
other hand, if it relates to documentary stamp tax on some other issue, we
should like to be informed about what those issues are.

3. As to the alleged deficiency percentage tax, we are completely at a loss on

how such assessment may be protested since your letter does not even tell
the taxpayer what particular percentage tax is involved and how your examiner
arrived at the deficiency. As soon as this is explained and clarified in a proper
letter of assessment, we shall inform you of the taxpayer’s decision on whether
to pay or protest the assessment.7

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

… although in all respects, your letter failed to qualify as a protest under Revenue
Regulations No. 12-85 and therefore not deserving of any rejoinder by this office as
no valid issue was raised against the validity of our assessment… still we obliged to
explain the basis of the assessments.

xxx xxx xxx

… this constitutes the final decision of this office on the matter. 8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the

CIR’s May 8, 1991 letter.9 This was denied in a letter dated December 12, 1991,
received by BPI on January 21, 1992.10

On February 18, 1992, BPI filed a petition for review in the CTA. 11 In a decision dated
November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the
subject assessments had become final and unappealable. The CTA ruled that BPI
failed to protest on time under Section 270 of the National Internal Revenue Code
(NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125.12 It denied
reconsideration in a resolution dated May 27, 1996.13

On appeal, the CA reversed the tax court’s decision and resolution and remanded the
case to the CTA14 for a decision on the merits.15 It ruled that the October 28, 1988
notices were not valid assessments because they did not inform the taxpayer of the
legal and factual bases therefor. It declared that the proper assessments were those
contained in the May 8, 1991 letter which provided the reasons for the claimed
deficiencies.16 Thus, it held that BPI filed the petition for review in the CTA on
time.17 The CIR elevated the case to this Court.

This petition raises the following issues:

1) whether or not the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 had already become final and
unappealable and

2) whether or not BPI was liable for the said taxes.

The former Section 27018 (now renumbered as Section 228) of the NIRC stated:

Sec. 270. Protesting of assessment. — When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer
fails to respond, the [CIR] shall issue an assessment based on his findings.

xxx xxx xxx (emphasis supplied)

Were the October 28, 1988 Notices Valid Assessments?

The first issue for our resolution is whether or not the October 28, 1988
notices19 were valid assessments. If they were not, as held by the CA, then the
correct assessments were in the May 8, 1991 letter, received by BPI on June 27,
1991. BPI, in its July 6, 1991 letter, seasonably asked for a reconsideration of the
findings which the CIR denied in his December 12, 1991 letter, received by BPI on
January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on
February 18, 1992 would be well within the 30-day period provided by law.20

The CIR argues that the CA erred in holding that the October 28, 1988 notices were
invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in
November 1964) which was designed for the precise purpose of notifying taxpayers
of the assessed amounts due and demanding payment thereof. 21 He contends that
there was no law or jurisprudence then that required notices to state the reasons for
assessing deficiency tax liabilities.22

BPI counters that due process demanded that the facts, data and law upon which the
assessments were based be provided to the taxpayer. It insists that the NIRC, as
worded now (referring to Section 228), specifically provides that:

"[t]he taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void."

According to BPI, this is declaratory of what sound tax procedure is and a

confirmation of what due process requires even under the former Section 270.

BPI’s contention has no merit. The present Section 228 of the NIRC provides:

Sec. 228. Protesting of Assessment. — When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: Provided, however, That a preassessment notice shall
not be required in the following cases:

xxx xxx xxx

The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.

xxx xxx xxx (emphasis supplied)

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the
assessments of the deficiency taxes were made. He merely notified BPI of his
findings, consisting only of the computation of the tax liabilities and a demand for
payment thereof within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act
of 1997).23 In CIR v. Reyes,24 we held that:

In the present case, Reyes was not informed in writing of the law and the facts on
which the assessment of estate taxes had been made. She was merely notified of the
findings by the CIR, who had simply relied upon the provisions of former Section 229
prior to its amendment by [RA] 8424, otherwise known as the Tax Reform Act of
1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR's
findings was changed in 1998 to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made; otherwise, the assessment itself
would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued
against the estate. On April 22, 1998, the final estate tax assessment notice, as well
as demand letter, was also issued. During those dates, RA 8424 was already in
effect. The notice required under the old law was no longer sufficient under the
new law.25(emphasis supplied; italics in the original)

Accordingly, when the assessments were made pursuant to the former Section 270,
the only requirement was for the CIR to "notify" or inform the taxpayer of his
"findings." Nothing in the old law required a written statement to the taxpayer of the
law and facts on which the assessments were based. The Court cannot read into the
law what obviously was not intended by Congress. That would be judicial legislation,
nothing less.

Jurisprudence, on the other hand, simply required that the assessments contain a
computation of tax liabilities, the amount the taxpayer was to pay and a demand for
payment within a prescribed period.26 Everything considered, there was no doubt the
October 28, 1988 notices sufficiently met the requirements of a valid assessment
under the old law and jurisprudence.

The sentence

[t]he taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void

was not in the old Section 270 but was only later on inserted in the renumbered
Section 228 in 1997. Evidently, the legislature saw the need to modify the former
Section 270 by inserting the aforequoted sentence. 27 The fact that the amendment
was necessary showed that, prior to the introduction of the amendment, the statute
had an entirely different meaning.28

Contrary to the submission of BPI, the inserted sentence in the renumbered Section
228 was not an affirmation of what the law required under the former Section 270.
The amendment introduced by RA 8424 was an innovation and could not be
reasonably inferred from the old law.29 Clearly, the legislature intended to insert a
new provision regarding the form and substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA
explained:

xxx. Elementary concerns of due process of law should have prompted the [CIR] to
inform [BPI] of the legal and factual basis of the former’s decision to charge the latter
for deficiency documentary stamp and gross receipts taxes.31

In other words, the CA’s theory was that BPI was deprived of due process when the
CIR failed to inform it in writing of the factual and legal bases of the assessments —
even if these were not called for under the old law.

We disagree.

Indeed, the underlying reason for the law was the basic constitutional requirement
that "no person shall be deprived of his property without due process of law." 32 We
note, however, what the CTA had to say:

xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was [BPI] given
the opportunity to discuss with the [CIR] when the latter issued the former a Pre-
Assessment Notice (which [BPI] ignored) but that the examiners themselves went to
[BPI] and "we talk to them and we try to [thresh] out the issues, present evidences as
to what they need." Now, how can [BPI] and/or its counsel honestly tell this Court that
they did not know anything about the assessments?

Not only that. To further buttress the fact that [BPI] indeed knew beforehand the
assessments[,] contrary to the allegations of its counsel[,] was the testimony of Mr.
Jerry Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified
to the fact that he prepared worksheets which contain his analysis regarding the
findings of the [CIR’s] examiner, Mr. San Pedro and that the same worksheets were
presented to Mr. Carlos Tan, Comptroller of [BPI].

xxx xxx xxx

From all the foregoing discussions, We can now conclude that [BPI] was indeed
aware of the nature and basis of the assessments, and was given all the opportunity
to contest the same but ignored it despite the notice conspicuously written on the
assessments which states that "this ASSESSMENT becomes final and unappealable
if not protested within 30 days after receipt." Counsel resorted to dilatory tactics and
dangerously played with time. Unfortunately, such strategy proved fatal to the cause
of his client.33

The CA never disputed these findings of fact by the CTA:

[T]his Court recognizes that the [CTA], which by the very nature of its function is
dedicated exclusively to the consideration of tax problems, has necessarily developed
an expertise on the subject, and its conclusions will not be overturned unless there
has been an abuse or improvident exercise of authority. Such findings can only be
disturbed on appeal if they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the [CTA].34

Under the former Section 270, there were two instances when an assessment
became final and unappealable: (1) when it was not protested within 30 days from
receipt and (2) when the adverse decision on the protest was not appealed to the
CTA within 30 days from receipt of the final decision:35

Sec. 270. Protesting of assessment.1a\^/phi1.net

xxx xxx xxx

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation in such form and manner as may be prescribed by
the implementing regulations within thirty (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation

adversely affected by the decision on the protest may appeal to the [CTA] within thirty
(30) days from receipt of the said decision; otherwise, the decision shall become final,
executory and demandable.

Implications Of A Valid Assessment

Considering that the October 28, 1988 notices were valid assessments, BPI should
have protested the same within 30 days from receipt thereof. The December 10, 1988
reply it sent to the CIR did not qualify as a protest since the letter itself stated that
"[a]s soon as this is explained and clarified in a proper letter of assessment, we shall
inform you of the taxpayer’s decision on whether to pay or protest the
assessment."36 Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a protest
since it did not even consider the October 28, 1988 notices as valid or proper
assessments.

The inevitable conclusion is that BPI’s failure to protest the assessments within the
30-day period provided in the former Section 270 meant that they became final and
unappealable. Thus, the CTA correctly dismissed BPI’s appeal for lack of jurisdiction.
BPI was, from then on, barred from disputing the correctness of the assessments or
invoking any defense that would reopen the question of its liability on the
merits.37 Not only that. There arose a presumption of correctness when BPI failed to
protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax assessments. 38

Even if we considered the December 10, 1988 letter as a protest, BPI must
nevertheless be deemed to have failed to appeal the CIR’s final decision regarding
the disputed assessments within the 30-day period provided by law. The CIR, in his
May 8, 1991 response, stated that it was his "final decision … on the matter." BPI
therefore had 30 days from the time it received the decision on June 27, 1991 to
appeal but it did not. Instead it filed a request for reconsideration and lodged its
appeal in the CTA only on February 18, 1992, way beyond the reglementary period.
BPI must now suffer the repercussions of its omission. We have already declared
that:

… the [CIR] should always indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by Sections 7 and 11 of
[RA 1125], as amended. On the basis of his statement indubitably showing that
the Commissioner's communicated action is his final decision on the contested
assessment, the aggrieved taxpayer would then be able to take recourse to the
tax court at the opportune time. Without needless difficulty, the taxpayer would
be able to determine when his right to appeal to the tax court accrues.

The rule of conduct would also obviate all desire and opportunity on the part of
the taxpayer to continually delay the finality of the assessment — and,
consequently, the collection of the amount demanded as taxes — by repeated
requests for recomputation and reconsideration. On the part of the [CIR], this
would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the first
instance. This would also deter the [CIR] from unfairly making the taxpayer grope in
the dark and speculate as to which action constitutes the decision appealable to the
tax court. Of greater import, this rule of conduct would meet a pressing need for fair
play, regularity, and orderliness in administrative action.39(emphasis supplied)

Either way (whether or not a protest was made), we cannot absolve BPI of its liability
under the subject tax assessments.

We realize that these assessments (which have been pending for almost 20 years)
involve a considerable amount of money. Be that as it may, we cannot legally
presume the existence of something which was never there. The state will be
deprived of the taxes validly due it and the public will suffer if taxpayers will not be
held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing
power derives its source from the very existence of the state whose social contract
with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-being
of the people.40

WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the
Court of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
COMMISSIONER OF INTERNAL G.R. Nos. 167274-75
REVENUE,
Petitioner, Present:

QUISUMBING, J.,
Chairperson,
YNARES-SANTIAGO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
FORTUNE TOBACCO
CORPORATION, Promulgated:
Respondent.
July 21, 2008

x---------------------------------------------------------------------------x

DECISION

TINGA, J.:

Simple and uncomplicated is the central issue involved, yet whopping is the
amount at stake in this case.

After much wrangling in the Court of Tax Appeals (CTA) and the Court of
Appeals, Fortune Tobacco Corporation (Fortune Tobacco) was granted a tax
refund or tax credit representing specific taxes erroneously collected from its
tobacco products. The tax refund is being re-claimed by the Commissioner of
Internal Revenue (Commissioner) in this petition.

The following undisputed facts, summarized by the Court of Appeals, are quoted
in the assailed Decision[1] dated 28 September 2004:

CAG.R. SP No. 80675

 xxxx

Petitioner[2] is a domestic corporation duly organized and

existing under and by virtue of the laws of the Republic of
the Philippines, with principal address at Fortune Avenue,
Parang, Marikina City.

Petitioner is the manufacturer/producer of, among others, the

following cigarette brands, with tax rate classification based on net
retail price prescribed by Annex D to R.A. No. 4280, to wit:

Brand Tax Rate

Champion M 100 P1.00
Salem M 100 P1.00
Salem M King P1.00
Camel F King P1.00
Camel Lights Box 20s P1.00
Camel Filters Box 20s P1.00
Winston F Kings P5.00
Winston Lights P5.00

Immediately prior to January 1, 1997, the above-mentioned

cigarette brands were subject to ad valorem tax pursuant to then
Section 142 of the Tax Code of 1977, as amended. However,
on January 1, 1997, R.A. No. 8240 took effect whereby a shift from
the ad valoremtax (AVT) system to the specific tax system was made
and subjecting the aforesaid cigarette brands to specific tax under
[S]ection 142 thereof, now renumbered as Sec. 145 of the Tax Code
of 1997, pertinent provisions of which are quoted thus:

Section 145. Cigars and Cigarettes-

(A) Cigars. There shall be levied, assessed and collected

on cigars a tax of One peso (P1.00) per cigar.
 (B) Cigarettes packed by hand. There shall be levied,
assessesed and collected on cigarettes packed by hand a tax of
Forty centavos (P0.40) per pack.

(C) Cigarettes packed by machine. There shall be

levied, assessed and collected on cigarettes packed by machine
a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the
value-added tax) is above Ten pesos (P10.00) per pack, the tax
shall be Twelve (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the
value added tax) exceeds Six pesos and Fifty centavos
(P6.50) but does not exceed Ten pesos (P10.00) per pack, the
tax shall be Eight Pesos (P8.00) per pack.

(3) If the net retail price (excluding the excise tax and the
value-added tax) is Five pesos (P5.00) but does not exceed Six
Pesos and fifty centavos (P6.50) per pack, the tax shall be Five
pesos (P5.00) per pack;

(4) If the net retail price (excluding the excise tax and the
value-added tax) is below Five pesos (P5.00) per pack, the tax
shall be One peso (P1.00) per pack;

Variants of existing brands of cigarettes which are

introduced in the domestic market after the effectivity of R.A.
No. 8240 shall be taxed under the highest classification of any
variant of that brand.

The excise tax from any brand of cigarettes within the

next three (3) years from the effectivity of R.A. No. 8240 shall
not be lower than the tax, which is due from each brand
on October 1, 1996. Provided, however, that in cases were (sic)
the excise tax rate imposed in paragraphs (1), (2), (3) and (4)
hereinabove will result in an increase in excise tax of more than
seventy percent (70%), for a brand of cigarette, the increase
shall take effect in two tranches: fifty percent (50%) of the
increase shall be effective in 1997 and one hundred percent
(100%) of the increase shall be effective in 1998.
 Duly registered or existing brands of cigarettes or new
brands thereof packed by machine shall only be packed in
twenties.

The rates of excise tax on cigars and cigarettes under

paragraphs (1), (2) (3) and (4) hereof, shall be increased by
twelve percent (12%) on January 1, 2000. (Emphasis
supplied)

New brands shall be classified according to their current

net retail price.

For the above purpose, net retail price shall mean the
price at which the cigarette is sold on retail in twenty (20)
major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover
the applicable excise tax and value-added tax. For brands
which are marketed only outside Metro [M]anila, the net retail
price shall mean the price at which the cigarette is sold in five
(5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and the value-added
tax.

The classification of each brand of cigarettes based on its

average retail price as of October 1, 1996, as set forth in Annex
D, shall remain in force until revised by Congress.

Variant of a brand shall refer to a brand on which a

modifier is prefixed and/or suffixed to the root name of the
brand and/or a different brand which carries the same logo or
design of the existing brand.

To implement the provisions for a twelve percent (12%)

increase of excise tax on, among others, cigars and cigarettes packed
by machines by January 1, 2000, the Secretary of Finance, upon
recommendation of the respondent Commissioner of Internal
Revenue, issued Revenue Regulations No. 17-99, dated December 16,
1999, which provides the increase on the applicable tax rates on cigar
and cigarettes as follows:
 SECTION DESCRIPTION OF PRESENT NEW
SPECIFIC TAX SPECIFIC
ARTICLES RATE PRIOR TAX RATE
TO JAN. 1, 2000 EFFECTIVE
JAN. 1, 2000

145 (A) P1.00/cigar P1.12/cigar

(B)Cigarettes packed
by machine

(1) Net retail price

(excluding VAT and P12.00/pack P13.44/ pack
excise)
exceeds P10.00 per
pack
P8.00/pack P8.96/pack
(2) Exceeds P10.00
per pack

(3) Net retail price P5.00/pack P5.60/pack

(excluding VAT and
excise) is P5.00
to P6.50 per pack

(4) Net Retail Price P1.00/pack P1.12/pack

(excluding VAT and
excise) is
below P5.00 per pack

Revenue Regulations No. 17-99 likewise provides in the last

paragraph of Section 1 thereof, (t)hat the new specific tax rate for
any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower
than the excise tax that is actually being paid prior to January 1,
2000.
 For the period covering January 1-31, 2000, petitioner
allegedly paid specific taxes on all brands manufactured and
removed in the total amounts of P585,705,250.00.

On February 7, 2000, petitioner filed with respondents

Appellate Division a claim for refund or tax credit of its purportedly
overpaid excise tax for the month of January 2000 in the amount
of P35,651,410.00

On June 21, 2001, petitioner filed with respondents Legal

Service a letter dated June 20, 2001 reiterating all the claims for
refund/tax credit of its overpaid excise taxes filed on various dates,
including the present claim for the month of January 2000 in the
amount of P35,651,410.00.

As there was no action on the part of the respondent,

petitioner filed the instant petition for review with this Court
on December 11, 2001, in order to comply with the two-year period
for filing a claim for refund.

In his answer filed on January 16, 2002, respondent raised the

following Special and Affirmative Defenses;

4. Petitioners alleged claim for refund is subject to

administrative routinary investigation/examination by
the Bureau;

5. The amount of P35,651,410 being claimed by

petitioner as alleged overpaid excise tax for the month
of January 2000 was not properly documented.

6. In an action for tax refund, the burden of proof is on

the taxpayer to establish its right to refund, and failure
to sustain the burden is fatal to its claim for
refund/credit.

7. Petitioner must show that it has complied with the

provisions of Section 204(C) in relation [to] Section
 229 of the Tax Code on the prescriptive period for
claiming tax refund/credit;

8. Claims for refund are construed strictly against the

claimant for the same partake of tax exemption from
taxation; and

9. The last paragraph of Section 1 of Revenue

Regulation[s] [No.]17-99 is a valid implementing
regulation which has the force and effect of law.

CA G.R. SP No. 83165

The petition contains essentially similar facts, except that the

said case questions the CTAs December 4, 2003 decision in CTA
Case No. 6612 granting respondents[3] claim for refund of the amount
of P355,385,920.00 representing erroneously or illegally collected
specific taxes covering the period January 1, 2002 to December 31,
2002, as well as its March 17, 2004 Resolution denying a
reconsideration thereof.

xxxx

In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the Court of
Tax Appeals reduced the issues to be resolved into two as stipulated by
the parties, to wit: (1) Whether or not the last paragraph of Section 1 of
Revenue Regulation[s] [No.] 17-99 is in accordance with the pertinent
provisions of Republic Act [No.] 8240, now incorporated in Section 145
of the Tax Code of 1997; and (2) Whether or not petitioner is entitled to
a refund of P35,651,410.00 as alleged overpaid excise tax for the month
of January 2000.

xxxx

Hence, the respondent CTA in its assailed October 21, 2002 [twin]
Decisions[s] disposed in CTA Case Nos. 6365 & 6383:

WHEREFORE, in view of the foregoing, the court finds the

instant petition meritorious and in accordance with law.
Accordingly, respondent is hereby ORDERED to
 REFUND to petitioner the amount of P35,651.410.00
representing erroneously paid excise taxes for the period
January 1 to January 31, 2000.

SO ORDERED.

Herein petitioner sought reconsideration of the above-quoted

decision. In [twin] resolution[s] [both] dated July 15, 2003, the Tax
Court, in an apparent change of heart, granted the petitioners
consolidated motions for reconsideration, thereby denying the
respondents claim for refund.

However, on consolidated motions for reconsideration filed by the

respondent in CTA Case Nos. 6363 and 6383, the July 15,
2002 resolution was set aside, and the Tax Court ruled, this time with a
semblance of finality, that the respondent is entitled to the refund
claimed. Hence, in a resolution dated November 4, 2003, the tax court
reinstated its December 21, 2002 Decision and disposed as follows:

WHEREFORE, our Decisions in CTA Case Nos. 6365 and

6383 are hereby REINSTATED. Accordingly,
respondent is hereby ORDERED to REFUND petitioner
the total amount of P680,387,025.00 representing
erroneously paid excise taxes for the period January 1,
2000 to January 31, 2000 and February 1,
2000 to December 31, 2001.

SO ORDERED.

Meanwhile, on December 4, 2003, the Court of Tax Appeals rendered

decision in CTA Case No. 6612 granting the prayer for the refund of the
amount of P355,385,920.00 representing overpaid excise tax for the
period covering January 1, 2002 to December 31, 2002. The tax court
disposed of the case as follows:

IN VIEW OF THE FOREGOING, the Petition for Review is

GRANTED. Accordingly, respondent is hereby
ORDERED to REFUND to petitioner the amount
 of P355,385,920.00 representing overpaid excise tax for
the period covering January 1, 2002 to December 31,
2002.

SO ORDERED.

Petitioner sought reconsideration of the decision, but the same was

denied in a Resolution dated March 17, 2004.[4] (Emphasis supplied)
(Citations omitted)

The Commissioner appealed the aforesaid decisions of the CTA. The petition
questioning the grant of refund in the amount of P680,387,025.00 was docketed
as CA-G.R. SP No. 80675, whereas that assailing the grant of refund in the
amount of P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The
petitions were consolidated and eventually denied by the Court of Appeals. The
appellate court also denied reconsideration in its Resolution[5] dated 1
March 2005.

In its Memorandum[6] 22 dated November 2006, filed on behalf of the

Commissioner, the Office of the Solicitor General (OSG) seeks to convince the
Court that the literal interpretation given by the CTA and the Court of Appeals
of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a lower tax
imposable on 1 January 2000 than that imposable during the transition
period. Instead of an increase of 12% in the tax rate effective on 1 January
2000 as allegedly mandated by the Tax Code, the appellate courts ruling would
result in a significant decrease in the tax rate by as much as 66%.

The OSG argues that Section 145 of the Tax Code admits of several
interpretations, such as:
1. That by January 1, 2000, the excise tax on cigarettes should be the
higher tax imposed under the specific tax system and the tax
imposed under the ad valorem tax system plus the 12% increase
imposed by par. 5, Sec. 145 of the Tax Code;
 2. The increase of 12% starting on January 1, 2000 does not apply to
the brands of cigarettes listed under Annex D referred to in par. 8,
Sec. 145 of the Tax Code;

3. The 12% increment shall be computed based on the net retail

price as indicated in par. C, sub-par. (1)-(4), Sec. 145 of the Tax
Code even if the resulting figure will be lower than the amount
already being paid at the end of the transition period. This is the
interpretation followed by both the CTA and the Court of
Appeals.[7]

This being so, the interpretation which will give life to the legislative intent to
raise revenue should govern, the OSG stresses.

Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and
must, therefore, be construed strictly against the taxpayer, such as Fortune
Tobacco.

In its Memorandum[8] dated 10 November 2006, Fortune Tobacco argues that the
CTA and the Court of Appeals merely followed the letter of the law when they
ruled that the basis for the 12% increase in the tax rate should be the net retail
price of the cigarettes in the market as outlined in paragraph C, sub paragraphs
(1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has gone
beyond his delegated rule-making power when he promulgated, enforced and
implemented Revenue Regulation No. 17-99, which effectively created a
separate classification for cigarettes based on the excise tax actually being paid
prior to January 1, 2000.[9]

It should be mentioned at the outset that there is no dispute between the fact of
payment of the taxes sought to be refunded and the receipt thereof by the Bureau
of Internal Revenue (BIR). There is also no question about the mathematical
accuracy of Fortune Tobaccos claim since the documentary evidence in support
of the refund has not been controverted by the revenue agency. Likewise, the
claims have been made and the actions have been filed within the two (2)-year
prescriptive period provided under Section 229 of the Tax Code.
 The power to tax is inherent in the State, such power being inherently
legislative, based on the principle that taxes are a grant of the people who are
taxed, and the grant must be made by the immediate representatives of the
people; and where the people have laid the power, there it must remain and be
exercised.[10]

This entire controversy revolves around the interplay between Section 145 of the
Tax Code and Revenue Regulation 17-99. The main issue is an inquiry into
whether the revenue regulation has exceeded the allowable limits of legislative
delegation.

For ease of reference, Section 145 of the Tax Code is again reproduced in full as
follows:

Section 145. Cigars and Cigarettes-

(A) Cigars.There shall be levied, assessed and collected on

cigars a tax of One peso (P1.00) per cigar.

(B). Cigarettes packed by hand.There shall be levied,

assessed and collected on cigarettes packed by hand a tax of Forty
centavos (P0.40) per pack.

(C) Cigarettes packed by machine.There shall be levied,

assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below:

(1) If the net retail price (excluding the excise tax and the
value-added tax) is above Ten pesos (P10.00) per pack, the tax shall
be Twelve pesos (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value
added tax) exceeds Six pesos and Fifty centavos (P6.50) but does not
exceed Ten pesos (P10.00) per pack, the tax shall be Eight Pesos
(P8.00) per pack.

(3) If the net retail price (excluding the excise tax and the
value-added tax) is Five pesos (P5.00) but does not exceed Six Pesos
and fifty centavos (P6.50) per pack, the tax shall be Five pesos
(P5.00) per pack;

(4) If the net retail price (excluding the excise tax and the
value-added tax) is below Five pesos (P5.00) per pack, the tax shall be
One peso (P1.00) per pack;

Variants of existing brands of cigarettes which are introduced

in the domestic market after the effectivity of R.A. No. 8240 shall be
taxed under the highest classification of any variant of that brand.

The excise tax from any brand of cigarettes within the next
three (3) years from the effectivity of R.A. No. 8240 shall not be
lower than the tax, which is due from each brand on October 1,
1996. Provided, however, That in cases where the excise tax rates
imposed in paragraphs (1), (2), (3) and (4) hereinabove will result in
an increase in excise tax of more than seventy percent (70%), for a
brand of cigarette, the increase shall take effect in two tranches: fifty
percent (50%) of the increase shall be effective in 1997 and one
hundred percent (100%) of the increase shall be effective in 1998.

Duly registered or existing brands of cigarettes or new brands

thereof packed by machine shall only be packed in twenties.

The rates of excise tax on cigars and cigarettes under

paragraphs (1), (2) (3) and (4) hereof, shall be increased by twelve
percent (12%) on January 1, 2000.

New brands shall be classified according to their current net

retail price.

For the above purpose, net retail price shall mean the price at
which the cigarette is sold on retail in twenty (20) major supermarkets
in Metro Manila (for brands of cigarettes marketed nationally),
excluding the amount intended to cover the applicable excise tax and
value-added tax. For brands which are marketed only outside Metro
Manila, the net retail price shall mean the price at which the cigarette
is sold in five (5) major intended to cover the applicable excise tax
and the value-added tax.
 The classification of each brand of cigarettes based on its
average retail price as of October 1, 1996, as set forth in Annex D,
shall remain in force until revised by Congress.

Variant of a brand shall refer to a brand on which a modifier is

prefixed and/or suffixed to the root name of the brand and/or a
different brand which carries the same logo or design of the existing
brand.[11](Emphasis supplied)

Revenue Regulation 17-99, which was issued pursuant to the unquestioned

authority of the Secretary of Finance to promulgate rules and regulations for the
effective implementation of the Tax Code,[12] interprets the above-quoted
provision and reflects the 12% increase in excise taxes in the following manner:

SECTION DESCRIPTION OF PRESENT NEW

SPECIFIC TAX SPECIFIC
ARTICLES RATES PRIOR TAX RATE
TO JAN. 1, 2000 Effective Jan..
1, 2000

145 (A) Cigars P1.00/cigar P1.12/cigar

(B)Cigarettes packed
by Machine

(1) Net Retail Price

(excluding VAT and P12.00/pack P13.44/pack
Excise)
exceeds P10.00 per
pack

(2) Net Retail Price

(excluding VAT and P8.00/pack P8.96/pack
Excise) is P6.51 up
to P10.00 per pack
P5.00/pack P5.60/pack
(3) Net Retail Price
(excluding VAT and
excise) is P5.00
 to P6.50 per pack

(4) Net Retail Price

(excluding VAT and P1.00/pack P1.12/pack
excise) is
below P5.00 per
pack)

This table reflects Section 145 of the Tax Code insofar as it mandates a 12%
increase effective on 1 January 2000 based on the taxes indicated under
paragraph C, sub-paragraph (1)-(4). However, Revenue Regulation No. 17-99
went further and added that [T]he new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and fermented
liquor shall not be lower than the excise tax that is actually being paid prior to
January 1, 2000.[13]

Parenthetically, Section 145 states that during the transition period, i.e., within
the next three (3) years from the effectivity of the Tax Code, the excise tax from
any brand of cigarettes shall not be lower than the tax due from each brand on 1
October 1996. This qualification, however, is conspicuously absent as regards
the 12% increase which is to be applied on cigars and cigarettes packed by
machine, among others, effective on 1 January 2000. Clearly and unmistakably,
Section 145 mandates a new rate of excise tax for cigarettes packed by machine
due to the 12% increase effective on 1 January 2000 without regard to whether
the revenue collection starting from this period may turn out to be lower than
that collected prior to this date.

By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1 January 2000,
Revenue Regulation No. 17-99 effectively imposes a tax which is the higher
amount between the ad valorem tax being paid at the end of the three (3)-year
transition period and the specific tax under paragraph C, sub-paragraph (1)-(4),
as increased by 12%a situation not supported by the plain wording of Section
145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area
of unauthorized administrative legislation.

In Commissioner of Internal Revenue v. Reyes,[14] respondent was not

informed in writing of the law and the facts on which the assessment of estate
taxes was made pursuant to Section 228 of the 1997 Tax Code, as amended by
Republic Act (R.A.) No. 8424. She was merely notified of the findings by the
Commissioner, who had simply relied upon the old provisions of the law and
Revenue Regulation No. 12-85 which was based on the old provision of the law.
The Court held that in case of discrepancy between the law as amended and the
implementing regulation based on the old law, the former necessarily prevails.
The law must still be followed, even though the existing tax regulation at that
time provided for a different procedure.[15]

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,[16] the

tax authorities gave the term tax credit in Sections 2(i) and 4 of Revenue
Regulation 2-94 a meaning utterly disparate from what R.A. No. 7432
provides. Their interpretation muddled up the intent of Congress to grant a mere
discount privilege and not a sales discount. The Court, striking down the
revenue regulation, held that an administrative agency issuing regulations may
not enlarge, alter or restrict the provisions of the law it administers, and it cannot
engraft additional requirements not contemplated by the legislature. The Court
emphasized that tax administrators are not allowed to expand or contract the
legislative mandate and that the plain meaning rule or verba legis in statutory
construction should be applied such that where the words of a statute are clear,
plain and free from ambiguity, it must be given its literal meaning and applied
without attempted interpretation.

