G.R. No.

L-18125 May 31, 1963

BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,
vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roo for respondent National Waterworks and Sewerage Authority.
CONCEPCION, J .:
This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes, reservoir, intake and buildings used by
herein respondent, National Waterworks and Sewerage Authority hereinafter referred to as
NAWASA in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa
and Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1wph 1. t
The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage Authority (NWSA) is a public
corporation created by virtue of Republic Act No. 1383, and that it is owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage
systems placed under it:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over all
the property of the former Metropolitan Water District and all the existing local government-
owned waterworks and sewerage systems all over the Philippines, including the Cabuyao-
Sta. Rosa-Bian Waterworks System owned by the Province of Laguna (Section 8, Republic
Act No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act No.
1383, more particularly Section 2 thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA) has no capital stock
divided into shares of stocks, no stockholders, and is not authorized by its Charter to
distribute dividends; and, on the other hand, whatever surplus funds it has realized, may and
will after meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer services;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but that all
its surplus income are not declared as profits as this surplus are or may be invested for the
expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System and
described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2 hereof,
herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the Provincial Assessor of
Laguna, petitioner NWSA protested, claiming that the property described under Tax
Declaration No. 5987 (Exh. "A-l") are exempted from the payment of real estate taxes in view
of the nature and kind of said property and functions and activities of petitioner, as provided
in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;
x x x x x x x x x "
After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending that the properties in question are
subject to real estate tax because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or sovereign capacity, but in a
private, proprietary or patrimonial character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this exemption, even if applicable to
patrimonial property, must yield to the provisions of section 1 of Republic Act No. 104, under which
all corporations, agencies or instrumentalities owned or controlled by the Government are subject to
taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
SEC. 2. Incidence of real property tax. Except in chartered cities, there shall be levied,
assessed, and collected, an annual ad valorem tax on real property, including land,
buildings, machinery, and other improvements not hereinafter specifically exempted.
SEC. 3. Property exempt from tax. The exemptions shall be as follows:
(a) Property owned by . . . the Republic of the Philippines, any province, city, municipality or
municipal district. . . .
It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the Republic of the Philippines and falls
squarely within the letter of the above provision. This notwithstanding, petitioner Board maintains
that respondent NAWASA is not entitled to the benefits of the exemption established in said section
3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as it did in the case at
bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks System are patrimonial property of
said city, which held it in a proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject to taxation. In that case
we merely reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, G. R. No. L-
12032, decided on August 31, 1959, that municipal corporations hold in their proprietary character,
the assets of their respective waterworks, which, accordingly, cannot be taken or appropriated by the
National Government and placed under the NAWASA without payment of just compensation. Neither
the Cebu case nor that of Baguio sustains the theory that said assets are taxable.
Upon the other hand, in exempting from taxation "property owned by the Republic of the Philippines,
any province, city, municipality or municipal district . . .," said section 3(a) of Republic Act No. 470
makes no distinction between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances clearly showing that the
lawmaker intended the contrary, but no such facts and circumstances have been brought to our
attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point of dominion, than from
that of domain. Moreover, taxes are financial burdens imposed for the purpose of raising revenues
with which to defray the cost of the operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the effect of taking money from one
pocket to put it in another pocket (Cooley on Taxation, Sec. 621, 4th Edition.) Hence, it would not
serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on
account of the paper work, time and consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
. . . All corporations, agencies, or instrumentalities owned or controlled by the government
shall pay such duties, taxes, fees and other charges upon their transaction, business,
industries, sale, or income as are imposed by law upon individuals, associations or
corporations engaged in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to duties, taxes, fees and other
charges upon "transaction, business, industry, sale or income" and does not include taxes on
property like real estate tax.
WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to
costs. It is so ordered.






G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-
appellees.
Sabido, Sabido and Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J .:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing
plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and
principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor,
the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums
paid by it to the City of Butuan hereinafter referred to as the City and collected by the latter,
pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both
series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof. Both
parties submitted the case for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the
"Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities
in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and
shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of
Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was
subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of
Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as
Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of
P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of
P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January
1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may later on pay until the termination of this
case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that
the tax imposed is excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has
prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of
the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to
July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1"
to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not
entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff
will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of
depreciation which the company claims to be P3,052.62. This is in accordance with the
findings of the representative of the undersigned City Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was
increased to P1.92 which price is uniform throughout the Philippines. Said increase was
made due to the increase in the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and illegality
of Ordinance No. 110, as amended of the City of Butuan in their respective memoranda.
x x x x x x x x x1wph 1. t
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the
purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer
"engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3
prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein
named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term
"consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid
at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed
from the cargo manifest or bill of lading or any other record showing the number of cases of soft
drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7
and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and
the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and
3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest
or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the
ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within"
the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as
follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature
of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory;
(4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the
authority of which it was enacted, is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently of whether
or not the tax in question, when considered in relation to the sales tax prescribed by Acts of
Congress, amounts to double taxation, on which we need not and do not express any opinion -
double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found in the Constitution of the United States and of
some States of the Union.
1
Then, again, the general principle against delegation of legislative
powers, in consequence of the theory of separation of powers
2
is subject to one well-established
exception, namely: legislative powers may be delegated to local governments to which said
theory does not apply
3
in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or
carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042
per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it is
noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was
imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that
the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee of any person,
association, partnership, company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a
consignee of agent shall mean any person, association, partnership, company or corporation
who acts in the place of another by authority from him or one entrusted with the business of
another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft
drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject
to the tax,unless they are agents and/or consignees of another dealer, who, in the very nature of
things, must be one engaged in business outside the City. Besides, the tax would not be applicable
to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to
him every month. When we consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks
brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's authority to impose by express
provision of law.
4

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded those made by
said agents or consignees of producers or merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not require
identity or equality under all circumstances, or negate the authority to classify the objects of
taxation.
5
The classification made in the exercise of this authority, to be valid, must, however, be
reasonable
6
and this requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who
belong to the same class.
7

These conditions are not fully met by the ordinance in question.
8
Indeed, if its purpose were merely
to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales
thereof by sealers other than agents or consignees of producers or merchants established outside
the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered
annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan
to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with
interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the
costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing
said Ordinance, as amended. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. 1wph 1.t
Footnotes
1
De Villata v. Stanley, 32 Phil. 541; City of Manila v. Inter-Island Gas Service, 99 Phil. 847,
854; Syjuco v. Municipality of Paraaque, L-11265, Nov. 27, 1959; City of Bacolod v. Gruet,
L-18290, Jan. 31, 1963.
2
U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377.
3
State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal. 520; Stoutenburgh v.
Hennick 129 U.S. 141, 32 L. ed. 637.
4
Section 2(i), Republic Act No. 2264; Panaligan v. City of Tacloban, L- 9319, Sept. 27, 1957,
102 Phil. 1162-1163; East Asiatic Co. v. City of Davao, L-16253, August 21, 1962. .
5
Tan Tim Kee v. Court of Tax Appeals, L-18080, April 22, 1963; Nin Bay Mining Co. v.
Municipality of Roxas, L-20125, July 20, 1965. .
6
Felwa v. Salas, L-26511, October 29, 1966; Aleja v. GSIS, L-18529, February 26, 1965;
People v. Solon, L-14864, November 23, 1960; People v. Cayat, 68 Phil. 12; People v. Vera,
65 Phil. 56; Laurel v. Misa, 42 O.G. 2847.
7
Commissioner of Int. Rev. v. Botelho Shipping Corp., L-21633-34, June 29, 1967; Ermita-
Malate Hotel & Motel Operators Ass'n. v. City Mayor, L-24693, October 23, 1967; Rafael v.
Embroidery & Apparel Control & Inspection Board, L-19978, September 29, 1967; Meralco v.
Public Utilities Employee Ass'n., 79 Phil. 409. .
8
Viray v. City of Caloocan, L-23118, July 26, 1967; PHILCONSA v. Gimenez, L-23326,
December 18, 1965; Ormoc Sugar Co. v. Treasurer of Ormoc City, L-23794, February 17,
1968.








G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant
Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J .:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294,
which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to municipalities under the Local
Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264.
1
otherwise known as the Local Autonomy
Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23
and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager
of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies
and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked."
2
For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of
the total number of bottles produced and corked during the month.
3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies
and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity."
4
For the purpose of computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the
total number of gallons produced or manufactured during the month.
5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under
the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals,
which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory
and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people.
6
It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not
apply. Legislative powers may be delegated to local governments in respect of matters of local
concern.
7
This is sanctioned by immemorial practice.
8
By necessary implication, the legislative power to
create political corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
9
Under the New Constitution, local governments are
granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5,
Article XI provides: "Each local government unit shall have the power to create its sources of revenue and
to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section
2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest
in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it is meant that there may
be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes.
10
This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed over
under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4)
in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are
provided.
11
Due process is usually violated where the tax imposed is for a private as distinguished from a
public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary
or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due
process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax
or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to
the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due
process of law.
12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on
the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised.
13
The reason is
that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and some states of the
Union.
14
Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity
15
or by the same jurisdiction for the same purpose,
16
but not in a case where
one tax is imposed by the State and the other by the city or municipality.
17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,
1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.
27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect.
18
Plaintiff-appellant in its brief admitted that defendants-appellees are
only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact
that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-
appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission
shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the
Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No.
27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with
the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or
a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which
are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance
is not within the exceptions and limitations in the law, the same comes within the ambit of the
general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non
excepti
19
The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue
Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and
void for being outside the power of the municipality to enact.
20
But, the imposition of "a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on
the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio between the volume of
sales and the amount of the tax.
21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs.
22
Soft
drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1- centavos per case,
23
cannot be
considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining
the reates of imposable taxes. 25 This is in line with the constutional policy of according the widest
possible autonomy to local governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not
deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54,
series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality,
29
appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the
Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series,
is hereby declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and
Concepcion, Jr., JJ., concur.


Separate Opinions

FERNANDO, J ., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because
with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of
double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon.
1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided
by law.
2
That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law ...
3
As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative
body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power.
4
Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act.
5
Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy
Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan,
6
reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power
granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality."
7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,
8
"is an
attribute of sovereignty which municipal corporations do not enjoy."
9
That case left no doubt either as to
weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in
the interpretation of the power to tax of a municipal corporation."
10
As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced
by this Court in City of Baguio v. De Leon.
11
Thus: "As to why double taxation is not violative of due
process, Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid
down on one side. ... The 14th Amendment [the due process clause) no more forbids double taxation
than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other
grouse With that decision rendered at a time when American sovereignty in the Philippines was
recognized, it possesses more than just a persuasive effect. To some, it delivered the coup justice to the
bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage.
'In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision:
'Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though
double taxation results.
12

So I would view the issues in this suit and accordingly concur in the result.