As we have previously declared, rule-making power must be confined to details

for regulating the mode or proceedings in order to carry into effect the law as it
has been enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute. Administrative
regulations must always be in harmony with the provisions of the law because
any resulting discrepancy between the two will always be resolved in favor of
the basic law.[17]
 In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop,
[18]
Inc., Commissioner Jose Ong issued Revenue Memorandum Order (RMO)
No. 15-91, as well as the clarificatory Revenue Memorandum Circular (RMC)
43-91, imposing a 5% lending investors tax under the 1977 Tax Code, as
amended by Executive Order (E.O.) No. 273, on pawnshops. The Commissioner
anchored the imposition on the definition of lending investors provided in the
1977 Tax Code which, according to him, was broad enough to include pawnshop
operators. However, the Court noted that pawnshops and lending investors were
subjected to different tax treatments under the Tax Code prior to its amendment
by the executive order; that Congress never intended to treat pawnshops in the
same way as lending investors; and that the particularly involved section of the
Tax Code explicitly subjected lending investors and dealers in securities only to
percentage tax. And so the Court affirmed the invalidity of the challenged
circulars, stressing that administrative issuances must not override, supplant or
modify the law, but must remain consistent with the law they intend to carry
out.[19]

In Philippine Bank of Communications v. Commissioner of Internal

Revenue,[20] the then acting Commissioner issued RMC 7-85, changing the
prescriptive period of two years to ten years for claims of excess quarterly
income tax payments, thereby creating a clear inconsistency with the provision
of Section 230 of the 1977 Tax Code. The Court nullified the circular, ruling that
the BIR did not simply interpret the law; rather it legislated guidelines contrary
to the statute passed by Congress. The Court held:
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the
courts.Nevertheless, such interpretation is not conclusive and will be
ignored if judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply
and implement.[21]
In Commissioner of Internal Revenue v. CA, et al.,[22] the central issue was the
validity of RMO 4-87 which had construed the amnesty coverage under E.O.
No. 41 (1986) to include only assessments issued by the BIR after the
promulgation of the executive order on 22 August 1986 and not assessments
made to that date. Resolving the issue in the negative, the Court held:

x x x all such issuances must not override, but must remain

consistent and in harmony with, the law they seek to apply and
implement. Administrative rules and regulations are intended to carry
out, neither to supplant nor to modify, the law.[23]

xxx

If, as the Commissioner argues, Executive Order No. 41 had not

been intended to include 1981-1985 tax liabilities already assessed
(administratively) prior to 22 August 1986, the law could have simply
so provided in its exclusionary clauses. It did not. The conclusion is
unavoidable, and it is that the executive order has been designed to be
in the nature of a general grant of tax amnesty subject only to the
cases specifically excepted by it.[24]

In the case at bar, the OSGs argument that by 1 January 2000, the excise tax on
cigarettes should be the higher tax imposed under the specific tax system and the
tax imposed under the ad valorem tax system plus the 12% increase imposed by
paragraph 5, Section 145 of the Tax Code, is an unsuccessful attempt to justify
what is clearly an impermissible incursion into the limits of administrative
legislation. Such an interpretation is not supported by the clear language of the
law and is obviously only meant to validate the OSGs thesis that Section 145 of
the Tax Code is ambiguous and admits of several interpretations.

The contention that the increase of 12% starting on 1 January 2000 does not
apply to the brands of cigarettes listed under Annex
D is likewise unmeritorious, absurd even. Paragraph 8, Section 145 of the Tax
Code simply states that, [T]he classification of each brand of cigarettes based on
its average net retail price as of October 1, 1996, as set forth in Annex D, shall
remain in force until revised by Congress. This declaration certainly does not
lend itself to the interpretation given to it by the OSG. As plainly worded, the
average net retail prices of the listed brands under Annex D, which classify
cigarettes according to their net retail price into low, medium or high, obviously
remain the bases for the application of the increase in excise tax rates effective
on 1 January 2000.

The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed
indefensibly flawed. The Commissioner cannot seek refuge in his claim that the
purpose behind the passage of the Tax Code is to generate additional revenues
for the government.Revenue generation has undoubtedly been a major
consideration in the passage of the Tax Code. However, as borne by the
legislative record,[25] the shift from the ad valorem system to the specific tax
system is likewise meant to promote fair competitionamong the players in the
industries concerned, to ensure an equitable distribution of the tax burden and to
simplify tax administration by classifying cigarettes, among others, into high,
medium and low-priced based on their net retail price and accordingly
graduating tax rates.

At any rate, this advertence to the legislative record is merely gratuitous because,
as we have held, the meaning of the law is clear on its face and free from the
ambiguities that the Commissioner imputes. We simply cannot disregard the
letter of the law on the pretext of pursuing its spirit.[26]
Finally, the Commissioners contention that a tax refund partakes the
nature of a tax exemption does not apply to the tax refund to which Fortune
Tobacco is entitled. There is parity between tax refund and tax exemption only
when the former is based either on a tax exemption statute or a tax refund
statute. Obviously, that is not the situation here. Quite the contrary, Fortune
Tobaccos claim for refund is premised on its erroneous payment of the tax, or
better still the governments exaction in the absence of a law.

Tax exemption is a result of legislative grace. And he who claims an

exemption from the burden of taxation must justify his claim by showing that the
legislature intended to exempt him by words too plain to be mistaken. [27] The
rule is that tax exemptions must be strictly construed such that the exemption
will not be held to be conferred unless the terms under which it is granted clearly
and distinctly show that such was the intention.[28]

A claim for tax refund may be based on statutes granting tax exemption or
tax refund. In such case, the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption, a
legislative grace, which cannot be allowed unless granted in the most explicit
and categorical language. The taxpayer must show that the legislature intended
to exempt him from the tax by words too plain to be mistaken.[29]
Tax refunds (or tax credits), on the other hand, are not founded principally on
legislative grace but on the legal principle which underlies all quasi-contracts
abhorring a persons unjust enrichment at the expense of another.[30] The dynamic
of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in law. [31]

The Government is not exempt from the application of solutio

indebiti.[32] Indeed, the taxpayer expects fair dealing from the Government, and
the latter has the duty to refund without any unreasonable delay what it has
erroneously collected.[33] If the State expects its taxpayers to observe fairness
and honesty in paying their taxes, it must hold itself against the same standard in
refunding excess (or erroneous) payments of such taxes. It should not unjustly
enrich itself at the expense of taxpayers.[34] And so, given its essence, a claim for
tax refund necessitates only preponderance of evidence for its approbation like
in any other ordinary civil case.

Under the Tax Code itself, apparently in recognition of the pervasive

quasi-contract principle, a claim for tax refund may be based on the following:
(a) erroneously or illegally assessed or collected internal revenue taxes; (b)
penalties imposed without authority; and (c) any sum alleged to have been
excessive or in any manner wrongfully collected.[35]

What is controlling in this case is the well-settled doctrine of strict interpretation

in the imposition of taxes, not the similar doctrine as applied to tax exemptions.
The rule in the interpretation of tax laws is that a statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. A tax
cannot be imposed without clear and express words for that
purpose.Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions
of a taxing act are not to be extended by implication. In answering the question
of who is subject to tax statutes, it is basic that in case of doubt, such statutes are
to be construed most strongly against the government and in favor of the
subjects or citizens because burdens are not to be imposed nor presumed to be
imposed beyond what statutes expressly and clearly import. [36]As burdens, taxes
should not be unduly exacted nor assumed beyond the plain meaning of the tax
laws.[37]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals

in CA G.R. SP No. 80675, dated 28 September 2004, and its Resolution, dated 1
March 2005, are AFFIRMED. No pronouncement as to costs.

SO ORDERED.
SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs.
CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, THE SECRETARY OF THE DEPARTMENT OF
TRADE AND INDUSTRY, THE SECRETARY OF THE
DEPARTMENT OF FINANCE and THE COMMISSIONER OF THE
BUREAU OF CUSTOMS, respondents.

RESOLUTION
TINGA, J.:

Cement is hardly an exciting subject for litigation. Still, the parties in this
case have done their best to put up a spirited advocacy of their respective
positions, throwing in everything including the proverbial kitchen sink. At
present, the burden of passion, if not proof, has shifted to public
respondents Department of Trade and Industry (DTI) and private
respondent Philippine Cement Manufacturers Corporation
(Philcemcor), who now seek reconsideration of our Decision dated 8 July
[1]

2004 (Decision), which granted the petition of petitioner Southern Cross

Cement Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For
respondents, it is about love of country and the future of the domestic
industry in the face of foreign competition. For this Court, it is about
elementary statutory construction, constitutional limitations on the executive
power to impose tariffs and similar measures, and obedience to the law.
Just as much was asserted in the Decision, and the same holds true with
this present Resolution.
An extensive narration of facts can be found in the Decision.[2] As can
well be recalled, the case centers on the interpretation of provisions of
Republic Act No. 8800, the Safeguard Measures Act (SMA), which was one
of the laws enacted by Congress soon after the Philippines ratified the
General Agreement on Tariff and Trade (GATT) and the World Trade
Organization (WTO) Agreement.[3] The SMA provides the structure and
mechanics for the imposition of emergency measures, including tariffs, to
protect domestic industries and producers from increased imports which
inflict or could inflict serious injury on them.[4]
A brief summary as to how the present petition came to be filed by
Southern Cross. Philcemcor, an association of at least eighteen (18)
domestic cement manufacturers filed with the DTI a petition seeking the
imposition of safeguard measures on gray Portland cement,[5] in accordance
with the SMA. After the DTI issued a provisional safeguard measure,[6] the
application was referred to the Tariff Commission for a formal investigation
pursuant to Section 9 of the SMA and its Implementing Rules and
Regulations, in order to determine whether or not to impose a definitive
safeguard measure on imports of gray Portland cement. The Tariff
Commission held public hearings and conducted its own investigation, then
on 13 March 2002, issued its Formal Investigation Report (Report). The
Report determined as follows:

The elements of serious injury and imminent threat of serious injury not having
been established, it is hereby recommended that no definitive general safeguard
measure be imposed on the importation of gray Portland cement.[7]

The DTI sought the opinion of the Secretary of Justice whether it could
still impose a definitive safeguard measure notwithstanding the negative
finding of the Tariff Commission. After the Secretary of Justice opined that
the DTI could not do so under the SMA,[8] the DTI Secretary then
promulgated a Decision[9] wherein he expressed the DTIs disagreement with
the conclusions of the Tariff Commission, but at the same time, ultimately
denying Philcemcors application for safeguard measures on the ground that
the he was bound to do so in light of the Tariff Commissions negative
findings.[10]
Philcemcor challenged this Decision of the DTI Secretary by filing with
the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus[11] seeking to set aside the DTI Decision, as well as the Tariff
Commissions Report. It prayed that the Court of Appeals direct the DTI
Secretary to disregard the Report and to render judgment independently of
the Report. Philcemcor argued that the DTI Secretary, vested as he is under
the law with the power of review, is not bound to adopt the
recommendations of the Tariff Commission; and, that the Report is void, as
it is predicated on a flawed framework, inconsistent inferences and
erroneous methodology.[12]
The Court of Appeals Twelfth Division, in a Decision[13] penned by Court
of Appeals Associate Justice Elvi John Asuncion,[14] partially granted
Philcemcors petition. The appellate court ruled that it had jurisdiction over
the petition for certiorari since it alleged grave abuse of discretion. While it
refused to annul the findings of the Tariff Commission,[15] it also held that the
DTI Secretary was not bound by the factual findings of the Tariff
Commission since such findings are merely recommendatory and they fall
within the ambit of the Secretarys discretionary review. It determined that
the legislative intent is to grant the DTI Secretary the power to make a final
decision on the Tariff Commissions recommendation.[16]
 On 23 June 2003, Southern Cross filed the present petition, arguing that
the Court of Appeals has no jurisdiction over Philcemcors petition, as the
proper remedy is a petition for review with the CTA conformably with the
SMA, and; that the factual findings of the Tariff Commission on the
existence or non-existence of conditions warranting the imposition of
general safeguard measures are binding upon the DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become
final, its binding force was cited by the DTI Secretary when he issued a
new Decision on 25 June 2003, wherein he ruled that that in light of the
appellate courts Decision, there was no longer any legal impediment to his
deciding Philcemcors application for definitive safeguard measures.[17] He
made a determination that, contrary to the findings of the Tariff Commission,
the local cement industry had suffered serious injury as a result of the
import surges.[18] Accordingly, he imposed a definitive safeguard measure
on the importation of gray Portland cement, in the form of a definitive
safeguard duty in the amount of P20.60/40 kg. bag for three years on
imported gray Portland Cement.[19]
On 7 July 2003, Southern Cross filed with the Court a Very Urgent
Application for a Temporary Restraining Order and/or A Writ of Preliminary
Injunction (TRO Application), seeking to enjoin the DTI Secretary from
enforcing his Decision of 25 June 2003 in view of the pending petition
before this Court. Philcemcor filed an opposition, claiming, among others,
that it is not this Court but the CTA that has jurisdiction over the application
under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for
Review, assailing the DTI Secretarys 25 June 2003 Decision which imposed
the definite safeguard measure. Yet Southern Cross did not promptly inform
this Court about this filing. The first time the Court would learn about
this Petition with the CTA was when Southern Cross mentioned such fact in
a pleading dated 11 August 2003 and filed the next day with this Court.[20]
Philcemcor argued before this Court that Southern Cross had
deliberately and willfully resorted to forum-shopping; that the CTA, being a
special court of limited jurisdiction, could only review the ruling of the DTI
Secretary when a safeguard measure is imposed; and that the factual
findings of the Tariff Commission are not binding on the DTI Secretary.[21]
After giving due course to Southern Crosss Petition, the Court called the
case for oral argument on 18 February 2004.[22] At the oral argument,
attended by the counsel for Philcemcor and Southern Cross and the Office
of the Solicitor General, the Court simplified the issues in this wise: (i)
whether the Decision of the DTI Secretary is appealable to the CTA or the
Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction,
whether its Decision is in accordance with law; and, whether a Temporary
Restraining Order is warranted.[23]
After the parties had filed their respective memoranda, the Courts
Second Division, to which the case had been assigned, promulgated
its Decision granting Southern Crosss Petition.[24]The Decision was
unanimous, without any separate or concurring opinion.
The Court ruled that the Court of Appeals had no jurisdiction over
Philcemcors Petition, the proper remedy under Section 29 of the SMA being
a petition for review with the CTA; and that the Court of Appeals erred in
ruling that the DTI Secretary was not bound by the negative determination
of the Tariff Commission and could therefore impose the general safeguard
measures, since Section 5 of the SMA precisely required that the Tariff
Commission make a positive final determination before the DTI Secretary
could impose these measures. Anent the argument that Southern Cross
had committed forum-shopping, the Court concluded that there was no
evident malicious intent to subvert procedural rules so as to match the
standard under Section 5, Rule 7 of the Rules of Court of willful and
deliberate forum shopping. Accordingly, the Decision of the Court of
Appeals dated 5 June 2003 was declared null and void.
The Court likewise found it necessary to nullify the Decision of the DTI
Secretary dated 25 June 2003, rendered after the filing of this
present Petition. This Decision by the DTI Secretary had cited the obligatory
force of the null and void Court of Appeals Decision, notwithstanding the
fact that the decision of the appellate court was not yet final and executory.
Considering that the decision of the Court of Appeals was a nullity to begin
with, the inescapable conclusion was that the new decision of the DTI
Secretary, prescinding as it did from the imprimatur of the decision of the
Court of Appeals, was a nullity as well.
After the Decision was reported in the media, there was a flurry of
newspaper articles citing alleged negative reactions to the ruling by the
counsel for Philcemcor, the DTI Secretary, and others.[25] Both respondents
promptly filed their respective motions for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon motion of
respondents, to accept the petition and resolve the Motions for
Reconsideration.[26] The case was then reheard[27] on oral argument on 1
March 2005. During the hearing, the Court elicited from the parties their
arguments on the two central issues as discussed in the assailed Decision,
pertaining to the jurisdictional aspect and to the substantive aspect of
whether the DTI Secretary may impose a general safeguard measure
despite a negative determination by the Tariff Commission. The Court
chose not to hear argumentation on the peripheral issue of forum-
shopping,[28] although this question shall be tackled herein shortly. Another
point of concern emerged during oral arguments on the exercise of quasi-
judicial powers by the Tariff Commission, and the parties were required by
the Court to discuss in their respective memoranda whether the Tariff
Commission could validly exercise quasi-judicial powers in the exercise of
its mandate under the SMA.
The Court has likewise been notified that subsequent to the rendition of
the Courts Decision, Philcemcor filed a Petition for Extension of the
Safeguard Measure with the DTI, which has been referred to the Tariff
Commission.[29] In an Urgent Motion dated 21 December 2004, Southern
Cross prayed that Philcemcor, the DTI, the Bureau of Customs, and the
Tariff Commission be directed to cease and desist from taking any and all
actions pursuant to or under the null and void CA Decision and DTI
Decision, including proceedings to extend the safeguard measure.[30] In
a Manifestation and Motion dated 23 June 2004, the Tariff Commission
informed the Court that since no prohibitory injunction or order of such
nature had been issued by any court against the Tariff Commission, the
Commission proceeded to complete its investigation on the petition for
extension, pursuant to Section 9 of the SMA, but opted to defer transmittal
of its report to the DTI Secretary pending guidance from this Court on the
propriety of such a step considering this pending Motion for
Reconsideration. In a Resolution dated 5 July 2005, the Court directed the
parties to maintain the status quo effective of even date, and until further
orders from this Court. The denial of the pending motions for
reconsideration will obviously render the pending petition for extension
academic.

I. Jurisdiction of the Court of Tax Appeals

Under Section 29 of the SMA

The first core issue resolved in the assailed Decision was whether the
Court of Appeals had jurisdiction over the special civil action
forcertiorari filed by Philcemcor assailing the 5 April 2002 Decision of the
DTI Secretary. The general jurisdiction of the Court of Appeals over special
civil actions for certiorari is beyond doubt. The Constitution itself assures
that judicial review avails to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government. At the same time,
the special civil action of certiorari is available only when there is no plain,
speedy and adequate remedy in the ordinary course of law.[31] Philcemcors
recourse of special civil action before the Court of Appeals to challenge
the Decision of the DTI Secretary not to impose the general safeguard
measures is not based on the SMA, but on the general rule on certiorari.
Thus, the Court proceeded to inquire whether indeed there was no other
plain, speedy and adequate remedy in the ordinary course of law that would
warrant the allowance of Philcemcors special civil action.
The answer hinged on the proper interpretation of Section 29 of the
SMA, which reads:

Section 29. Judicial Review. Any interested party who is adversely affected by
the ruling of the Secretary in connection with the imposition of a safeguard
measure may file with the CTA, a petition for review of such ruling within thirty
(30) days from receipt thereof. Provided, however, that the filing of such petition
for review shall not in any way stop, suspend or otherwise toll the imposition or
collection of the appropriate tariff duties or the adoption of other appropriate
safeguard measures, as the case may be.

The petition for review shall comply with the same requirements and shall follow
the same rules of procedure and shall be subject to the same disposition as in
appeals in connection with adverse rulings on tax matters to the Court of
Appeals.[32] (Emphasis supplied)

The matter is crucial for if the CTA properly had jurisdiction over the
petition challenging the DTI Secretarys ruling not to impose a safeguard
measure, then the special civil action of certiorari resorted to instead by
Philcemcor would not avail, owing to the existence of a plain, speedy and
adequate remedy in the ordinary course of law.[33] The Court of Appeals, in
asserting that it had jurisdiction, merely cited the general rule on certiorari
jurisdiction without bothering to refer to, or possibly even study, the import
of Section 29. In contrast, this Court duly considered the meaning and
ramifications of Section 29, concluding that it provided for a plain, speedy
and adequate remedy that Philcemcor could have resorted to instead of
filing the special civil action before the Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for review
allowed under Section 29 lies only if the DTI Secretarys ruling imposes a
safeguard measure. If, on the other hand, the DTI Secretarys ruling is not to
impose a safeguard measure, judicial review under Section 29 could not be
resorted to since the provision refers to rulings in connection with the
imposition of the safeguard measure, as opposed to the non-imposition.
Since the Decision dated 5 April 2002 resolved against imposing a
safeguard measure, Philcemcor claims that the proper remedial recourse is
a petition for certiorari with the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004,
expressly vests unto the CTA jurisdiction over [d]ecisions of the Secretary of
Trade and Industry, in case of nonagricultural product, commodity or article
. . . involving . . . safeguard measures under Republic Act No. 8800,
where either party may appeal the decision to impose or not to impose
said duties.[34] It is clear that any future attempts to advance the literalist
position of the respondents would consequently fail. However, since
Republic Act No. 9282 has no retroactive effect, this Court had to decide
whether Section 29 vests jurisdiction on the CTA over rulings of the DTI
Secretary not to impose a safeguard measure. And the Court, in its
assailed Decision, ruled that the CTA is endowed with such jurisdiction.
Both respondents reiterate their fundamentalist reading that Section 29
authorizes the petition for review before the CTA only when the DTI
Secretary decides to impose a safeguard measure, but not when he
decides not to. In doing so, they fail to address what the Court earlier
pointed out would be the absurd consequences if their interpretation is
followed to its logical end. But in affirming, as the Court now does, its
previous holding that the CTA has jurisdiction over petitions for review
questioning the non-imposition of safeguard measures by the DTI
Secretary, the Court relies on the plain reading that Section 29 explicitly
vests jurisdiction over such petitions on the CTA.
Under Section 29, there are three requisites to enable the CTA to
acquire jurisdiction over the petition for review contemplated therein: (i)
there must be a ruling by the DTI Secretary; (ii) the petition must be filed by
an interested party adversely affected by the ruling; and (iii) such ruling
must be in connection with the imposition of a safeguard measure.
Obviously, there are differences between a ruling for the imposition of a
safeguard measure, and one issued in connection with the imposition of a
safeguard measure. The first adverts to a singular type of ruling, namely
one that imposes a safeguard measure. The second does not contemplate
only one kind of ruling, but a myriad of rulings issued in connection with the
imposition of a safeguard measure.
Respondents argue that the Court has given an expansive interpretation
to Section 29, contrary to the established rule requiring strict construction
against the existence of jurisdiction in specialized courts.[35] But it is the
express provision of Section 29, and not this Court, that mandates
CTA jurisdiction to be broad enough to encompass more than just a
ruling imposing the safeguard measure.
The key phrase remains in connection with. It has connotations that are
obvious even to the layman. A ruling issued in connection with the
imposition of a safeguard measure would be one that bears some relation to
the imposition of a safeguard measure. Obviously, a ruling imposing a
safeguard measure is covered by the phrase in connection with, but such
ruling is by no means exclusive. Rulings which modify, suspend or
terminate a safeguard measure are necessarily in connection with the
imposition of a safeguard measure. So does a ruling allowing for a
provisional safeguard measure. So too, a ruling by the DTI Secretary
refusing to refer the application for a safeguard measure to the Tariff
Commission. It is clear that there is an entire subset of rulings that the DTI
Secretary may issue in connection with the imposition of a safeguard
measure, including those that are provisional, interlocutory, or dispositive in
character.[36] By the same token, a ruling not to impose a safeguard
measure is also issued in connection with the imposition of a safeguard
measure.
In arriving at the proper interpretation of in connection with, the Court
referred to the U.S. Supreme Court cases of Shaw v. Delta Air Lines,
Inc.[37] and New York State Blue Cross Plans v. Travelers Ins.[38] Both cases
considered the interpretation of the phrase relates to as used in a federal
statute, the Employee Retirement Security Act of 1974. Respondents
criticize the citations on the premise that the cases are not binding in our
jurisdiction and do not involve safeguard measures. The criticisms are off-
tangent considering that our ruling did not call for the application of the
Employee Retirement Security Act of 1974 in the Philippine milieu. The
American cases are not relied upon as precedents, but as guides of
interpretation. Certainly, if there are applicable local precedents pertaining
to the interpretation of the phrase in connection with, then these certainly
would have some binding force. But none avail, and neither do the
respondents demonstrate a countervailing holding in Philippine
jurisprudence.
Yet we should consider the claim that an expansive interpretation was
favored in Shaw because the law in question was an employees benefit law
that had to be given an interpretation favorable to its intended
beneficiaries.[39] In the next breath, Philcemcor notes that the U.S. Supreme
Court itself was alarmed by the expansive interpretation in Shaw and thus
in Blue Cross, the Shaw ruling was reversed and a more restrictive
interpretation was applied based on congressional intent.[40]
Respondents would like to make it appear that the Court acted rashly in
applying a discarded precedent in Shaw, a non-binding foreign precedent
nonetheless. But the Court did make the following observation in
its Decision pertaining to Blue Cross:

Now, let us determine the maximum scope and reach of the phrase in connection
with as used in Section 29 of the SMA. A literalist reading or linguistic survey may
not satisfy. Even the U.S. Supreme Court in New York State Blue Cross Plans v.
Travelers Ins.[41] conceded that the phrases relate to or in connection with may be
extended to the farthest stretch of indeterminacy for, universally, relations or
connections are infinite and stop nowhere.[42] Thus, in the case the U.S. High
Court, examining the same phrase of the same provision of law involved
in Shaw, resorted to looking at the statute and its objectives as the alternative
to an uncritical literalism. A similar inquiry into the other provisions of the
SMA is in order to determine the scope of review accorded therein to the
CTA.[43]

In the next four paragraphs of the Decision, encompassing four pages,

the Court proceeded to inquire into the SMA and its objectives as a means
to determine the scope of rulings to be deemed as in connection with the
imposition of a safeguard measure. Certainly, this Court did not resort to the
broadest interpretation possible of the phrase in connection with, but
instead sought to bring it into the context of the scope and objectives of the
SMA. The ultimate conclusion of the Court was that the phrase includes all
rulings of the DTI Secretary which arise from the time an application or motu
proprio initiation for the imposition of a safeguard measure is taken.[44] This
conclusion was derived from the observation that the imposition of a general
safeguard measure is a process, initiated motu proprio or through
application, which undergoes several stages upon which the DTI Secretary
is obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase in connection
with, it is the SMA that expressly vests jurisdiction on the CTA over petitions
questioning the non-imposition by the DTI Secretary of safeguard
measures. The Court is simply asserting, as it should, the clear intent of the
legislature in enacting the SMA. Without in connection with or a
synonymous phrase, the Court would be compelled to favor the
respondents position that only rulings imposing safeguard measures may
be elevated on appeal to the CTA. But considering that the statute does
make use of the phrase, there is little sense in delving into alternate
scenarios.
Respondents fail to convincingly address the absurd consequences
pointed out by the Decision had their proposed interpretation been adopted.
Indeed, suffocated beneath the respondents legalistic tinsel is the elemental
questionwhat sense is there in vesting jurisdiction on the CTA over a
decision to impose a safeguard measure, but not on one choosing not to
impose. Of course, it is not for the Court to inquire into the wisdom of
legislative acts, hence the rule that jurisdiction must be expressly vested
and not presumed. Yet ultimately, respondents muddle the issue by making
it appear that the Decision has uniquely expanded the jurisdictional rules.
For the respondents, the proper statutory interpretation of the crucial phrase
in connection with is to pretend that the phrase did not exist at all in the
statute. The Court, in taking the effort to examine the meaning and extent of
the phrase, is merely giving breath to the legislative will.
The Court likewise stated that the respondents position calls for split
jurisdiction, which is judicially abhorred. In rebuttal, the public respondents
cite Sections 2313 and 2402 of the Tariff and Customs Code (TCC), which
allegedly provide for a splitting of jurisdiction of the CTA. According to public
respondents, under Section 2313 of the TCC, a decision of the
Commissioner of Customs affirming a decision of the Collector of Customs
adverse to the government is elevated for review to the Secretary of
Finance. However, under Section 2402 of the TCC, a ruling of the
Commissioner of the Bureau of Customs against a taxpayer must be
appealed to the Court of Tax Appeals, and not to the Secretary of Finance.
Strictly speaking, the review by the Secretary of Finance of the decision
of the Commissioner of Customs is not judicial review, since the Secretary
of Finance holds an executive and not a judicial office. The contrast is
apparent with the situation in this case, wherein the interpretation favored
by the respondents calls for the exercise of judicial review by two different
courts over essentially the same questionwhether the DTI Secretary should
impose general safeguard measures. Moreover, as petitioner points out, the
executive department cannot appeal against itself. The Collector of
Customs, the Commissioner of Customs and the Secretary of Finance are
all part of the executive branch. If the Collector of Customs rules against the
government, the executive cannot very well bring suit in courts against itself.
On the other hand, if a private person is aggrieved by the decision of the
Collector of Customs, he can have proper recourse before the courts, which
now would be called upon to exercise judicial review over the action of the
executive branch.
 More fundamentally, the situation involving split review of the decision of
the Collector of Customs under the TCC is not apropos to the case at bar.
The TCC in that instance is quite explicit on the divergent reviewing body or
official depending on which party prevailed at the Collector of Customs
level. On the other hand, there is no such explicit expression of bifurcated
appeals in Section 29 of the SMA.
Public respondents likewise cite Fabian v. Ombudsman[45] as another
instance wherein the Court purportedly allowed split jurisdiction. It is argued
that the Court, in ruling that it was the Court of Appeals which possessed
appellate authority to review decisions of the Ombudsman in administrative
cases while the Court retaining appellate jurisdiction of decisions of the
Ombudsman in non-administrative cases, effectively sanctioned split
jurisdiction between the Court and the Court of Appeals.[46]
Nonetheless, this argument is successfully undercut by Southern Cross,
which points out the essential differences in the power exercised by the
Ombudsman in administrative cases and non-administrative cases relating
to criminal complaints. In the former, the Ombudsman may impose an
administrative penalty, while in acting upon a criminal complaint what the
Ombudsman undertakes is a preliminary investigation. Clearly, the capacity
in which the Ombudsman takes on in deciding an administrative complaint
is wholly different from that in conducting a preliminary investigation. In
contrast, in ruling upon a safeguard measure, the DTI Secretary acts in one
and the same role. The variance between an order granting or denying an
application for a safeguard measure is polar though emanating from the
same equator, and does not arise from the distinct character of the putative
actions involved.
Philcemcor imputes intelligent design behind the alleged intent of
Congress to limit CTA review only to impositions of the general safeguard
measures. It claims that there is a necessary tax implication in case of an
imposition of a tariff where the CTAs expertise is necessary, but there is no
such tax implication, hence no need for the assumption of jurisdiction by a
specialized agency, when the ruling rejects the imposition of a safeguard
measure. But of course, whether the ruling under review calls for the
imposition or non-imposition of the safeguard measure, the common
question for resolution still is whether or not the tariff should be imposed an
issue definitely fraught with a tax dimension. The determination of the
question will call upon the same kind of expertise that a specialized body as
the CTA presumably possesses.
 In response to the Courts observation that the setup proposed by
respondents was novel, unusual, cumbersome and unwise, public
respondents invoke the maxim that courts should not be concerned with the
wisdom and efficacy of legislation.[47] But this prescinds from the bogus
claim that the CTA may not exercise judicial review over a decision not to
impose a safeguard measure, a prohibition that finds no statutory support. It
is likewise settled in statutory construction that an interpretation that would
cause inconvenience and absurdity is not favored. Respondents do not
address the particular illogic that the Court pointed out would ensue if their
position on judicial review were adopted. According to the respondents,
while a ruling by the DTI Secretary imposing a safeguard measure may be
elevated on review to the CTA and assailed on the ground of errors in fact
and in law, a ruling denying the imposition of safeguard measures may be
assailed only on the ground that the DTI Secretary committed grave abuse
of discretion. As stressed in the Decision, [c]ertiorari is a remedy narrow in
its scope and inflexible in its character. It is not a general utility tool in the
legal workshop.[48]
It is incorrect to say that the Decision bars any effective remedy should
the Tariff Commission act or conclude erroneously in making its
determination whether the factual conditions exist which necessitate the
imposition of the general safeguard measure. If the Tariff Commission
makes a negative final determination, the DTI Secretary, bound as he is by
this negative determination, has to render a decision denying the application
for safeguard measures citing the Tariff Commissions findings as basis.
Necessarily then, such negative determination of the Tariff Commission
being an integral part of the DTI Secretarys ruling would be open for review
before the CTA, which again is especially qualified by reason of its expertise
to examine the findings of the Tariff Commission. Moreover, considering
that the Tariff Commission is an instrumentality of the government, its
actions (as opposed to those undertaken by the DTI Secretary under the
SMA) are not beyond the pale of certiorari jurisdiction. Unfortunately for
Philcemcor, it hinged its cause on the claim that the DTI Secretarys actions
may be annulled on certiorari, notwithstanding the explicit grant of judicial
review over that cabinet members actions under the SMA to the CTA.
Finally on this point, Philcemcor argues that assuming this Courts
interpretation of Section 29 is correct, such ruling should not be given
retroactive effect, otherwise, a gross violation of the right to due process
would be had. This erroneously presumes that it was this Court, and not
Congress, which vested jurisdiction on the CTA over rulings of non-
imposition rendered by the DTI Secretary. We have repeatedly stressed that
Section 29 expressly confers CTA jurisdiction over rulings in connection
with the imposition of the safeguard measure, and the reassertion of this
point in the Decision was a matter of emphasis, not of contrivance. The due
process protection does not shield those who remain purposely blind to the
express rules that ensure the sporting play of procedural law.
Besides, respondents claim would also apply every time this Court is
compelled to settle a novel question of law, or to reverse precedent. In such
cases, there would always be litigants whose causes of action might be
vitiated by the application of newly formulated judicial doctrines. Adopting
their claim would unwisely force this Court to treat its dispositions in
unprecedented, sometimes landmark decisions not as resolutions to the live
cases or controversies, but as legal doctrine applicable only to future
litigations.