Separate Opinions
FERNANDO, J ., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because
with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of
double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon.
1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided
by law.
2
That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law ...
3
As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative
body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power.
4
Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act.
5
Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy
Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan,
6
reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power
granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality."
7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,
8
"is an
attribute of sovereignty which municipal corporations do not enjoy."
9
That case left no doubt either as to
weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in
the interpretation of the power to tax of a municipal corporation."
10
As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced
by this Court in City of Baguio v. De Leon.
11
Thus: "As to why double taxation is not violative of due
process, Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid
down on one side. ... The 14th Amendment [the due process clause) no more forbids double taxation
than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other
grouse With that decision rendered at a time when American sovereignty in the Philippines was
recognized, it possesses more than just a persuasive effect. To some, it delivered the coup justice to the
bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage.
'In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision:
'Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though
double taxation results.
12

So I would view the issues in this suit and accordingly concur in the result.
Footnotes
1 "Sec. 2. Taxation. Any provision of law to the contrary notwithstanding, all
chartered cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising private in chartered cities, municipalities and municipal
districts by requiring them to secure licenses at rates fixed by the municipal board or
city council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district to collect fees and charges for service
rendered by the city, municipality or municipal district; to regulate and impose
reasonable for services rendered in connection with any business, profession
occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses or fees:
Provided, That municipalities and municipal districts shall, in no case, impose any
percentage tax on sales or other taxes in any form based thereon nor impose taxes
on articles subject to specific tax, except gasoline, under the provisions of the
National Internal Revenue Code: Provided, however, That no city, municipality or
municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of any newspaper engaged in the printing and publication
of any newspaper, magazine, review or bulletin appearing at regular interval and
having fixed prices for subscription and sale, and which is not published primarily for
the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except
electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage on wharves owned by the national
government, tonnage and all other kinds of customs fees, charges and dues;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise
tax:
(k) Taxes on premiums paid by owners of property who obtain insurance directly with
foreign insurance companies; and
(i) Taxes, fees or levies, of any kind, which in effect impose a burden on exports of
Philippine finished, manufactured or processed products and products of Philippine
cottage industries.
2 Section 2.
3 Section 3.
4 Section 2.
5 Section 3.
6 Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.
7 Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan, L-22814, August 28,
1968, 24 SCRA 793-96.
8 Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).
9 Cooley, ante at 190.
10 Idem at 198-200.
11 Malcolm, Philippine Constitutional Law, 513-14.
12 Cooley ante at 334.
13 See footnote 1.
14 Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, 1, 2S 1 4, August 28,
1968, 24 SCRA 793-96. See Sec. 22, Art. VI, 1935
Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution.
15 Commissioner of Internal Revenue v. Lednicky L- 18169, July 31, 1964, 11 SCRA
609.
16 SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.
17 Punzalan v. Mun. Bd of City of Manila, 50 O.G. 2485; manufacturers Life Ins. Co.
v. Meer, 89 Phil. 351 (1951).
18 McQuillin. Municipal Corporations, 3rd. Ed., Vol. 6, at 206.-210.
19 Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin
Bay Mining Co. v. Mun. of Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 663-
64.
20 Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975.
21 SMB, Inc. v. City of Cebu, ante, Footnote 16.
22 Shell Co. of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA
No. 953, Narcotic Drugs Law, June 20, 1953.
23 Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks
contains 8 oz., or 192 oz. per case of 24 bottles; a family-size contains 26 oz., or 312
oz. per case of 12 bottles.
24 See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14,
where the tax rate is P.10 per case of 24 bottles; City of Bacolod v. Gruet, L-18290,
January 31, 1963, 7 SCRA 168-69, where the tax is P.03 on every case of bottled
Coca-Coal.
25 Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January
30, 1971, 31 SCRA 308.
26 William Lines, Inc. v. City of Ozamis, L-350048, April 23, 1974, 56 SCRA 593,
Second Division, per Fernando, J.
27 Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRa
205.
28 Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125,
January 31, 1973, 43 SCRA 133-34.
29 Subject of plaintiff-appellant's Motion for Admission and consideration of Essential
Newly Dissevered Evidence, dated April 30, 1969.
FERNANDO, J.
1 L-24756, October 31, 1968, 25 SCRA 938.
2 Article XI, Section 5 of the present Constitution.
3 Article VII, Section 10 of the 1935 Constitution.
4 Commonwealth Act 472 entitled: "An Act Revising the General Authority of
Municipal Councils and Municipal District Councils to Levy Taxes, Subject to Certain
Limitations."
5 Republic Act No. 2264.
6 L-18534, December 24,1964,12 SCRA 611.
7 Ibid, 619. Cf. Cuunjieng v. Potspone, 42 Phil. 818 (1922); De Linan v. Municipal
Council of Daet, 44 Phil. 792 (1923); Arquiza Luta v. Municipality of Zamboanga, 50
Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga, 55 Phil. 653 (1931); Yeo Loby
v. Zamboanga, 55 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap Tak
Wing v. Municipal Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso 83
Phil. 852 (1949); De la Rosa v. City of Baguio, 91 Phil. 720 (I!)52); Medina v. City of
Baguio, 91 Phil. 854 (1952); Standard-Vacuum Oil Co. v. Antigua, 96 Phil. 909
(1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956), We Wa
Yu v. City of Lipa, Phil. 975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963
(1959).
8 L-14264, April 30, 1963, 7 SCRA 887.
9 Ibid, 892.
10 Ibid.
11 L-24756, October 31, 1968, 25 SCRA 938.
12 Ibid, 943-944.

G.R. No. 99886 March 31, 1993
JOHN H. OSMEA, petitioner,
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.

NARVASA, C.J .:
The petitioner seeks the corrective,
1
prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court,
2
upon the following posited grounds, viz.:
3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution;
4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"
5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,
6
because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,
7
and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also
authorized the investment of the fund in government securities, with the earnings from such placements
accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;
8
that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept,
process and pay claims not authorized under P.D. 1956."
9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective."
10
Petitioner further points out that since "a 'special fund' consists of monies collected through
the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the
special purpose/objective for which it was created."
11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax."
12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose."
13
The petitioner's perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding inValmonte v. Energy Regulatory Board, et al.
14

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by exchange
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products."
15
Under P.D. No. 1956, as amended by Executive Order No. 137
dated 27 February 1987, this Trust Account may be funded from any of the following
sources:
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 of 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.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences that
such frequent oil price adjustments may have upon the economy. Thus, the OPSF
serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those portions of
their costs which they would not otherwise recover given the level of domestic prices
existing at any given time.To the extent that some tax revenues are also put into it,
the OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that 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. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil clearly critical in importance considering, among
other things, the continuing high level of dependence of the country on imported
crude oil are appropriately regarded as public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank,
16
this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1).
17

The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation
made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). (Emphasis supplied).
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956
18
expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax."
19
The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying
out the objectives of the law which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform.
20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole.
21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions."
22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended
23
the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'"
24
and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million."
25
It is argued "that under the principle of ejusdem generis . . . the term 'other factors'
(as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in the
reduction of domestic prices of petroleum products."
26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al.,
27
passed upon
the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here 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."
28
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 valorem taxes. 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 the cost underrecovery
only if such were incurred as a result of the reduction of domestic prices of petroleum
products.
The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher
price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held inCaltex
29
and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952,
establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of
"cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation."
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
SO ORDERED.
Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.

# Footnotes
1 The writ of certiorari is, of course, available only as against tribunals, boards or
officers exercisingjudicial or quasi-judicial functions.
2 The petition alleges separate causes or grounds for each extraordinary writ sought.
3 Rollo, pp. 1 to 4.
4 Rollo, p. 2.
5 Id.
6 When this petition was filed, the amount involved was P5,277.4 million.
7 Issued on 9 May 1985.
8 Rollo, pp. 8-9.
9 Rollo, p. 11; emphasis supplied.
10 Id., pp. 13-4.
11 Id., p. 15.
12 Rollo, p. 17.
13 Comment of the Respondents; Rollo, p. 63.
14 G.R. Nos. L-79501-03 [23 June 1988] 162 SCRA 521; Decided jointly with
Citizen's Alliance for Consumer Protection v. Energy Regulatory Board et al., G.R.
Nos. L-78888-90, and Kilusang Mayo Uno Labor Center v. Energy Regulatory Board,
et al., G.R. Nos. L-79590-92; emphasis supplied.
15 Citing E.O. No. 137, Sec. 1 (amending 8 of P.D. 1956).
16 158 SCRA 626, emphasis supplied.
17 "(3) All money collected on any tax levied for a special purpose shall be treated as
a special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the government." (1987 Constitution, Art. VI, Sec.
28[3]).
18 Supra; see footnote 14 and related text.
19 Rollo, p. 17.
20 SEE Vigan Electric Light Co., Inc. v. Public Service Commission, G.R. No.
L-19850, 30 January 1964 and Pelaez v. Auditor General, G.R. No. L-23825, 24
December 1965; see also Gonzales, N. Administrative Law A Text, (1979) at 29.
21 De La Llana v. Alba, 112 SCRA 294, citing Edu v. Ericta, 35 SCRA
481: Cf. Agustin v. Edu, 88 SCRA 195.
22 Hirabayashi v. U.S., 390 U.S. 99.
23 When this petition was filed, the amount involved was P5,277.4 million.
24 Rollo, p. 20.
25 Id., p. 21.
26 Id., p. 20.
27 Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., G.R. No.
92585, 8 May 1992, En Banc. N.B. The Solicitor General seems to have taken a
different position in this case, with respect to the application of ejusdem generis.
28 Smith Bell and Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53
[1954], citing BLACK on Interpretation of Law, 2nd ed. at 203: see also Republic v.
Migrio 189 SCRA 289 [1990].
29 Supra at note 25; SEE also Maceda v. Hon. Catalino Macaraig, Jr., et al., G.R.
No. 88291, 197 SCRA 771 (1991).
G.R. No. L-29646 November 10, 1978
MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.
Sotero H. Laurel for respondents.

FERNANDEZ, J .:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge
Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the
dispositive portion of winch reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the
respondents, declaring Ordinance No. 6 37 of the City of Manila null and void. The
preliminary injunction is made permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.)
FRAN
CISCO
ARCA
J
u
d
g
e
1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22,
1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968.
2

City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF
THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO
BE ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN
THE CITY OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT
FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES.
3

Section 1 of said Ordinance No. 6537
4
prohibits aliens from being employed or to engage or participate
in any position or occupation or business enumerated therein, whether permanent, temporary or casual,
without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign countries, or in the technical
assistance programs of both the Philippine Government and any foreign government, and those working
in their respective households, and members of religious orders or congregations, sect or denomination,
who are not paid monetarily or in kind.
Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six
(6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and
imprisonment, upon conviction.
5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a
petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797,
praying for the issuance of the writ of preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537
null and void.
6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila,
Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in
taxation;
2) As a police power measure, it makes no distinction between useful and non-useful
occupations, imposing a fixed P50.00 employment permit, which is out of proportion
to the cost of registration and that it fails to prescribe any standard to guide and/or
limit the action of the Mayor, thus, violating the fundamental principle on illegal
delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are
thus, deprived of their rights to life, liberty and property and therefore, violates the
due process and equal protection clauses of the Constitution.
7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17,
1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ
of preliminary injunction.
8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed
by respondent Judge in the latter's decision of September 17,1968:
9

I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF
LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE
OF UNIFORMITY OF TAXATION.
II
RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR
OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE
AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT
ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE
PROCESS AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the
ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation
applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue
measure but is an exercise of the police power of the state, it being principally a regulatory measure
in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal
purpose is regulatory in nature has no merit. While it is true that the first part which requires that the
alien shall secure an employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for employment permits and
therefore is regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the
equal protection clause of the Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a reasonable relation to the
subject of the particular legislation. The same amount of P50.00 is being collected from every
employed alien whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise
of his discretion. It has been held that where an ordinance of a municipality fails to state any policy
or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by
requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus
conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building
permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or
prevent an activity per se lawful.
10

In Chinese Flour Importers Association vs. Price Stabilization Board,
11
where a law granted a
government agency power to determine the allocation of wheat flour among importers, the Supreme
Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer an
arbitrary discretion to be exercised without a policy, rule, or standard from which it can be measured or
controlled.
It was also held in Primicias vs. Fugoso
12
that the authority and discretion to grant and refuse permits
of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled
discretion but legal discretion to be exercised within the limits of the law.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide
the mayor in the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the
Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who
may withhold or refuse it at will is tantamount to denying him the basic right of the people in the
Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life
without due process of law. This guarantee includes the means of livelihood. The shelter of
protection under the due process and equal protection clause is given to all persons, both aliens and
citizens.
13

The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.
Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.
Concepcion, Jr., J., took no part.


Separate Opinions

TEEHANKEE, J ., concurring:
I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment
declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment
of aliens within the country is a matter of national policy and regulation, which properly pertain to the
national government officials and agencies concerned and not to local governments, such as the
City of Manila, which after all are mere creations of the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz,
the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain
gainful employment in the country with the exception of certain specific fields and areas. Such
national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national
government.
As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129:
"The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular
(National) Government adopts a policy, a municipality is without legal authority to nullify and set at
naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public
policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).
With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here, since
in such matters the views and decisions of the Chief of State and of the legislature must prevail over
those of subordinate and local governments and officials who have no authority whatever to take
official acts to the contrary.


Separate Opinions
TEEHANKEE, J ., concurring:
I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment
declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment
of aliens within the country is a matter of national policy and regulation, which properly pertain to the
national government officials and agencies concerned and not to local governments, such as the
City of Manila, which after all are mere creations of the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz,
the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain
gainful employment in the country with the exception of certain specific fields and areas. Such
national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national
government.
As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129:
"The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular
(National) Government adopts a policy, a municipality is without legal authority to nullify and set at
naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public
policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).
With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here, since
in such matters the views and decisions of the Chief of State and of the legislature must prevail over
those of subordinate and local governments and officials who have no authority whatever to take
official acts to the contrary.
Footnotes
1 Annex "F", Petition, Rollo, p. 64.
2 Petition, Rollo, p. 28.
3 Annex "A", of Petition, Rollo, p. 37-38.
4 Section 1. It shall he unlawful for any person not a citizen of the Philippines to be
employed in any kind of position or occupation or allowed directly or indirectly to
participate in the functions, administration or management in any office, corporation,
store, restaurant, factory, business firm, or any other place of employment either as
consultant, adviser, clerk, employee, technician, teacher, actor, actress, acrobat,
singer or other theatrical performer, laborer, cook, etc., whether temporary, casual,
permanent or otherwise and irrespective of the source or origin of his compensation
or number of hours spent in said office, store, restaurant, factory, corporation or any
other place of employment, or to engage in any kind of business and trade within the
City of Manila, without first securing an employment permit from the Mayor of Manila,
and paying the necessary fee therefor to the City the City Treasurer: PROVIDED,
HOWEVER, That persons employed in diplomatic and consular missions of foreign
countries and in technical assistance programs agreed upon by the Philippine
Government and any foreign government, and those working in their respective
households, and members of different congregations or religious orders of any
religion, sect or denomination, who are not paid either monetarily or in kind shag be
exempted from the provisions of this Ordinance.
5 Section 4. Any violation of this Ordinance shall upon conviction, be punished by
imprisonment of not less than three (3) months but not more than six (6) months or
by a fine of not less than one hundred pesos (P100.00) but not more than two
hundred pesos (P200.00), or by both such fine and imprisonment, in the discretion of
the Court: PROVIDED, HOWEVER, That in case of juridical persons, the President,
the Vice-President or the person in charge shall be liable.
6 Annex "B", Petition, Rollo, p. 39.
7 Ibid
8 Annex "F", Petition, Rollo, pp. 75-83.
9 Petition, Rollo, p. 31.
10 People vs. Fajardo, 104 Phil. 443, 446.
11 89 Phil. 439, 459-460.
12 80 Phil. 86.
13 Kwong Sing vs. City of Manila, 41 Phil, 103.




G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as
Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of
Manila, Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J .:
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE
RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR
OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on
June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil
Case 96787 before the Court of First Instance of Manila presided over by respondent Judge,
seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication
requirement under the Revised Charter of the City of Manila has not been complied with; (b) the
Market Committee was not given any participation in the enactment of the ordinance, as envisioned
by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent
Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation
of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax
Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975,
declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-
compliance with the requirement of publication under the Revised City Charter. Respondent Judge
ruled:
There is, therefore, no question that the ordinance in question was not published at
all in two daily newspapers of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner after approval, although it
was posted in the legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory requirement of publication
before and after approval, the ordinance in question is invalid and, therefore, null and
void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-
publication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the
City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general
circulation in the city, and shall not be discussed or enacted by the Board until after
the third day following such publication. * * * Each approved ordinance * * * shall be
published in two daily newspapers of general circulation in the city, within ten days
after its approval; and shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrioordinances levying or imposing taxes, fees or other
charges shall be published for three consecutive days in a newspaper or publication
widely circulated within the jurisdiction of the local government, or posted in the local
legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city,
municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction
of the local government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates
only to the City of Manila, whereas the Local Tax Code is a general law because it applies
universally to all local governments. Blackstone defines general law as a universal rule affecting the
entire community and special law as one relating to particular persons or things of a class.
1
And the
rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law. The
fact that one is special and the other general creates a presumption that the special is to be considered
as remaining an exception of the general, one as a general law of the land, the other as the law of a
particular case.
2
However, the rule readily yields to a situation where the special statute refers to a
subject in general, which the general statute treats in particular. The exactly is the circumstance obtaining
in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in
general, i.e., irrespective of the nature and scope thereof,whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore,
to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that
dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision.
3
Special provision governs.
4
This is especially true
where the law containing the particular provision was enacted later than the one containing the general
provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code
which was decreed on June 1, 1973. The law-making power cannot be said to have intended the
establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of
a prior law by which the new will of the legislating power may be thwarted and overthrown. Such a result
would render legislation a useless and Idle ceremony, and subject the law to the reproach of uncertainty
and unintelligibility.
5

The case of City of Manila v. Teotico
6
is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin
or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A.
409) exempting the City of Manila from any liability for damages or injury to persons or property arising
from the failure of the city officers to enforce the provisions of the charter or any other law or ordinance, or
from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting to
enforce the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189
of the Civil Code makes cities liable for damages for the death of, or injury suffered by any persons by
reason of the defective condition of roads, streets, bridges, public buildings, and other public works under
their control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as
its territorial application is concerned, the Revised City Charter is a special law and the subject matter of
the two laws, the Revised City Charter establishes a general rule of liability arising from negligence in
general, regardless of the object thereof, whereas the Civil Code constitutes a particular prescription for
liability due to defective streets in particular. In the same manner, the Revised Charter of the City
prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a rule
for the publication of "ordinance levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one.
7
A charter provision may be impliedly modified or superseded by a later statute,
and where a statute is controlling, it must be read into the charter notwithstanding any particular charter
provision.
8
A subsequent general law similarly applicable to all cities prevails over any conflicting charter
provision, for the reason that a charter must not be inconsistent with the general laws and public policy of
the state.
9
A chartered city is not an independent sovereignty. The state remains supreme in all matters
not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it
is to have read into it that general law which governs the municipal corporation and which the corporation
cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its
charter general law of such character.
10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as
having been violated by private respondent in bringing a direct suit in court. This is because Section
47 of the Local Tax Code provides that any question or issue raised against the legality of any tax
ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax
ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose
decision shall be final and executory unless contested before a competent court within thirty (30)
days. But, the petition below plainly shows that the controversy between the parties is deeply rooted
in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax
Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue,
and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply.
11
The principle may also be disregarded when it
does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its
application may cause great and irreparable damage.
12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because
the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-
raising function, so that the procedure for publication under the Local Tax Code finds no application.
The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object
of taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law."
13
And one of those sources of revenue is what the Local Tax Code points to in
particular: "Local governments may collect fees or rentals for the occupancy or use of public markets and
premises * * *."
14
They can provide for and regulate market stands, stalls and privileges, and, also, the
sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose
of stands, stalls or marketing privileges.
15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said decree
prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and
post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be
authorized by the Secretary of Agriculture and Natural Resources."
16
Clearly, even the exception
clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code
(P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for the
slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522
supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila,
providing that "the market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor, policies and rules or regulation
repealing or maneding existing provisions of the market code" does not infect the ordinance with any
germ of invalidity.
17
The function of the committee is purely recommendatory as the underscored phrase
suggests, its recommendation is without binding effect on the Municipal Board and the City Mayor. Its
prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the
Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate
remains undisturbed even in the slightest degree. It can move in its own initiative and the Market
Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the Municipal
Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of
the necessary data, studies and the collection of consensus for the proposal of ordinances regarding city
markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market Committee
the adoption of regulatory measures for the operation and administration of the city markets. Potestas
delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said
fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation
but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the
collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is
raised. It is not dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed for a public purpose,
although it be under the direction of an individual or private corporation.
18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will
necessarily inure to the unwarranted benefit and advantage of the corporation.
19
We are concerned
only with the issue whether the ordinance in question is intra vires. Once determined in the affirmative,
the measure may not be invalidated because of consequences that may arise from its enforcement.
20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No.
7522 of the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No.
costs.
SO ORDERED.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.


Separate Opinions

FERNANDO, J ., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."