II. Positive Final Determination

By the Tariff Commission an
Indispensable Requisite to the
Imposition of General Safeguard Measures

The second core ruling in the Decision was that contrary to the holding
of the Court of Appeals, the DTI Secretary was barred from imposing a
general safeguard measure absent a positive final determination rendered
by the Tariff Commission. The fundamental premise rooted in this ruling is
based on the acknowledgment that the required positive final determination
of the Tariff Commission exists as a properly enacted constitutional
limitation imposed on the delegation of the legislative power to impose
tariffs and imposts to the President under Section 28(2), Article VI of the
Constitution.

Congressional Limitations Pursuant

To Constitutional Authority on the
Delegated Power to Impose
Safeguard Measures

The safeguard measures imposable under the SMA generally involve

duties on imported products, tariff rate quotas, or quantitative restrictions on
the importation of a product into the country. Concerning as they do the
foreign importation of products into the Philippines, these safeguard
measures fall within the ambit of Section 28(2), Article VI of the Constitution,
which states:

The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the
Government.[49]

The Court acknowledges the basic postulates ingrained in the provision,

and, hence, governing in this case. They are:
(1) It is Congress which authorizes the President to impose tariff
rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts. Thus, the authority cannot come from the
Finance Department, the National Economic Development Authority, or the
World Trade Organization, no matter how insistent or persistent these
bodies may be.
(2) The authorization granted to the President must be embodied in
a law. Hence, the justification cannot be supplied simply by inherent
executive powers. It cannot arise from administrative or executive orders
promulgated by the executive branch or from the wisdom or whim of the
President.
(3) The authorization to the President can be exercised only within
the specified limits set in the law and is further subject to limitations
and restrictions which Congress may impose. Consequently, if
Congress specifies that the tariff rates should not exceed a given amount,
the President cannot impose a tariff rate that exceeds such amount. If
Congress stipulates that no duties may be imposed on the importation of
corn, the President cannot impose duties on corn, no matter how actively
the local corn producers lobby the President. Even the most picayune of
limits or restrictions imposed by Congress must be observed by the
President.
There is one fundamental principle that animates these constitutional
postulates. These impositions under Section 28(2), Article VI fall within
the realm of the power of taxation, a power which is within the sole
province of the legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no
authority to impose tariffs and other similar tax levies involving the
importation of foreign goods. Assuming that Section 28(2) Article VI did
not exist, the enactment of the SMA by Congress would be voided on the
ground that it would constitute an undue delegation of the legislative power
to tax. The constitutional provision shields such delegation from
constitutional infirmity, and should be recognized as an exceptional grant of
legislative power to the President, rather than the affirmation of an inherent
executive power.
This being the case, the qualifiers mandated by the Constitution on this
presidential authority attain primordial consideration. First, there must be a
law, such as the SMA. Second, there must be specified limits, a detail which
would be filled in by the law. And further, Congress is further empowered to
impose limitations and restrictions on this presidential authority. On this last
power, the provision does not provide for specified conditions, such as that
the limitations and restrictions must conform to prior statutes, internationally
accepted practices, accepted jurisprudence, or the considered opinion of
members of the executive branch.
The Court recognizes that the authority delegated to the President under
Section 28(2), Article VI may be exercised, in accordance with legislative
sanction, by the alter egos of the President, such as department
secretaries. Indeed, for purposes of the Presidents exercise of power to
impose tariffs under Article VI, Section 28(2), it is generally the Secretary of
Finance who acts as alter ego of the President. The SMA provides an
exceptional instance wherein it is the DTI or Agriculture Secretary who is
tasked by Congress, in their capacities as alter egos of the President, to
impose such measures. Certainly, the DTI Secretary has no inherent power,
even as alter ego of the President, to levy tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA
should be likewise construed within the same context as part and parcel of
the legislative delegation of its inherent power to impose tariffs and imposts
to the executive branch, subject to limitations and restrictions. In that
regard, both the Tariff Commission and the DTI Secretary may be regarded
as agents of Congress within their limited respective spheres, as ordained
in the SMA, in the implementation of the said law which significantly draws
its strength from the plenary legislative power of taxation. Indeed, even the
President may be considered as an agent of Congress for the purpose
of imposing safeguard measures. It is Congress, not the President,
which possesses inherent powers to impose tariffs and imposts.
Without legislative authorization through statute, the President has no
power, authority or right to impose such safeguard measures because
taxation is inherently legislative, not executive.
 When Congress tasks the President or his/her alter egos to impose
safeguard measures under the delineated conditions, the President or
the alter egos may be properly deemed as agents of Congress to
perform an act that inherently belongs as a matter of right to the
legislature. It is basic agency law that the agent may not act beyond the
specifically delegated powers or disregard the restrictions imposed by the
principal. In short, Congress may establish the procedural framework under
which such safeguard measures may be imposed, and assign the various
offices in the government bureaucracy respective tasks pursuant to the
imposition of such measures, the task assignment including the factual
determination of whether the necessary conditions exists to warrant such
impositions. Under the SMA, Congress assigned the DTI Secretary and the
Tariff Commission their respective functions[50] in the legislatures scheme of
things.
There is only one viable ground for challenging the legality of the
limitations and restrictions imposed by Congress under Section 28(2) Article
VI, and that is such limitations and restrictions are themselves violative of
the Constitution. Thus, no matter how distasteful or noxious these
limitations and restrictions may seem, the Court has no choice but to uphold
their validity unless their constitutional infirmity can be demonstrated.
What are these limitations and restrictions that are material to the
present case? The entire SMA provides for a limited framework under which
the President, through the DTI and Agriculture Secretaries, may impose
safeguard measures in the form of tariffs and similar imposts. The limitation
most relevant to this case is contained in Section 5 of the SMA,
captioned Conditions for the Application of General Safeguard Measures,
and stating:

The Secretary shall apply a general safeguard measure upon a positive final
determination of the [Tariff] Commission that a product is being imported into
the country in increased quantities, whether absolute or relative to the domestic
production, as to be a substantial cause of serious injury or threat thereof to the
domestic industry; however, in the case of non-agricultural products, the Secretary
shall first establish that the application of such safeguard measures will be in the
public interest.[51]

Positive Final Determination

By Tariff Commission Plainly
Required by Section 5 of SMA
 There is no question that Section 5 of the SMA operates as a limitation
validly imposed by Congress on the presidential[52] authority under the SMA
to impose tariffs and imposts. That the positive final determination operates
as an indispensable requisite to the imposition of the safeguard measure,
and that it is the Tariff Commission which makes such determination, are
legal propositions plainly expressed in Section 5 for the easy
comprehension for everyone but respondents.
Philcemcor attributes this Courts conclusion on the indispensability of
the positive final determination to flawed syllogism in that we read the
proposition if A then B as if it stated if A, and only A, then B.[53] Translated in
practical terms, our conclusion, according to Philcemcor, would have only
been justified had Section 5 read shall apply a general safeguard measure
upon, and only upon, a positive final determination of the Tariff Commission.
Statutes are not designed for the easy comprehension of the five-year
old child. Certainly, general propositions laid down in statutes need not be
expressly qualified by clauses denoting exclusivity in order that they gain
efficacy. Indeed, applying this argument, the President would, under the
Constitution, be authorized to declare martial law despite the absence of the
invasion, rebellion or public safety requirement just because the first
paragraph of Section 18, Article VII fails to state the magic word only.[54]
But let us for the nonce pursue Philcemcors logic further. It claims that
since Section 5 does not allegedly limit the circumstances upon which the
DTI Secretary may impose general safeguard measures, it is a worthy
pursuit to determine whether the entire context of the SMA, as discerned by
all the other familiar indicators of legislative intent supplied by norms of
statutory interpretation, would justify safeguard measures absent a positive
final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not
being as clear as it sounds. It is advanced that Section 5 does not relate to
the legal ability of either the Tariff Commission or the DTI Secretary to bind
or foreclose review and reversal by one or the other. Such relationship
should instead be governed by domestic administrative law and remedial
law. Philcemcor thus would like to cast the proposition in this manner: Does
it run contrary to our legal order to assert, as the Court did in its Decision,
that a body of relative junior competence as the Tariff Commission can bind
an administrative superior and cabinet officer, the DTI Secretary? It is easy
to see why Philcemcor would like to divorce this DTI Secretary-Tariff
Commission interaction from the confines of the SMA. Shorn of context, the
notion would seem radical and unjustifiable that the lowly Tariff Commission
can bind the hands and feet of the DTI Secretary.
It can be surmised at once that respondents preferred interpretation is
based not on the express language of the SMA, but from implications
derived in a roundabout manner. Certainly, no provision in the SMA
expressly authorizes the DTI Secretary to impose a general safeguard
measure despite the absence of a positive final recommendation of the
Tariff Commission. On the other hand, Section 5 expressly states that the
DTI Secretary shall apply a general safeguard measure upon a positive final
determination of the [Tariff] Commission. The causal connection in Section
5 between the imposition by the DTI Secretary of the general safeguard
measure and the positive final determination of the Tariff Commission is
patent, and even respondents do not dispute such connection.
As stated earlier, the Court in its Decision found Section 5 to be clear,
plain and free from ambiguity so as to render unnecessary resort to the
congressional records to ascertain legislative intent. Yet respondents, on
the dubitable premise that Section 5 is not as express as it seems, again
latch on to the record of legislative deliberations in asserting that there was
no legislative intent to bar the DTI Secretary from imposing the general
safeguard measure anyway despite the absence of a positive final
determination by the Tariff Commission.
Let us take the bait for a moment, and examine respondents commonly
cited portion of the legislative record. One would presume, given the intense
advocacy for the efficacy of these citations, that they contain a smoking
gun express declarations from the legislators that the DTI Secretary may
impose a general safeguard measure even if the Tariff Commission refuses
to render a positive final determination. Such smoking gun, if it exists, would
characterize our Decision as disingenuous for ignoring such contrary
expression of intent from the legislators who enacted the SMA. But as with
many things, the anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of
the late Congressman Marcial Punzalan Jr., by then (and still is)
Congressman Simeon Datumanong.[55] Nowhere in these records is the
view expressed that the DTI Secretary may impose the general safeguard
measures if the Tariff Commission issues a negative final determination or
otherwise is unable to make a positive final determination. Instead,
respondents hitch on the observations of Congressman Punzalan Jr., that
the results of the [Tariff] Commissions findings . . . is subsequently
submitted to [the DTI Secretary] for the [DTI Secretary] to impose or not to
impose; and that the [DTI Secretary] here iswho would make the final
decision on the recommendation that is made by a more technical body
[such as the Tariff Commission].[56]
There is nothing in the remarks of Congressman Punzalan which
contradict our Decision. His observations fall in accord with the respective
roles of the Tariff Commission and the DTI Secretary under the SMA. Under
the SMA, it is the Tariff Commission that conducts an investigation as to
whether the conditions exist to warrant the imposition of the safeguard
measures. These conditions are enumerated in Section 5, namely; that a
product is being imported into the country in increased quantities, whether
absolute or relative to the domestic production, as to be a substantial cause
of serious injury or threat thereof to the domestic industry. After the
investigation of the Tariff Commission, it submits a report to the DTI
Secretary which states, among others, whether the above-stated conditions
for the imposition of the general safeguard measures exist. Upon a positive
final determination that these conditions are present, the Tariff Commission
then is mandated to recommend what appropriate safeguard measures
should be undertaken by the DTI Secretary. Section 13 of the SMA gives
five (5) specific options on the type of safeguard measures the Tariff
Commission recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary to adopt
the recommendations made by the Tariff Commission. In fact, the SMA
requires that the DTI Secretary establish that the application of such
safeguard measures is in the public interest, notwithstanding the Tariff
Commissions recommendation on the appropriate safeguard measure upon
its positive final determination. Thus, even if the Tariff Commission makes a
positive final determination, the DTI Secretary may opt not to impose a
general safeguard measure, or choose a different type of safeguard
measure other than that recommended by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary
makes the decision to impose or not to impose, which is correct since the
DTI Secretary may choose not to impose a safeguard measure in spite of a
positive final determination by the Tariff Commission. Congressman
Punzalan also correctly stated that it is the DTI Secretary who makes the
final decision on the recommendation that is made [by the Tariff
Commission], since the DTI Secretary may choose to impose a general
safeguard measure different from that recommended by the Tariff
Commission or not to impose a safeguard measure at all. Nowhere in these
cited deliberations was Congressman Punzalan, or any other member of
Congress for that matter, quoted as saying that the DTI Secretary may
ignore a negative determination by the Tariff Commission as to the
existence of the conditions warranting the imposition of general safeguard
measures, and thereafter proceed to impose these measures nonetheless.
It is too late in the day to ascertain from the late Congressman Punzalan
himself whether he had made these remarks in order to assure the other
legislators that the DTI Secretary may impose the general safeguard
measures notwithstanding a negative determination by the Tariff
Commission. But certainly, the language of Section 5 is more resolutory to
that question than the recorded remarks of Congressman Punzalan.
Respondents employed considerable effort to becloud Section 5 with
undeserved ambiguity in order that a proper resort to the legislative
deliberations may be had. Yet assuming that Section 5 deserves to be
clarified through an inquiry into the legislative record, the excerpts cited by
the respondents are far more ambiguous than the language of the assailed
provision regarding the key question of whether the DTI Secretary may
impose safeguard measures in the face of a negative determination by the
Tariff Commission. Moreover, even Southern Cross counters with its own
excerpts of the legislative record in support of their own view.[57]
It will not be difficult, especially as to heavily-debated legislation, for two
sides with contrapuntal interpretations of a statute to highlight their
respective citations from the legislative debate in support of their particular
views.[58] A futile exercise of second-guessing is happily avoided if the
meaning of the statute is clear on its face. It is evident from the text of
Section 5 that there must be a positive final determination by the Tariff
Commission that a product is being imported into the country in
increased quantities (whether absolute or relative to domestic
production), as to be a substantial cause of serious injury or threat to
the domestic industry. Any disputation to the contrary is, at best, the
product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality
of a positive final determination by the Tariff Commission, there is no need
to refer to the Implementing Rules of the SMA to ascertain a contrary intent.
If there is indeed a provision in the Implementing Rules that allows the DTI
Secretary to impose a general safeguard measure even without the positive
final determination by the Tariff Commission, said rule is void as it cannot
supplant the express language of the legislature. Respondents essentially
rehash their previous arguments on this point, and there is no reason to
consider them anew. The Decision made it clear that nothing in Rule 13.2 of
the Implementing Rules, even though captioned Final Determination by the
Secretary, authorizes the DTI Secretary to impose a general safeguard
measure in the absence of a positive final determination by the Tariff
Commission.[59] Similarly, the Rules and Regulations to Govern the Conduct
of Investigation by the Tariff Commission Pursuant to Republic Act No. 8800
now cited by the respondent does not contain any provision that the DTI
Secretary may impose the general safeguard measures in the absence of a
positive final determination by the Tariff Commission.
Section 13 of the SMA further bolsters the interpretation as argued by
Southern Cross and upheld by the Decision. The first paragraph thereof
states that [u]pon its positive determination, the [Tariff] Commission shall
recommend to the Secretary an appropriate definitive measure, clearly
referring to the Tariff Commission as the entity that makes the positive
determination. On the other hand, the penultimate paragraph of the same
provision states that [i]n the event of a negative final determination, the DTI
Secretary is to immediately issue through the Secretary of Finance, a
written instruction to the Commissioner of Customs authorizing the return of
the cash bonds previously collected as a provisional safeguard measure.
Since the first paragraph of the same provision states that it is the Tariff
Commission which makes the positive determination, it necessarily follows
that it, and not the DTI Secretary, makes the negative final determination as
referred to in the penultimate paragraph of Section 13.[60]
The Separate Opinion considers as highly persuasive of former Tariff
Commission Chairman Abon, who stated that the Commissions findings are
merely recommendatory.[61] Again, the considered opinion of Chairman
Abon is of no operative effect if the statute plainly states otherwise, and
Section 5 bluntly does require a positive final determination by the Tariff
Commission before the DTI Secretary may impose a general safeguard
measure.[62]Certainly, the Court cannot give controlling effect to the
statements of any public officer in serious denial of his duties if the law
otherwise imposes the duty on the public office or officer.
Nonetheless, if we are to render persuasive effect on the considered
opinion of the members of the Executive Branch, it bears noting that the
Secretary of the Department of Justice rendered an Opinion wherein he
concluded that the DTI Secretary could not impose a general safeguard
measure if the Tariff Commission made a negative final
determination.[63] Unlike Chairman Abons impromptu remarks made during a
hearing, the DOJ Opinion was rendered only after a thorough study of the
question after referral to it by the DTI. The DOJ Secretary is the alter ego of
the President with a stated mandate as the head of the principal law agency
of the government.[64] As the DOJ Secretary has no denominated role in the
SMA, he was able to render his Opinion from the vantage of judicious
distance. Should not his Opinion, studied and direct to the point as it is,
carry greater weight than the spontaneous remarks of the Tariff
Commissions Chairman which do not even expressly disavow the binding
power of the Commissions positive final determination?

III. DTI Secretary has No Power of Review

Over Final Determination of the Tariff Commission

We should reemphasize that it is only because of the SMA, a legislative

enactment, that the executive branch has the power to impose safeguard
measures. At the same time, by constitutional fiat, the exercise of such
power is subjected to the limitations and restrictions similarly enforced by
the SMA. In examining the relationship of the DTI and the Tariff
Commission as established in the SMA, it is essential to acknowledge and
consider these predicates.
It is necessary to clarify the paradigm established by the SMA and
affirmed by the Constitution under which the Tariff Commission and the DTI
operate, especially in light of the suggestions that the Courts rulings on the
functions of quasi-judicial power find application in this case. Perhaps the
reflexive application of the quasi-judicial doctrine in this case, rooted as it is
in jurisprudence, might allow for some convenience in ruling, yet doing so
ultimately betrays ignorance of the fundamental power of Congress to
reorganize the administrative structure of governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are
incomplete. Its main stance, similar to that of respondents, is that the DTI
Secretary, acting as alter ego of the President, may modify and alter the
findings of the Tariff Commission, including the latters negative final
determination by substituting it with his own negative final determination to
pave the way for his imposition of a safeguard measure.[65] Fatally, this
conclusion is arrived at without considering the fundamental constitutional
precept under Section 28(2), Article VI, on the ability of Congress to impose
restrictions and limitations in its delegation to the President to impose tariffs
and imposts, as well as the express condition of Section 5 of the SMA
requiring a positive final determination of the Tariff Commission.
Absent Section 5 of the SMA, the President has no inherent,
constitutional, or statutory power to impose a general safeguard
measure. Tellingly, the Separate Opinion does not directly confront the
inevitable question as to how the DTI Secretary may get away with
imposing a general safeguard measure absent a positive final determination
from the Tariff Commission without violating Section 5 of the SMA, which
along with Section 13 of the same law, stands as the only direct legal
authority for the DTI Secretary to impose such measures. This is a
constitutionally guaranteed limitation of the highest order, considering that
the presidential authority exercised under the SMA is inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether
the DTI Secretary, acting either as alter ego of the President or in his
capacity as head of an executive department, may review, modify or
otherwise alter the final determination of the Tariff Commission under the
SMA. The succeeding discussion shall focus on that question.
Preliminarily, we should note that none of the parties question the
designation of the DTI or Agriculture secretaries under the SMA as the
imposing authorities of the safeguard measures, even though Section 28(2)
Article VI states that it is the President to whom the power to impose tariffs
and imposts may be delegated by Congress. The validity of such
designation under the SMA should not be in doubt. We recognize that the
authorization made by Congress in the SMA to the DTI and Agriculture
Secretaries was made in contemplation of their capacities as alter egos of
the President.
Indeed, in Marc Donnelly & Associates v. Agregado[66] the Court upheld
the validity of a Cabinet resolution fixing the schedule of royalty rates on
metal exports and providing for their collection even though Congress,
under Commonwealth Act No. 728, had specifically empowered the
President and not any other official of the executive branch, to regulate and
curtail the export of metals. In so ruling, the Court held that the members of
the Cabinet were acting as alter egos of the President.[67] In this case,
Congress itself authorized the DTI Secretary as alter ego of the President to
impose the safeguard measures. If the Court was previously willing to
uphold the alter egos tariff authority despite the absence of explicit
legislative grant of such authority on the alter ego, all the more reason now
when Congress itself expressly authorized the alter ego to exercise these
powers to impose safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing the
roles to be played therein by the Tariff Commission and the DTI Secretary
did not envision that the President, or his/her alter ego, could exercise
supervisory powers over the Tariff Commission. If truly Congress intended
to allow the traditional alter ego principle to come to fore in the peculiar
setup established by the SMA, it would have assigned the role now played
by the DTI Secretary under the law instead to the NEDA. The Tariff
Commission is an attached agency of the National Economic Development
Authority,[68] which in turn is the independent planning agency of the
government.[69]
The Tariff Commission does not fall under the administrative supervision
of the DTI.[70] On the other hand, the administrative relationship between the
NEDA and the Tariff Commission is established not only by the
Administrative Code, but similarly affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive
Secretary[71], acknowledged the interplay between the NEDA and the Tariff
Commission under the Tariff and Customs Code when he cited the relevant
provisions of that law evidencing such setup. Indeed, under Section 104 of
the Tariff and Customs Code, the rates of duty fixed therein are subject to
periodic investigation by the Tariff Commission and may be revised by the
President upon recommendation of the NEDA.[72] Moreover, under Section
401 of the same law, it is upon periodic investigations by the Tariff
Commission and recommendation of the NEDA that the President may
cause a gradual reduction of protection levels granted under the law.[73]
At the same time, under the Tariff and Customs Code, no similar role or
influence is allocated to the DTI in the matter of imposing tariff duties. In
fact, the long-standing tradition has been for the Tariff Commission and the
DTI to proceed independently in the exercise of their respective functions.
Only very recently have our statutes directed any significant interplay
between the Tariff Commission and the DTI, with the enactment in 1999 of
Republic Act No. 8751 on the imposition of countervailing duties and
Republic Act No. 8752 on the imposition of anti-dumping duties, and of
course the promulgation a year later of the SMA. In all these three laws, the
Tariff Commission is tasked, upon referral of the matter by the DTI, to
determine whether the factual conditions exist to warrant the imposition by
the DTI of a countervailing duty, an anti-dumping duty, or a general
safeguard measure, respectively. In all three laws, the determination by the
Tariff Commission that these required factual conditions exist is necessary
before the DTI Secretary may impose the corresponding duty or safeguard
measure. And in all three laws, there is no express provision authorizing the
DTI Secretary to reverse the factual determination of the Tariff
Commission.[74]
In fact, the SMA indubitably establishes that the Tariff Commission is no
mere flunky of the DTI Secretary when it mandates that the positive final
recommendation of the former be indispensable to the latters imposition of a
general safeguard measure. What the law indicates instead is a relationship
of interdependence between two bodies independent of each other under
the Administrative Code and the SMA alike. Indeed, even the ability of the
DTI Secretary to disregard the Tariff Commissions recommendations as to
the particular safeguard measures to be imposed evinces the independence
from each other of these two bodies. This is properly so for two reasons the
DTI and the Tariff Commission are independent of each other under the
Administrative Code; and impropriety is avoided in cases wherein the DTI
itself is the one seeking the imposition of the general safeguard measures,
pursuant to Section 6 of the SMA.
Thus, in ascertaining the appropriate legal milieu governing the
relationship between the DTI and the Tariff Commission, it is imperative to
apply foremost, if not exclusively, the provisions of the SMA. The argument
that the usual rules on administrative control and supervision apply between
the Tariff Commission and the DTI as regards safeguard measures is
severely undercut by the plain fact that there is no long-standing tradition of
administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to
be a lower rank relative to the DTI. But does this necessarily mean that the
DTI has the intrinsic right, absent statutory authority, to reverse the findings
of the Tariff Commission? To insist that it does, one would have to concede
for instance that, applying the same doctrinal guide, the Secretary of the
Department of Science and Technology (DOST) has the right to reverse the
rulings of the Civil Aeronautics Board (CAB) or the issuances of the
Philippine Coconut Authority (PCA). As with the Tariff Commission-DTI,
there is no statutory authority granting the DOST Secretary the right to
overrule the CAB or the PCA, such right presumably arising only from the
position of subordinacy of these bodies to the DOST. To insist on such a
right would be to invite department secretaries to interfere in the exercise of
functions by administrative agencies, even in areas wherein such
secretaries are bereft of specialized competencies.
The Separate Opinion notes that notwithstanding above, the Secretary
of Department of Transportation and Communication may review the
findings of the CAB, the Agriculture Secretary may review those of the PCA,
and that the Secretary of the Department of Environment and Natural
Resources may pass upon decisions of the Mines and Geosciences
Board.[75] These three officers may be alter egos of the President, yet their
authority to review is limited to those agencies or bureaus which are,
pursuant to statutes such as the Administrative Code of 1987, under the
administrative control and supervision of their respective departments.
Thus, under the express provision of the Administrative Code expressly
provides that the CAB is an attached agency of the DOTC [76], and that the
PCA is an attached agency of the Department of Agriculture.[77] The same
law establishes the Mines and Geo-Sciences Bureau as one of the Sectoral
Staff Bureaus[78]that forms part of the organizational structure of the
DENR.[79]
As repeatedly stated, the Tariff Commission does not fall under the
administrative control of the DTI, but under the NEDA, pursuant to the
Administrative Code. The reliance made by the Separate Opinion to those
three examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a
functional relationship between the Tariff Commission and the DTI
Secretary, sufficient to allow the DTI Secretary to exercise alter ego powers
to reverse the determination of the Tariff Commission. Again, considering
that the power to impose tariffs in the first place is not inherent in the
President but arises only from congressional grant, we should affirm the
congressional prerogative to impose limitations and restrictions on such
powers which do not normally belong to the executive in the first place.
Nowhere in the SMA does it state that the DTI Secretary may impose
general safeguard measures without a positive final determination by the
Tariff Commission, or that the DTI Secretary may reverse or even review
the factual determination made by the Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be played
therein by the Tariff Commission and the DTI Secretary did not envision that
the President, or his/her alter ego could exercise supervisory powers over
the Tariff Commission. If truly Congress intended to allow the
traditional alter ego principle to come to fore in the peculiar setup
established by the SMA, it would have assigned the role now played by the
DTI Secretary under the law instead to the NEDA, the body to which the
Tariff Commission is attached under the Administrative Code.
The Court has no issue with upholding administrative control and
supervision exercised by the head of an executive department, but only
over those subordinate offices that are attached to the department, or which
are, under statute, relegated under its supervision and control. To declare
that a department secretary, even if acting as alter ego of the President,
may exercise such control or supervision over all executive offices below
cabinet rank would lead to absurd results such as those adverted to above.
As applied to this case, there is no legal justification for the DTI Secretary to
exercise control, supervision, review or amendatory powers over the Tariff
Commission and its positive final determination. In passing, we note that
there is, admittedly, a feasible mode by which administrative review of the
Tariff Commissions final determination could be had, but it is not the
procedure adopted by respondents and now suggested for affirmation. This
mode shall be discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter
ego cannot be made a mere rubber stamp of the Tariff Commission since
Section 17, Article VII of the Constitution denominates the Chief Executive
exercises control over all executive departments, bureaus and offices.[80] But
let us be clear that such executive control is not absolute. The definition of
the structure of the executive branch of government, and the corresponding
degrees of administrative control and supervision, is not the exclusive
preserve of the executive. It may be effectively be limited by the
Constitution, by law, or by judicial decisions.
The Separate Opinion cites the respected constitutional law authority Fr.
Joaquin Bernas, in support of the proposition that such plenary power of
executive control of the President cannot be restricted by a mere statute
passed by Congress. However, the cited passage from Fr. Bernas actually
states, Since the Constitution has given the President the power of control,
with all its awesome implications, it is the Constitution alone which can
curtail such power.[81] Does the President have such tariff powers under the
Constitution in the first place which may be curtailed by the executive power
of control? At the risk of redundancy, we quote Section 28(2), Article VI: The
Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the
Government. Clearly the power to impose tariffs belongs to Congress and
not to the President.
It is within reason to assume the framers of the Constitution deemed it
too onerous to spell out all the possible limitations and restrictions on this
presidential authority to impose tariffs. Hence, the Constitution especially
allowed Congress itself to prescribe such limitations and restrictions itself, a
prudent move considering that such authority inherently belongs to
Congress and not the President. Since Congress has no power to amend
the Constitution, it should be taken to mean that such limitations and
restrictions should be provided by mere statute. Then again, even the
presidential authority to impose tariffs arises only by mere statute. Indeed,
this presidential privilege is both contingent in nature and legislative
in origin. These characteristics, when weighed against the aspect of
executive control and supervision, cannot militate against Congresss
exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its
unwieldiness, is mere putty in the hands of Congress. The functions and
mandates of the particular executive departments and bureaus are not
created by the President, but by the legislative branch through the
Administrative Code. [82] The President is the administrative head of the
executive department, as such obliged to see that every government office
is managed and maintained properly by the persons in charge of it in
accordance with pertinent laws and regulations, and empowered to
promulgate rules and issuances that would ensure a more efficient
management of the executive branch, for so long as such issuances are not
contrary to law.[83] Yet the legislature has the concurrent power to reclassify
or redefine the executive bureaucracy, including the relationship between
various administrative agencies, bureaus and departments, and ultimately,
even the power to abolish executive departments and their components,
hamstrung only by constitutional limitations. The DTI itself can be abolished
with ease by Congress through deleting Title X, Book IV of the
Administrative Code. The Tariff Commission can similarly be abolished
through legislative enactment. [84]
At the same time, Congress can enact additional tasks or
responsibilities on either the Tariff Commission or the DTI Secretary, such
as their respective roles on the imposition of general safeguard measures
under the SMA. In doing so, the same Congress, which has the putative
authority to abolish the Tariff Commission or the DTI, is similarly
empowered to alter or expand its functions through modalities which
do not align with established norms in the bureaucratic structure. The
Court is bound to recognize the legislative prerogative to prescribe such
modalities, no matter how atypical they may be, in affirmation of the
legislative power to restructure the executive branch of government.
There are further limitations on the executive control adverted to by
the Separate Opinion. The President, in the exercise of executive control,
cannot order a subordinate to disobey a final decision of this Court or any
courts. If the subordinate chooses to disobey, invoking sole allegiance to
the President, the judicial processes can be utilized to compel obeisance.
Indeed, when public officers of the executive department take their oath of
office, they swear allegiance and obedience not to the President, but to the
Constitution and the laws of the land. The invocation of executive control
must yield when under its subsumption includes an act that violates the law.
 The Separate Opinion concedes that the exercise of executive control
and supervision by the President is bound by the Constitution and
law.[85] Still, just three sentences after asserting that the exercise of
executive control must be within the bounds of the Constitution and law,
the Separate Opinion asserts, the control power of the Chief Executive
emanates from the Constitution; no act of Congress may validly curtail
it.[86] Laws are acts of Congress, hence valid confusion arises whether
the Separate Opinion truly believes the first proposition that executive
control is bound by law. This is a quagmire for the Separate Opinion to
resolve for itself
The Separate Opinion unduly considers executive control as the ne plus
ultra constitutional standard which must govern in this case. But while the
President may generally have the power to control, modify or set aside the
actions of a subordinate, such powers may be constricted by the
Constitution, the legislature, and the judiciary. This is one of the essences of
the check-and-balance system in our tri-partite constitutional democracy.
Not one head of a branch of government may operate as a Caesar within
his/her particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28
(2), Article VI of the Constitution and the general executive power of control
and supervision, the former prevails in the specific instance of safeguard
measures such as tariffs and imposts, and would thus serve to qualify the
general grant to the President of the power to exercise control and
supervision over his/her subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is
bound by the Tariff Commission in the sense the former cannot impose
general safeguard measures absent a final positive determination from the
latter the Court is obliged to respect such legislative prerogative, no matter
how such arrangement deviates from traditional norms as may have been
enshrined in jurisprudence. The only ground under which such legislative
determination as expressed in statute may be successfully challenged is if
such legislation contravenes the Constitution. No such argument is posed
by the respondents, who do not challenge the validity or constitutionality of
the SMA.
Given these premises, it is utterly reckless to examine the
interrelationship between the Tariff Commission and the DTI Secretary
beyond the context of the SMA, applying instead traditional precepts on
administrative control, review and supervision. For that reason,
the Decision deemed inapplicable respondents previous citations of Cario v.
Commissioner on Human Rights and Lamb v. Phipps, since the executive
power adverted to in those cases had not been limited by constitutional
restrictions such as those imposed under Section 28(2), Article VI.[87]
A similar observation can be made on the case of Sharp International
Marketing v. Court of Appeals,[88] now cited by Philcemcor, wherein the
Court asserted that the Land Bank of the Philippines was required to
exercise independent judgment and not merely rubber-stamp deeds of sale
entered into by the Department of Agrarian Reform in connection with the
agrarian reform program. Philcemcor attempts to demonstrate that the DTI
Secretary, as with the Land Bank of the Philippines, is required to exercise
independent discretion and is not expected to just merely accede to DAR-
approved compensation packages. Yet again, such grant of independent
discretion is expressly called for by statute, particularly Section 18 of Rep.
Act No. 6657 which specifically requires the joint concurrence of the
landowner and the DAR and the [Land Bank of the Philippines] on the
amount of compensation. Such power of review by the Land Bank is a
consequence of clear statutory language, as is our holding in
the Decision that Section 5 explicitly requires a positive final determination
by the Tariff Commission before a general safeguard measure may be
imposed. Moreover, such limitations under the SMA are coated by the
constitutional authority of Section 28(2), Article VI of the Constitution.
Nonetheless, is this administrative setup, as envisioned by Congress
and enshrined into the SMA, truly noxious to existing legal standards?
The Decision acknowledged the internal logic of the statutory framework,
considering that the DTI cannot exercise review powers over an agency
such as the Tariff Commission which is not within its administrative
jurisdiction; that the mechanism employed establishes a measure of check
and balance involving two government offices with different specializations;
and that safeguard measures are the exception rather than the rule,
pursuant to our treaty obligations.[89]
We see no reason to deviate from these observations, and indeed can
add similarly oriented comments. Corollary to the legislative power to
decree policies through legislation is the ability of the legislature to provide
for means in the statute itself to ensure that the said policy is strictly
implemented by the body or office tasked so tasked with the duty. As earlier
stated, our treaty obligations dissuade the State for now from implementing
default protectionist trade measures such as tariffs, and allow the same only
under specified conditions.[90]The conditions enumerated under the GATT
Agreement on Safeguards for the application of safeguard measures by a
member country are the same as the requisites laid down in Section 5 of the
SMA.[91] To insulate the factual determination from political pressure, and to
assure that it be conducted by an entity especially qualified by reason of its
general functions to undertake such investigation, Congress deemed it
necessary to delegate to the Tariff Commission the function of ascertaining
whether or not the those factual conditions exist to warrant the atypical
imposition of safeguard measures. After all, the Tariff Commission retains a
degree of relative independence by virtue of its attachment to the National
Economic Development Authority, an independent planning agency of the
government,[92] and also owing to its vaunted expertise and specialization.
The matter of imposing a safeguard measure almost always involves not
just one industry, but the national interest as it encompasses other
industries as well. Yet in all candor, any decision to impose a safeguard
measure is susceptible to all sorts of external pressures, especially if the
domestic industry concerned is well-organized. Unwarranted impositions of
safeguard measures may similarly be detrimental to the national interest.
Congress could not be blamed if it desired to insulate the investigatory
process by assigning it to a body with a putative degree of independence
and traditional expertise in ascertaining factual conditions. Affected
industries would have cause to lobby for or against the safeguard
measures. The decision-maker is in the unenviable position of having to
bend an ear to listen to all concerned voices, including those which may
speak softly but carry a big stick. Had the law mandated that the decision be
made on the sole discretion of an executive officer, such as the DTI
Secretary, it would be markedly easier for safeguard measures to be
imposed or withheld based solely on political considerations and not on the
factual conditions that are supposed to predicate the decision.
Reference of the binding positive final determination to the Tariff
Commission is of course, not a fail-safe means to ensure a bias-free
determination. But at least the legislated involvement of the Commission in
the process assures some measure of measure of check and
balance involving two different governmental agencies with disparate
specializations. There is no legal or constitutional demand for such a setup,
but its wisdom as policy should be acknowledged. As prescribed by
Congress, both the Tariff Commission and the DTI Secretary operate within
limited frameworks, under which nobody acquires an undue advantage over
the other.
We recognize that Congress deemed it necessary to insulate the
process in requiring that the factual determination to be made by an
ostensibly independent body of specialized competence, the Tariff
Commission. This prescribed framework, constitutionally sanctioned, is
intended to prevent the baseless, whimsical, or consideration-induced
imposition of safeguard measures. It removes from the DTI Secretary
jurisdiction over a matter beyond his putative specialized aptitude, the
compilation and analysis of picayune facts and determination of their limited
causal relations, and instead vests in the Secretary the broad choice on a
matter within his unquestionable competence, the selection of what
particular safeguard measure would assist the duly beleaguered local
industry yet at the same time conform to national trade policy. Indeed, the
SMA recognizes, and places primary importance on the DTI Secretarys
mandate to formulate trade policy, in his capacity as the Presidents alter
ego on trade, industry and investment-related matters.
At the same time, the statutory limitations on this authorized power of
the DTI Secretary must prevail since the Constitution itself demands the
enforceability of those limitations and restrictions as imposed by Congress.
Policy wisdom will not save a law from infirmity if the statutory provisions
violate the Constitution. But since the Constitution itself provides that the
President shall be constrained by the limits and restrictions imposed by
Congress and since these limits and restrictions are so clear and
categorical, then the Court has no choice but to uphold the reins.
Even assuming that this prescribed setup made little sense, or seemed
uncommonly silly,[93] the Court is bound by propriety not to dispute the
wisdom of the legislature as long as its acts do not violate the Constitution.
Since there is no convincing demonstration that the SMA contravenes the
Constitution, the Court is wont to respect the administrative regimen
propounded by the law, even if it allots the Tariff Commission a higher
degree of puissance than normally expected. It is for this reason that the
traditional conceptions of administrative review or quasi-judicial power
cannot control in this case.
Indeed, to apply the latter concept would cause the Court to fall into a
linguistic trap owing to the multi-faceted denotations the term quasi-judicial
has come to acquire.
Under the SMA, the Tariff Commission undertakes formal
hearings,[94] receives and evaluates testimony and evidence by interested
parties,[95] and renders a decision is rendered on the basis of the evidence
presented, in the form of the final determination. The final determination
requires a conclusion whether the importation of the product under
consideration is causing serious injury or threat to a domestic industry
producing like products or directly competitive products, while evaluating all
relevant factors having a bearing on the situation of the domestic
industry.[96] This process aligns conformably with definition provided by
Blacks Law Dictionary of quasi-judicial as the action, discretion, etc., of
public administrative officers or bodies, who are required to investigate
facts, or ascertain the existence of facts, hold hearings, weigh evidence,
and draw conclusions from them, as a basis for their official action, and to
exercise discretion of a judicial nature.[97]
However, the Tariff Commission is not empowered to hear actual cases
or controversies lodged directly before it by private parties. It does not have
the power to issue writs of injunction or enforcement of its determination.
These considerations militate against a finding of quasi-judicial powers
attributable to the Tariff Commission, considering the pronouncement that
quasi-judicial adjudication would mean a determination of rights privileges
and duties resulting in a decision or order which applies to a specific
situation.[98]
Indeed, a declaration that the Tariff Commission possesses quasi-
judicial powers, even if ascertained for the limited purpose of exercising its
functions under the SMA, may have the unfortunate effect of expanding the
Commissions powers beyond that contemplated by law. After all, the Tariff
Commission is by convention, a fact-finding body, and its role under the
SMA, burdened as it is with factual determination, is but a mere continuance
of this tradition. However, Congress through the SMA offers a significant
deviation from this traditional role by tying the decision by the DTI Secretary
to impose a safeguard measure to the required positive factual
determination by the Tariff Commission. Congress is not bound by past
traditions, or even by the jurisprudence of this Court, in enacting legislation
it may deem as suited for the times. The sole benchmark for judicial
substitution of congressional wisdom is constitutional transgression, a
standard which the respondents do not even attempt to match.

Respondents Suggested Interpretation

Of the SMA Transgresses Fair Play

Respondents have belabored the argument that the Decisions

interpretation of the SMA, particularly of the role of the Tariff
Commission vis--vis the DTI Secretary, is noxious to traditional notions of
administrative control and supervision. But in doing so, they have failed to
acknowledge the congressional prerogative to redefine administrative
relationships, a license which falls within the plenary province of Congress
under our representative system of democracy. Moreover, respondents own
suggested interpretation falls wayward of expectations of practical fair play.
Adopting respondents suggestion that the DTI Secretary may disregard
the factual findings of the Tariff Commission and investigatory process that
preceded it, it would seem that the elaborate procedure undertaken by the
Commission under the SMA, with all the attendant guarantees of due
process, is but an inutile spectacle. As Justice Garcia noted during the oral
arguments, why would the DTI Secretary bother with the Tariff Commission
and instead conduct the investigation himself.[99]
Certainly, nothing in the SMA authorizes the DTI Secretary, after making
the preliminary determination, to personally oversee the investigation, hear
out the interested parties, or receive evidence.[100] In fact, the SMA does not
even require the Tariff Commission, which is tasked with the custody of the
submitted evidence,[101] to turn over to the DTI Secretary such evidence it
had evaluated in order to make its factual determination.[102] Clearly, as
Congress tasked it to be, it is the Tariff Commission and not the DTI
Secretary which acquires the necessary intimate acquaintance with the
factual conditions and evidence necessary for the imposition of the general
safeguard measure. Why then favor an interpretation of the SMA that
leaves the findings of the Tariff Commission bereft of operative effect and
makes them subservient to the wishes of the DTI Secretary, a personage
with lesser working familiarity with the relevant factual milieu? In fact, the
bare theory of the respondents would effectively allow the DTI Secretary to
adopt, under the subterfuge of his discretion, the factual determination of a
private investigative group hired by the industry concerned, and reject the
investigative findings of the Tariff Commission as mandated by the SMA. It
would be highly irregular to substitute what the law clearly provides for a
dubious setup of no statutory basis that would be readily susceptible to rank
chicanery.
Moreover, the SMA guarantees the right of all concerned parties to be
heard, an elemental requirement of due process, by the Tariff Commission
in the context of its investigation. The DTI Secretary is not similarly
empowered or tasked to hear out the concerns of other interested parties,
and if he/she does so, it arises purely out of volition and not compulsion
under law.
Indeed, in this case, it is essential that the position of other than that of
the local cement industry should be given due consideration, cement being
an indispensable need for the operation of other industries such as housing
and construction. While the general safeguard measures may operate to the
better interests of the domestic cement industries, its deprivation of cheaper
cement imports may similarly work to the detriment of these other domestic
industries and correspondingly, the national interest. Notably, the Tariff
Commission in this case heard the views on the application of
representatives of other allied industries such as the housing, construction,
and cement-bag industries, and other interested parties such as consumer
groups and foreign governments.[103] It is only before the Tariff Commission
that their views had been heard, and this is because it is only the Tariff
Commission which is empowered to hear their positions. Since due process
requires a judicious consideration of all relevant factors, the Tariff
Commission, which is in a better position to hear these parties than the DTI
Secretary, is similarly more capable to render a determination conformably
with the due process requirements than the DTI Secretary.
In a similar vein, Southern Cross aptly notes that in instances when it is
the DTI Secretary who initiates motu proprio the application for the
safeguard measure pursuant to Section 6 of the SMA, respondents
suggested interpretation would result in the awkward situation wherein the
DTI Secretary would rule upon his own application after it had been
evaluated by the Tariff Commission. Pertinently cited is our ruling in Corona
v. Court of Appeals[104] that no man can be at once a litigant and
judge.[105] Certainly, this anomalous situation is avoided if it is the Tariff
Commission which is tasked with arriving at the final determination whether
the conditions exist to warrant the general safeguard measures. This is the
setup provided for by the express provisions of the SMA, and the problem
would arise only if we adopt the interpretation urged upon by respondents.

The Possibility for Administrative Review

Of the Tariff Commissions Determination

The Court has been emphatic that a positive final determination from the
Tariff Commission is required in order that the DTI Secretary may impose a
general safeguard measure, and that the DTI Secretary has no power to
exercise control and supervision over the Tariff Commission and its final
determination. These conclusions are the necessary consequences of the
applicable provisions of the Constitution, the SMA, and laws such as the
Administrative Code. However, the law is silent though on whether this
positive final determination may otherwise be subjected to administrative
review.
 There is no evident legislative intent by the authors of the SMA to
provide for a procedure of administrative review. If ever there is a procedure
for administrative review over the final determination of the Tariff
Commission, such procedure must be done in a manner that does not
contravene or disregard legislative prerogatives as expressed in the SMA or
the Administrative Code, or fundamental constitutional limitations.
In order that such procedure of administrative review would not
contravene the law and the constitutional scheme provided by Section
28(2), Article VI, it is essential to assert that the positive final determination
by the Tariff Commission is indispensable as a requisite for the imposition of
a general safeguard measure. The submissions of private respondents and
the Separate Opinion cannot be sustained insofar as they hold that the DTI
Secretary can peremptorily ignore or disregard the determinations made by
the Tariff Commission. However, if the mode of administrative review were
in such a manner that the administrative superior of the Tariff Commission
were to modify or alter its determination, then such reversal may still be
valid within the confines of Section 5 of the SMA, for technically it is still the
Tariff Commissions determination, administratively revised as it may be,
that would serve as the basis for the DTI Secretarys action.
However, and fatally for the present petitions, such administrative review
cannot be conducted by the DTI Secretary. Even if conceding that the Tariff
Commissions findings may be administratively reviewed, the DTI Secretary
has no authority to review or modify the same. We have been emphatic on
the reasons such as that there is no traditional or statutory basis placing the
Commission under the control and supervision of the DTI; that to allow such
would contravene due process, especially if the DTI itself were to apply for
the safeguard measures motu proprio. To hold otherwise would destroy the
administrative hierarchy, contravene constitutional due process, and
disregard the limitations or restrictions provided in the SMA.
Instead, assuming administrative review were available, it is the NEDA
that may conduct such review following the principles of administrative law,
and the NEDAs decision in turn is reviewable by the Office of the President.
The decision of the Office of the President then effectively substitutes as the
determination of the Tariff Commission, which now forms the basis of the
DTI Secretarys decision, which now would be ripe for judicial review by the
CTA under Section 29 of the SMA. This is the only way that administrative
review of the Tariff Commissions determination may be sustained without
violating the SMA and its constitutional restrictions and limitations, as well
as administrative law.
 In bare theory, the NEDA may review, alter or modify the Tariff
Commissions final determination, the Commission being an attached
agency of the NEDA. Admittedly, there is nothing in the SMA or any other
statute that would prevent the NEDA to exercise such administrative review,
and successively, for the President to exercise in turn review over the
NEDAs decision.
Nonetheless, in acknowledging this possibility, the Court, without
denigrating the bare principle that administrative officers may exercise
control and supervision over the acts of the bodies under its jurisdiction,
realizes that this comes at the expense of a speedy resolution to an
application for a safeguard measure, an application dependent on
fluctuating factual conditions. The further delay would foster uncertainty and
insecurity within the industry concerned, as well as with all other allied
industries, which in turn may lead to some measure of economic damage.
Delay is certain, since judicial review authorized by law and not
administrative review would have the final say. The fact that the SMA did
not expressly prohibit administrative review of the final determination of the
Tariff Commission does not negate the supreme advantages of
engendering exclusive judicial review over questions arising from the
imposition of a general safeguard measure.
In any event, even if we conceded the possibility of administrative
review of the Tariff Commissions final determination by the NEDA, such
would not deny merit to the present petition. It does not change the fact that
the Court of Appeals erred in ruling that the DTI Secretary was not bound by
the negative final determination of the Tariff Commission, or that the DTI
Secretary acted without jurisdiction when he imposed general safeguard
measures despite the absence of the statutory positive final determination
of the Commission.

IV. Courts Interpretation of SMA

In Harmony with Other
Constitutional Provisions

In response to our citation of Section 28(2), Article VI, respondents

elevate two arguments grounded in constitutional law. One is based on
another constitutional provision, Section 12, Article XIII, which mandates
that [t]he State shall promote the preferential use of Filipino labor, domestic
materials and locally produced goods and adopt measures that help make
them competitive. By no means does this provision dictate that the Court
favor the domestic industry in all competing claims that it may bring before
this Court. If it were so, judicial proceedings in this country would be
rendered a mockery, resolved as they would be, on the basis of the
personalities of the litigants and not their legal positions.
Moreover, the duty imposed on by Section 12, Article XIII falls primarily
with Congress, which in that regard enacted the SMA, a law designed to
protect domestic industries from the possible ill-effects of our accession to
the global trade order. Inconveniently perhaps for respondents, the SMA
also happens to provide for a procedure under which such protective
measures may be enacted. The Court cannot just impose what it deems as
the spirit of the law without giving due regard to its letter.
In like-minded manner, the Separate Opinion loosely states that the
purpose of the SMA is to protect or safeguard local industries from
increased importation of foreign products.[106] This inaccurately leaves the
impression that the SMA ipso facto unravels a protective cloak that shelters
all local industries and producers, no matter the conditions. Indeed, our
country has knowingly chosen to accede to the world trade regime, as
expressed in the GATT and WTO Agreements, despite the understanding
that local industries might suffer ill-effects, especially with the easier entry of
competing foreign products. At the same time, these international
agreements were designed to constrict protectionist trade policies by its
member-countries. Hence, the median, as expressed by the SMA, does
allow for the application of protectionist measures such as tariffs, but only
after an elaborate process of investigation that ensures factual basis and
indispensable need for such measures. More accurately, the purpose of the
SMA is to provide a process for the protection or safeguarding of domestic
industries that have duly established that there is substantial injury or threat
thereof directly caused by the increased imports. In short, domestic
industries are not entitled to safeguard measures as a matter of right or
influence.
Respondents also make the astounding argument that the imposition of
general safeguard measures should not be seen as a taxation measure, but
instead as an exercise of police power. The vain hope of respondents in
divorcing the safeguard measures from the concept of taxation is to exclude
from consideration Section 28(2), Article VI of the Constitution.
This argument can be debunked at length, but it deserves little attention.
The motivation behind many taxation measures is the implementation of
police power goals. Progressive income taxes alleviate the margin between
rich and poor; the so-called sin taxes on alcohol and tobacco manufacturers
help dissuade the consumers from excessive intake of these potentially
harmful products. Taxation is distinguishable from police power as to the
means employed to implement these public good goals. Those doctrines
that are unique to taxation arose from peculiar considerations such as those
especially punitive effects of taxation,[107] and the belief that taxes are the
lifeblood of the state.[108] These considerations necessitated the evolution of
taxation as a distinct legal concept from police power. Yet at the same time,
it has been recognized that taxation may be made the implement of the
states police power.[109]
Even assuming that the SMA should be construed exclusively as a
police power measure, the Court recognizes that police power is lodged
primarily in the national legislature, though it may also be exercised by the
executive branch by virtue of a valid delegation of legislative
power.[110] Considering these premises, it is clear that police power, however
illimitable in theory, is still exercised within the confines of implementing
legislation. To declare otherwise is to sanction rule by whim instead of rule
of law. The Congress, in enacting the SMA, has delegated the power to
impose general safeguard measures to the executive branch, but at the
same time subjected such imposition to limitations, such as the requirement
of a positive final determination by the Tariff Commission under Section 5.
For the executive branch to ignore these boundaries imposed by Congress
is to set up an ignoble clash between the two co-equal branches of
government. Considering that the exercise of police power emanates from
legislative authority, there is little question that the prerogative of the
legislative branch shall prevail in such a clash.

V. Assailed Decision Consistent

With Ruling in Taada v. Angara

Public respondents allege that the Decision is contrary to our holding

in Taada v. Angara,[111] since the Court noted therein that the GATT itself
provides built-in protection from unfair foreign competition and trade
practices, which according to the public respondents, was a reason why the
Honorable [Court] ruled the way it did. On the other hand,
the Decision eliminates safeguard measures as a mode of defense.
This is balderdash, as with any and all claims that the Decision allows
foreign industries to ride roughshod over our domestic enterprises.
The Decision does not prohibit the imposition of general safeguard
measures to protect domestic industries in need of protection. All it affirms
is that the positive final determination of the Tariff Commission is first
required before the general safeguard measures are imposed and
implemented, a neutral proposition that gives no regard to the nationalities
of the parties involved. A positive determination by the Tariff Commission is
hardly the elusive Shangri-la of administrative law. If a particular industry
finds it difficult to obtain a positive final determination from the Tariff
Commission, it may be simply because the industry is still sufficiently
competitive even in the face of foreign competition. These safeguard
measures are designed to ensure salvation, not avarice.
Respondents well have the right to drape themselves in the colors of the
flag. Yet these postures hardly advance legal claims, or nationalism for that
matter. The fineries of the costume pageant are no better measure of
patriotism than simple obedience to the laws of the Fatherland. And even
assuming that respondents are motivated by genuine patriotic impulses, it
must be remembered that under the setup provided by the SMA, it is the
facts, and not impulse, that determine whether the protective safeguard
measures should be imposed. As once orated, facts are stubborn things;
and whatever may be our wishes, our inclinations, or the dictates of our
passions, they cannot alter the state of facts and evidence.[112]
It is our goal as judges to enforce the law, and not what we might deem
as correct economic policy. Towards this end, we should not construe the
SMA to unduly favor or disfavor domestic industries, simply because the law
itself provides for a mechanism by virtue of which the claims of these
industries are thoroughly evaluated before they are favored or disfavored.
What we must do is to simply uphold what the law says. Section 5 says that
the DTI Secretary shall impose the general safeguard measures upon the
positive final determination of the Tariff Commission. Nothing in the
whereas clauses or the invisible ink provisions of the SMA can magically
delete the words positive final determination and Tariff Commission from
Section 5.

VI. On Forum-Shopping

We remain convinced that there was no willful and deliberate forum-

shopping in this case by Southern Cross. The causes of action that animate
this present petition for review and the petition for review with the CTA are
distinct from each other, even though they relate to similar factual
antecedents. Yet it also appears that contrary to the undertaking signed by
the President of Southern Cross, Hironobu Ryu, to inform this Court of any
similar action or proceeding pending before any court, tribunal or agency
within five (5) days from knowledge thereof, Southern Cross informed this
Court only on 12 August 2003 of the petition it had filed with the CTA eleven
days earlier. An appropriate sanction is warranted for such failure, but not
the dismissal of the petition.

VII. Effects of Courts Resolution

Philcemcor argues that the granting of Southern Crosss Petition should

not necessarily lead to the voiding of the Decision of the DTI Secretary
dated 5 August 2003 imposing the general safeguard measures. For
Philcemcor, the availability of appeal to the CTA as an available and
adequate remedy would have made the Court of Appeals Decision merely
erroneous or irregular, but not void. Moreover, the said Decision merely
required the DTI Secretary to render a decision, which could have very well
been a decision not to impose a safeguard measure; thus, it could not be
said that the annulled decision resulted from the judgment of the Court of
Appeals.
The Court of Appeals Decision was annulled precisely because the
appellate court did not have the power to rule on the petition in the first
place. Jurisdiction is necessarily the power to decide a case, and a court
which does not have the power to adjudicate a case is one that is bereft of
jurisdiction. We find no reason to disturb our earlier finding that the Court of
Appeals Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the
peculiarities attaching to the 5 August 2003 Decision of the DTI Secretary.
In the DTI Secretarys Decision, he expressly stated that as a result of the
Court of Appeals Decision, there is no legal impediment for the Secretary to
decide on the application. Yet the truth remained that there was a legal
impediment, namely, that the decision of the appellate court was not yet
final and executory. Moreover, it was declared null and void, and since the
DTI Secretary expressly denominated the Court of Appeals Decision as his
basis for deciding to impose the safeguard measures, the latter decision
must be voided as well. Otherwise put, without the Court of
Appeals Decision, the DTI Secretarys Decision of 5 August 2003 would not
have been rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI
Secretarys Decision dated 5 August 2003. As a necessary consequence, no
further action can be taken on Philcemcors Petition for Extension of the
Safeguard Measure. Obviously, if the imposition of the general safeguard
measure is void as we declared it to be, any extension thereof should
likewise be fruitless. The proper remedy instead is to file a new application
for the imposition of safeguard measures, subject to the conditions
prescribed by the SMA. Should this step be eventually availed of, it is only
hoped that the parties involved would content themselves in observing the
proper procedure, instead of making a mockery of the rule of law.
WHEREFORE, respondents Motions for Reconsideration are DENIED
WITH FINALITY.
Respondent DTI Secretary is hereby ENJOINED from taking any further
action on the pending Petition for Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement
Corporation, and Angara Abello Concepcion Regala & Cruz, counsel
petitioner, are hereby given FIVE (5) days from receipt of this Resolution to
EXPLAIN why they should not be meted disciplinary sanction for failing to
timely inform the Court of the filing of Southern Crosss Petition for
Review with the Court of Tax Appeals, as adverted to earlier in
this Resolution.
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER
BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P.
CRUZ, respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of
Court 1 questioning the authority of the Commission on Audit (COA) in disallowing
petitioner's claims for reimbursement from the Oil Price Stabilization Fund (OPSF)
and seeking the reversal of said Commission's decision denying its claims for
recovery of financing charges from the Fund and reimbursement of underrecovery
arising from sales to the National Power Corporation, Atlas Consolidated Mining and
Development Corporation (ATLAS) and Marcopper Mining Corporation (MAR-
COPPER), preventing it from exercising the right to offset its remittances against its
reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending
resolution before the Office of Energy Affairs (OEA) and the Department of Finance
(DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional
Commissions 3 may be brought to this Court on certiorari by the aggrieved party
within thirty (30) days from receipt of a copy thereof. The certiorari referred to is the
special civil action for certiorari under Rule 65 of the Rules of Court. 4
Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect
for the findings and rulings of the administrator of the fund itself and in disallowing a
claim which is still pending resolution at the OEA level, and (b) "grave abuse of
discretion and completely without jurisdiction" 5 in declaring that petitioner cannot
avail of the right to offset any amount that it may be required under the law to remit to
the OPSF against any amount that it may receive by way of reimbursement therefrom
are sufficient to bring this petition within Rule 65 of the Rules of Court, and,
considering further the importance of the issues raised, the error in the designation of
the remedy pursued will, in this instance, be excused.
The issues raised revolve around the OPSF created under Section 8 of Presidential
Decree (P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As
amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the
Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the
purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported
petroleum products. The Oil Price Stabilization Fund may be sourced from any of the
following:
a) Any increase in the tax collection from ad valorem tax or customs duty imposed on
petroleum products subject to tax under this Decree arising from exchange rate
adjustment, as may be determined by the Minister of Finance in consultation with the
Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions of
government corporations, as may be determined by the Minister of Finance in
consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to augment the
resources of the Fund through an appropriate Order that may be issued by the Board
of Energy requiring payment by persons or companies engaged in the business of
importing, manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by oil
companies in the importation of crude oil and petroleum products is less than the
peso costs computed using the reference foreign exchange rate as fixed by the Board
of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustment and/or increase in world
market prices of crude oil;
2) To reimburse the oil companies for possible cost under-recovery incurred as a
result of the reduction of domestic prices of petroleum products. The magnitude of the
underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of the
oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of
Energy.
The material operative facts of this case, as gathered from the pleadings of the
parties, are not disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI),
hereinafter referred to as Petitioner, directing the latter to remit to the OPSF its
collection, excluding that unremitted for the years 1986 and 1988, of the additional
tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956
which, as of 31 December 1987, amounted to P335,037,649.00 and informing it that,
pending such remittance, all of its claims for reimbursement from the OPSF shall be
held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that partial
verification with the OEA showed that the grand total of its unremitted collections of
the above tax is P1,287,668,820.00, broken down as follows:
1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and surcharges thereon, within sixty (60)
days from receipt of the letter; advising it that the COA will hold in abeyance the audit
of all its claims for reimbursement from the OPSF; and directing it to desist from
further offsetting the taxes collected against outstanding claims in 1989 and
subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release of its
reimbursement certificates from the OPSF covering claims with the Office of Energy
Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular
No. 89-299 on the lifting of pre-audit of government transactions of national
government agencies and government-owned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early
release of the reimbursement certificates from the OPSF and repeated its earlier
directive to petitioner to forward payment of the latter's unremitted collections to the
OPSF to facilitate COA's audit action on the reimbursement claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a
proposal for the payment of the collections and the recovery of claims, since the
outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the
processing of said claims against the OPSF will cause a very serious impairment of
its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate monitoring of
payments and reimbursements will be administered by the ERB/Finance Dept./OEA,
as agencies designated by law to administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to
OPSF, similarly OEA will deliver to Caltex the same amount in cash reimbursement
from OPSF.
(3) The COA audit will commence immediately and will be conducted expeditiously.
(4) The review of current claims (1989) will be conducted expeditiously to preclude
further accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision
No. 921 accepting the above-stated proposal but prohibiting petitioner from further
offsetting remittances and reimbursements for the current and ensuing
years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella, President,
Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex
(Philippines) Inc., for reconsideration of this Commission's adverse action embodied
in its letters dated February 2, 1989 and March 9, 1989, the former directing
immediate remittance to the Oil Price Stabilization Fund of collections made by the
firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter
reiterating the same directive but further advising the firms to desist from offsetting
collections against their claims with the notice that "this Commission will hold in
abeyance the audit of all . . . claims for reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy Regulatory
Board, the aforenamed oil companies were allowed to offset the amounts due to the
Oil Price Stabilization Fund against their outstanding claims from the said Fund for
the calendar years 1987 and 1988, pending with the then Ministry of Energy, the
government entity charged with administering the OPSF. This Commission, however,
expressing serious doubts as to the propriety of the offsetting of all types of
reimbursements from the OPSF against all categories of remittances, advised these
oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these
companies now seek reconsideration and in support thereof clearly manifest their
intent to make arrangements for the remittance to the Office of Energy Affairs of the
amount of collections equivalent to what has been previously offset, provided that this
Commission authorizes the Office of Energy Affairs to prepare the corresponding
checks representing reimbursement from the OPSF. It is alleged that the
implementation of such an arrangement, whereby the remittance of collections due to
the OPSF and the reimbursement of claims from the Fund shall be made within a
period of not more than one week from each other, will benefit the Fund and not
unduly jeopardize the continuing daily cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this
Commission perceives no further objectionable feature in the proposed arrangement,
provided that 15% of whatever amount is due from the Fund is retained by the Office
of Energy Affairs, the same to be answerable for suspensions or disallowances,
errors or discrepancies which may be noted in the course of audit and surcharges for
late remittances without prejudice to similar future retentions to answer for any
deficiency in such surcharges, and provided further that no offsetting of remittances
and reimbursements for the current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to
Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and
based on our initial verification of documents submitted to us by your Office in support
of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as
its outstanding claims against the Oil Price Stabilization Fund (OPSF) as of May 31,
1989, we are pleased to inform your Office that Caltex (Philippines), Inc. shall be
required to remit to OPSF an amount of P1,505,668,906, representing remittances to
the OPSF which were offset against its claims reimbursements (net of unsubmitted
claims). In addition, the Commission hereby authorize (sic) the Office of Energy
Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims
initially allowed in audit, the details of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled P387,683,535,
which included P130,420,235 representing those claims disallowed by OEA, details
of which is (sic) shown in Schedule 1 as summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300
Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate
that recovery of financing charges by oil companies is not among the items for which
the OPSF may be utilized. Therefore, it is our view that recovery of financing charges
has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87.
b. Product Sales –– Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order
No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic)
oil companies should pay OPSF impost on export sales of petroleum products.
Effective February 7, 1987 sales to international vessels/airlines should not be
included as part of its domestic sales. Changing the effectivity date of the resolution
from February 7, 1987 to October 20, 1987 as covered by subsequent ERB
Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their
domestic sales volumes to international vessels/airlines and claim the corresponding
reimbursements from OPSF during the period. It is our opinion that the effectivity of
the said resolution should be February 7, 1987.

c. Inventory losses –– Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including
the related BLA agreement, as they affect the claims for reimbursements of ad
valorem taxes. We observed that oil companies immediately settle ad valorem taxes
for BLA transaction (sic). Loan balances therefore are not tax paid inventories of
Caltex subject to reimbursements but those of the borrower. Hence, we recommend
reduction of the claim for July, August, and November, 1987 amounting to
P14,034,786.

d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges whether
direct or indirect due and payable by the copper mining companies in distress to the
national and local governments." It is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as effected by OEA has no legal basis.
Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount
as herein authorized shall be subject to availability of funds of OPSF as of May 31,
1989 and applicable auditing rules and regulations. With regard to the disallowances,
it is further informed that the aggrieved party has 30 days within which to appeal the
decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration

of the decision based on the following grounds: 13
 A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES,
ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT
OF FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO
EXECUTIVE ORDER NO. 137.
B)
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF
EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND
APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY
LEGISLATION.
xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS

AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
D)
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus
Request for Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and with
Commissioner Fernandez dissenting in part, handed down Decision No. 1171
affirming the disallowance for recovery of financing charges, inventory losses, and
sales to MARCOPPER and ATLAS, while allowing the recovery of product sales or
those arising from export sales. 15 Decision No. 1171 reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the
.authority to recover financing charges from the OPSF on the basis of Department of
Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies
to "recover cost of financing working capital associated with crude oil shipments,"
and provided a schedule of reimbursement in terms of peso per barrel. It appears that
on November 6, 1989, the DOF issued a memorandum to the President of the
Philippines explaining the nature of these financing charges and justifying their
reimbursement as follows:
As part of your program to promote economic recovery, . . . oil companies (were
authorized) to refinance their imports of crude oil and petroleum products from the
normal trade credit of 30 days up to 360 days from date of loading . . . Conformably . .
., the oil companies deferred their foreign exchange remittances for purchases by
refinancing their import bills from the normal 30-day payment term up to the desired
360 days. This refinancing of importations carried additional costs (financing charges)
which then became, due to government mandate, an inherent part of the cost of the
purchases of our country's oil requirement.