Separate Opinions
FERNANDO, J ., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."
Footnotes
1 Cooley, The Law of Taxation, Vol. 2, 4th ed.
2 Butuan Sawmill, Inc. vs. City of Butuan, L-21516, April 29, 1966, 16 SCRA 758,
citing State v. Stoll, 17 Wall. 425.
3 Lichauco & Co. v. Apostol, 44 Phil. 145 (1922).
4 Crawford, Construction of Statutes, 265, citing U.S. v. Jackson, 143 Fed. 783.
5 See Separate Opinion of Justice Johns in Lichauco, fn. 3, citing Lewis' Sutherland
Statutory Construction, at 161.
6 L-23052, January 29, 1968, 22 SCRA 270.
7 See 73 Am Jur 2d 521.
8 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 223.
9 See Bowyer v. Camden, 11 Atl. 137.
10 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 229-230.
11 Tapales v. President and Board of Regents of the U.P., L-17523, March 30, 1963,
7 SCRA 553; C.N. Hodges v. Municipal Board of the City of Iloilo, L-18276, January
12, 1967, 19 SCRA 32-33; Aguilar v. Valencia, L-30396, July 30, 1971, 40 SCRA
214;. Mendoza v. SSC, L-29189, April 11, 1972, 44 SCRA 380.
12 Cipriano v. Marcelino, L-27793, February 28, 1972, 43 SCRA 291; Del Mar v.
PVA, L-27299, June 27, 1973, 51 SCRA 346, citing cases.
13 See City of Bacolod v. Enriquez, L-27408, July 25, 1975, Second Division, per
Fernando, J., 65 SCRA 384-85.
14 Article 5, Section 30, Chapter II.
15 McQuillin, Municipal Corporations, Vol. 7, 3rd ed., 275.
16 P.D. 7 was amended by P.D. 45 on November 10, 1972, so as to allow local
governments to charge the ordinary fee for the issuance of certificate of ownership
and one peso for the issuance of transfer certificate for livestock.
17 The market committee is composed of the market administrator as chairman, and
a representative of each of the city treasurer, the municipal board, the Chamber of
Filipino Retailers, Inc. and the Manila Market Vendors Association Inc. as members.
18 Cooley, The Law of Taxation, Vol. 1, 394-95.
19 Section 3 (e) causing any undue injury to any party, including the government, or
giving any private party any unwarranted benefits, advantage or preference in the
discharge of his official administrative or judicial functions through manifest partiality,
evident bad faith or gross inexcusable negligence.* * *
G.R. No. 163835 July 7, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., Respondent.
D E C I S I O N
BRION, J .:
Through a petition for review on certiorari,
1
petitioner Commissioner of Internal Revenue (CIR) seeks
to set aside the decision dated October 1, 2003
2
and the resolution dated May 26, 2004
3
of the Court
of Appeals (CA) in CA G.R. SP No. 61157. The assailed CA rulings affirmed the decision dated July
17, 2000
4
of the Court of Tax Appeals (CTA) in CTA Case No. 5551, partially granting respondent
Eastern Telecommunications Philippines, Inc.s (Easterns) claim for refund of unapplied input tax
from its purchase and importation of capital goods.
THE FACTUAL ANTECEDENTS
Eastern is a domestic corporation granted by Congress with a telecommunications franchise under
Republic Act (RA) No. 7617 on June 25, 1992. Under its franchise, Eastern is allowed to install,
operate, and maintain telecommunications system throughout the Philippines.
From July 1, 1995 to December 31, 1996, Eastern purchased various imported equipment,
machineries, and spare parts necessary in carrying out its business activities. The importations were
subjected to a 10% value-added tax (VAT) by the Bureau of Customs, which was duly paid by
Eastern.
On September 19, 1997, Eastern filed with the CIR a written application for refund or credit of
unapplied input taxes it paid on the imported equipment during the taxable years 1995 and 1996
amounting to P22,013,134.00. In claiming for the tax refund, Eastern principally relied on Sec. 10 of
RA No. 7617, which allows Eastern to pay 3% of its gross receipts in lieu of all taxes on this
franchise or earnings thereof.
5
In the alternative, Eastern cited Section 106(B) of the National
Internal Revenue Code of 1977
6
(Tax Code) which authorizes a VAT-registered taxpayer to claim for
the issuance of a tax credit certificate or a tax refund of input taxes paid on capital goods imported or
purchased locally to the extent that such input taxes
7
have not been applied against its output taxes.
8

To toll the running of the two-year prescriptive period under the same provision, Eastern filed an
appeal with the CTA on September 25, 1997 without waiting for the CIRs decision on its application
for refund. The CIR filed an Answer to Easterns appeal in which it raised the following special and
affirmative defenses:
6. [Easterns] claim for refund/tax credit is pending administrative investigation;
x x x x
8. [Easterns] exempting clause under its legislative franchise x x x should be understood or
interpreted as written, meaning, the 3% franchise tax shall be collected as substitute for any
internal revenue taxes x x x imposed on its franchise or gross receipts/earnings thereof x x x;
9. The [VAT] on importation under Section 101 of the [1977] Tax Code is neither a tax on
franchise nor on gross receipts or earnings thereof. It is a tax on the privilege of importing
goods whether or not the taxpayer is engaged in business, and regardless of whether the
imported goods are intended for sale, barter or exchange;
10. The VAT under Section 101(A) of the Tax Code x x x replaced the advance sales tax and
compensating tax x x x. Accordingly, the 3% franchise tax did not substitute the 10% [VAT]
on [Easterns] importation of equipment, machineries and spare parts for the use of its
telecommunication system;
11. Tax refunds are in the nature of tax exemptions. As such, they are regarded in
derogation of sovereign authority and to be construed in strictissimi juris against the person
or entity claiming the exemption. The burden is upon him who claims the exemption in his
favour and he must be able to justify his claim by the clearest grant of organic or statute law
and cannot be permitted to exist upon vague implication x x x;
12. Taxes paid and collected are presumed to have been made in accordance with the laws
and regulations; and
13. It is incumbent upon the taxpayer to establish its right to the refund and failure to sustain
the burden is fatal to the claim for refund.
9

Ruling in favor of Eastern, the CTA found that Eastern has a valid claim for the refund/credit of the
unapplied input taxes, not on the basis of the "in lieu of all taxes" provision of its legislative
franchise,
10
but rather, on Section 106(B) of the Tax Code, which states:
SECTION 106. Refunds or tax credits of input tax.
x x x x
(b) Capital goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. The application may be made only within
two (2) years after the close of the taxable quarter when the importation or purchase was
made.
11
[Emphases supplied.]
The CTA ruled that Eastern had satisfactorily shown that it was entitled to the claimed refund/credit
as all the elements of the above provision were present: (1) Eastern was a VAT-registered entity
which paid 10% input taxes on its importations of capital equipment; (2) this input VAT remained
unapplied as of the first quarter of 1997; and (3) Eastern seasonably filed its application for
refund/credit within the two-year period stated in the law. However, the CTA noted that Eastern was
able to substantiate only P21,487,702.00 of its claimed amount ofP22,013,134.00. The difference
represented input taxes that were allegedly paid but were not supported by the corresponding
receipts, as found by an independent auditor. Moreover, it excluded P5,360,634.00 in input taxes on
imported equipment for the year 1995, even when these were properly documented as they were
already booked by Eastern as part of the cost. Once input tax becomes part of the cost of capital
equipment, it necessarily forms part of depreciation. Thus, to grant the refund of the 1995 creditable
input tax amounts to twice giving Eastern the tax benefit. Thus, in its July 17, 2000 decision, the CTA
granted in part Easterns appeal by declaring it entitled to a tax refund of P16,229,100.00,
representing unapplied input taxes on imported capital goods for the taxable year 1996.
12

The CIR filed, on August 3, 2000, a motion for reconsideration
13
of the CTAs decision. About a
month and a half later, it filed a supplemental motion for reconsideration dated September 15,
2000.
14
The CTA denied the CIRs motion for reconsideration in its resolution dated September 20,
2000.
15
The CIR then elevated the case to the CA through a petition for review under Rule 43 of the
Rules of Court. The CA affirmed the CTA ruling through its decision dated October 1, 2003
16
and its
resolution dated May 26, 2004,
17
denying the motion for reconsideration. Hence, the present petition.
THE PETITIONERS ARGUMENTS
The CIR takes exception to the CAs ruling that Eastern is entitled to the full amount of unapplied
input taxes paid for its purchase of imported capital goods that were substantiated by the
corresponding receipts and invoices. The CIR posits that, applying Section 104(A) of the Tax Code
on apportionment of tax credits, Eastern is entitled to a tax refund of only P8,814,790.15, instead of
the P16,229,100.00 adjudged by the CTA and the CA. Section 104(A) of the Tax Code states:
SEC. 104. Tax Credits.
(a) Creditable Input tax. -
x x x x
A VAT-registered person who is also engaged in transactions not subject to the value-added tax
shall be allowed input tax credit as follows:
(A) Total input tax which can be directly attributed to transactions subject to value-added tax;
and
(B) A ratable portion of any input tax which cannot be directly attributed to either
activity.
18
[Emphases supplied.]
To be entitled to a tax refund of the full amount of P16,229,100.00, the CIR asserts that Eastern
must prove that (a) it was engaged in purely VAT taxable transactions and (b) the unapplied input
taxes it claims as refund were directly attributable to transactions subject to VAT. The VAT returns of
Eastern for the 1st, 2nd, 3rd, and 4th quarters of 1996, however, showed that it earned income from
both transactions subject to VAT and transactions exempt from VAT;
19
the returns reported income
earned from taxable sales, zero-rated sales, and exempt sales in the following amounts:
1996 Taxable Sales Zero-Rated Sales Exempt Sales
1st Quarter 820,673.70 --- ---
2nd Quarter 3,361,618.59 225,088,899.07 140,111,655.85
3rd Quarter 2,607,168.96 169,821,537.80 187,712,657.16
4th Quarter 1,134,942.71 162,530,947.40 147,717,028.53
TOTAL 7,924,403.96 557,441,384.27 475,541,341.54
Total Amount of Sales 1,040,907,129.77
The taxable sales and zero-rated sales are considered transactions subject to VAT,
20
while exempt
sales refer to transactions not subject to VAT.
Since the VAT returns clearly reflected income from exempt sales, the CIR asserts that this
constitutes as an admission on Easterns part that it engaged in transactions not subject to VAT.
Hence, the proportionate allocation of the tax credit to VAT and non-VAT transactions provided in
Section 104(A) of the Tax Code should apply. Eastern is then entitled to only P8,814,790.15 as the
ratable portion of the tax credit, computed in the following manner:
Taxable Sales + Zero-rated Sales

Total Sales
x Input Tax as found by the CTA = Refundable input tax
7,924,403.96 + 557,445,384.97

1,040,907,129.77
x 16,229,100.00 = P8,814,790.15
THE RESPONDENTS ARGUMENTS
Eastern objects to the arguments raised in the petition, alleging that these have not been raised in
the Answer filed by the CIR before the CTA. In fact, the CIR only raised the applicability of Section
104(A) of the Tax Code in his supplemental motion for reconsideration of the CTAs ruling which,
notably, was filed a month and a half after the original motion was filed, and thus beyond the 15-day
reglementary period.
21
Accordingly, the applicability of Section 104(A) was never validly presented
as an issue before the CTA; this, Eastern presumes, is the reason why it was not discussed in the
CTAs resolution denying the motion for reconsideration. Eastern claims that for the CIR to raise
such an issue now would constitute a violation of its right to due process; following settled rules of
procedure and fair play, the CIR should not be allowed at the appeal level to change his theory of
the case.
Moreover, in raising the question of whether Eastern was in fact engaged in transactions not subject
to VAT and whether the unapplied input taxes can be directly attributable to transactions subject to
VAT, Eastern posits that the CIR is effectively raising factual questions that cannot be the subject of
an appeal by certiorari before the Court.
Even if the CIRs arguments were considered, Eastern insists that the petition should nevertheless
be denied since the CA found that there was no evidence in the claim that it was engaged in non-
VAT transactions. The CA has ruled that:
The following requirements must be present before [Section 104(A)] of the [1977 Tax Code] can be
applied, to wit:
1. The person claiming the creditable input tax must be VAT-registered;
2. Such person is engaged in a transaction subject to VAT;
3. The person is also engaged in other transactions not subject to VAT; and
4. The ratable portion of any input tax cannot be directly attributed to either activity.
In the case at bar, the third and fourth requisites are not extant. It is undisputed that [Eastern] is
VAT-registered and the importation of [Easterns] telecommunications equipment, machinery, spare
parts, fiber optic cables, and the like, as found by the CTA, is a transaction subject to VAT. However,
there is no evidence on record that would evidently show that respondent is also engaged in other
transactions that are not subject to VAT. [Emphasis supplied.]
22