We beg to disagree with such contention. The justification that financing charges
increased oil costs and the schedule of reimbursement rate in peso per barrel (Exhibit
1) used to support alleged increase (sic) were not validated in our independent
inquiry. As manifested in Exhibit 2, using the same formula which the DOF used in
arriving at the reimbursement rate but using comparable percentages instead of
pesos, the ineluctable conclusion is that the oil companies are actually gaining rather
than losing from the extension of credit because such extension enables them to
invest the collections in marketable securities which have much higher rates than
those they incur due to the extension. The Data we used were obtained from CPI
(CALTEX) Management and can easily be verified from our records.
With respect to product sales or those arising from sales to international vessels or
airlines, . . ., it is believed that export sales (product sales) are entitled to claim refund
from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the
considered view of this Commission that the OPSF is not liable to refund such surtax
on inventory losses because these are paid to BIR and not OPSF, in view of which
CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that you are
entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17,
1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF
imposts which were added to the selling price.

Upon a circumspect evaluation, this Commission believes and so holds that the CPI
(CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost
because LOI 1416 dated July 17, 1984, which exempts distressed mining companies
from "all taxes, duties, import fees and other charges" was issued when OPSF was
not yet in existence and could not have contemplated OPSF imposts at the time of its
formulation. Moreover, it is evident that OPSF was not created to aid distressed
mining companies but rather to help the domestic oil industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition
wherein it imputes to the COA the commission of the following errors: 16

I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF
FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN DISALLOWING
17
CPI's CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM
SALES TO NPC.
III
RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR
REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING
ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS
REIMBURSEMENT VIS-A-VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH
ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.
In the Resolution of 5 April 1990, this Court required the respondents to comment on
the petition within ten (10) days from notice. 18
On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz,
assisted by the Office of the Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required
the parties to file their respective Memoranda within twenty (20) days from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that
the Comment filed on 6 September 1990 be considered as the Memorandum for
respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support thereof,
that:
(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137,
which added a second purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a

result of the reduction of domestic prices of petroleum products. The magnitude of the
underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without

the corresponding reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government

mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now
Department) of Finance may include financing charges for "in essence, financing
charges constitute unrecovered cost of acquisition of crude oil incurred by the oil
companies," as explained in the 6 November 1989 Memorandum to the President of
the Department of Finance; they "directly translate to cost underrecovery in cases
where the money market placement rates decline and at the same time the tax on
interest income increases. The relationship is such that the presence of
underrecovery or overrecovery is directly dependent on the amount and extent of
financing charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it
was filed on the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital associated
with crude oil shipments, the following guidelines on the utilization of the Oil Price
Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk
premium and recovery of financing charges will be implemented:

1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1)
percent for the first (6) months and 1/32 of one percent per month thereafter
up to a maximum period of one year, to be applied on crude oil' shipments
from January 1, 1987. Shipments with outstanding financing as of January 1,
1987 shall be charged on the basis of the fee applicable to the remaining
period of financing.

2. In addition, for shipments loaded after January 1987, oil companies shall be
allowed to recover financing charges directly from the OPSF per barrel of crude oil
based on the following schedule:
Financing Period Reimbursement Rate
Pesos per Barrel
Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28

The above rates shall be subject to review every sixty

days. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987,
advised the Office of Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila

Dear Sir:
This refers to the letters of the Oil Industry dated December 4, 1986 and February 5,
1987 and subsequent discussions held by the Price Review committee on February
6, 1987.

On the basis of the representations made, the Department of Finance recognizes the
necessity to reduce the foreign exchange risk premium accruing to the Oil Price
Stabilization Fund (OPSF). Such a reduction would allow the industry to recover
partly associated financing charges on crude oil imports. Accordingly, the OPSF
foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6)
months plus 1/32% of 1% per month thereafter up to a maximum period of one year,
effective January 1, 1987. In addition, since the prevailing company take would still
leave unrecovered financing charges, reimbursement may be secured from the OPSF
in accordance with the provisions of the attached Department of Finance circular. 23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which
contains the guidelines for the computation of the foreign exchange risk fee and the
recovery of financing charges from the OPSF, to wit:

B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing charges directly from the
OPSF for both crude and product shipments loaded after January 1, 1987 based on
the following rates:
Financing Period Reimbursement Rate
(PBbl.)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28
2. The above rates shall be subject to review every sixty days. 24
Then on 22 November 1988, the Department of Finance issued Circular No. 4-88
imposing further guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87
dated February 18, 1987 which allowed the recovery of financing charges directly
from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment basis.
2. The claim shall be filed with the Office of Energy Affairs together with the claim on
peso cost differential for a particular shipment and duly certified supporting
documents providedfor under Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to
be issued by the Office of Energy Affairs. The said certificate may be used to offset
against amounts payable to the OPSF. The oil companies may also redeem said
certificates in cash if not utilized, subject to availability of funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum Circular
No. 88-12-017. 26
The COA can neither ignore these issuances nor formulate its own interpretation of
the laws in the light of the determination of executive agencies. The determination by
the Department of Finance and the OEA that financing charges are recoverable from
the OPSF is entitled to great weight and consideration. 27 The function of the COA,
particularly in the matter of allowing or disallowing certain expenditures, is limited to
the promulgation of accounting and auditing rules for, among others, the
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally,
COA's claim that petitioner is gaining, instead of losing, from the extension of credit,
is belatedly raised and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the respondents argue that:
1. The Constitution gives the COA discretionary power to disapprove irregular or
unnecessary government expenditures and as the monetary claims of petitioner are
not allowed by law, the COA acted within its jurisdiction in denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges
from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the second
purpose of the OPSF pursuant to E.O. No. 137 can only include "factors which are of
the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of
the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations implementing P.D. No. 1956 do not
likewise allow reimbursement of financing
charges. 29

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We
find the theory of petitioner –– that such does not extend to the disallowance of
irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or
use of government funds and properties, but only to the promulgation of accounting
and auditing rules for, among others, such disallowance –– to be untenable in the
light of the provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining
to, the Government, or any of its subdivisions, agencies, or instrumentalities,
including government-owned and controlled corporations with original charters, and
on a post-audit basis: (a) constitutional bodies, commissions and offices that have
been granted fiscal autonomy under this Constitution; (b) autonomous state colleges
and universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or equity,
directly or indirectly, from or through the government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity.
However, where the internal control system of the audited agencies is inadequate,
the Commission may adopt such measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the deficiencies. It shall keep the general
accounts, of the Government and, for such period as may be provided by law,
preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this
Article, to define the scope of its audit and examination, establish the techniques and
methods required therefor, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of
government funds and properties.

These present powers, consistent with the declared independence of the

Commission, 30 are broader and more extensive than that conferred by the 1973
Constitution. Under the latter, the Commission was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts
pertaining to the revenues, and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities including government-owned or controlled
corporations, keep the general accounts of the Government and, for such period as
may be provided by law, preserve the vouchers pertaining thereto; and promulgate
accounting and auditing rules and regulations including those for the prevention of
irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and
property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the
COA's precursor, the General Auditing Office, were, unfortunately, limited; its very
role was markedly passive. Section 2 of Article XI thereofprovided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to
the revenues and receipts from whatever source, including trust funds derived from
bond issues; and audit, in accordance with law and administrative regulations, all
expenditures of funds or property pertaining to or held in trust by the Government or
the provinces or municipalities thereof. He shall keep the general accounts of the
Government and the preserve the vouchers pertaining thereto. It shall be the duty of
the Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular, unnecessary,
excessive, or extravagant. He shall also perform such other functions as may be
prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or

extravagant expenditures or uses of funds, the 1935 Constitution did not grant the
Auditor General the power to issue rules and regulations to prevent the same. His
was merely to bring that matter to the attention of the proper administrative officer.
The ruling on this particular point, quoted by petitioner from the cases of Guevarra
vs. Gimenez 32 and Ramos vs.Aquino, 33 are no longer controlling as the two (2) were
decided in the light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under
the 1935 Constitution and the Commission on Audit under the 1973 Constitution
authorized them to disallow illegal expenditures of funds or uses of funds and
property. Our present Constitution retains that same power and authority, further
strengthened by the definition of the COA's general jurisdiction in Section 26 of the
Government Auditing Code of the Philippines 34 and Administrative Code of
1987. 35 Pursuant to its power to promulgate accounting and auditing rules and
regulations for the prevention of irregular, unnecessary, excessive or extravagant
expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA
Circular No. 77-55. Since the COA is responsible for the enforcement of the rules and
regulations, it goes without saying that failure to comply with them is a ground for
disapproving the payment of the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the 1935
Constitution the Auditor General could not correct "irregular, unnecessary, excessive
or extravagant" expenditures of public funds but could only "bring [the matter] to the
attention of the proper administrative officer," under the 1987 Constitution, as also
under the 1973 Constitution, the Commission on Audit can "promulgate accounting
and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures or uses of government funds and properties." Hence, since the
Commission on Audit must ultimately be responsible for the enforcement of these
rules and regulations, the failure to comply with these regulations can be a ground for
disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a
more active role and invested it with broader and more extensive powers, they did not
intend merely to make the COA a toothless tiger, but rather envisioned a dynamic,
effective, efficient and independent watchdog of the Government.

The issue of the financing charges boils down to the validity of Department of Finance
Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing
circulars of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by
E.O. No. 137, authorizing it to determine "other factors" which may result in cost
underrecovery and a consequent reimbursement from the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis,
financing charges are not included in "cost underrecovery" and, therefore, cannot be
considered as one of the "other factors." Section 8 of P.D. No. 1956, as amended by
E.O. No. 137, does not explicitly define what "cost underrecovery" is. It merely states
what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of the
oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
ii. Other factors as may be determined by the Ministry of Finance to result in
cost underrecovery.

These "other factors" can include only those which are of the same class or nature as
the two specifically enumerated in subparagraphs (i) and (ii). A common
characteristic of both is that they are in the nature of government mandated price
reductions. Hence, any other factor which seeks to be a part of the enumeration, or
which could qualify as a cost under recovery, must be of the same class or nature as
those specifically enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of
Finance broad and unrestricted authority to determine or define "other factors."
Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration
of persons or things, by words of a particular and specific meaning, such general
words are not to be construed in their widest extent, but are held to be as applying
only to persons or things of the same kind or class as those specifically
mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they do not
have a common characteristic. The first relates to price reduction as directed by the
Board of Energy while the second refers to reduction in internal ad valoremtaxes.
Therefore, subparagraph (iii) cannot be limited by the enumeration in these
subparagraphs. What should be considered for purposes of determining the "other
factors" in subparagraph (iii) is the first sentence of paragraph (2) of the Section
which explicitly allows cost under recovery only if such were incurred as a result of
the reduction of domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost

underrecovery in the sense that such were incurred as a result of the inability to fully
offset financing expenses from yields in money market placements, they do not,
however, fall under the foregoing provision of P.D. No. 1956, as amended, because
the same did not result from the reduction of the domestic price of petroleum
products. Until paragraph (2), Section 8 of the decree, as amended, is further
amended by Congress, this Court can do nothing. The duty of this Court is not to
legislate, but to apply or interpret the law. Be that as it may, this Court wishes to
emphasize that as the facts in this case have shown, it was at the behest of the
Government that petitioner refinanced its oil import payments from the normal 30-day
trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that
owing to the extended period for payment, the financial institution which refinanced
said payments charged a higher interest, thereby resulting in higher financing
expenses for the petitioner. It would appear then that equity considerations dictate
that petitioner should somehow be allowed to recover its financing losses, if any,
which may have been sustained because it accommodated the request of the
Government. Although under Section 29 of the National Internal Revenue Code such
losses may be deducted from gross income, the effect of that loss would be merely to
reduce its taxable income, but not to actually wipe out such losses. The Government
then may consider some positive measures to help petitioner and others similarly
situated to obtain substantial relief. An amendment, as aforestated, may then be in
order.

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the
part of the Department of Finance to determine or define "other factors" is to uphold
an undue delegation of legislative power, it clearly appearing that the subject
provision does not provide any standard for the exercise of the authority. It is a
fundamental rule that delegation of legislative power may be sustained only upon the
ground that some standard for its exercise is provided and that the legislature, in
making the delegation, has prescribed the manner of the exercise of the delegated
authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered
irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that
petitioner failed to disprove COA's claim that it had in fact gained in the process.
Otherwise stated, petitioner failed to sufficiently show that it incurred a loss. Such
being the case, how can petitioner claim for reimbursement? It cannot have its cake
and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for
the petitioner. The respondents themselves admit in their Comment that under
recovery arising from sales to NPC are reimbursable because NPC was granted full
exemption from the payment of taxes; to prove this, respondents trace the laws
providing for such exemption. 40 The last law cited is the Fiscal Incentives Regulatory
Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax
and duty exemption privileges of the National Power Corporation, including those
pertaining to its domestic purchases of petroleum and petroleum products . . . are
restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by
the Office of the President, NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of
petroleum products to the NPC is evident in the recently passed Republic Act No.
6952 establishing the Petroleum Price Standby Fund to support the OPSF. 41 The
pertinent part of Section 2, Republic Act No. 6952 provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a) cost
increases of imported crude oil and finished petroleum products resulting from
foreign exchange rate adjustments and/or increases in world market prices of
crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the
National Power Corporation (NPC); and (c) other cost underrecoveries
incurred as may be finally decided by the Supreme Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the
National Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER,
petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered
the suspension of payments of all taxes, duties, fees and other charges, whether
direct or indirect, due and payable by the copper mining companies in distress to the
national government. Pursuant to this LOI, then Minister of Energy, Hon. Geronimo
Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that
Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among
those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its
18 August 1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is
our opinion that LOI 1416 which implements the exemption from payment of OPSF
imposts as effected by OEA has no legal basis;" 42 in its Decision No. 1171, it ruled
that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement for this
uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued when
OPSF was not yet in existence and could not have contemplated OPSF imposts at
the time of its formulation." 43 It is further stated that: "Moreover, it is evident that
OPSF was not created to aid distressed mining companies but rather to help the
domestic oil industry by stabilizing oil prices."

In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not
have intended to exempt said distressed mining companies from the payment of
OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D.
1956 creating the OPSF was promulgated on October 10, 1984, while E.O.
137, amending P.D. 1956, was issued on February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line
with the government's effort to prevent the collapse of the copper industry. P.D No.
1956, as amended, was issued for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments and/or changes in world market prices
of crude oil and imported petroleum product's; and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other
charges, whether direct or indirect, due and payable by the copper mining companies
in distress to the Notional and Local Governments . . ." On the other hand, OPSF
dues are not payable by (sic) distressed copper companies but by oil companies. It is
to be noted that the copper mining companies do not pay OPSF dues. Rather, such
imposts are built in or already incorporated in the prices of oil products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by
distressed mining companies, it does not accord petitioner the same privilege with
respect to its obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from such reasons,
however, it is apparent that LOI 1416 was never published in the Official
Gazette 45 as required by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following the completion of their publication in
the Official Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Tañada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette
all unpublished presidential issuances which are of general application, and unless so
published they shall have no binding force and effect.
Resolving the motion for reconsideration of said decision, this Court, in its Resolution
promulgated on 29 December 1986, 47 ruled:

We hold therefore that all statutes, including those of local application and private
laws, shall be published as a condition for their effectivity, which shall begin fifteen
days after publication unless a different effectivity date is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by
the President in the exercise of legislative powers whenever the same are validly
delegated by the legislature or, at present, directly conferred by the Constitution.

Administrative rules and regulations must also be published if their purpose is to

enforce or implement existing laws pursuant also to a valid delegation.
xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately
upon their approval, or as soon thereafter as possible, be published in full in the
Official Gazette, to become effective only after fifteen days from their publication, or
on another date specified by the legislature, in accordance with Article 2 of the Civil
Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the
Official Gazette after its issuance or at any time after the decision in the
abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order No. 200,
issued on 18 June 1987. As amended, the said provision now reads:
Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided.

We are not aware of the publication of LOI 1416 in any newspaper of general
circulation pursuant to Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's
claim must still fail. Tax exemptions as a general rule are construed strictly against
the grantee and liberally in favor of the taxing authority. 48The burden of proof rests
upon the party claiming exemption to prove that it is in fact covered by the exemption
so claimed. The party claiming exemption must therefore be expressly mentioned in
the exempting law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its
sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under
LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining
companies, it does not give petitioner the same privilege with respect to the payment
of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains
that the Department of Finance has still to issue a final and definitive ruling thereon;
accordingly, it was premature for COA to disallow it. By doing so, the latter acted
beyond its jurisdiction. 49 Respondents, on the other hand, contend that said amount
was already disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA
submitted the claims of petitioner for pre-audit, the abovementioned amount was
already excluded.

An examination of the records of this case shows that petitioner failed to prove or
substantiate its contention that the amount of P130,420,235.00 is still pending before
the OEA and the DOF. Additionally, We find no reason to doubt the submission of
respondents that said amount has already been passed upon by the OEA. Hence,
the ruling of respondent COA disapproving said claim must be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the
OPSF from petitioner may be offset against petitioner's outstanding claims from said
fund. Petitioner contends that it should be allowed to offset its claims from the OPSF
against its contributions to the fund as this has been allowed in the past, particularly
in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil
Code on compensation and Section 21, Book V, Title I-B of the Revised
Administrative Code which provides for "Retention of Money for Satisfaction of
Indebtedness to Government." 52 Petitioner also mentions communications from the
Board of Energy and the Department of Finance that supposedly authorize
compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend
that there can be no offsetting of taxes against the claims that a taxpayer may have
against the government, as taxes do not arise from contracts or depend upon the will
of the taxpayer, but are imposed by law. Respondents also allege that petitioner's
reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is
misplaced because "while this provision empowers the COA to withhold payment of a
government indebtedness to a person who is also indebted to the government and
apply the government indebtedness to the satisfaction of the obligation of the person
to the government, like authority or right to make compensation is not given to the
private person." 54 The reason for this, as stated in Commissioner of Internal
Revenue vs. Algue, Inc., 55 is that money due the government, either in the form of
taxes or other dues, is its lifeblood and should be collected without hindrance. Thus,
instead of giving petitioner a reason for compensation or set-off, the Revised
Administrative Code makes it the respondents' duty to collect petitioner's
indebtedness to the OPSF.

Refuting respondents' contention, petitioner claims that the amounts due from it do
not arise as a result of taxation because "P.D. 1956, amended, did not create a
source of taxation; it instead established a special fund . . .," 56 and that the OPSF
contributions do not go to the general fund of the state and are not used for public
purpose, i.e., not for the support of the government, the administration of law, or the
payment of public expenses. This alleged lack of a public purpose behind OPSF
exactions distinguishes such from a tax. Hence, the ruling in the Francia case is
inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to
support the OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil
company which has an outstanding obligation to the Government without said
obligation being offset first, subject to the requirements of compensation or offset
under the Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not for a
public purpose because they go to a special fund of the government. Taxation is no
longer envisioned as a measure merely to raise revenue to support the existence of
the government; taxes may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry which is affected with
public interest as to be within the police power of the state. 57 There can be no doubt
that the oil industry is greatly imbued with public interest as it vitally affects the
general welfare. Any unregulated increase in oil prices could hurt the lives of a
majority of the people and cause economic crisis of untold proportions. It would have
a chain reaction in terms of, among others, demands for wage increases and upward
spiralling of the cost of basic commodities. The stabilization then of oil prices is of
prime concern which the state, via its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source
of OPSF is taxation. No amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have
against the government. 58Taxes cannot be the subject of compensation because the
government and taxpayer are not mutually creditors and debtors of each other and a
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the
oil companies merely act as agents for the Government in the latter's collection since
the taxes are, in reality, passed unto the end-users –– the consuming public. In that
capacity, the petitioner, as one of such companies, has the primary obligation to
account for and remit the taxes collected to the administrator of the OPSF. This duty
stems from the fiduciary relationship between the two; petitioner certainly cannot be
considered merely as a debtor. In respect, therefore, to its collection for the
OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally
feasible. Firstly, the Government and the petitioner cannot be said to be mutually
debtors and creditors of each other. Secondly, there is no proof that petitioner's claim
is already due and liquidated. Under Article 1279 of the Civil Code, in order that
compensation may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent.
Such a practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil
companies to offset their claims against their OPSF contributions. Instead, it prohibits
the government from paying any amount from the Petroleum Price Standby Fund to
oil companies which have outstanding obligations with the government, without said
obligation being offset first subject to the rules on compensation in the Civil Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING

the challenged decision of the Commission on Audit, except that portion thereof
disallowing petitioner's claim for reimbursement of underrecovery arising from sales
to the National Power Corporation, which is hereby allowed.
With costs against petitioner.

SO ORDERED.
 [G.R. No. 135639. February 27, 2002]

TERMINAL FACILITIES AND SERVICES

CORPORATION, petitioner, vs. PHILIPPINE PORTS
AUTHORITY and PORT MANAGER, and PORT DISTRICT
OFFICER OF DAVAO CITY, respondents.

[G.R. No. 135826. February 27, 2002]

PHILIPPINE PORTS AUTHORITY and PORT MANAGER, and PORT

DISTRICT OFFICER OF DAVAO CITY, petitioners, vs.
TERMINAL FACILITIES AND SERVICES
CORPORATION, respondent.

DECISION
DE LEON, JR., J.:

Before us are two (2) consolidated petitions for review, one filed by the
Terminal Facilities and Services Corporation (TEFASCO) (G.R. No.
135639) and the other by the Philippine Ports Authority (PPA) (G.R. No.
135826), of the Amended Decision dated September 30, 1998 of the
[1]

former Special Second Division of the Court of Appeals in CA-G.R. CV No.

47318 ordering the PPA to pay TEFASCO: (1) Fifteen Million Eight Hundred
Ten Thousand Thirty-Two Pesos and Seven Centavos
(P15,810,032.07) representing fifty percent (50%)wharfage dues and Three
Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos
and Six Centavos (P3,961,964.06)representing thirty percent (30%)
berthing fees from 1977 to 1991, which amounts TEFASCO could have
earned had not PPA illegally imposed one hundred percent (100%)
wharfage and berthing fees, and (2) the sum of Five Hundred Thousand
Pesos (P500,000.00) as attorneys fees. No pronouncement was made as to
costs of suit.
In G.R. No. 135639 TEFASCO assails the declaration of validity of the
government share and prays for reinstatement in toto of the decision of the
trial court. In G.R. No. 135826 PPA impugns the Amended Decision for
awarding the said two (2) amounts for loss of private port usage fees as
actual damages, plus attorney's fees.
TEFASCO is a domestic corporation organized and existing under the
laws of the Philippines with principal place of business at Barrio
Ilang, Davao City. It is engaged in the business of providing port and
terminal facilities as well as arrastre, stevedoring and other port-related
services at its own private port at Barrio Ilang.
Sometime in 1975 TEFASCO submitted to PPA a proposal for the
construction of a specialized terminal complex with port facilities and a
provision for port services in Davao City. To ease the acute congestion in
the government ports at Sasa and Sta. Ana, Davao City, PPA welcomed the
proposal and organized an inter-agency committee to study the plan. The
committee recommended approval thereof and itsreport stated that -

TEFASCO Terminal is a specialized terminal complex. The specialized matters

intended to be captured are: (a) bananas in consideration of the rate of spoilage; (b)
sugar; (c) fertilizers; (d) specialized movement of beer in pallets containerized
handling lumber and plywood.

3.2 Limitations of the government facilities -

The government port facilities are good for general cargoes only. Both ports are not
equipped to handle specialized cargoes like bananas and container cargoes. Besides
the present capacity, as well as the planned improvements, cannot cope with the
increasing volume of traffic in the area. Participation of the private sector,
therefore, involving private financing should be encouraged in the area.

3.3 Project Viability -

3.3.1 Technical Aspect - From the port operations point of view, the project is
technically feasible. It is within a well-protected harbor and it has a sufficient depth
of water for berthing the ships it will service. The lack of back up area can be
supplied by the 21-hectare industrial land which will be established out of the hilly
land area which is to be scrapped and leveled to be used to fill the area for
reclamation.

3.3.2 Economic Aspect - The international port of Sasa and the

domestic port of Sta. Ana are general cargo type ports. They are facing serious ship
and cargo congestion problems brought about mainly by the faster growth of
shipping industry than the development of the ports. They do not possess the
special cargo handling facilities which TFSC plans to put up at the proposed
terminal.

xxx The proposed project expects to get a 31% market slice. It will service
domestic and foreign vessels. Main products to be handled initially will be bananas
in the export trade and beer in the domestic traffic. Banana exporters in Davao, like
Stanfilco and Philippine Packing Corporation have signified their intentions to use
the port. Negotiations between TFSC and banana exporters on whether the former
or the latter should purchase the mechanical loading equipment have not yet been
formed up xxx.

Easing the problems at these two ports would result in savings on cost of the
operation as cargo storage and on damages and losses. It would also give relief to
passengers from time-delay, inconvenience and exposure to hazards in commuting
between the pier and ship at anchor.

Furthermore, it would redound to better utilization of the government piers,

therefore greater revenue from port operations.

At the bigger scale, more economic benefits in terms of more employment, greater
productivity, increased per capita income in the Davao region, and in light of the
limited financial resources of the government for port development the TFSC
proposal would be beneficial to the country.

On April 21, 1976 the PPA Board of Directors passed Resolution No. 7
accepting and approving TEFASCO's project proposal. PPA resolved to -

xxx [a]pprove, xxx the project proposal of the Terminal Facilities and Services
Corporation, Inc. for the construction of specialized port facilities and provision of
port services in Davao City, subject to the terms and conditions set forth in the
report of the Technical Committee created by the Board in its meeting of January
30, 1975, and to the usual government rules and regulations.

PPA relayed its acceptance of the project terms and conditions to

TEFASCO in the letter dated May 7, 1976 of Acting General Manager
[2]

Mariano Nicanor which affirmed that -

We are pleased to inform you that the Board of Directors, Philippine Ports
Authority, approved the project proposal of the Terminal Facilities and Services
Corporation to construct a specialized port facilities and provision of port services
in Davao City as follows:
 1) Docking Facilities for Ocean Going and Interisland vessels with
containerized cargo.

2) Stevedoring and Arrastre for above.

3) Warehousing;

4) Container yard and warehouse for containerizing cargoes or breaking up

cargoes for containers.

5) Bulk handling and silos for corn, in cooperation with the NGA.

6) Bulk handling for fertilizer.

7) Bulk handling or conveyor system for banana exports.

8) Bulk handling for sugar.

9) Bonded warehousing.

The approval is subject to the terms and conditions set forth at enclosure.

You are hereby authorized to start work immediately taking into account national
and local laws and regulations pertaining to the project construction and operation.

The enclosure referred to in the letter above-quoted stipulated

the "Terms and Conditions of PPA Board Approval of the Project
Proposal," particularly -
[3]

(1) That all fees and/or permits pertinent to the construction and operation
of the proposed project shall be paid to and/or secured from the proper
authorities.

(2) That the plans shall not be altered without the prior approval of the
Bureau of Public Works in coordination with the PPA.

(3) That [any] damage to public and private property arising from the
construction and operation of the project shall be the sole responsibility
of the applicant-company.

(4) That the Director of Public Works shall be notified five (5) days before
the start of the construction works and that the Director of Public
Works or his representative shall be authorized to inspect the works
 and premises while the work is in progress and even after the
completion thereof.

(5) That the applicant shall construct and complete the structure under the
proposed project within eighteen (18) months after the approval of the
permit, otherwise the permit shall be null and void.

(6) That the facility shall handle general cargoes that are loaded as filler
cargoes on bulk/container ships calling at the facility.

(7) That the applicant shall build up its banana export traffic to replace the
probable loss of its container traffic five (5) years from now because of
the plan of PPA to put up a common user type container terminal at the
port of Sasa.

(8) That all charges payable to the Bureau of Customs will continue to
apply upon take over of port operations by the PPA of the Port of
Davao from the Bureau of Customs and direct control and regulations
of operations of private port facilities in the general area of that port.

Under the foregoing terms and conditions, TEFASCO contracted dollar

loans from private commercial institutions abroad to construct its specialized
terminal complex with port facilities and thereafter poured millions worth of
investments in the process of building the port. Long after TEFASCO broke
ground with massive infrastructure work, the PPA Board curiously passed
on October 1, 1976 Resolution No. 50 under which TEFASCO, without
asking for one, was compelled to submit an application for construction
permit. Without the consent of TEFASCO, the application imposed
additional significant conditions -

(1) This Permit to Construct (PTC) will entitle the applicant to operate the facility
for a period of fifteen (15) years, without jeopardy to negotiation for a renewal for a
period not exceeding ten (10) years. At the expiration of the permit, all
improvements shall automatically become the property of the Authority. Thereafter,
any interested party, including the applicant, may lease it under new conditions; (2)
In the event that the Foreshore Lease Application expires or is
disapproved/canceled, this permit shall also be rendered null and void; xxx (7) All
other fees and/or permits pertinent to the construction and operation of the proposed
project shall be paid to and/or secured from the proper authorities; xxx (9) Unless
specifically authorized, no general cargo shall be handled through the facility; (10)
All rates and charges to be derived from the use of said facility or facilities shall be
approved by the Authority; xxx (12) An application fee in the amount of one-tenth
or one percent of the total estimated cost of the proposed improvement/structure
shall be paid upon advice; (13) Other requirements of the law shall be complied by
the applicant.

NOTE: Subject further to the terms and conditions as approved by PPA Board
under Resolution No. 7 of 21 April 1976, except that PPA shall take over the role of
the Bureau of Public Works and of the Bureau of Customs stipulated in the said
approval.

TEFASCO played along with this needless exercise as PPA approved

the awkward application in a letter stating -

We are returning herewith your application for Permit to Construct No. 77-19 dated
18 October 1977, duly approved (validation of the original permit to construct
approved by the PPA Board under Resolution No. 7 of 21 April 1976), for the
construction of your port facilities in Bo. Ilang, Davao City, subject to the
conditions stipulated under the approved permit and in accordance with the attached
approved set of plans and working drawings.

It is understood that this permit is still subject to the terms and conditions under the
original permit except that this Authority takes over the role of the Bureau of Public
Works and of the Bureau of Customs as stipulated thereon.

The series of PPA impositions did not stop there. Two (2) years after the
completion of the port facilities and the commencement of TEFASCO's port
operations, or on June 10, 1978, PPA again issued to TEFASCO another
permit, designated as Special Permit No. CO/CO-1-067802, under which
more onerous conditions were foisted on TEFASCOs port operations. In [4]

the purported permit appeared for the first time the contentious provisions
for ten percent (10%) government share out of arrastre and stevedoring
gross income and one hundred percent (100%) wharfage and berthing
charges, thus -

Pursuant to the provisions of Presidential Decree No. 857, otherwise known as the
Revised Charter of the Philippine Ports Authority, and upon due consideration of
the formal written application and its enclosures in accordance with PPA
Memorandum Order No. 21 dated May 27, 1977, PPA Administrative Order No.
22-77 dated December 9, 1977, and other pertinent policies and guidelines, a
Special Permit is hereby granted to TERMINAL FACILITIES AND SERVICES
CORPORATION (TEFASCO), with address at Slip 3, Pier 4, North Harbor, Manila
to provide its arrastre/stevedoring services at its own private wharf located at Barrio
Ilang, Davao City, subject to the following conditions:
 xxx xxx xxx

2. Grantee shall render arrastre/stevedoring services on cargoes of vessels

under the agency of Retla Shipping/Transcoastal Shipping, Solid
Shipping, Sea Transport and other commercial vessels which cannot
be accommodated in government piers at PMU-Davao due to port
congestion which shall be determined by the Port Manager/Harbor
Master/Port Operations Officer whose decision shall be conclusive;

3. Grantee shall promptly submit its latest certified financial statement and
all statistical and other data required by the Authority from time to
time;

4. Grantee shall strictly comply with all applicable PPA rules and
regulations now in force or to be promulgated hereafter and other
pertinent rules and regulations promulgated by other agency of the
government and other applicable laws, orders or decrees;

5. Grantee shall remit to the government an amount equivalent to ten (10%)

percentum of the handling rates chargeable on similar cargo in
government piers/wharves within the jurisdiction of PMU-Davao on
or before the 5th working day of every month provided, however, that
in case of delay, grantee shall pay a penalty of one (1%) percentum of
the accumulated total amount due for every day of delay; provided,
further, that said rate shall be reasonably adjusted if and when
warranted by the financial conditions of the Grantee;

6. Grantee shall settle with the Authority its back accounts on the 10%
government share from the start of its arrastre/stevedoring operation
plus 6% legal interest per annum as provided by law;

7. That cargoes and vessels diverted to TEFASCO wharf shall be subject to

100% wharfage and berthing charges respectively;

8. Grantee shall hold the Authority free from any liability arising out of the
maintenance and operation thereof;

9. Grantee shall not in any manner pose a competition with any port or port
facility owned by the government. Rates of charges shall in no case be
lower than those prevailing at the Government Port of Davao.

xxx xxx xxx

This Special Permit is non-transferable and shall remain valid from the date of
issuance hereof until December 31, 1978; provided, however, that at any time prior
to the expiration thereof, the same may be revoked for violation of any of the
conditions herein set forth or for cause at the discretion of the PPA General
Manager or his duly authorized representative.

Subsequent exactions of PPA included: (a) Admin. Order 09-81, s.

1981, notifying all arrastre and stevedoring operators, whether they do
[5]

business in government owned port facilities, that special services income

be subjected to "government share" equivalent to ten percent (10%) thereof;
and, (b) Memo. Circ. 36-82, s. 1982, mandating an assessment of one
[6]

hundred percent (100%) wharfage dues on commercial and third-party

cargoes regardless of extent of use of private port facilities and one hundred
percent (100%) berthing charges on every foreign vessel docking at private
wharves loading or discharging commercial or third-party
cargoes. TEFASCO repeatedly asked PPA for extensions to pay these
additional obligations and for reduction in the rates. But the PPA's response
was final and non-negotiable statements of arrears and current accounts
and threats of business closure in case of failure to pay them. The trial
[7]

court summed up the documentary evidence on this point -

xxx [w]hen TEFASCO requested for the structuring of its account of P3.5 million,
resulting to a memorandum, issued by PPA General Manager to its internal control,
to verify the specific assessment of TEFASCO, coming out in the specific amount
of P3,143,425.67 which became a subject of TEFASCO various and series of
letters-protest to PPA, for reconsideration of its ultimatum, to enforce TEFASCOs
back account, dated June 1, 1983, marked Exh. 32 for defendant, after a series of
letters for reconsideration of TEFASCO and reply of PPA, marked Exh. 26 to 31
for the defendants, an ultimatum letter of PPA was issued followed by another
series of letters of protest, reconsideration and petition of TEFASCO and reply of
PPA, correspondingly marked Exh. 40 51 for the defendants, until ultimately, the
execution of a memorandum of agreement, marked Exh. 52 for the defendant,
dated February 10, 1984.

Most alarming was the receipt of defendants communication by TEFASCO, in its

letter dated June 1, 1983, a cease and desist order of PPA for TEFASCO, to stop its
commercial port operation xxx. [8]

On February 10, 1984 TEFASCO and PPA executed a Memorandum of

Agreement (MOA) providing among others for (a) acknowledgment of
TEFASCO's arrears in government share at Three Million Eight Hundred
Seven Thousand Five Hundred Sixty-Three Pesos and Seventy-Five
Centavos (P3,807,563.75) payable monthly, with default penalized by
automatic withdrawal of its commercial private port permit and permit to
operate cargo handling services; (b) reduction of government share from
ten percent (10%) to six percent (6%) on all cargo handling and related
revenue (or arrastre and stevedoring gross income); (c) opening of its pier
facilities to all commercial and third-party cargoes and vessels for a period
coterminous with its foreshore lease contract with the National Government;
and, (d) tenure of five (5) years extendible by five (5) more years for
TEFASCO's permit to operate cargo handling in its private port facilities. In
return PPA promised to issue the necessary permits for TEFASCOs port
activities. TEFASCO complied with the MOA and paid the accrued and
current government share. [9]

On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and
Port Officer in Davao City for refund of government share it had paid and for
damages as a result of alleged illegal exaction from its clients of one
hundred percent (100%) berthing and wharfage fees. The complaint also
sought to nullify the February 10, 1984 MOA and all other PPA issuances
modifying the terms and conditions of the April 21, 1976 Resolution No. 7
above-mentioned. [10]

The RTC, Branch 17, Davao City, in its decision dated July 15, 1992 in
Civil Case No. 19216-88, ruled for TEFASCO, (a) nullifying the MOA and all
PPA issuances imposing government share and one hundred percent
(100%) berthing and wharfage fees or otherwise modifying PPA Resolution
No. 7, and, (b) awarding Five Million Ninety-Five Thousand Thirty Pesos
and Seventeen Centavos (P5,095,030.17) for reimbursement of
government share and Three Million Nine Hundred Sixty-One Thousand
Nine Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06) for thirty
percent (30%) berthing charges and Fifteen Million Eight Hundred Ten
Thousand Thirty-Two Pesos and Seven Centavos (P15,810,032.07) for fifty
percent (50%) wharfage fees which TEFASCO could have earned as
private port usage fee from 1977 to 1991 had PPA not collected one
hundred percent (100%) of these fees; Two Hundred Forty-Eight Thousand
Seven Hundred Twenty-Seven Pesos (P248,727.00) for dredging and
blasting expenses; One Million Pesos (P1,000,000.00) in damages for
blatant violation of PPA Resolution No. 7; and, Five Hundred Thousand
Pesos (P500,000.00) for attorneys fees, with twelve percent (12%) interest
per annum on the total amount awarded. [11]

PPA appealed the decision of the trial court to the Court of Appeals. The
appellate court in its original decision recognized the validity of the
impositions and reversed in toto the decision of the trial court. TEFASCO
[12]
moved for reconsideration which the Court of Appeals found partly
meritorious. Thus the Court of Appeals in its Amended Decision partially
affirmed the RTC decision only in the sense that PPA was directed to pay
TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand
Thirty-Two Pesos and Seven Centavos (P15,810,032.07) representing fifty
percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One
Thousand Nine Hundred Sixty-Four Pesos and Six Centavos
(P3,961,964.06) representing thirty percent (30%) berthing fees which
TEFASCO could have earned as private port usage fee from 1977 to 1991
had PPA not illegally imposed and collected one hundred percent (100%)
of wharfage and berthing fees and (2) Five Hundred Thousand Pesos
(P500,000.00) for attorneys fees. The Court of Appeals held that the one
hundred percent (100%) berthing and wharfage fees were unenforceable
because they had not been approved by the President under Secs. 19 and
20, P.D. No. 857, and discriminatory since much lower rates were charged
in other private ports as shown by PPA issuances effective 1995 to
1997. Both PPA and TEFASCO were unsatisfied with this disposition hence
these petitions.
In G.R. No. 135639 TEFASCO prays to reinstate in toto the decision of
the trial court. Its grounds are: (a) PPA Resolution No. 7 and the terms and
conditions thereunder constitute a contract that PPA could not change at
will; (b) the MOA between PPA and TEFASCO indicating the schedule of
TEFASCO arrears and reducing the rate of government share is void for
absence of consideration; and, (c) government share is neither authorized
by PPA Resolution No. 7 nor by any law, and in fact, impairs the obligation
of contracts.
In G.R. No. 135826 PPA seeks to set aside the award of actual
damages for wharfage and berthing fees and for attorneys fees. PPA
anchors its arguments on the following: (a) that its collection of one hundred
percent (100%) wharfage and berthing fees is authorized by Secs. 6 (b, ix)
and 39 (a), P.D. No. 857, under which the imposable rates for such fees are
within the sole power and authority of PPA; (b) that absence of evidentiary
relevance of PPA issuances effective 1995 to 1997 reducing wharfage,
berthing and port usage fees in private ports; (c) that TEFASCO's lack of
standing to claim alleged overpayments of wharfage and berthing fees; and,
(d) that lack of legal basis for the award of fifty percent (50%) wharfage and
thirty percent (30%) berthing fees as actual damages in favor of TEFASCO
for the periodfrom 1977 to 1991, and for attorneys fees.
In a nutshell, the issues in the two (2) consolidated petitions are
centered on: (a) the character of the obligations between TEFASCO and
PPA; (b) the validity of the collection by PPA of one hundred percent
(100%) wharfage fees and berthing charges; (c) the propriety of the award
of fifty percent (50%) wharfage fees and thirty percent (30%) berthing
charges as actual damages in favor of TEFASCO for the period from 1977
to 1991; (d) the legality of the imposed government share and the MOA
stipulating a schedule of TEFASCO's arrears for and imposing a reduced
rate of government share; and, (e) the propriety of the award of attorneys
fees and damages.
Firstly, it was not a mere privilege that PPA bestowed upon TEFASCO
to construct a specialized terminal complex with port facilities and provide
port services in Davao City under PPA Resolution No. 7 and the terms and
conditions thereof. Rather, the arrangement was envisioned to be mutually
beneficial, on one hand, to obtain business opportunities for TEFASCO, and
on the other, enhance PPA's services -

The international port of Sasa and the domestic port of Sta. Ana are general cargo
type ports. They are facing serious ship and cargo congestion problems brought
about mainly by the faster growth of shipping industry than the development of the
ports. They do not possess the special cargo handling facilities which TFSC plans
to put up at the proposed terminal.
[13]

It is true that under P.D. No. 857 (1975) as amended, the construction
[14]

and operation of ports are subject to licensing regulations of the PPA as

public utility. However, the instant case did not arise out
[15]

of pure beneficence on the part of the government where TEFASCO would

be compelled to pay ordinary license and permit fees. TEFASCO accepted
and performed definite obligations requiring big investments that made up
the valuable consideration of the project. The inter-agency committee report
that recommended approval of TEFASCO port construction and operation
estimated investments at Sixteen Million Pesos (P16,000,000.00)
(1975/1976 price levels) disbursed within a construction period of one
year and covered by foreign loans of Two Million Four Hundred Thirty-Four
[16]

Thousand US Dollars (US$2,434,000.00) with interests of up to Ten Million

Nine Hundred Sixty-Five Thousand Four Hundred Sixty-Five Pesos
(P10,965,465.00) for the years 1979 to 1985. In 1987 the total investment
[17]

of TEFASCO in the project was valued at One Hundred Fifty-Six Million Two
Hundred Fifty-One Thousand Seven Hundred Ninety-Eight Pesos
(P156,251,798.00). The inter-agency committee report also listed the
[18]

costly facilities TEFASCO would build, and which in fact it has already built -
xxx The terminal complex will provide specialized mechanical cargo handling
facilities for bananas, sugar, beer, grain and fertilizer, and containerized cargo
operations. The marginal wharf could accommodate two ocean-going ships and one
inter-island vessel at a time. The essential structures andfacilities to be provided
are: (1) 400-meter concrete wharf; (2) Back-up area (3.8 hectare reclaimed area
plus a 21-hectare inland industrial zone); (3) Two warehouses with total floor area
of 5,000 sq. meters; (4) mechanized banana loading equipment; (5) container
yard.[19]

With such considerable amount of money spent in reliance upon the

promises of PPA under Resolution No. 7 and the terms and conditions
thereof, the authorization for TEFASCO to build and operate the specialized
terminal complex with port facilities assumed the character of a
truly binding contract between the grantor and the grantee. It was a two-
[20]

way advantage for both TEFASCO and PPA, that is, the business
opportunities for the former and the decongestion of port traffic
in Davao City for the latter, which is also the cause of consideration for the
existence of the contract. The cases of Ramos v. Central Bank of
the Philippines and Commissioner of Customs v. Auyong Hian are
[21] [22]

deemed precedents. In Ramos, the Central Bank (CB) committed itself to

support the Overseas Bank of Manila (OBM) and avoid its liquidation in
exchange for the execution of a voting trust agreement turning over the
management of OBM to CB and a mortgage of its properties to CB to cover
OBMs overdraft balance. This agreement was reached in CBs capacity as
the regulatory agency of banking operations. After OBM accepted and
performed in good faith its obligations, we deemed as perfected contract the
relation between CB and OBM from which CB could not retreat and in the
end prejudice OBM and its depositors and creditors -

Bearing in mind that the communications, xxx as well as the voting trust agreement
xxx had been prepared by the CB, and the well-known rule that ambiguities therein
are to be construed against the party that caused them, the record becomes clear
that, in consideration of the execution of the voting trust agreement by the
petitioner stockholders of OBM, and of the mortgage or assignment of their
personal properties to the CB, xxx the CB had agreed to announce its readiness to
support the new management in order to allay the fears of depositors and creditors
xxx and to stave off liquidation by providing adequate funds for the rehabilitation,
normalization and stabilization of the OBM, in a manner similar to what the CB had
previously done with the Republic Bank xxx. While no express terms in the
documents refer to the provision of funds by CB for the purpose, the same is
necessarily implied, for in no other way could it rehabilitate, normalize and
stabilize a distressed bank. xxx

The deception practiced by the Central Bank, not only on petitioners but on its own
management team, was in violation of Articles 1159 and 1315 of the Civil Code of
the Philippines:

Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Art. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law. [23]

Auyong Hian involved an importation of old newspapers in four (4)

shipments under a "no-dollar" arrangement pursuant to a license issued by
the Import Control Commission. When the last shipment arrived in Manila,
the customs authorities seized the importation on the ground that it was
made without the license required by Central Bank Circular No. 45. While
the seizure proceedings were pending before the Collector of Customs, the
President of the Philippines through its Cabinet canceled the aforesaid
license for the reason that it was illegally issued "in that no fixed date of
expiration is stipulated." On review, this Court held -

xxx [W]hile the Cabinet, acting for the President, can pass on the validity of a
license issued by the Import Control Commission, that power cannot be arbitrarily
exercised. The action must be founded on good ground or reason and must not be
capricious or whimsical. This principle is so clear to require further elaboration.

xxx In fact, if the cancellation were to prevail, the importer would stand to lose the
license fee he paid amounting to P12,000.00, plus the value of the shipment
amounting to P21,820.00. This is grossly inequitable. Moreover, "it has been held
in a great number of cases that a permit or license may not arbitrarily be revoked
xxx where, on the faith of it, the owner has incurred material expense."

It has also been held that where the licensee has acted under the license in good
faith, and has incurred expense in the execution of it, by making valuable
improvements or otherwise, it is regarded in equity as an executed contract and
substantially an easement, the revocation of which would be a fraud on the licensee,
and therefore the licensor is estopped to revoke it xxx It has also been held that the
license cannot be revoked without reimbursing the licensee for his expenditures or
otherwise placing him in status quo. [24]

For a regulatory permit to be impressed with contractual character we

held in Batchelder v. Central Bank that the administrative agency in
[25]

issuing the permit must have assumed such obligation on itself. The facts
certainly bear out the conclusion that PPA passed Resolution No. 7 and the
terms and conditions thereof with a view to decongesting port traffic in
government ports in Davao City and engaging TEFASCO to infuse its own
funds and skills to operate another port therein. As acceptance of these
considerations and execution thereof immediately followed, it is too late for
PPA to change the rules of engagement with TEFASCO as expressed in
the said Resolution and other relevant documents.
The terms and conditions binding TEFASCO are only those enumerated
or mentioned in the inter-agency committee report, PPA Resolution No. 7
and PPA letter dated May 7, 1976 and its enclosure. With due consideration
for the policy that laws of the land are written into every contract, the said
[26]

documents stand to be the only source of obligations between the

parties. That being the case, it was arbitrary, unreasonable and unfair for
PPA to add new burdens and uncertainties into their agreement of which
TEFASCO had no prior knowledge even in the context of regulation.
Lowell v. Archambault is persuasive on this issue. In that case, the
[27]

defendant was engaged in the business of an undertaker who wanted to

erect on his land a stable to be used in connection therewith. He then
applied to the board of health for a license to permit him to occupy and use
the building when completed for the stabling of eight (8) horses. His
application was granted and a license was issued to him permitting the
exercise of this privilege. Upon receiving it, he at once had plans prepared
and began the erection of a stable on a site from which he had, at a
pecuniary loss, removed another building. After the work had begun but
before its completion, the board of health acting on a petition of residents in
the immediate vicinity rescinded their former vote and canceled the
license. The court held -

xxxUpon application for permission to erect a stable, which, in the absence of a

restricting statute, would be a legitimate improvement in the enjoyment of his
property, the applicant is entitled to know the full measure of immunity that can be
granted to him before making the expenditure of money required to carry out his
purpose. A resort to the general laws relating to the subject, or to ordinances or
regulations made pursuant to them, should furnish him with the required
information. When this has been obtained, he has a right to infer that he can safely
act, with the assurance that, so long as he complies with the requirements under
which it is proposed to grant the privilege, he has a constitutional claim to
protection, until the legislature further restricts or entirely abolishes the right
bestowed. A license should not be subjected to the uncertainties that constantly
would arise if unauthorized limitations, of which he can have no knowledge, are
subsequently and without notice to be read into his license, at the pleasure of the
licensing board. Besides, all reasonable police regulations enacted for the
preservation of the public health or morality, where a penalty is provided for their
violation, while they may limit or prevent the use or enjoyment of property except
under certain restrictions, and are constitutional, create statutory misdemeanors,
which are not to be extended by implication. xxx. It was not within the power of the
board of health, even after a hearing, in the absence of an authority conferred upon
them by legislative sanction, to deprive him of the privilege they had unreservedly
granted.[28]

The record shows that PPA made express representations to TEFASCO

that it would authorize and support its port project under clear and
categorical terms and conditions of an envisioned contract. TEFASCO
complied with its obligation which ultimately resulted to the benefit of
PPA. And the PPA accepted the project as completed and authorized
TEFASCO to operate the same. Under these circumstances, PPA
is estopped from reneging on its commitments and covenants as exclusively
contained in the inter-agency committee report, PPA Resolution No. 7 and
PPA letter dated May 7, 1976 and its enclosure. As this Court explained
in Ramos v. Central Bank of the Philippines - [29]

xxx[A]n estoppel may arise from the making of a promise even though without
consideration, if it was intended that the promise should be relied upon and in fact it
was relied upon, and if a refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. In this respect, the reliance
by the promisee is generally evidenced by action or forbearance on his part, and the
idea has been expressed that such action or forbearance would reasonably have
been expected by the promisor. xxx

But even assuming arguendo that TEFASCO relied upon a mere

privilege granted by PPA, still the terms and conditions between them as
written in the documents approving TEFASCO's project proposal should
indubitably remain the same. Under traditional form of property ownership,
recipients of privileges or largesses from the government could be said to
have no property rights because they possessed no traditionally recognized
proprietary interest therein. The cases of Vinco v. Municipality of
Hinigaran and Pedro v. Provincial Board of Rizal holding that a license to
[30] [31]
operate cockpits would be a mere privilege belonged to this vintage. But the
right-privilege dichotomy came to an end when courts realized that
individuals should not be subjected to the unfettered whims of government
officials to withhold privileges previously given them. Indeed to perpetuate
[32]

such distinction would leave the citizens at the mercy of State functionaries,
and worse, threaten the liberties protected by the Bill of Rights. Thus
in Kisner v. Public Service Commission wherein the US Public Service
[33]

Commission reduced the number of vehicles which appellant Kisner was

authorized to operate under his certificate of convenience and necessity
when no limit was stipulated therein, it was ruled -

It appears from the record in this case that after the issuance of the initial certificate
the appellant took steps to procure vehicles in addition to the one he already
owned. He changed his position in reliance upon the original certificate authorizing
him to operate an unlimited number of vehicles. xxx For the purpose of due process
analysis, a property interest includes not only the traditional notions of real and
personal property, but also extends to those benefits to which an individual may be
deemed to have a legitimate claim of entitlement under existing rules and
regulations. xxx The right of the appellant in the case at bar to operate more than
one vehicle under the certificate of convenience and necessity, as originally issued,
clearly constituted a benefit to the appellant and that benefit may be deemed to be a
legitimate claim of entitlement under existing rules and regulations.

Even if PPA granted TEFASCO only a license to construct and operate

a specialized complex terminal with port facilities, the fact remains that PPA
cannot unilaterally impose conditions that find no basis in the inter-agency
committee report, PPA Resolution No. 7 and PPA letter dated May 7, 1976
and its enclosure.
Secondly, we hold that PPA's imposition of one hundred percent (100%)
wharfage fees and berthing charges is void. It is very clear from P.D.
No. 857 as amended that wharfage and berthing rates collectible by
PPA "upon the coming into operation of this Decree shall be those now
provided under Parts 1, 2, 3 and 6 of Title VII of Book II of The Tariff and
Customs Code, until such time that the President upon recommendation of
the Board may order that the adjusted schedule of dues are in effect." PPA [34]

cannot unilaterally peg such rates but must rely on either The Tariff and
Customs Code or the quasi-legislative issuances of the President in view of
the legislative prerogative of rate-fixing. [35]

Accordingly, P.D. No. 441 (1974) amending The Tariff and Customs
Code fixed wharfage dues at fixed amounts per specified quantity brought
into or involving national ports or at fifty percent (50%) of the rates
provided for herein in case the articles imported or exported from or
transported within the Philippines are loaded or unloaded offshore, in
midstream, or in private wharves where no loading or unloading facilities are
owned and maintained by the government. Inasmuch as the TEFASCO port
is privately owned and maintained, we rule that the applicable rate for
imported or exported articles loaded or unloaded thereat is not one hundred
percent (100%) but only fifty percent (50%) of the rates specified in P.D. No.
441.
As regard berthing charges, this Court has ruled in Commissioner of
Customs v. Court of Tax Appeals that "subject vessels, not having berthed
[36]

at a national port but at the Port of Kiwalan, which was constructed,

operated, and continues to be maintained by private respondent xxx are not
subject to berthing charges, and petitioner should refund the berthing fees
paid by private respondent." The berthing facilities at Port of Kiwalan were
constructed, improved, operated and maintained solely by and at the
expense of a private corporation, the Iligan Express. On various dates,
vessels using the berthing facilities therein were assessed berthing fees by
the Collector of Customs which were paid by private respondent under
protest. We nullified the collection and ordered their refund -

The only issue involved in this petition for review is: Whether a vessel engaged in
foreign trade, which berths at a privately owned wharf or pier, is liable to the
payment of the berthing charge under Section 2901 of the Tariff and Customs
Code, which, as amended by Presidential Decree No. 34, reads:

Sec. 2901. Definition. - Berthing charge is the amount assessed against a vessel for
mooring or berthing at a pier, wharf, bulk-head-wharf, river or channel marginal
wharf at any national port in the Philippines; or for mooring or making fast to a
vessel so berthed; or for coming or mooring within any slip, channel, basin, river or
canal under the jurisdiction of any national port of the Philippines: Provided,
however, That in the last instance, the charge shall be fifty (50%) per cent of rates
provided for in cases of piers without cargo shed in the succeeding sections. The
owner, agent, operator or master of the vessel is liable for this charge.

Petitioner Commissioner of Customs contends that the government has the

authority to impose and collect berthing fees whether a vessel berths at a private
pier or at a national port. On the other hand, private respondent argues that the right
of the government to impose berthing fees is limited to national ports only.

The governing law classifying ports into national ports and municipal ports is
Executive Order No. 72, Series of 1936 (O.G. Vol. 35, No. 6, pp. 65-
66). Aperusal of said executive order discloses the absence of
the port of Kiwalan in the list of national ports mentioned therein.

Furthermore, Paragraph 1 of Executive Order No. 72 expressly provides that the

improvement and maintenance of national ports shall be financed by the
Commonwealth Government, and their administration and operation shall be under
the direct supervision and control of the Insular Collector of Customs. It is
undisputed that the port of Kiwalan was constructed and improved and is operated
and maintained solely by and at the expense of the Iligan Express Corporation, and
not by the National Government of the Republic or any of its agencies or
instrumentalities. xxx The port of Kiwalan not being included in the list of national
ports appended to Customs Memorandum Circular No. 33-73 nor in Executive
Order No. 72, it follows inevitably as a matter of law and legal principle that this
Court may not properly consider said port as a national port. To do otherwise would
be to legislate on our part and to arrogate unto ourselves powers not conferred on us
by the Constitution. xxx

Plainly, therefore, the port of Kiwalan is not a national port. xxx

Section 2901 of the Tariff and Customs Code prior to its amendment and said
section as amended by Presidential Decree No. 34 are hereunder reproduced with
the amendments duly highlighted:

Sec. 2901. Definition. - Berthing charge is the amount assessed against a vessel for
mooring or berthing at a pier, wharf, bulkhead-wharf, river or channel marginal
wharf at any port in the Philippines; or for mooring or making fast to a vessel so
berthed; or for coming or mooring within any slip, channel, basin, river or canal
under the jurisdiction of any port of the Philippines (old TCC).

Sec. 2901. Definition. - Berthing charge is the amount assessed a vessel for
mooring or berthing at a pier, wharf, bulkhead-wharf, river or channel marginal
wharf AT ANY NATIONAL PORT IN THE PHILIPPINES; for mooring or
making fast to a vessel so berthed; or for coming or mooring within any slip,
channel, basin, river or canal under the jurisdiction of ANY NATIONAL port of the
Philippines; Provided, HOWEVER, THAT IN THE LAST INSTANCE, THE
CHARGE SHALL BE FIFTY (50%) PER CENT OF RATES PROVIDED FOR IN
CASES OF PIERS WITHOUT CARGO SHED IN THE SUCCEEDING
SECTIONS. (emphasis in the original).

It will thus be seen that the word national before the word port is inserted in the
amendment. The change in phraseology by amendment of a provision of law
indicates a legislative intent to change the meaning of the provision from that it
originally had (Agpalo, supra, p. 76). The insertion of the word national before the
word port is a clear indication of the legislative intent to change the meaning of
Section 2901 from what it originally meant, and not a mere surplusage as contended
by petitioner, in the sense that the change merely affirms what customs authorities
had been observing long before the law was amended (p. 18, Petition). It is the duty
of this Court to give meaning to the amendment. It is, therefore, our considered
opinion that under Section 2901 of The Tariff and Customs Code, as amended by
Presidential Decree No. 34, only vessels berthing at national ports are liable for
berthing fees. It is to be stressed that there are differences between national ports
and municipal ports, namely: (1) the maintenance of municipal ports is borne by the
municipality, whereas that of the national ports is shouldered by the national
government; (2) municipal ports are created by executive order, while national
ports are usually created by legislation; (3) berthing fees are not collected by the
government from vessels berthing at municipal ports, while such berthing fees are
collected by the government from vessels moored at national ports. The berthing
fees imposed upon vessels berthing at national ports are applied by the national
government for the maintenance and repair of said ports. The national government
does not maintain municipal ports which are solely maintained by the
municipalities or private entities which constructed them, as in the case at bar.
Thus, no berthing charges may be collected from vessels moored at municipal ports
nor may berthing charges be imposed by a municipal council xxx. [37]

PPA has not cited - nor have we found - any law creating
the TEFASCO Port as a national port or converting it into one. Hence,
following case law, we rule that PPA erred in collecting berthing fees from
vessels that berthed at the privately funded port of petitioner TEFASCO.
It also bears stressing that one hundred percent (100%)
wharfage dues and berthing charges are void for failing to comply with Sec.
19, P.D. No. 857 as amended, requiring presidential approval of any
[38]

increase or decrease of such dues.

In Philippine Interisland Shipping Association of the Philippines v.
CA we ruled that PPA cannot override the statutory rates for dues by
[39]

lowering rates of pilotage fees and leaving the fees to be paid for pilotage to
agreement of parties, and further stated that -

There is, therefore, no legal basis for PPA's intransigence, after failing to get the
new administration of President Aquino to revoke the order by issuing its own order
in the form of A.O. NO. 02-88. It is noteworthy that if President Marcos had
legislative power under Amendment No. 6 of the 1973 Constitution so did President
Aquino under the Provisional (Freedom) Constitution who could, had she thought
E.O. No. 1088 to be a mere political gimmick, have just as easily revoked her
predecessor's order. It is tempting to ask if the administrative agency would have
shown the same act of defiance of the President's order had there been no change of
administration. What this Court said in La Perla Cigar and Cigarette Factory v.
Capapas, mutatis mutandis, - may be applied to the cases at bar:

Was it within the powers of the then Collector Ang-angco to refuse to collect the
duties that must be paid? That is the crucial point of inquiry. We hold that it was
not.

Precisely, he had to give the above legal provisions, quite explicit in character,
force and effect. His obligation was to collect the revenue for the government in
accordance with existing legal provisions, executive agreements and executive
orders certainly not excluded. He would not be living up to his official designation
if he were permitted to act otherwise. He was not named Collector of Customs for
nothing

Certainly, if the President himself were called upon to execute the laws faithfully, a
Collector of Customs, himself a subordinate executive official, cannot be
considered as exempt in any wise from such an obligation of fealty. Similarly, if the
President cannot suspend the operation of any law, it would be presumptuous in the
extreme for one in the position of then Collector Ang-angco to consider himself as
possessed of such a prerogative [40]

Thirdly, PPA argues that the courts a quo wrongly awarded to

TEFASCO fifty percent (50%) and thirty percent (30%) of the wharfage dues
and berthing charges, respectively, as actual damages representing private
port usage fees from 1977 to 1991. It claims that TEFASCO has no cause
of action to ask for a portion of these fees since they were collected
from "the owner, agent, operator or master of the vessel" for the berthing
charge and "the owner or consignee of the article, or the agent of either" for
the wharfage dues.
We find no merit in this argument. The cause of action of TEFASCO is
the injury it suffered as a result of the illegal imposition on its clientele of
such dues and charges that should have otherwise gone to it as private port
usage fee. TEFASCO is asserting injury to its right to collect valuable
consideration for the use of its facilities and wrongdoing on the part of PPA
prejudicing such right. This is especially true in the light of PPAs practice of
collecting one hundred percent (100%) of the wharfage and berthing dues
by cornering the cargoes and vessels, as it were, even before they were
landed and berthed at TEFASCOs privately owned port. It is aggravated by
the fact that these unlawful rates were collected by PPA long after the port
facilities of TEFASCO had been completed and functioning. Considering
these pleaded facts, TEFASCOs cause of action has been sufficiently
alleged and proven. We quote with approval the following ruling of the Court
of Appeals -

xxx As earlier stated, TEFASCO is only trying to recover income it has to forego
because of the excessive collections imposed by PPA. By doing what it was
prohibited to do under an existing law, PPA cannot be allowed to enjoy the fruits of
its own illegal act. To be sure, TEFASCO suffered real damage as a result of such
illegal act requiring indemnification xxx.
[41]

There is also no basis for PPAs assertion that there was lack of
evidence to support the award in favor of TEFASCO of Fifteen Million Eight
Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos
(P15,810,032.07) representing fifty percent (50%) wharfage dues and Three
Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos
and Six Centavos (P3,961,964.06) for thirty percent (30%) berthing charges
from 1977 to 1991. According to the appellate court, the determination was
based on the "actual summarized list of cargoes and vessels which went
through TEFASCOs port, which were under obligation to pay usage fees,
multiplied by the applicable tariff rates." The trial court explained in more
[42]

detail the preponderant evidence for the judgment -

Another harassment is the issuance of Memorandum Circular No. 36-82,

authorizing collection of 100% wharfage fees, instead of only 50% and also 100%
berthing fees, instead of only 70% as provided for in PD 441, marked Exh. LL for
plaintiff, and a copy of Letter of Instruction No. 8001-A, marked Exh. NN for
plaintiff, in the process, the total collection of PPA for wharfage fees, amounted
to P10,582,850.00 and berthing fee, amounted to P6,997,167.00 in the latter case,
berthing fee collected was marked Exh. PP for plaintiff, otherwise if PPA collected
only 70% as provided, it could have collected only P4,898,018.03, equally
TEFASCO could have earned the remainder of P2,099,150.90 while in the case of
wharfage fee, if PPA collected only 50%, TEFASCO would have earned the other
half of P5,291,042.00, 50% by way of rentals. xxx

In cases of berthing and wharfage fees prior to the issuance of the injunction order
from this court, PPA charges 100% the totality or summary of claims from PPA,
from 1977 to 1991, was shown and marked Exhibit KKK and submarkings,
showing TEFASCO is supposed to collect, if PPA collects only 50% wharfage, the
other 50% goes with TEFASCO in case of berthing 70%, the remainder of 30%
could have been collected by TEFASCO. [43]
 Under Arts. 2199 and 2200 of the Civil Code, actual or compensatory
damages are those awarded in satisfaction of or in recompense for loss or
injury sustained. They proceed from a sense of natural justice and are
[44]

designed to repair the wrong done. In Producers Bank of the Philippines v.