Given the parties arguments, the issue for resolution is whether the rule in Section 104(A) of the Tax
Code on the apportionment of tax credits can be applied in appreciating Easterns claim for tax
refund, considering that the matter was raised by the CIR only when he sought reconsideration of
the CTA ruling?
THE COURTS RULING
We find the CIRs petition meritorious.
The Rules of Court prohibits raising new issues on appeal; the question of the applicability of Section
104(A) of the Tax Code was already raised but the tax court did not rule on it
Section 15, Rule 44 of the Rules of Court embodies the rule against raising new issues on appeal:
SEC. 15. Questions that may be raised on appeal. Whether or not the appellant has filed a motion
for new trial in the court below, he may include in his assignment of errors any question of law or fact
that has been raised in the court below and which is within the issues framed by the parties.
The general rule is that appeals can only raise questions of law or fact that (a) were raised in the
court below, and (b) are within the issues framed by the parties therein.
23
An issue which was neither
averred in the pleadings nor raised during trial in the court below cannot be raised for the first time
on appeal.
24
The rule was made for the benefit of the adverse party and the trial court as well.
Raising new issues at the appeal level is offensive to the basic rules of fair play and justice and is
violative of a partys constitutional right to due process of law. Moreover, the trial court should be
given a meaningful opportunity to consider and pass upon all the issues, and to avoid or correct any
alleged errors before those issues or errors become the basis for an appeal.
25

Eastern posits that since the CIR raised the applicability of Section 104(A) of the Tax Code only in
his supplemental motion for reconsideration of the CTA decision (which was even belatedly filed),
the issue was not properly and timely raised and, hence, could not be considered by the CTA. By
raising the issue in his appeal before the CA, the CIR has violated the above-cited procedural rule.
Contrary to Easterns claim, we find that the CIR has previously questioned the nature of Easterns
transactions insofar as they affected the claim for tax refund in his motion for reconsideration of the
CTA decision, although it did not specifically refer to Section 104(A) of the Tax Code. We quote
relevant portions of the motion:
[W]e maintain that [Easterns] claims are not creditable input taxes under [Section 104(A) of the Tax
Code]. What the law contemplates as creditable input taxes are only those paid on purchases of
goods and services specifically enumerated under [Section 104 (A)] and that such input tax must
have been paid by a VAT[-]registered person/entity in the course of trade or business. It must be
noted that [Eastern] failed to prove that such purchases were used in their VAT[-]taxable business.
[Easterns pieces of] evidence are not purchases of capital goods and do not fall under the
enumeration x x x.
It is significant to point out here that refund of input taxes on capital goods shall be allowed only to
the extent that such capital goods are used in VAT[-]taxable business. x x x a perusal of the
evidence submitted before [the CTA] does not show that the alleged capital goods were used in
VAT[-]taxable business of [Eastern] x x x. [Emphases supplied.]
26

In raising these matters in his motion for reconsideration, the CIR put forward the applicability of
Section 104(A) because, essentially, the applicability of the provision boils down to the question of
whether the purchased capital goods which a taxpayer paid input taxes were also used in a VAT-
taxable business, i.e., transactions that were subject to VAT, in order for them to be
refundable/creditable. Once proved that the taxpayer used the purchased capital goods in a both
VAT taxable and non-VAT taxable business, the proportional allocation of tax credits stated in the
law necessarily applies. This rule is also embodied in Section 4.106-1 of Revenue Regulation No. 7-
95, entitled Consolidated Value-Added Tax Regulations, which states:
SEC. 4.106-1. Refunds or tax credits of input tax. x x x x
(b) Capital Goods. Only a VAT-registered person may apply for issuance of a tax credit certificate
or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be
allowed to the extent that such input taxes have not been applied against output taxes. The
application should be made within two (2) years after the close of the taxable quarter when the
importation or purchase was made.
Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are
used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall
only be the ratable portion corresponding to the taxable operations. [Emphasis supplied.]
That the CTA failed to rule on this question when it resolved the CIRs motion for reconsideration
should not be taken against the CIR. It was the CTA which committed an error when it failed to avail
of that "meaningful opportunity to avoid or correct any alleged errors before those errors become the
basis for an appeal."
27
1avvphi 1
Exceptions to the general rule; Easterns VAT returns reporting income from exempt sales are
matters of record that the tax court should have considered
The rule against raising new issues on appeal is not without exceptions; it is a procedural rule that
the Court may relax when compelling reasons so warrant or when justice requires it. What
constitutes good and sufficient cause that would merit suspension of the rules is discretionary upon
the courts.
28
Former Senator Vicente Francisco, a noted authority in procedural law, cites an
instance when the appellate court may take up an issue for the first time:
The appellate court may, in the interest of justice, properly take into consideration in deciding the
case matters of record having some bearing on the issue submitted which the parties failed to raise
or the lower court ignored, although they have not been specifically raised as issues by the
pleadings. This is in consonance with the liberal spirit that pervades the Rules of Court, and the
modern trend of procedure which accord the courts broad discretionary power, consistent with the
orderly administration of justice, in the decision of cases brought before them.
29
[Emphasis supplied.]
As applied in the present case, even without the CIR raising the applicability of Section 104(A), the
CTA should have considered it since all four of Easterns VAT returns corresponding to each taxable
quarter of 1996 clearly stated that it earned income from exempt sales, i.e., non-VAT taxable sales.
Easterns quarterly VAT returns are matters of record. In fact, Eastern included them in its formal
offer of evidence before the CTA "to prove that [it is] engaged in VAT taxable, VAT exempt, and VAT
zero-rated sales." By declaring income from exempt sales, Eastern effectively admitted that it
engaged in transactions not subject to VAT. In VAT-exempt sales, the taxpayer/seller shall not bill
any output tax on his sales to his customers and, corollarily, is not allowed any credit or refund of the
input taxes he paid on his purchases.
30
This non-crediting of input taxes in exempt transactions is the
underlying reason why the Tax Code adopted the rule on apportionment of tax credits under Section
104(A) whenever a VAT-registered taxpayer engages in both VAT taxable and non-VAT taxable
sales. In the face of these disclosures by Eastern, we thus find the CAs the conclusion that "there is
no evidence on record that would evidently show that [Eastern] is also engaged in other transactions
that are not subject to VAT" to be questionable.
31

Also, we disagree with the CAs declaration that:
The mere fact that [Easterns] Quarterly VAT Returns confirm that [Easterns] transactions involved
zero-rated sales and exempt sales do not sufficiently establish that the same were derived from
[Easterns] transactions that are not subject to VAT. On the contrary, the transactions from which
[Easterns] sales were derived are subject to VAT but are either zero[-]rated (0%) or otherwise
exempted for falling within the transactions enumerated in [Section 102(B) or Section 103] of the Tax
Code.
32
[Emphasis supplied.]
Section 103 of the Tax Code
33
is an enumeration of transactions exempt from VAT. Explaining the
relation between exempt transactions in Section 103 and claims for tax refunds, the Court declared
in CIR v. Toshiba Equipment (Phils.), Inc. that:
Section 103 x x x of the Tax Code of 1977, as amended, relied upon by petitioner CIR, relates to
VAT-exempt transactions. These are transactions exempted from VAT by special laws or
international agreements to which the Philippines is a signatory. Since such transactions are not
subject to VAT, the sellers cannot pass on any output VAT to the purchasers of goods, properties, or
services, and they may not claim tax credit/refund of the input VAT they had paid thereon.
34

The mere declaration of exempt sales in the VAT returns, whether based on Section 103 of the Tax
Code or some other special law, should have prompted the CA to apply Section 104(A) of the Tax
Code to Easterns claim. It was thus erroneous for the appellate court to rule that the declaration of
exempt sales in Easterns VAT return, which may correspond to exempt transactions under Section
103, does not indicate that Eastern was also involved in non-VAT transactions.
Exception to general rule; taxpayer claiming refund has the duty to prove entitlement thereto
Another exemption from the rule against raising new issues on appeal is when the question involves
matters of public importance.
35

The power of taxation is an inherent attribute of sovereignty; the government chiefly relies on
taxation to obtain the means to carry on its operations. Taxes are essential to its very
existence;
36
hence, the dictum that "taxes are the lifeblood of the government." For this reason, the
right of taxation cannot easily be surrendered; statutes granting tax exemptions are considered as a
derogation of the sovereign authority and are strictly construed against the person or entity claiming
the exemption. Claims for tax refunds, when based on statutes granting tax exemption or tax refund,
partake of the nature of an exemption; thus, the rule of strict interpretation against the taxpayer-
claimant similarly applies.
37

The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all
the statutory and administrative requirements to be entitled to the tax refund. This burden cannot be
offset by the non-observance of procedural technicalities by the governments tax agents when the
non-observance of the remedial measure addressing it does not in any manner prejudice the
taxpayers due process rights, as in the present case.
Eastern cannot validly claim to have been taken by surprise by the CIRs arguments on the
relevance of Section 104(A) of the Tax Code, considering that the arguments were based on the
reported exempt sales in the VAT returns that Eastern itself prepared and formally offered as
evidence. Even if we were to consider the CIRs act as a lapse in the observance of procedural
rules, such lapse does not work to entitle Eastern to a tax refund when the established and
uncontested facts have shown otherwise. Lapses in the literal observance of a rule of procedure
may be overlooked when they have not prejudiced the adverse party and especially when they are
more consistent with upholding settled principles in taxation.
WHEREFORE, we GRANT the petitioners petition for review on certiorari, and REVERSE the
decision of the Court of Appeals in CA G.R. SP No. 61157, promulgated on October 1, 2003, as well
as its resolution of May 26, 2004. We order the REMAND of the case to the Court of Tax Appeals to
determine the proportionate amount of tax credit that respondent is entitled to, consistent with our
ruling above. Costs against the respondent.
SO ORDERED.
ARTURO D. BRION
Associate Justice
Acting Chairperson
WE CONCUR:
ANTONIO T. CARPIO
*

Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
ROBERTO A. ABAD
***

Associate Justice
JOSE CATRAL MENDOZA
****

Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
ARTURO D. BRION
**

Associate Justice
Acting Chairperson
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice


Footnotes
*
Designated additional Member of the Third Division, in view of the leave of absence of
Associate Justice Lucas P. Bersamin, per Special Order No. 859 dated July 1, 2010.
**
Designated Acting Chairperson of the Third Division, in view of the leave of absence of
Associate Justice Conchita Carpio Morales, per Special Order No. 849 dated June 29, 2010.
***
Designated additional Member of the Third Division, in view of the retirement of former
Chief Justice Reynato S. Puno, per Special Order No. 843 dated May 17, 2010.
****
Designated additional Member of the Third Division, in view of the leave of absence of
Associate Justice Conchita Carpio Morales, per Special Order No. 850 dated June 29, 2010
1
Filed under Rule 45 of the Rules of Court; rollo, pp. 8-25.
2
Penned by Associate Justice Perlita J. Tria Tirona, and concurred in by Associate Justice
Portia Alio-Hormachuelos and Associate Justice Rosalinda Asuncion-Vicente; id. at 29-34.
3
Id. at 35.
4
Penned by Judge (now Associate Justice) Amancio Q. Saga, and concurred in by Judge
(now Associate Justice) Ernesto D. Acosta and Judge (Associate Justice) Ramon O. De
Veyra; id. at 36-43.
5
Id. at 57; Sec. 10. Tax provisions. The grantee shall be liable to pay the same taxes on
their real estate, buildings, and personal property exclusive of this franchise, as other
persons or telecommunications entities are now or hereafter may be required by law to pay.
In addition thereto, the grantee shall pay to the Bureau of Internal Revenue each year, three
per centum (3%) of the gross receipts of its regulated telecommunication services transacted
under this franchise, and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof; Provided, that the grantee shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code pursuant to Section 2 of
Executive Order No. 72 unless the later enactment is amended or repealed, in which case
the amendment or repeal shall be applicable thereto.
6
Presidential Decree No. 1158, enacted on June 3, 1977. The 1977 Tax Code has been
superseded by Republic Act No. 8424 (1997 Tax Code), enacted on December 11, 1997.
7
The term "input tax" means the value-added tax due from or paid by a VAT-registered
person in the course of his trade or business on importation of goods or local purchase of
goods or services, including lease or use of property, from a VAT-registered person (Section
104, 1977 Tax Code).
8
The term "output tax" means the value-added tax due on the sale or lease of taxable goods
or properties or services by any person registered or required to register under Section 236
of this Code (Section 104, 1977 Tax Code).
9
Rollo, pp. 37-38.
10
See rollo, pp. 39-40, where the CTA reasoned:
The "in lieu of all taxes" proviso found [in Easterns legislative franchise] has been
superseded by the passage of x x x the Expanded VAT Law x x x. [The Expanded
VAT Law amended,] among others, x x x the Tax Code to exclude [franchises] on
telephone and telegraph systems, and radio broadcasting stations and other
[franchises] from payment of the franchise tax, [and instead subjected] these
companies to pay the VAT x x x.
Since [Eastern], being a holder of a telecommunications franchise, is no longer
subject to franchise tax by the enactment of [the Expanded VAT Law] and is now
made liable to pay VAT, the "in lieu of all taxes" proviso under its franchise is no
longer a valid legal basis for its claim for refund. [Emphasis supplied.]
11
Now Section 112(B) of the 1997 Tax Code.
12
Rollo, p. 43.
13
CA rollo, pp. 62-65.
14
Id. at 68-70.
15
Id. at 26-28
16
Supra note 2.
17
Supra note 3.
18
Now Section 110(A) (3) of the 1997 Tax Code.
19
Rollo, pp. 80-90.
20
A zero-rated sale is still considered a taxable transaction for VAT purposes, although the
VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or services taxed
at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be available as tax credit or refund; Atlas
Consolidated Mining and Development Corporation v. CIR, G.R. Nos. 141104 and 148763,
June 8, 2007, 524 SCRA 73, 98.
21
A motion for reconsideration must be filed within the same period for taking an appeal, i.e.,
15 days from notice of judgment. Section 1, Rule 37, in relation to Section 4, Rule 43 of the
Rules of Court.
22
Rollo, p. 32.
23
People v. Echegaray, G.R. No. 117472, February 7, 1997, 267 SCRA 682, 689-690.
24
Dela Santa v. CA, et al., 224 Phil. 195, 209 (1985), and Dihiansan, et al. v. CA, et al., 237
Phil. 695, 701-702 (1987).
25
L. Bersamin, Appeal and Review in the Philippines (2nd ed.), pp. 378, citing Soriano v.
Ramirez, 44 Phil. 475, Toribio v. Decasa, 55 Phil. 461, San Agustin v. Barrios, 68 Phil. 475,
US v. Paraiso, 11 Phil. 799, US v. Rosa, 14 Phil. 394, Pico v. US, 40 Phil. 1117, and Dela
Rama v. Dela Rama, 41 Phil. 980.
26
Rollo, pp. 208-210.
27
Supra note 25.
28
CIR v. Mirant Pagbilao Corporation, G.R. No. 159593, October 16, 2003, 504 SCRA 484,
496.
29
The Revised Rules of Court in the Philippines, Civil Procedure, Rules 40-56, Volume III,
pp. 650-651 (1968 ed.).
30
CIR v. Seagate Technology Philippines, G.R. No. 153866, February 11, 2005, 451 SCRA
132, 145; and Contex Corporation v. CIR, G.R. No. 151135, July 2, 2004, 433 SCRA 376.
31
Rollo, p. 32.
32
Ibid.
33
Now Section 109 of the 1997 Tax Code.
34
G.R. No. 150154, August 9, 2005, 466 SCRA 211, 223.
35
Supra note 25.
36
CIR v. Solidbank Corporation, G.R. No. 148191, November 25, 2003, 416 SCRA 436, 457.
37
CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008, 559 SCRA 160.








G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J .:
In this appeal, a lower court decision upholding the validity of an ordinance
1
of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio
is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with
a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has
been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City
Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from
the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the
consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no question
about the liability of defendant-appellant for the above license fee, it being shown in the partial
stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving income
therefrom during the period covered by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending
the city charter of Baguio
2
empowering it to fix the license fee and regulate "businesses, trades and
occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of
Baguio,
3
the effect of the amendatory section insofar as it would expand the previous power vested
by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its
power to license the power to tax and to regulate. And it is precisely having in view this amendment
that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to
levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology
used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if defendant-
appellant were to be sustained in his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language used in the amendatory act. That is
about all that needs to be said in upholding the lower court, considering that the City of Baguio was
not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however,
defendant-appellant likewise alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now
turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in
the suit for the collection of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now, that while the amount of P300 sought
was within the jurisdiction of the City Court of Baguio where this action originated, since the principal
issue was the legality and constitutionality of the challenged ordinance, it is not such City Court but
the Court of First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently,
on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v.
Sabillano.
4
The plaintiff in that case filed a claim for the payment of his salary before the Justice of
the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the enforcement of the decision of the
Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money
claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,
5
a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of
the amount involved. The thought that the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is
raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not
admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here,
the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a
defense against its enforcement from one adversely affected, the matter should be elevated to the
Court of First Instance. For the City Court could rely on the presumption of the validity of such
ordinance,
6
and the mere fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for
collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the
ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to
any one that the power to declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the responsibility."
7
While it
remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe
certain constitutional rights of a litigant exists, still it should be exercised with due care and
circumspection, considering not only the presumption of validity but also the relatively modest rank
of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample
statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings unconstitutional on other grounds."
8
With that
decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical
state. In a 1947 decision, however,
9
we quoted with approval this excerpt from a leading American
decision:
10
"Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation
may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it
being widely recognized that there is nothing inherently obnoxious in the requirement that license
fees or taxes be exacted with respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof."
11

The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the constitutional requirement of uniformity.
In Philippine Trust Company v. Yatco,
12
Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject
may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.
13
Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la
Fuente
14
incorporated the above excerpt in his opinion and continued: "Taking everything into
account, the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later,
15
is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as accepting the view in a leading
American case
16
that "inequalities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."
17

It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking
in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed "is excessive,
unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection.
A reading of the ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,
18
similarly the act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should
be the case considering that such city official is called upon to see to it that revenues due the City
are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be
resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met
by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes
to it from the functional and pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of
official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of
affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against
defendant-appellant.
Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.


Footnotes
1
Ordinance No. 218.
2
Section 2553, paragraph (c), Revised Administrative Code.
3
91 Phil. 854, 856-857 (1952).
4
L-20977.
5
101 Phil. 859 (1957).
6
U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor of
Manila, L-24693, July 31, 1967.
7
Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927).
8
Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 (1920).
9
Wise & Co. v. Meer, 78 Phil. 655.
10
Helmich v. Hellman, 276 US 233 (1928).
11
Punsalan v. Municipal Board of Manila, 95 Phil. 46, 49 (1954).
12
69 Phil. 420 (1940).
13
83 Phil. 852, 862 (1949).
14
88 Phil. 60, 65 (1951).
15
Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
16
Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937).
17
Lutz v. Araneta, 98 Phil. 148, 153 (1955).
18
Villena v. Sec. of the Interior, 67 Phil. 451 (1939).








G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as
Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of
Manila, Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J .:
The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE
RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR
OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on
June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil
Case 96787 before the Court of First Instance of Manila presided over by respondent Judge,
seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication
requirement under the Revised Charter of the City of Manila has not been complied with; (b) the
Market Committee was not given any participation in the enactment of the ordinance, as envisioned
by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent
Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation
of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax
Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975,
declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-
compliance with the requirement of publication under the Revised City Charter. Respondent Judge
ruled:
There is, therefore, no question that the ordinance in question was not published at
all in two daily newspapers of general circulation in the City of Manila before its
enactment. Neither was it published in the same manner after approval, although it
was posted in the legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory requirement of publication
before and after approval, the ordinance in question is invalid and, therefore, null and
void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-
publication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the
City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general
circulation in the city, and shall not be discussed or enacted by the Board until after
the third day following such publication. * * * Each approved ordinance * * * shall be
published in two daily newspapers of general circulation in the city, within ten days
after its approval; and shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrioordinances levying or imposing taxes, fees or other
charges shall be published for three consecutive days in a newspaper or publication
widely circulated within the jurisdiction of the local government, or posted in the local
legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city,
municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction
of the local government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates
only to the City of Manila, whereas the Local Tax Code is a general law because it applies
universally to all local governments. Blackstone defines general law as a universal rule affecting the
entire community and special law as one relating to particular persons or things of a class.
1
And the
rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law. The
fact that one is special and the other general creates a presumption that the special is to be considered
as remaining an exception of the general, one as a general law of the land, the other as the law of a
particular case.
2
However, the rule readily yields to a situation where the special statute refers to a
subject in general, which the general statute treats in particular. The exactly is the circumstance obtaining
in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in
general, i.e., irrespective of the nature and scope thereof,whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore,
to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that
dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing
taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision.
3
Special provision governs.
4
This is especially true
where the law containing the particular provision was enacted later than the one containing the general
provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code
which was decreed on June 1, 1973. The law-making power cannot be said to have intended the
establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of
a prior law by which the new will of the legislating power may be thwarted and overthrown. Such a result
would render legislation a useless and Idle ceremony, and subject the law to the reproach of uncertainty
and unintelligibility.
5

The case of City of Manila v. Teotico
6
is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin
or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A.
409) exempting the City of Manila from any liability for damages or injury to persons or property arising
from the failure of the city officers to enforce the provisions of the charter or any other law or ordinance, or
from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting to
enforce the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189
of the Civil Code makes cities liable for damages for the death of, or injury suffered by any persons by
reason of the defective condition of roads, streets, bridges, public buildings, and other public works under
their control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as
its territorial application is concerned, the Revised City Charter is a special law and the subject matter of
the two laws, the Revised City Charter establishes a general rule of liability arising from negligence in
general, regardless of the object thereof, whereas the Civil Code constitutes a particular prescription for
liability due to defective streets in particular. In the same manner, the Revised Charter of the City
prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a rule
for the publication of "ordinance levying or imposing taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one.
7
A charter provision may be impliedly modified or superseded by a later statute,
and where a statute is controlling, it must be read into the charter notwithstanding any particular charter
provision.
8
A subsequent general law similarly applicable to all cities prevails over any conflicting charter
provision, for the reason that a charter must not be inconsistent with the general laws and public policy of
the state.
9
A chartered city is not an independent sovereignty. The state remains supreme in all matters
not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it
is to have read into it that general law which governs the municipal corporation and which the corporation
cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its
charter general law of such character.
10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as
having been violated by private respondent in bringing a direct suit in court. This is because Section
47 of the Local Tax Code provides that any question or issue raised against the legality of any tax
ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax
ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose
decision shall be final and executory unless contested before a competent court within thirty (30)
days. But, the petition below plainly shows that the controversy between the parties is deeply rooted
in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax
Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue,
and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply.
11
The principle may also be disregarded when it
does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its
application may cause great and irreparable damage.
12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because
the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-
raising function, so that the procedure for publication under the Local Tax Code finds no application.
The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object
of taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law."
13
And one of those sources of revenue is what the Local Tax Code points to in
particular: "Local governments may collect fees or rentals for the occupancy or use of public markets and
premises * * *."
14
They can provide for and regulate market stands, stalls and privileges, and, also, the
sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose
of stands, stalls or marketing privileges.
15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said decree
prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and
post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be
authorized by the Secretary of Agriculture and Natural Resources."
16
Clearly, even the exception
clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code
(P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for the
slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522
supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila,
providing that "the market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor, policies and rules or regulation
repealing or maneding existing provisions of the market code" does not infect the ordinance with any
germ of invalidity.
17
The function of the committee is purely recommendatory as the underscored phrase
suggests, its recommendation is without binding effect on the Municipal Board and the City Mayor. Its
prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the
Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate
remains undisturbed even in the slightest degree. It can move in its own initiative and the Market
Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the Municipal
Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of
the necessary data, studies and the collection of consensus for the proposal of ordinances regarding city
markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market Committee
the adoption of regulatory measures for the operation and administration of the city markets. Potestas
delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said
fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation
but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the
collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is
raised. It is not dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed for a public purpose,
although it be under the direction of an individual or private corporation.
18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will
necessarily inure to the unwarranted benefit and advantage of the corporation.
19
We are concerned
only with the issue whether the ordinance in question is intra vires. Once determined in the affirmative,
the measure may not be invalidated because of consequences that may arise from its enforcement.
20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No.
7522 of the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No.
costs.
SO ORDERED.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.


Separate Opinions

FERNANDO, J ., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."


Separate Opinions
FERNANDO, J ., concurring:
But qualifies his assent as to an ordinance intra vires not being open to question "because of
consequences that may arise from its enforcement."
Footnotes
1 Cooley, The Law of Taxation, Vol. 2, 4th ed.
2 Butuan Sawmill, Inc. vs. City of Butuan, L-21516, April 29, 1966, 16 SCRA 758,
citing State v. Stoll, 17 Wall. 425.
3 Lichauco & Co. v. Apostol, 44 Phil. 145 (1922).
4 Crawford, Construction of Statutes, 265, citing U.S. v. Jackson, 143 Fed. 783.
5 See Separate Opinion of Justice Johns in Lichauco, fn. 3, citing Lewis' Sutherland
Statutory Construction, at 161.
6 L-23052, January 29, 1968, 22 SCRA 270.
7 See 73 Am Jur 2d 521.
8 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 223.
9 See Bowyer v. Camden, 11 Atl. 137.
10 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 229-230.
11 Tapales v. President and Board of Regents of the U.P., L-17523, March 30, 1963,
7 SCRA 553; C.N. Hodges v. Municipal Board of the City of Iloilo, L-18276, January
12, 1967, 19 SCRA 32-33; Aguilar v. Valencia, L-30396, July 30, 1971, 40 SCRA
214;. Mendoza v. SSC, L-29189, April 11, 1972, 44 SCRA 380.
12 Cipriano v. Marcelino, L-27793, February 28, 1972, 43 SCRA 291; Del Mar v.
PVA, L-27299, June 27, 1973, 51 SCRA 346, citing cases.
13 See City of Bacolod v. Enriquez, L-27408, July 25, 1975, Second Division, per
Fernando, J., 65 SCRA 384-85.
14 Article 5, Section 30, Chapter II.
15 McQuillin, Municipal Corporations, Vol. 7, 3rd ed., 275.
16 P.D. 7 was amended by P.D. 45 on November 10, 1972, so as to allow local
governments to charge the ordinary fee for the issuance of certificate of ownership
and one peso for the issuance of transfer certificate for livestock.
17 The market committee is composed of the market administrator as chairman, and
a representative of each of the city treasurer, the municipal board, the Chamber of
Filipino Retailers, Inc. and the Manila Market Vendors Association Inc. as members.
18 Cooley, The Law of Taxation, Vol. 1, 394-95.
19 Section 3 (e) causing any undue injury to any party, including the government, or
giving any private party any unwarranted benefits, advantage or preference in the
discharge of his official administrative or judicial functions through manifest partiality,
evident bad faith or gross inexcusable negligence.* * *
20 Willoughby, The Constitutional Law of the United States, 668 et seq.
























G.R. No. L-10405 December 29, 1960
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-
appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-
appellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J .:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An
Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen.
Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the
passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time
of the passage and approval of said Act, was a member of the Senate of the Philippines; that on
May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering
to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the
offer was accepted by the council, subject to the condition "that the donor would submit a plan of the
said roads and agree to change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote
another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum
of P85,000.00 appropriated therein for the construction of the projected feeder roads in question;
that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District
Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch
as the projected feeder roads in question were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and improvement of said projected feeder roads, was
illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress
because its members were made to believe that the projected feeder roads in question were "public
roads and not private streets of a private subdivision"'; that, "in order to give a semblance of legality,
when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed
on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation copy of which is annexed to the petition of the four (4) parcels of land constituting
said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that
being subject to an onerous condition, said donation partook of the nature of a contract; that, such,
said donation violated the provision of our fundamental law prohibiting members of Congress from
being directly or indirectly financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and voidab initio, for the construction of the projected feeder roads in
question with public funds would greatly enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction of said projected feeder roads
was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the
court, the respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only
to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta
from ordering or allowing the continuance of the above-mentioned feeder roads project, and from
making and securing any new and further releases on the aforementioned item of Republic Act No.
920, and the disbursing officers of the Department of Public Works and Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final
hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties
respondent from making and securing any new and further releases on the aforesaid item of
Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to
sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent
is " not aware of any law which makes illegal the appropriation of public funds for the improvements
of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in question
because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he has a personal and substantial interest"
in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor
of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the
legislature is without power appropriate public revenues for anything but a public purpose", that the
instructions and improvement of the feeder roads in question, if such roads where private property,
would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of
fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said respondent when Republic Act No.
920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving
respondent Zulueta of the burden of constructing his subdivision streets or roads at his own
expenses,
1
and would "greatly enhance or increase the value of the subdivision" of said respondent.
The lower court held that under these circumstances, the appropriation in question was "clearly for a
private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident.
2
However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws.
3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and the prosperity
of private enterprises or business, does not justify their aid by the use public money. (25
R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussedsupra sec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.
x x x x x x x x x
The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such,
exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because the
same does not affect him directly. This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration
of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil
Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is
that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to
the Government, over five (5) months after the approval and effectivity of said Act, made, according
to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in
question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are
inherent in his person, including therefore, his right to the annulment of said contract, even though
such creditors are not affected by the same, except indirectly, in the manner indicated in said legal
provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds,
5
upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer.
6
Although there are some decisions to the contrary,
7
the prevailing view in the
United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute, the general rule is that not only persons individually affected,
but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys
raised by taxation and may therefore question the constitutionality of statutes requiring
expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal
corporation to its government. Indeed, under the composite system of government existing in the
U.S., the states of the Union are integral part of the Federation from an international viewpoint, but,
each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed
by the Federal Constitution. In fact, the same was made by representatives ofeach state of the
Union, not of the people of the U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of that of the others, ratified said
Constitution. In other words, the Federal Constitution and the Federal statutes have become binding
upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective
states of the Union of which they are citizens. The peculiar nature of the relation between said
people and the Federal Government of the U.S. is reflected in the election of its President, who is
chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner
as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal Government in the interest of the
Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds which has been upheld by the Federal
Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines
than that adopted with respect to acts of Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by
the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action
of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases
the importance of the issues therein raised is present in the case at bar. Again, like the petitioners
in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of
Rizal, which he represents officially as its Provincial Governor, is our most populated political
subdivision,
8
and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this instance
against respondent Jose C. Zulueta. It is so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes, and Dizon, JJ., concur.