CA we succinctly explain the kinds of actual damages, thus-
[45]

There are two kinds of actual or compensatory damages: one is the loss of what a
person already possesses, and the other is the failure to receive as a benefit that
which would have pertained to him x x x. In the latter instance, the familiar rule is
that damages consisting of unrealized profits, frequently referred as ganacias
frustradas or lucrum cessans, are not to be granted on the basis of mere speculation,
conjecture, or surmise, but rather by reference to some reasonably definite standard
such as market value, established experience, or direct inference from known
circumstances xxx.

It is not necessary to prove with absolute certainty the amount

of ganacias frustradas or lucrum cessans. In Producers Bank of the
Philippines we ruled that -

xxx the benefit to be derived from a contract which one of the parties has absolutely
failed to perform is of necessity to some extent, a matter of speculation, but the
injured party is not to be denied for this reason alone. He must produce the best
evidence of which his case is susceptible and if that evidence warrants the inference
that he has been damaged by the loss of profits which he might with reasonable
certainty have anticipated but for the defendants wrongful act, he is entitled to
recover. [46]

Applying the test aforequoted, we find that TEFASCO has proved with
clear and convincing evidence its loss of wharfage and berthing fees. There
was basis for the courts a quo in awarding to TEFASCO, as actual
damages, the sums equivalent to fifty percent (50%) and thirty percent
(30%) of the wharfage dues and berthing charges, respectively. It has not
been denied that TEFASCO was forced to reluctantly let go of such fees to
avoid the unwise business practice of financially overburdening the users of
its port by requiring them to pay beyond one hundred percent (100%) of
such dues. It has not also been disproved that this loss of TEFASCO was
the direct result of the collection of one hundred percent (100%) wharfage
and berthing dues by PPA, an imposition that left nothing more for
TEFASCO to charge for the use of its port and terminal
facilities. Consequently, there is merit in TEFASCO's claim that had the
PPA imposition been limited to the fifty percent (50%) wharfage dues and
seventy percent (70%) berthing charges, TEFASCO could have received
the remainder as port usage fees since the amounts were disbursed by its
clients for that purpose. Significantly, in regard to berthing charges,
TEFASCO's cause of action and evidence presented before the trial court
as well as its assigned error on appeal on that point were limited to thirty
percent (30%) of such charges.
Fourthly, we also declare void the imposition by PPA of ten percent
(10%), later reduced to six percent (6%), government share out of arrastre
and stevedoring gross income of TEFASCO. This exaction was never
mentioned in the contract, much less is it a binding prestation, between
TEFASCO and PPA. What was clearly stated in the terms and conditions
appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure
from the proper authorities "all fees and/or permits pertinent to the
construction and operation of the proposed project." The government share
demanded and collected from the gross income of TEFASCO from its
arrastre and stevedoring activities in TEFASCO's wholly owned port is
certainly not a fee or in any event a proper condition in a regulatory
permit. Rather it is an onerous "contractual stipulation" which finds no root
[47]

or basis or reference even in the contract aforementioned.

We stress that the cause of the contract between TEFASCO and PPA
was, on the part of the former, to engage in the business of operating its
privately owned port facilities, and for the latter, to decongest port traffic
in Davao City and concomitantly to enhance regional trade. The records of
the project acceptance made by PPA indicate that the contract was
executed not to earn income for PPA or the government as justification for
the subsequent and unfair imposition of government share in the arrastre
and stevedoring gross income of TEFASCO. Hence this charge was
obviously an after-thought conceived by PPA only after the TEFASCO port
had already begun its operations. The sharing scheme only meant that PPA
would piggy back unreasonably on the substantial investment and labor of
TEFASCO.As the scheme was subsequently stipulated on percentage of
gross income, it actually penalized TEFASCO for its hand work and
substantial capital expenditures in the TEFASCO port and terminal.
Moreover, PPA is bereft of any authority to impose whatever amount it
pleases as government share in the gross income of TEFASCO from its
arrastre and stevedoring operations. As an elementary principle of law,
license taxation must not be "so unreasonable to show a purpose to prohibit
a business which is not itself injurious to public health or morals." In the
[48]

case at bar, the absurd and confiscatory character of government share is

convincingly proved by PPA's decision itself to abandon the
disadvantageous scheme through Administrative Order No. 06-95 dated 4
December 1995, Liberalized Regulation on Private Ports Construction,
Development, and Operation. The PPA issuance scrapped government
[49]

share in the income of private ports where no government facilities had

been installed and in place thereof imposed a one-time privilege fee
of P20,000.00 per annum for commercial ports and P10,000.00 yearly for
non-commercial ports. In passing, we believe that this impost is more in
consonance with the description of government share as consideration for
the "supervision inherent in the upgrading and improvement of port
operations, of which said services are an integral part."
[50]

We do not also agree that TEFASCO subsequently acceded to paying

the government share in its gross income from its arrastre and stevedoring
operations, and in recognizing arrears for such charge. The Memorandum
of Agreement (MOA) which it subsequently signed with PPA did not give
TEFASCO any benefit so that we cannot conclude that there was indeed a
voluntary settlement between them. Rather it could be described aptly as an
imposition under actual threats of closure of TEFASCO's port. Verily the
MOA was meant to cloak semblance of validity upon that particular charge
since there was nothing in the original TEFASCO-PPA contract
authorizing the PPA to collect any share in the gross income of TEFASCO
in its arrastre and stevedoring operations.
The MOA is invalid for want of consideration and consent. As such, it is
[51]

an invalid novation of the original agreement between TEFASCO and PPA

[52]

as embodied in the inter-agency committee report, PPA Resolution No. 7

and PPA letter dated May 7, 1976 and its enclosure. Truly, the MOA was a
set of stipulations executed under undue pressure on TEFASCO of
permanent closure of its port and terminal. As the TEFASCO investment
was worth millions of dollars in loans and equities, PPA's posture of
prohibiting it from engaging in the bulk of its business presented it with no
reasonable freedom of choice but to accept and sign the
MOA. Furthermore, the MOA suffers from utter want of consideration since
nothing more could have been stipulated in the agreement when every
detail of port operation had already been previously spelled out and
sanctioned in the original contract. The belated MOA citations of PPAs
recognition of TEFASCO's facility as a private port and provision of arrastre
and stevedoring and repair services were all part of the agreement from
1976 when the project proposal was approved by the PPA Board. Under
these circumstances, it cannot be said that TEFASCO embraced voluntarily
the unfair imposition in the MOA that inevitably would cause, as it did, its
own bankruptcy.
 In sum, TEFASCO is entitled to Five Million Ninety-Five Thousand Thirty
Pesos and Seventeen Centavos (P5,095,030.17) for reimbursement of what
PPA illegally collected as "government share" in the gross income of
TEFASCO's arrastre and stevedoring operations for 1977 to 1991.
Fifthly, we affirm the award of Five Hundred Thousand Pesos
(P500,000.00) as attorneys fees. Attorneys fees may be awarded when a
party is compelled to litigate or incur expenses to protect his interest by
reason of an unjustified act of the other party. In the instant case,
[53]

attorneys fees were warranted by PPA's unfair exaction of exorbitant

wharfage and berthing dues from TEFASCO and threats to close its
port. These adverse actions correctly drove the latter to institute the present
proceedings to protect its rights and remedy the unfair situation.
However, we set aside the award of Two Hundred Forty-Eight Thousand
Seven Hundred Twenty-Seven Pesos (P248,727.00) for dredging and
blasting expenses. The trial court justified the award on the ground that this
activity was allegedly the responsibility of PPA under Sec. 37 of P.D. No.
857 as amended which TEFASCO in good faith undertook. This is not
[54]

correct. More precisely, the law obliged PPA to fund construction and
dredging works only in "public ports vested in the Authority." Clearly the
construction of the TEFASCO port was not the responsibility of the PPA and
does not fall under Sec. 37 of P.D. No. 857. The dredging and blasting done
by TEFASCO augmented the viability of its port, and therefore the same
were part and parcel of the contractual obligations it agreed to
undertake when it accepted the terms and conditions of the project.
It is also erroneous to set legal interest on the damages awarded herein
at twelve percent (12%) yearly computed from the filing of the
complaint. In Crismina Garments, Inc. v. CA , it was held that interest on
[55]

damages, other than loan or forbearance of money, is six percent (6%)

annually computed from determination with reasonable certainty of the
amount demanded. Thus, applying that rule in the case at bar, the interest
would be six percent (6%) per annum from the date of promulgation of the
decision of the trial court in Civil Cases Nos. 19216-88 on July 15, 1992.
To recapitulate: PPA is liable to TEFASCO for Fifteen Million Eight
Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos
(P15,810,032.07) representing fifty percent (50%) wharfage fees and Three
Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos
and Six Centavos (P3,961,964.06) for thirty percent (30%) berthing charges
from 1977 to 1991 and Five Million Ninety-Five Thousand Thirty Pesos and
Seventeen Centavos (P5,095,030.17) for reimbursement of the unlawfully
collected government share in TEFASCOs gross income from its arrastre
and stevedoring operations during the same period. The said principal
amounts herein ordered shall earn interest at six percent (6%) annually
from July 15, 1992, date of promulgation of the Decision of the Regional
Trial Court of Davao in Civil Cases Nos. 19216-88. The PPA shall also pay
TEFASCO the amount of Five Hundred Thousand Pesos (P500,000.00) for
and as attorneys fees.
Henceforth, PPA shall collect only such dues and charges as are duly
authorized by the applicable provisions of The Tariff and Customs Code and
presidential issuances pursuant to Sec. 19, P.D. No. 857. PPA shall strictly
observe only the legally imposable rates. Furthermore, PPA has no
authority to charge government share in the gross income of TEFASCO
from its arrastre and stevedoring operations within its subject private port
in Davao City.
TEFASCO's port operations including cargo handling services shall be
co-terminous with its foreshore lease contract with the National Government
and any extension of the said foreshore lease contract shall similarly
lengthen the duration of its port operations. It is clear from the inter-agency
committee report, PPA Resolution No. 7 and PPA letter dated May 7, 1976
and its enclosure that the intention of the parties under their contract is to
integrate port operations of TEFASCO so that all services therein, including
arrastre and stevedoring operations, shall end at the same time. The
subsequent and onerous MOA did not change the tenure of its port
operations, there being no clear and convincing showing of TEFASCO's
free and voluntary amenability thereto. In no case, however, shall such port
operations of TEFASCO exceed fifty (50) years which is the maximum
period of foreshore lease contracts with the National Government.
WHEREFORE, the Amended Decision of the Court of Appeals
dated September 30, 1998 in case CA-G.R. CV No. 47318 is MODIFIED as
follows:

1. The Philippine Ports Authority (PPA) is held liable and hereby ordered to pay
and reimburse to Terminal Facilities and Services Corporation (TEFASCO) the
amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and
Seven Centavos (P15,810,032.07) and Three Million Nine Hundred Sixty-One
Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06)
representing fifty percent (50%) wharfage fees and thirty percent (30%) berthing
charges respectively, from 1977 to 1991, and the sum of Five Million Ninety-Five
Thousand Thirty Pesos and Seventeen Centavos (P5,095,030.17) representing PPAs
unlawfully collected government share in the gross income of TEFASCO's arrastre
and stevedoring operations during the said period;

2. The said principal amounts herein ordered to be paid by PPA to TEFASCO shall
earn interest at six percent (6%) per annum from July 15, 1992, date of
promulgation of the Decision of the Regional Trial Court, Branch 17 of Davao City
in Civil Case No. 19216-88; and

3. The PPA is also ordered to pay TEFASCO the sum of Five Hundred Thousand
Pesos (P500,000.00) for and as attorneys fees.

Costs against the Philippine Ports Authority.

SO ORDERED.
G.R. No. L-10448 August 30, 1957

IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING

THE VALIDITY OF MUNICIPAL ORDINANCE NO. 3659 OF THE CITY OF MANILA.
PHYSICAL THERAPY ORGANIZATION OF THE PHILIPPINES, INC., petitioner-
appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H. LACSON,
as Mayor of the City of Manila, respondents-appellees.

Mariano M. de Joya for appellant.

City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Nañawa for appellees.

MONTEMAYOR, J.:

The petitioner-appellant, an association of registered massagists and licensed

operators of massage clinics in the City of Manila and other parts of the country, filed
an action in the Court of First Instance of Manila for declaratory judgment regarding
the validity of Municipal Ordinance No. 3659, promulgated by the Municipal Board
and approved by the City Mayor. To stop the City from enforcing said ordinance, the
petitioner secured an injunction upon filing of a bond in the sum of P1,000.00. A
hearing was held, but the parties without introducing any evidence submitted the case
for decision on the pleadings, although they submitted written memoranda.
Thereafter, the trial court dismissed the petition and later dissolved the writ of
injunction previously issued.

The petitioner appealed said order of dismissal directly to this Court. In support of its
appeal, petitioner-appellant contends among other things that the trial court erred in
holding that the Ordinance in question has not restricted the practice of massotherapy
in massage clinics to hygienic and aesthetic massage, that the Ordinance is valid as
it does not regulate the practice of massage, that the Municipal Board of Manila has
the power to enact the Ordinance in question by virtue of Section 18, Subsection (kk),
Republic Act 409, and that permit fee of P100.00 is moderate and not unreasonable.
Inasmuch as the appellant assails and discuss certain provisions regarding the
ordinance in question, and it is necessary to pass upon the same, for purposes of
ready reference, we are reproducing said ordinance in toto.

ORDINANCE No. 3659

AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS

IN THE CITY OF MANILA AND PROVIDING PENALTIES FOR VIOLATIONS
THEREOF.

Be it ordained by the Municipal Board of the City of Manila, that:

Section 1. Definition. — For the purpose of this Ordinance the following words
and phrases shall be taken in the sense hereinbelow indicated:

(a) Massage clinic shall include any place or establishment used in the
practice of hygienic and aesthetic massage;

(b) Hygienic and aesthetic massage shall include any system of manipulation
of treatment of the superficial parts of the human body of hygienic and
aesthetic purposes by rubbing, stroking, kneading, or tapping with the hand or
an instrument;

(c) Massagist shall include any person who shall have passed the required
examination and shall have been issued a massagist certificate by the
Committee of Examiners of Massagist, or by the Director of Health or his
authorized representative;

(d) Attendant or helper shall include any person employed by a duly qualified
massagist in any message clinic to assist the latter in the practice of hygienic
and aesthethic massage;

(e) Operator shall include the owner, manager, administrator, or any person
who operates or is responsible for the operation of a message clinic.

SEC. 2. Permit Fees. — No person shall engage in the operation of a

massage clinic or in the occupation of attendant or helper therein without first
having obtained a permit therefor from the Mayor. For every permit granted
under the provisions of this Ordinance, there shall be paid to the City
Treasurer the following annual fees:

(a) Operator of a massage P100.00

(b) Attendant or helper 5.00

Said permit, which shall be renewed every year, may be revoked by the Mayor
at any time for the violation of this Ordinance.

SEC. 3. Building requirement. — (a) In each massage clinic, there shall be

separate rooms for the male and female customers. Rooms where massage
operations are performed shall be provided with sliding curtains only instead of
swinging doors. The clinic shall be properly ventilated, well lighted and
maintained under sanitary conditions at all times while the establishment is
open for business and shall be provided with the necessary toilet and washing
facilities.

(b) In every clinic there shall be no private rooms or separated compartment

except those assigned for toilet, lavatories, dressing room, office or kitchen.
(c) Every massage clinic shall "provided with only one entrance and it shall
have no direct or indirect communication whatsoever with any dwelling place,
house or building.

SEC. 4. Regulations for the operation of massage clinics. — (a) It shall be

unlawful for any operator massagist, attendant or helper to use, or allow the
use of, a massage clinic as a place of assignation or permit the commission
therein of any incident or immoral act. Massage clinics shall be used only for
hygienic and aesthetic massage.

(b) Massage clinics shall open at eight o'clock a.m. and shall close at eleven
o'clock p.m.

(c) While engaged in the actual performance of their duties, massagists,

attendants and helpers in a massage clinic shall be as properly and sufficiently
clad as to avoid suspicion of intent to commit an indecent or immoral act;

(d) Attendants or helpers may render service to any individual customer only
for hygienic and aesthetic purposes under the order, direction, supervision,
control and responsibility of a qualified massagist.

SEC. 5. Qualifications — No person who has previously been convicted by

final judgment of competent court of any violation of the provisions of
paragraphs 3 and 5 of Art. 202 and Arts. 335, 336, 340 and 342 of the Revised
Penal Code, or Secs. 819 of the City of Manila, or who is suffering from any
venereal or communicable disease shall engage in the occupation of
massagist, attendant or helper in any massage clinic. Applicants for Mayor's
permit shall attach to their application a police clearance and health certificate
duly issued by the City Health Officers as well as a massagist certificate duly
issued by the Committee or Examiners for Massagists or by the Director of
Health or his authorized representatives, in case of massagists.

SEC. 6. Duty of operator of massage clinic. — No operator of massage clinic

shall allow such clinic to operate without a duly qualified massagist nor allow,
any man or woman to act as massagist, attendant or helper therein without the
Mayor's permit provided for in the preceding sections. He shall submit
whenever required by the Mayor or his authorized representative the persons
acting as massagists, attendants or helpers in his clinic. He shall place the
massage clinic open to inspection at all times by the police, health officers, and
other law enforcement agencies of the government, shall be held liable for
anything which may happen with the premises of the massage clinic.

SEC. 7. Penalty. — Any person violating any of the provisions of this

Ordinance shall upon conviction, be punished by a fine of not less than fifty
pesos nor more than two hundred pesos or by imprisonment for not less than
 six days nor more than six months, or both such fine and imprisonment, at the
discretion of the court.

SEC. 8. Repealing Clause. — All ordinances or parts of ordinances, which are

inconsistent herewith, are hereby repealed.

SEC. 9. Effectivity. — This Ordinance shall take effect upon its approval.

Enacted, August 27, 1954.

Approved, September 7, 1954.

The main contention of the appellant in its appeal and the principal ground of its
petition for declaratory judgment is that the City of Manila is without authority to
regulate the operation of massagists and the operation of massage clinics within its
jurisdiction; that whereas under the Old City Charter, particularly, Section 2444 (e) of
the Revised Administrative Code, the Municipal Board was expressly granted the
power to regulate and fix the license fee for the occupation of massagists, under the
New Charter of Manila, Republic Act 409, said power has been withdrawn or omitted
and that now the Director of Health, pursuant to authority conferred by Section 938 of
the Revised Administrative Code and Executive Order No. 317, series of 1941, as
amended by Executive Order No. 392, series, 1951, is the one who exercises
supervision over the practice of massage and over massage clinics in the Philippines;
that the Director of Health has issued Administrative Order No. 10, dated May 5,
1953, prescribing "rules and regulations governing the examination for admission to
the practice of massage, and the operation of massage clinics, offices, or
establishments in the Philippines", which order was approved by the Secretary of
Health and duly published in the Official Gazette; that Section 1 (a) of Ordinance No.
3659 has restricted the practice of massage to only hygienic and aesthetic massage
prohibits or does not allow qualified massagists to practice therapeutic massage in
their massage clinics. Appellant also contends that the license fee of P100.00 for
operator in Section 2 of the Ordinance is unreasonable, nay, unconscionable.

If we can ascertain the intention of the Manila Municipal Board in promulgating the
Ordinance in question, much of the objection of appellant to its legality may be
solved. It would appear to us that the purpose of the Ordinance is not to regulate the
practice of massage, much less to restrict the practice of licensed and qualified
massagists of therapeutic massage in the Philippines. The end sought to be attained
in the Ordinance is to prevent the commission of immorality and the practice of
prostitution in an establishment masquerading as a massage clinic where the
operators thereof offer to massage or manipulate superficial parts of the bodies of
customers for hygienic and aesthetic purposes. This intention can readily be
understood by the building requirements in Section 3 of the Ordinance, requiring that
there be separate rooms for male and female customers; that instead of said rooms
being separated by permanent partitions and swinging doors, there should only be
sliding curtains between them; that there should be "no private rooms or separated
compartments, except those assigned for toilet, lavatories, dressing room, office or
kitchen"; that every massage clinic should be provided with only one entrance and
shall have no direct or indirect communication whatsoever with any dwelling place,
house or building; and that no operator, massagists, attendant or helper will be
allowed "to use or allow the use of a massage clinic as a place of assignation or
permit the commission therein of any immoral or incident act", and in fixing the
operating hours of such clinic between 8:00 a.m. and 11:00 p.m. This intention of the
Ordinance was correctly ascertained by Judge Hermogenes Concepcion, presiding in
the trial court, in his order of dismissal where he said: "What the Ordinance tries to
avoid is that the massage clinic run by an operator who may not be a masseur
or massagista may be used as cover for the running or maintaining a house of
prostitution."

Ordinance No. 3659, particularly, Sections 1 to 4, should be considered as limited to

massage clinics used in the practice of hygienic and aesthetic massage. We do not
believe that Municipal Board of the City of Manila and the Mayor wanted or intended
to regulate the practice of massage in general or restrict the same to hygienic and
aesthetic only.

As to the authority of the City Board to enact the Ordinance in question, the City
Fiscal, in representation of the appellees, calls our attention to Section 18 of the New
Charter of the City of Manila, Act No. 409, which gives legislative powers to the
Municipal Board to enact all ordinances it may deem necessary and proper for the
promotion of the morality, peace, good order, comfort, convenience and general
welfare of the City and its inhabitants. This is generally referred to as the General
Welfare Clause, a delegation in statutory form of the police power, under which
municipal corporations, are authorized to enact ordinances to provide for the health
and safety, and promote the morality, peace and general welfare of its inhabitants.
We agree with the City Fiscal.

As regards the permit fee of P100.00, it will be seen that said fee is made payable not
by the masseur or massagist, but by the operator of a massage clinic who may not be
a massagist himself. Compared to permit fees required in other operations, P100.00
may appear to be too large and rather unreasonable. However, much discretion is
given to municipal corporations in determining the amount of said fee without
considering it as a tax for revenue purposes:

The amount of the fee or charge is properly considered in determining whether

it is a tax or an exercise of the police power. The amount may be so large as to
itself show that the purpose was to raise revenue and not to regulate, but in
regard to this matter there is a marked distinction between license fees
imposed upon useful and beneficial occupations which the sovereign wishes to
regulate but not restrict, and those which are inimical and dangerous to public
health, morals or safety. In the latter case the fee may be very large without
necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17; underlining
supplied.)
Evidently, the Manila Municipal Board considered the practice of hygienic and
aesthetic massage not as a useful and beneficial occupation which will promote and
is conducive to public morals, and consequently, imposed the said permit fee for its
regulation.

In conclusion, we find and hold that the Ordinance in question as we interpret it and
as intended by the appellees is valid. We deem it unnecessary to discuss and pass
upon the other points raised in the appeal. The order appealed from is hereby
affirmed. No costs.
G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for
a re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in
a case where the then Court of First Instance of Rizal dismissed the portion-about complaint for
refund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the
grantee shall pay to the National Government during the life of this franchise a tax
of two per cent of the gross revenue or gross earning derived by the grantee from
its operations under this franchise. Such tax shall be due and payable quarterly
and shall be in lieu of all taxes of any kind, nature or description, levied,
established or collected by any municipal, provincial or national automobiles,
Provided, that if, after the audit of the accounts of the grantee by the
Commissioner of Internal Revenue, a deficiency tax is shown to be due, the
deficiency tax shall be payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real property in conformity with
existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation

requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not
come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint
against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case
No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his
capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no
cause of action. In support of the motion to dismiss, defendants repatriation the ruling in Republic
v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes,
but regulatory fees imposed as an incident of the exercise of the police power of the state. They
contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on
its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as
motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court
until after trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved
by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit
Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which
certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by
PAL and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the
case at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by

Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its
heading speaks of "registration fees." The term is repeated four times in the body
thereof. Equally so, mention is made of the "fee for registration." (Ibid., Subsection
G) A subsection starts with a categorical statement "No fees shall be charged."
(lbid.,Subsection H) The conclusion is difficult to resist therefore that the Motor
Vehicle Act requires the payment not of a tax but of a registration fee under the
police power. Hence the incipient, of the section relied upon by defendant-
appellee under the Back Pay Law, It is not held liable for a tax but for a
registration fee. It therefore cannot make use of a backpay certificate to meet such
an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the
 imposition of additional tax on privately-owned passenger automobiles,
motorcycles and scooters was amended by Republic Act No. 5470 which is (sic)
approved on May 30, 1969.) A special science fund was thereby created and its
title expressly sets forth that a tax on privately-owned passenger automobiles,
motorcycles and scooters was imposed. The rates thereof were provided for in its
Section 3 which clearly specifies the" Philippine tax."(Cooley to be paid as
distinguished from the registration fee under the Motor Vehicle Act. There cannot
be any clearer expression therefore of the legislative will, even on the assumption
that the earlier legislation could by subdivision the point be susceptible of the
interpretation that a tax rather than a fee was levied. What is thus most apparent
is that where the legislative body relies on its authority to tax it expressly so states,
and where it is enacting a regulatory measure, it is equally exploded (at p.
22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other
hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the
name but the object of the charge determines whether it is a tax or a fee. Geveia
speaking, taxes are for revenue, whereas fees are exceptional. for purposes of
regulation and inspection and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection. Hence, a
charge fixed by statute for the service to be person,-When by an officer, where the
charge has no relation to the value of the services performed and where the
amount collected eventually finds its way into the treasury of the branch of the
government whose officer or officers collected the chauffeur, is not a fee but a
tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portion—about 5 per centum—of the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides
that all such money shall accrue to the funds for the construction and maintenance
of public roads, streets and bridges. It is thus obvious that the fees are not
collected for regulatory purposes, that is to say, as an incident to the enforcement
of regulations governing the operation of motor vehicles on public highways, for
their express object is to provide revenue with which the Government is to
discharge one of its principal functions—the construction and maintenance of
public highways for everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees
as taxes, for it provides that "no other taxes or fees than those prescribed in this
Act shall be imposed," thus implying that the charges therein imposed—though
called fees—are of the category of taxes. The provision is contained in section 70,
of subsection (b), of the law, as amended by section 17 of Republic Act 587,
which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the
 profession of chauffeur, by any municipal corporation, the
provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial board,
city or municipal council or board, or other competent authority
may exact and collect such reasonable and equitable toll fees for
the use of such bridges and ferries, within their respective
jurisdiction, as may be authorized and approved by the Secretary
of Public Works and Communications, and also for the use of such
public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any
toll fee." be charged or collected until and unless the approved
schedule of tolls shall have been posted levied, in a conspicuous
place at such toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle
Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and
1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money

collected under the provisions of this Act shall accrue to the road and bridge funds
of the different provinces and chartered cities in proportion to the centum shall
during the next previous year and the remaining eighty per centum shall be
deposited in the Philippine Treasury to create a special fund for the construction
and maintenance of national and provincial roads and bridges. as well as the
streets and bridges in the chartered cities to be alloted by the Secretary of Public
Works and Communications for projects recommended by the Director of Public
Works in the different provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions

of this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land
Transportation Commission but not to exceed twenty per cent of the total
collection during one year, shall be set aside for the purpose. (As amended by RA
64-67, approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a
presumption arising from the use of the term "fees," which appears to have been favored by the
legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act
4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on
various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the purpose is primarily revenue,
or if revenue is at least one of the real and substantial purposes, then the exaction
is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v.
Araneta 98 Phil. 198.) These exactions are sometimes called regulatory taxes.
(See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue
Code of 1954, which classify taxes on tobacco and alcohol as regulatory taxes.)
(Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd
Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the
law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax
or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a
tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the
intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak
of an "additional" tax," where the law could have referred to an original tax and not one in
addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle
under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory
fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of
other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec.
591-593). of the Code as taxes like the motor vehicle registration fee and chauffers' license fee.
Such fees are to go into the expenditures of the Land Transportation Commission as provided for
in the last proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only
for rigidly purposes in the exercise of the State's police powers. Over the years, however, as
vehicular traffic exploded in number and motor vehicles became absolute necessities without
which modem life as we know it would stand still, Congress found the registration of vehicles a
very convenient way of raising much needed revenues. Without changing the earlier deputy. of
registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional
revenues. of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the
complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to
what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No.
5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in
legislative franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)."
July 11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner
Radio Communications of the Philippines, Inc., was subject to both the franchise
tax and income tax. In 1964, however, petitioner's franchise was amended by
Republic Act No. 41-42). to the effect that its franchise tax of one and one-half
percentum (1-1/2%) of all gross receipts was provided as "in lieu of any and all
taxes of any kind, nature, or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national from which taxes the
grantee is hereby expressly exempted." The issue raised to this Court now is the
validity of the respondent court's decision which ruled that the exemption under
Republic Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448
dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the

contrary notwithstanding, all corporate taxpayers not specifically
exempt under Sections 24 (c) (1) of this Code shall pay the rates
provided in this section. All corporations, agencies, or
instrumentalities owned or controlled by the government, including
the Government Service Insurance System and the Social Security
System but excluding educational institutions, shall pay such rate
of tax upon their taxable net income as are imposed by this section
upon associations or corporations engaged in a similar business or
industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier
exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article
 XIV, Section 5 of the Constitution as amended in 1973 expressly provide that no
franchise shall be granted to any individual, firm, or corporation except under the
condition that it shall be subject to amendment, alteration, or repeal by the
legislature when the public interest so requires. There is no question as to the
public interest involved. The country needs increased revenues. The repealing
clause is clear and unambiguous. There is a listing of entities entitled to tax
exemption. The petitioner is not covered by the provision. Considering the
foregoing, the Court Resolved to DENY the petition for lack of merit. The decision
of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay
to the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual
net taxable income computed in accordance with the provisions of
the Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect
to international airtransport service, only the gross passengers,
mail, and freight revenues. from its outgoing flights shall be subject
to this law.

The tax paid by the grantee under either of the above alternatives shall be 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, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board
(LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration and
licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree
No. 1590.
COMMISSIONER OF INTERNAL G.R. No. 159647
REVENUE,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
CENTRAL LUZON DRUG Promulgated:
CORPORATION,
Respondent. April 15, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

T he 20 percent discount required by the law to be given to senior citizens is a tax

credit, not merely a tax deductionfrom the gross income or gross sale of the
establishment concerned. A tax credit is used by a private establishment only after
the tax has been computed; a tax deduction, before the tax is computed. RA 7432
unconditionally grants a tax credit to all covered entities. Thus, the provisions of the
revenue regulation that withdraw or modify such grant are void. Basic is the rule that
administrative regulations cannot amend or revoke the law.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to
set aside the August 29, 2002 Decision[2] and the August 11, 2003 Resolution[3] of the
Court of Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as
follows:

WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in

toto. No costs.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The CA narrated the antecedent facts as follows:

Respondent is a domestic corporation primarily engaged in retailing of medicines and
other pharmaceutical products. In 1996, it operated six (6) drugstores under the
business name and style Mercury Drug.

From January to December 1996, respondent granted twenty (20%) percent sales
discount to qualified senior citizens on their purchases of medicines pursuant to
Republic Act No. [R.A.] 7432 and its Implementing Rules and Regulations. For the
said period, the amount allegedly representing the 20% sales discount granted by
respondent to qualified senior citizens totaled P904,769.00.

On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year
1996 declaring therein that it incurred net losses from its operations.

On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in
the amount of P904,769.00 allegedly arising from the 20% sales discount granted by
respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to
obtain affirmative response from petitioner, respondent elevated its claim to the Court
of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.

On February 12, 2001, the Tax Court rendered a Decision[5] dismissing respondents
Petition for lack of merit. In said decision, the [CTA] justified its ruling with the
following ratiocination:

x x x, if no tax has been paid to the government, erroneously or illegally, or if no

amount is due and collectible from the taxpayer, tax refund or tax credit is unavailing.
Moreover, whether the recovery of the tax is made by means of a claim for refund or
tax credit, before recovery is allowed[,] it must be first established that there was an
actual collection and receipt by the government of the tax sought to be recovered. x x
x.
xxxxxxxxx

Prescinding from the above, it could logically be deduced that tax credit is premised
on the existence of tax liability on the part of taxpayer. In other words, if there is no
tax liability, tax credit is not available.

Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed

resolution,[6] granted respondents motion for reconsideration and ordered herein
petitioner to issue a Tax Credit Certificate in favor of respondent citing the decision of
the then Special Fourth Division of [the CA] in CA G.R. SP No. 60057 entitled Central
[Luzon] Drug Corporation vs. Commissioner of Internal Revenue promulgated on May
31, 2001, to wit:

However, Sec. 229 clearly does not apply in the instant case because the tax sought
to be refunded or credited by petitioner was not erroneously paid or illegally collected.
We take exception to the CTAs sweeping but unfounded statement that both tax
refund and tax credit are modes of recovering taxes which are either erroneously or
illegally paid to the government. Tax refunds or credits do not exclusively pertain to
illegally collected or erroneously paid taxes as they may be other circumstances
where a refund is warranted. The tax refund provided under Section 229 deals
exclusively with illegally collected or erroneously paid taxes but there are other
possible situations, such as the refund of excess estimated corporate quarterly
income tax paid, or that of excess input tax paid by a VAT-registered person, or that
of excise tax paid on goods locally produced or manufactured but actually exported.
The standards and mechanics for the grant of a refund or credit under these
situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet
another instance of a tax credit and it does not in any way refer to illegally collected or
erroneously paid taxes, x x x.[7]

Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering
petitioner to issue a tax credit certificate in favor of respondent in the reduced amount
of P903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the availment of a
tax credit. Moreover, such credit is not tantamount to an unintended benefit from the
law, but rather a just compensation for the taking of private property for public use.

Hence this Petition.[8]

The Issues

Petitioner raises the following issues for our consideration:

Whether the Court of Appeals erred in holding that respondent may claim the 20%
sales discount as a tax credit instead of as a deduction from gross income or gross
sales.

Whether the Court of Appeals erred in holding that respondent is entitled to a

refund.[9]

These two issues may be summed up in only one: whether respondent, despite
incurring a net loss, may still claim the 20 percent sales discount as a tax credit.

The Courts Ruling

The Petition is not meritorious.

Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss

Section 4a) of RA 7432[10] grants to senior citizens the privilege of obtaining a 20

percent discount on their purchase of medicine from any private establishment in the
country.[11] The latter may then claim the cost of the discount as a tax credit.[12] But
can such credit be claimed, even though an establishment operates at a loss?

We answer in the affirmative.

Tax Credit versus

Tax Deduction

Although the term is not specifically defined in our Tax Code, [13] tax credit generally
refers to an amount that is subtracted directly from ones total tax liability. [14] It is an
allowance against the tax itself[15] or a deduction from what is owed[16] by a taxpayer
to the government. Examples of tax credits are withheld taxes, payments of estimated
tax, and investment tax credits.[17]

Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction from income for tax purposes, [18] or an amount
that is allowed by law to reduce income prior to [the] application of the tax rate to
compute the amount of tax which is due.[19] An example of a tax deduction is any of
the allowable deductions enumerated in Section 34[20] of the Tax Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax
due, including -- whenever applicable -- the income tax that is determined after
applying the corresponding tax rates to taxable income.[21] A tax deduction, on the
other, reduces the income that is subject to tax[22] in order to arrive at taxable
income.[23] To think of the former as the latter is to avoid, if not entirely confuse, the
issue. A tax credit is used only after the tax has been computed; a tax
deduction, before.

Tax Liability Required

for Tax Credit

Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax
credit application will be useless. There will be no reason for deducting the latter
when there is, to begin with, no existing obligation to the government. However, as
will be presented shortly, the existence of a tax credit or its grant by law is not the
same as the availment or use of such credit. While the grant is mandatory, the
availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can
be applied.[24] For the establishment to choose the immediate availment of a tax
credit will be premature and impracticable. Nevertheless, the irrefutable fact remains
that, under RA 7432, Congress has granted without conditions a tax credit benefit to
all covered establishments.

Although this tax credit benefit is available, it need not be used by losing ventures,
since there is no tax liability that calls for its application. Neither can it be reduced to
nil by the quick yet callow stroke of an administrative pen, simply because no
reduction of taxes can instantly be effected. By its nature, the tax credit may still be
deducted from a future, not a present, tax liability, without which it does not have any
use. In the meantime, it need not move. But it breathes.

Prior Tax Payments Not

Required for Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact
replete with provisions granting or allowing tax credits, even though no taxes have
been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit --
subject to certain limitations -- for estate taxes paid to a foreign country. Also found in
Section 101(C) is a similar provision for donors taxes -- again when paid to a foreign
country -- in computing for the donors tax due. The tax credits in both instances
allude to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging in

transactions -- whether or not subject to the VAT -- is also allowed a tax credit that
includes a ratable portion of any input tax not directly attributable to either activity.
This input tax may either be the VAT on the purchase or importation of goods or
services that is merely due from -- not necessarily paid by -- such VAT-registered
person in the course of trade or business; or the transitional input tax determined in
accordance with Section 111(A). The latter type may in fact be an amount equivalent
to only eight percent of the value of a VAT-registered persons beginning inventory of
goods, materials and supplies, when such amount -- as computed -- is higher than
the actual VAT paid on the said items.[25] Clearly from this provision, the tax
credit refers to an input tax that is either due only or given a value by mere
comparison with the VAT actually paid -- then later prorated. No tax is actually paid
prior to the availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive
is allowed. For the purchase of primary agricultural products used as inputs -- either
in the processing of sardines, mackerel and milk, or in the manufacture of refined
sugar and cooking oil -- and for the contract price of public work contracts entered
into with the government, again, no prior tax payments are needed for the use of
the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively

zero-rated may, under Section 112(A), apply for the issuance of a tax credit certificate
for the amount of creditable input taxes merely due -- again not necessarily paid to --
the government and attributable to such sales, to the extent that the input taxes have
not been applied against output taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt
sales, the amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately allocated on the
basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes,
this provision -- as well as the one earlier mentioned -- shows that the prior payment
of taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of
a tax credit allowed, even though no prior tax payments are not required. Specifically,
in this provision, the imposition of a final withholding tax rate on cash and/or property
dividends received by a nonresident foreign corporation from a domestic corporation
is subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid. [27] Although
true, this provision actually refers to the tax credit as a condition only for the
imposition of a lower tax rate, not as a deduction from the corresponding tax liability.
Besides, it is not our government but the domiciliary country that credits against the
income tax payable to the latter by the foreign corporation, the tax to be foregone or
spared.[28]

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as

credits, against the income tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic corporation during a taxable
year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes
incurred but not paid, a tax credit may be allowed, subject to the condition precedent
that the taxpayer shall simply give a bond with sureties satisfactory to and approved
by petitioner, in such sum as may be required; and further conditioned upon payment
by the taxpayer of any tax found due, upon petitioners redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties
and special laws that grant or allow tax credits, even though no prior tax payments
have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double
taxation, income that is taxed in the state of source is also taxable in the state of
residence, but the tax paid in the former is merely allowed as a credit against the tax
levied in the latter.[29] Apparently, payment is made to the state of source, not
the state of residence. No tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax
credit incentives. To illustrate, the incentives provided for in Article 48 of Presidential
Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax
credits equivalent to either five percent of the net value earned, or five or ten percent
of the net local content of exports.[30] In order to avail of such credits under the said
law and still achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private
establishments concerned.[31] However, we do not agree with its finding[32] that the
carry-over of tax credits under the said special law to succeeding taxable periods,
and even their application against internal revenue taxes, did not necessitate the
existence of a tax liability.

The examples above show that a tax liability is certainly important in the availment or
use, not the existence or grant, of a tax credit. Regarding this matter, a private
establishment reporting a net loss in its financial statements is no different from
another that presents a net income. Both are entitled to the tax credit provided for
under RA 7432, since the law itself accords that unconditional benefit. However, for
the losing establishment to immediately apply such credit, where no tax is due, will be
an improvident usance.

Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the amount
of discounts they grant.[33] In turn, the Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its availment.[34] To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate, is
indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the
amount representing the 20 percent discount that shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes.[35] In ordinary business
language, the tax creditrepresents the amount of such discount. However, the
manner by which the discount shall be credited against taxes has not been clarified
by the revenue regulations.

By ordinary acceptation, a discount is an abatement or reduction made from the

gross amount or value of anything.[36]To be more precise, it is in business parlance a
deduction or lowering of an amount of money;[37] or a reduction from the full amount
or value of something, especially a price.[38] In business there are many kinds of
discount, the most common of which is that affecting the income statement[39] or
financial report upon which the income tax is based.

Business Discounts
Deducted from Gross Sales

A cash discount, for example, is one granted by business establishments to credit

customers for their prompt payment.[40] It is a reduction in price offered to the
purchaser if payment is made within a shorter period of time than the maximum time
specified.[41] Also referred to as a sales discount on the part of the seller and
a purchase discount on the part of the buyer, it may be expressed in such
terms as 5/10, n/30.[42]

A quantity discount, however, is a reduction in price allowed for purchases made in

large quantities, justified by savings in packaging, shipping, and handling. [43] It is also
called a volume or bulk discount.[44]

A percentage reduction from the list price x x x allowed by manufacturers to

wholesalers and by wholesalers to retailers[45] is known as a trade discount. No entry
for it need be made in the manual or computerized books of accounts, since the
purchase or sale is already valued at the net price actually charged the buyer.[46] The
purpose for the discount is to encourage trading or increase sales, and the prices at
which the purchased goods may be resold are also suggested.[47] Even a chain
discount -- a series of discounts from one list price -- is recorded at net.[48]

Finally, akin to a trade discount is a functional discount. It is a suppliers price discount

given to a purchaser based on the [latters] role in the [formers] distribution
system.[49] This role usually involves warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is peculiar.
Applying generally accepted accounting principles (GAAP) in the country, this type of
discount is reflected in the income statement[50] as a line item deducted -- along with
returns, allowances, rebates and other similar expenses -- from gross sales to arrive
at net sales.[51] This type of presentation is resorted to, because the accounts
receivable and sales figures that arise from sales discounts, -- as well as
from quantity, volume or bulk discounts -- are recorded in the manual and
computerized books of accounts and reflected in the financial statements at the gross
amounts of the invoices.[52] This manner of recording credit sales -- known as
the gross method -- is most widely used, because it is simple, more convenient to
apply than the net method, and produces no material errors over time.[53]

However, under the net method used in recording trade, chain or functional
discounts, only the net amounts of the invoices -- after the discounts have been
deducted -- are recorded in the books of accounts[54] and reflected in the financial
statements. A separate line item cannot be shown, [55] because the transactions
themselves involving both accounts receivable and sales have already been entered
into, net of the said discounts.

The term sales discounts is not expressly defined in the Tax Code, but one provision
adverts to amounts whose sum -- along with sales returns, allowances and cost of
goods sold[56] -- is deducted from gross sales to come up with the gross
income, profit or margin[57] derived from business.[58] In another provision
therein, sales discounts that are granted and indicated in the invoices at the time of
sale -- and that do not depend upon the happening of any future event -- may be
excluded from the gross sales within the same quarter they were given.[59] While
determinative only of the VAT, the latter provision also appears as a suitable
reference point for income tax purposes already embraced in the former. After all,
these two provisions affirm that sales discounts are amounts that are always
deductible from gross sales.

Reason for the Senior Citizen Discount:

The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the private

establishments outright deduction of the discount from the invoice price of the
medicine sold to the senior citizen.[60] It is, therefore, expected that for each retail sale
made under this law, the discount period lasts no more than a day, because such
discount is given -- and the net amount thereof collected -- immediately upon
perfection of the sale.[61] Although prompt payment is made for an arms-length
transaction by the senior citizen, the real and compelling reason for the private
establishment giving the discount is that the law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not a sales
discount or any of the above discounts in particular. Prompt payment is not the
reason for (although a necessary consequence of) such grant. To be sure, the
privilege enjoyed by the senior citizen must be equivalent to the tax credit benefit
enjoyed by the private establishment granting the discount. Yet, under the revenue
regulations promulgated by our tax authorities, this benefit has been erroneously
likened and confined to a sales discount.

To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. However, to a private establishment, the effect is
different from a simple reduction in price that results from such discount. In other
words, the tax credit benefit is not the same as a sales discount. To repeat from our
earlier discourse, this benefit cannot and should not be treated as a tax deduction.

To stress, the effect of a sales discount on the income statement and income tax
return of an establishment covered by RA 7432 is different from that resulting from
the availment or use of its tax credit benefit. While the former is a deduction before,
the latter is a deduction after, the income tax is computed. As mentioned earlier, a
discount is not necessarily a sales discount, and a tax credit for a simple discount
privilege should not be automatically treated like a sales discount. Ubi lex non
distinguit, nec nos distinguere debemus. Where the law does not distinguish, we
ought not to distinguish.

Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or
from gross sales for VAT or other percentage tax purposes. In effect, the tax
creditbenefit under RA 7432 is related to a sales discount. This contrived definition is
improper, considering that the latter has to be deducted from gross sales in order to
compute the gross income in the income statement and cannot be deducted again,
even for purposes of computing the income tax.

When the law says that the cost of the discount may be claimed as a tax credit, it
means that the amount -- when claimed -- shall be treated as a reduction from any
tax liability, plain and simple. The option to avail of the tax credit benefit depends
upon the existence of a tax liability, but to limit the benefit to a sales discount -- which
is not even identical to the discount privilege that is granted by law -- does not define
it at all and serves no useful purpose. The definition must, therefore, be stricken
down.

Laws Not Amended

by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that
operates to create a rule out of harmony with
[62]
the statute is a mere nullity; it cannot prevail.

It is a cardinal rule that courts will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to
enforce it x x x.[63] In the scheme of judicial tax administration, the need for certainty
and predictability in the implementation of tax laws is crucial. [64] Our tax authorities fill
in the details that Congress may not have the opportunity or competence to
provide.[65] The regulations these authorities issue are relied upon by taxpayers, who
are certain that these will be followed by the courts.[66] Courts, however, will not
uphold these authorities interpretations when clearly absurd, erroneous or improper.

In the present case, the tax authorities have given the term tax credit in Sections 2.i
and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their
interpretation has muddled up the intent of Congress in granting a mere discount
privilege, not a sales discount. The administrative agency issuing these regulations
may not enlarge, alter or restrict the provisions of the law it administers; it cannot
engraft additional requirements not contemplated by the legislature.[67]

In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is
law.[69] Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.[70]
Availment of Tax
Credit Voluntary

Third, the word may in the text of the statute[71] implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.[72] There is
no absolute right conferred upon respondent, or any similar taxpayer, to avail itself of
the tax credit remedy whenever it chooses; neither does it impose a duty on the part
of the government to sit back and allow an important facet of tax collection to be at
the sole control and discretion of the taxpayer.[73] For the tax authorities to compel
respondent to deduct the 20 percent discount from either its gross income or its gross
sales[74] is, therefore, not only to make an imposition without basis in law, but also to
blatantly contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely
permissive, not imperative. Respondent is given two options -- either to claim or not
to claim the cost of the discounts as a tax credit. In fact, it may even ignore the credit
and simply consider the gesture as an act of beneficence, an expression of its social
conscience.

Granting that there is a tax liability and respondent claims such cost as a tax credit,
then the tax credit can easily be applied. If there is none, the credit cannot be used
and will just have to be carried over and revalidated[75] accordingly. If, however, the
business continues to operate at a loss and no other taxes are due, thus compelling it
to close shop, the credit can never be applied and will be lost altogether.

In other words, it is the existence or the lack of a tax liability that determines whether
the cost of the discounts can be used as a tax credit. RA 7432 does not give
respondent the unfettered right to avail itself of the credit whenever it pleases. Neither
does it allow our tax administrators to expand or contract the legislative mandate. The
plain meaning rule or verba legis in statutory construction is thus applicable x x x.
Where the words of a statute are clear, plain and free from ambiguity, it must be
given its literal meaning and applied without attempted interpretation. [76]

Tax Credit Benefit

Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not
come directly from the State, but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed as
their just compensation for private property taken by the State for public use.[77]
The concept of public use is no longer confined to the traditional notion of use by the
public, but held synonymous with public interest, public benefit, public welfare,
and public convenience.[78] The discount privilege to which our senior citizens are
entitled is actually a benefit enjoyed by the general public to which these citizens
belong. The discounts given would have entered the coffers and formed part of
the gross sales of the private establishments concerned, were it not for RA 7432. The
permanent reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes

entitled to a just compensation. This term refers not only to the issuance of a tax
credit certificate indicating the correct amount of the discounts given, but also to the
promptness in its release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the grant of the
discounts -- cannot be considered as just compensation. In effect, respondent is
made to suffer the consequences of being immediately deprived of its revenues while
awaiting actual receipt, through the certificate, of the equivalent amount it needs to
cope with the reduction in its revenues.[79]

Besides, the taxation power can also be used as an implement for the exercise of the
power of eminent domain.[80] Tax measures are but enforced contributions exacted on
pain of penal sanctions[81] and clearly imposed for a public purpose.[82] In recent
years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth.[83]

While it is a declared commitment under Section 1 of RA 7432, social justice cannot

be invoked to trample on the rights of property owners who under our Constitution
and laws are also entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person and give them to
another who is not entitled thereto.[84] For this reason, a just compensation for income
that is taken away from respondent becomes necessary. It is in the tax credit that our
legislators find support to realize social justice, and no administrative body can alter
that fact.

To put it differently, a private establishment that merely breaks even [85] -- without the
discounts yet -- will surely start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if all its sales come from
retail purchases by senior citizens. Aside from the observation we have already
raised earlier, it will also be grossly unfair to an establishment if the discounts will be
treated merely as deductions from either its gross income or its gross sales.
Operating at a loss through no fault of its own, it will realize that the tax
credit limitation under RR 2-94 is inutile, if not improper. Worse, profit-generating
businesses will be put in a better position if they avail themselves of tax
credits denied those that are losing, because no taxes are due from the latter.

Grant of Tax Credit

Intended by the Legislature

Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by
the community as a whole and to establish a program beneficial to them. [86] These
objectives are consonant with the constitutional policy of making health x x x services
available to all the people at affordable cost[87] and of giving priority for the needs of
the x x x elderly.[88] Sections 2.i and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives.

Furthermore, Congress has allowed all private establishments a simple tax credit, not
a deduction. In fact, no cash outlay is required from the government for
the availment or use of such credit. The deliberations on February 5, 1992 of the
Bicameral Conference Committee Meeting on Social Justice, which finalized RA
7432, disclose the true intent of our legislators to treat the sales discounts as a tax
credit, rather than as a deduction from gross income. We quote from those
deliberations as follows:

"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from
taxable income. I think we incorporated there a provision na - on the responsibility of
the private hospitals and drugstores, hindi ba?

SEN. ANGARA. Oo.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here
about the deductions from taxable income of that private hospitals, di ba ganon 'yan?

MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government
and public institutions, so, puwede na po nating hindi isama yung mga less
deductions ng taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung
isiningit natin?

MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the
microphone).

SEN. ANGARA. Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

SEN. ANGARA. Oo. You want to insert that?

THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.

SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount,
provided that, the private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of
(inaudible) income.

SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?

REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments
na covered.

THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.

REP. AQUINO. Ano ba yung establishments na covered?

SEN. ANGARA. Restaurant lodging houses, recreation centers.

REP. AQUINO. All establishments covered siguro?

SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon.
Can we go back to Section 4 ha?

REP. AQUINO. Oho.

SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount
from all establishments et cetera, et cetera, provided that said establishments -
provided that private establishments may claim the cost as a tax credit. Ganon ba
'yon?

REP. AQUINO. Yah.

SEN. ANGARA. Dahil kung government, they don't need to claim it.

THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.

REP. AQUINO Okay.

SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".[89]

Special Law
Over General Law

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a
general law. x x x [T]he rule is that on a specific matter the special law shall prevail
over the general law, which shall
be resorted to only to supply deficiencies in the former. [90] In addition, [w]here there
are two statutes, the earlier special and the later general -- the terms of the general
broad enough to include the matter provided for in the special -- the fact that one is
special and the other is general creates a presumption that the special is to be
considered as remaining an exception to the general,[91] one as a general law of the
land, the other as the law of a particular case.[92]It is a canon of statutory construction
that a later statute, general in its terms and not expressly repealing a prior
specialstatute, will ordinarily not affect the special provisions of such earlier statute.[93]

RA 7432 is an earlier law not expressly repealed by, and therefore remains an
exception to, the Tax Code -- a later law. When the former states that a tax
credit may be claimed, then the requirement of prior tax payments under certain
provisions of the latter, as discussed above, cannot be made to apply. Neither can
the instances of or references to a tax deduction under the Tax Code[94] be made to
restrict RA 7432. No provision of any revenue regulation can supplant or modify the
acts of Congress.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution
of the Court of Appeals AFFIRMED. No pronouncement as to costs.

SO ORDERED.
 [G.R. No. 152675. April 28, 2004]

BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS

CITY and NATIONAL POWER CORPORATION, respondents.

[G.R. No. 152771. April 28, 2004]

NATIONAL POWER CORPORATION, petitioner, vs. HON. RICARDO

R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66,
Makati City; BATANGAS CITY GOVERNMENT; ATTY.
TEODULFO DEGUITO, in his capacity as Chief Legal Officer,
Batangas City; and BENJAMIN PARGAS, in his capacity as
City Treasurer, Batangas City, respondents.

DECISION
PUNO, J.:

Before us are two (2) consolidated petitions for review under Rule 45 of
the Rules of Civil Procedure, seeking to set aside the rulings of the Regional
Trial Court of Makati in its February 27, 2002 Decision in Civil Case No. 00-
205.
The facts show that in the early 1990s, the country suffered from a
crippling power crisis. Power outages lasted 8-12 hours daily and power
generation was badly needed. Addressing the problem, the government,
through the National Power Corporation (NPC), sought to attract investors
in power plant operations by providing them with incentives, one of which
was through the NPCs assumption of payment of their taxes in the Build
Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and
petitioner NPC entered into a Fast Track BOT Project. Enron agreed to
supply a power station to NPC and transfer its plant to the latter after ten
(10) years of operation. Section 11.02 of the BOT Agreement provided that
NPC shall be responsible for the payment of all taxes that may be imposed
on the power station, except income taxes and permit fees. Subsequently,
Enron assigned its obligation under the BOT Agreement to petitioner
Batangas Power Corporation (BPC).
 On September 13, 1992, BPC registered itself with the Board of
Investments (BOI) as a pioneer enterprise. On September 23, 1992, the
BOI issued a certificate of registration to BPC as a pioneer enterprise
[1]

entitled to a tax holiday for a period of six (6) years. The construction of the
power station in respondent Batangas City was then completed. BPC
operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its legal
officer Teodulfo A. Deguito, sent a letter to BPC demanding payment of
business taxes and penalties, commencing from the year 1994 as provided
under Ordinance XI or the 1992 Batangas City Tax Code. BPC refused to
[2]

pay, citing its tax-exempt status as a pioneer enterprise for six (6) years
under Section 133 (g) of the Local Government Code (LGC). [3]

On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys
tax claim and demanded payment of business taxes from BPC only for the
[4]

years 1998-1999. He acknowledged that BPC enjoyed a 6-year tax holiday

as a pioneer industry but its tax exemption period expired on September 22,
1998, six (6) years after its registration with the BOI on September 23,
1992. The city treasurer held that thereafter BPC became liable to pay its
business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday
commenced from the date of its commercial operation on July 16, 1993, not
from the date of its BOI registration in September 1992. It furnished the city
[5]

with a BOI letter wherein BOI designated July 16, 1993 as the start of
[6]

BPCs income tax holiday as BPC was not able to immediately operate due
to force majeure. BPC claimed that the local tax holiday is concurrent with
the income tax holiday. In the alternative, BPC asserted that the city should
collect the tax from the NPC as the latter assumed responsibility for its
payment under their BOT Agreement.
The matter was not put to rest. The city legal officer insisted that BPCs
[7]

tax holiday has already expired, while the city argued that it directed its tax
claim to BPC as it is the entity doing business in the city and hence liable to
pay the taxes. The city alleged that it was not privy to NPCs assumption of
BPCs tax payment under their BOT Agreement as the only parties thereto
were NPC and BPC.
BPC adamantly refused to pay the tax claims and reiterated its
position. The city was likewise unyielding on its stand. On August 26,
[8] [9]

1999, the NPC intervened. While admitting assumption of BPCs tax

[10]

obligations under their BOT Agreement, NPC refused to pay BPCs business
tax as it allegedly constituted an indirect tax on NPC which is a tax-exempt
corporation under its Charter. [11]

In view of the deadlock, BPC filed a petition for declaratory relief with
[12]

the Makati Regional Trial Court (RTC) against Batangas City and NPC,
praying for a ruling that it was not bound to pay the business taxes imposed
on it by the city. It alleged that under the BOT Agreement, NPC is
responsible for the payment of such taxes but as NPC is exempt from taxes,
both the BPC and NPC are not liable for its payment. NPC and Batangas
City filed their respective answers.
On February 23, 2000, while the case was still pending, the city refused
to issue a permit to BPC for the operation of its business unless it paid the
assessed business taxes amounting to close to P29M.
In view of this supervening event, BPC, whose principal office is in
Makati City, filed a supplemental petition with the Makati RTC to convert
[13]

its original petition into an action for injunction to enjoin the city from
withholding the issuance of its business permit and closing its power
plant. The city opposed on the grounds of lack of jurisdiction and lack of
cause of action. The Supplemental Petition was nonetheless admitted by
[14]

the Makati RTC.

On February 27, 2002, the Makati RTC dismissed the petition for
injunction. It held that: (1) BPC is liable to pay business taxes to the city;
(2) NPCs tax exemption was withdrawn with the passage of R.A. No. 7160
(The Local Government Code); and, (3) the 6-year tax holiday granted to
pioneer business enterprises starts on the date of registration with the BOI
as provided in Section 133 (g) of R.A. No. 7160, and not on the date of its
actual business operations. [15]

BPC and NPC filed with this Court a petition for review
on certiorari assailing the Makati RTC decision. The petitions were
[16]

consolidated as they impugn the same decision, involve the same parties
and raise related issues. [17]

In G.R. No. 152771, the NPC contends:

I

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
ARBITRARILY AND CAPRICIOUSLY RULED THAT PETITIONER NPC HAS
LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A.
7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH PRIVILEGE
DESPITE THE SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A
LEGISLATION, WHICH IS A GENERAL LAW, CANNOT REPEAL A
SPECIAL LAW AND THAT SECTION 13 OF R.A. 6395 (NPC LAW) WAS
NOT SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN
SECTION 534 OF R.A. 7160, AMONG OTHERS.

II

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
ARBITRARILY AND CAPRICIOUSLY OMITTED THE CLEAR PROVISION
OF SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS
NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES
FROM THE IMPOSITION OF TAXES, FEES OR CHARGES OF ANY KIND.

III

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
ERRONEOUSLY AND CAPRICIOUSLY ADMITTED BPCs SUPPLEMENTAL
PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO
JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS)
SOUGHT TO BE ENJOINED.

In G.R. No. 152675, BPC also contends that the trial court erred: 1) in
holding it liable for payment of business taxes even if it is undisputed that
NPC has already assumed payment thereof; and, 2) in ruling that BPCs 6-
year tax holiday commenced on the date of its registration with the BOI as a
pioneer enterprise.
The issues for resolution are:
1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration
as a pioneer enterprise or on the date of its actual commercial operation as
certified by the BOI;
2. whether the trial court had jurisdiction over the petition for injunction against
Batangas City; and,
3. whether NPCs tax exemption privileges under its Charter were withdrawn by
Section 193 of the Local Government Code (LGC).
We find no merit in the petition.
On the first issue, petitioners BPC and NPC contend that contrary to
the impugned decision, BPCs 6-year tax holiday should commence on the
date of its actual commercial operations as certified to by the BOI, not on
the date of its BOI registration.
We disagree. Sec. 133 (g) of the LGC, which proscribes local
government units (LGUs) from levying taxes on BOI-certified pioneer
enterprises for a period of six years from the date of registration, applies
specifically to taxes imposed by the local government, like the
business tax imposed by Batangas City on BPC in the case at
bar. Reliance of BPC on the provision of Executive Order No.
226, specifically Section 1, Article 39, Title III, is clearly misplaced as
[18]

the six-year tax holiday provided therein which commences from the
date of commercial operation refers to income taxes imposed by the
national government on BOI-registered pioneer firms. Clearly, it is the
provision of the Local Government Code that should apply to the tax claim
of Batangas City against the BPC. The 6-year tax exemption of BPC should
thus commence from the date of BPCs registration with the BOI on July 16,
1993 and end on July 15, 1999.
Anent the second issue, the records disclose that petitioner NPC did
not oppose BPCs conversion of the petition for declaratory relief to a
petition for injunction or raise the issue of the alleged lack of jurisdiction of
the Makati RTC over the petition for injunction before said court. Hence,
NPC is estopped from raising said issue before us. The fundamental rule is
that a party cannot be allowed to participate in a judicial proceeding, submit
the case for decision, accept the judgment only if it is favorable to him but
attack the jurisdiction of the court when it is adverse.
[19]

Finally, on the third issue, petitioners insist that NPCs exemption from
all taxes under its Charter had not been repealed by the LGC.They argue
that NPCs Charter is a special law which cannot be impliedly repealed by a
general and later legislation like the LGC. They likewise anchor their claim
of tax-exemption on Section 133 (o) of the LGC which exempts government
instrumentalities, such as the NPC, from taxes imposed by local
government units (LGUs), citing in support thereof the case of Basco v.
PAGCOR. [20]

We find no merit in these contentions. The effect of the LGC on the tax
exemption privileges of the NPC has already been extensively discussed
and settled in the recent case of National Power Corporation v. City of
Cabanatuan. In said case, this Court recognized the removal of the
[21]

blanket exclusion of government instrumentalities from local taxation

as one of the most significant provisions of the 1991 LGC. Specifically,
we stressed that Section 193 of the LGC, an express and general repeal
[22]
of all statutes granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC under its
Charter. We explained the rationale for this provision, thus:

In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the protection of local
industries as well as public welfare and similar objectives. Taxation assumes even
greater significance with the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges pursuant to
Article X, section 5 of the 1987 Constitution, viz:

Section 5.- Each Local Government unit shall have the power to create its own
sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments.

This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance. For a long time, the countrys highly centralized government structure
has bred a culture of dependence among local government leaders upon the national
leadership. It has also dampened the spirit of initiative, innovation and imaginative
resilience in matters of local development on the part of local government
leaders. The only way to shatter this culture of dependence is to give the LGUs a
wider role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal, x x x the 1987
Constitution mandates Congress to enact a local government code that will,
consistent with the basic policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers x x x.

To recall, prior to the enactment of the x x x Local Government Code x x x, various

measures have been enacted to promote local autonomy. x x x Despite these
initiatives, however, the shackles of dependence on the national government
remained. Local government units were faced with the same problems that hamper
their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external
sources of income, (c) limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the
LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws x x x.

Neither can the NPC successfully rely on the Basco case as this was
[23]

decided prior to the effectivity of the LGC, when there was still no law
empowering local government units to tax instrumentalities of the national
government.
Consequently, when NPC assumed the tax liabilities of the BPC under
their 1992 BOT Agreement, the LGC which removed NPCs tax exemption
privileges had already been in effect for six (6) months. Thus, while BPC
remains to be the entity doing business in said city, it is the NPC that is
ultimately liable to pay said taxes under the provisions of both the 1992
BOT Agreement and the 1991 Local Government Code.
IN VIEW WHEREOF, the petitions are DISMISSED. No costs.
SO ORDERED.