Footnotes
1 For, pursuant to section 19(h) of the existing rules and regulation of the Urban Planning
Commission, the owner of a subdivision is under obligation "to improve, repair and maintain
all streets, highways and other ways in his subdivision until their dedication to public use is
accepted by the government."
2 Ex parte Bagwell, 79 P. 2d. 395; Road District No. 4 Shelby County vs. Allred. 68 S.W 2d
164; State ex rel. Thomson vs. Giessel, 53-N.W. 2d. 726, Attorney General vs. City of Eau
Claire, 37 Wis. 400; State ex rel. Smith vs. Annuity Pension Board, 241 Wis. 625, 6 N.W. 2d.
676; State vs. Smith, 293 N.W. 161; State vs.Dammann 280 N.W. 698; Sjostrum vs. State
Highway Commission 228 P. 2d. 238; Hutton vs. Webb, 126 N.C. 897, 36 S.E. 341; Michigan
Sugar Co. vs. Auditor General, 124 Mich. 674, 83 N.W. 625; Oxnard Beet Sugar
Co. vs. State, 105 N.W. 716.
3 Casanovas vs. Hord. 8 Phil., McGirr vs. Hamilton, 30 Phil., 563; Compania General de
Tabacos vs. Board of Public Utility, 34 Phil., 136; Central Capiz vs. Ramirez, 40 Phil., 883;
Concepcion vs. Paredes, 42 Phil., 599; U.S. vs. Ang Tang Ho, 43 Phil., 6;
McDaniel vs. Apacible, 44 Phil., 248; People vs. Pomar, 46 Phil., 440; Agcaoili vs. Suguitan,
48 Phil., 676; Government of P.I. vs. Springer, 50 Phil., 259; Manila Electric Co. vs.Pasay
Transp. Co., 57 Phil., 600; People vs. Linsangan, 62 Phil., 464; People and Hongkong &
Shanghai Banking Corp. vs. Jose O. Vera, 65 Phil., 56; People vs. Carlos, 78 Phil., 535; 44
Off. Gaz. 428; In re Cunanan, 94 Phil., 534; 50 Off. Gaz., 1602; City of Baguio vs. Nawasa,
106 Phil., 144; City of Cebu vs.Nawasa, 107 Phil., 1112; Rutter vs. Esteban, 93 Phil., 68; Off.
Gaz., [5]1807.
4 In the language of the Supreme Court of Nebraska, "An unconstitutional statute is a legal
still birth, which neither moves, nor breathes, nor holds out any sign of life. It is a form
without one vital spark. It is whollydead from the time of conception, and, no right, either
legal or equitable, arises from such inanimate thing." (Oxnard Beet Sugar Co. vs. State, 102
N.W. 80.).
5 See, among others, Livermore, vs. Waite, 102 Cal. 113, 25 L.R.A. 312,36 P. 424;
Crawford vs. Gilchrist, 64 Fla. 41, 59 So. 963; Lucas vs. American Hawaiian Engineering and
Constr. Co., 16 Haw. 80; Castle vs.Capena, 5 Haw. 27; Littler vs. Jayne, 124 Ill. 123, 16 N.E.
374; Burke vs. Snively, 208 I11. 328, 70 N.E. 372; Ellingham vs. Dye, 178 Ind. 336, 99 N.E.
1; Christmas vs. Warfield, 105 Md. 536; Sears vs. Steel, 55 Or. 544, 107 Pac. 3; State ex rel.
Taylor vs. Pennover, 26 Or. 205, 37 Pac. 906; Carman vs. Woodruf, 10 Or. 123;
MacKinley vs. Watson, 145 Pac. 266; Sears vs. James, 47 Or. 50, 82 Pac. 14;
Mott vs. Pennsylvania R. Co., 30 Pa. 9, 72 Am. Dec. 664; Bradly vs. Power County, 37 Am.
Dec. 563; Frost vs. Thomas, 26 Colo. 227, 77 Am. St. Rep. 259, 56 Pac. 899;
Martin vs. Ingham, 38 Kan. 641, 17 Pac. 162; Martin vs. Lacy, 39 Kan. 703, 18 Pac. 951;
Smith vs. Maguerich, 44 Ga. 163; Giddings vs. Blacker, 93 Mich. 1, 16 L.R.A. 402, 52 N.W.
944; Rippe vs. Becker, 56 Minn. 100, 57 N.W. 331; Auditor vs. Treasurer, 4 S.C. 311;
McCullough vs.Brown, 31 S.C. 220, 19 S.E. 458; State ex rel. Lamb vs. Cummingham, 83
Wis. 90, 53 N.W. 35; State ex rel. Rosenhian vs. Frear, 138 Wis. 173, 119 N.W. 894.
6 Rubs vs. Thompson, 56 N.E. 2d. 761; Reid vs. Smith, 375 Ill. 147, 30N. E. 2d. 908;
Fergus vs. Russel, 270 Ill. 304, 110 N.E. 130; Burke vs. Snively, 208 Ill. 328;
Jones vs. Connell, 266 Ill. 443, 107 N.E. 731; Dudick vs.Baumann, 349 [PEPSI] Ill. 46, 181
N.E. 690.
7 Thompson vs. Canal Fund Comps., 2 Abb. Pr. 248; Shieffelin vs. Komfort, 212 N.Y. 520,
106 N.E. 675; Hutchison vs. Skinmer, 21 Misc. 729, 49N. Y. Supp. 360; Long vs. Johnson,
70 Misc. 308; 127 N.Y. Supp. 756; Whiteback vs. Hooker, 73 Misc. 573, 133 N.Y. Supp. 534;
State ex rel. Cranmer vs. Thorson, 9 S.D. 149, 68 N.W. 202; Davenport vs. Elrod, 20 S.D.
567, 107 N.W. 833; Indiana Jones vs. Reed, 3 Wash. 57, 27 Pac. 1067;
Birmingham vs. Cheetham, 19 Wash. 657, 54 Pac. 37; Tacoma vs. Bridges, 25 Wash. 221,
65 Pac. 186; Hilger vs. State, 63 Wash. 457, 116 Pac. 19.
8 It has 1,463,530 inhabitants.











G.R. No. L-34029 February 26, 1931
THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant,
vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine Islands, defendant-
appellee.
Ross, Lawrence and Selph for appellant.
Attorney-General Jaranilla for appellee.
DeWitt, Perkins and Brady as amici curiae.
MALCOLM, J .:
This test case presents for decision the question of whether sales of merchandise made in the
Philippines to the United States Army and the United States Navy are subject to the sales tax. In the
lower court, the demurrer to the complaint was sustained, and the plaintiff having elected not to
amend its complaint, judgement was rendered upon the subject matter involved in the pleadings,
adjudging that the plaintiff take nothing by the action and defendant recover costs.
The Standard Oil Company of New York is a foreign corporation duly authorized to do business in
the Philippines. During the period from October 1, 1929, to December 31, 1929, the Standard Oil
Company sold and delivered in the Philippines to the Quartermaster Department of the United
States Army, for the use of the Army, fuel oil and asphalt of the value of P6,832.84. The Collector of
Internal Revenue of the Philippine Government, acting under authority of section 1459 of the
Administrative Code and Act No. 3243 of the Philippine Legislature as ratified by the Congress of the
United States, demanded a tax of one and one-half per cent upon the value of the merchandise,
amounting to P102.49. During the identical period of time above-mentioned, the Standard Oil
Company likewise made delivery in the Philippines to the United States Navy, under a contract
executed in New York, United States, for the use of the Navy, of fuel oil of the value of P172,059.36,
which was paid in New York, and which contract provided that all internal revenue taxes and
charges under the laws of the Philippine Islands were to be assumed and paid by the United States
Navy. The Collector of Internal Revenue required payment of the sales tax upon the value of the fuel
oil, in the amount of P2,580.89. the Standard Oil Company paid the taxes assessed under protest
and is now suing to recover the corresponding refunds.
This court has recently decided the case entitled, Thirty First Infantry Post Exchange and First
Lieutenant David L. Hardee, Thirty-First Infantry, United States Army, plaintiffs, vs. Juan Posadas,
Jr., Collector of Internal Revenue, Philippine Islands, defendant ([1930], 54 Phil., 866). There it was
held that a tax may be levied by the Government of the Philippine Islands on sales made by
merchants to Post Exchanges of the United States Army in the Philippines. It was ruled that the Acts
of the Philippine Legislature imposing the sales tax, which have been confirmed by Acts of
Congress, form a part of the Philippine Organic Law. That same principle would again apply to the
facts before us. However, it was indicated that the waiver must be clear and that every well-
grounded doubt should be resolved in favor of the exemption, citing Austin vs. Aldermen of Boston
([1869], 7 Wall., 694). That principle would likewise govern here.
In the course of the decision in the Post Exchange case, the United States Army was mentioned,
and properly so, as an instrumentality of the United States Government. Regarding the correctness
of this proposition, there could, of course, be no real dispute. The United States Army and the United
States Navy derive their powers from the Constitution of the United States. The Congress of the
United States has created two agencies, or more correctly stated, three agencies to serve the United
States in the Philippine Islands. Two of these agencies are the United States Army and the United
States Navy, and the third is the Government of the Philippine Islands. The military establishment
and the civil government stand side by side but independent of each other in the Philippines. The tax
collected from the plaintiff by one of these agencies, the Philippine Government, is in reality a tax on
the United States Army and the United States Navy in other words, on the United States
Government for the consumer pays the tax as part of the purchase price. (Tan Te vs. Bell [1914],
27 Phil., 354; U. S. vs. Smith [1919], 39 Phil., 533.).
It would further appear perfectly clear that the principle which prohibits a State from taxing the
instrumentalities of the Federal Government applies with equal force to the Philippine Islands. At
least, that was our holding in the Post Exchange case. Nevertheless the Attorney-General persists in
assuming a difference in tax powers between the relations of the Philippine Government to the
National Government and of a State Government to the National Government. We are frank to say
that we are unable to see eye to eye with the Attorney-General. It would be absurd to think that a
derivative sovereignty like the Government of the Philippine Islands, could tax the instrumentalities
of the very Government which brought it into existence. If a sovereign State of the American Union
cannot abridge or restrict the activities of the United States Government, much less can a creature of
that Government, as the Philippine Government is, do so. (Note the well-considered opinion of
Attorney-General Wickersham of June 8, 1912, appearing in 29 Opinions, Attorneys-General, United
States, 442.)
The case before us is readily distinguishable on the facts from the Post Exchange case. The theory
of the Post Exchange case was that a tax on sales, which ultimately passed on to the consumers,
individuals in the Army, was not a tax on the United States Government or with the operations of the
United States Army to such an extent or in such a manner as to render the tax illegal. There is no
such condition in this case. The goods which were claimed to be subject to tax are for the use of the
United States itself in its own operations in the Philippines.
The case at bar is more nearly analogous to the case of Panhandle Oil Co. vs. Knox ([1928], 277 U.
S., 218), than was the Post Exchange case. The Panhandle Oil case and the case at bar differ in
that in the Panhandle Oil case, the United States Supreme Court dealt with a State law that had
never been ratified by Congress, whereas there is now to be applied an Act of the Philippine
Legislature which had been ratified by Congress. On the other hand, the Panhandle Oil case at bar
are similar in that both concern privilege taxes the amount of which is measured by the amount of
the sale; in that in both cases the sales were made to instrumentalities of the Federal Government;
and in that in both cases, the party to suit was the merchant and not the United States Government
or an agency within the United States Army like a Post Exchange. Inasmuch, however, as the
distinction between a State law and an Act of a territorial legislature is no distinction at all, and
inasmuch as the ratification by Congress failed to grant any express waiver of the exemption in favor
of the United States Government, it would require more than ordinary ingenuity to avoid the
consequences of the decision of the United States Supreme Court in the Panhandle Oil Case.
Not long since, the District of Columbia endeavored to recover taxes on gasoline imported into the
District of Columbia by the American Oil Company, under a contract with the Secretary of the
Treasury, for use by the executive departments and governmental agencies. In both the Supreme
Court of the District of Columbia and the Court of Appeals, the seller was held not liable for the tax.
In the opinion of the appellate court, it was said: "While for convenience, the tax is levied upon the
importer, it is apparent that the tax is really to be paid by the consumer. . . . To sustain the
contention of appellant, it must clearly appear that the United States intended to tax itself. See Dollar
Savings Bank vs. United States, 19 Wall., 227; 22 L. ed., 80." (District of Columbia vs. American Oil
Co. [1930], 39 Fed. 2nd., 510.).
The Asiatic Petroleum Company began suit in the Court of Claims against the United States for the
recovery of more than $100,000 due on the purchase price of fuel oil sold by the company for the
use of the Navy. The defendant admitted the claim but interposed a counterclaim for the same
amount, alleged to be due and owing to the Philippine Government as customs duties on oil under
this contract. In the Philippines the Tariff Act in force was the Act of Congress of August 5, 1909,
which was silent on the question. It was the holding of the Court of Claims that this Act of Congress
did not require the United States to pay duty on oil owned by it and imported into the Philippine
Islands for use in the Military or Naval Establishments. The court said: "The purpose of the statute
providing for customs duties on importations into the Philippine Islands was to provide revenue for
the use of the Philippine Government, for the protection, and partial support of which the United
States held itself responsible. It is inconceivable that Congress in the enactment of the said statute
should have intended that the United States would be required to pay duty on its own oil imported
into the Philippine Islands, for its own use, in supplying its Navy vessels used in the protection of the
Philippine Government, as well as for the maintenance of its own Military and Naval Establishments
in the national defense." (Asiatic Petroleum Co. vs. U. S. [1928],65 Ct. of Cl. Rep., 100.).
We sustain the first, second, third, and fifth errors assigned, going to the proposition that the lower
court erred in not deciding that sales made in the Philippines to the United States Army and the
United States Navy are made to instrumentalities of the United States Government, and, therefore,
are not subject to tax by the Philippine Government. This holding makes unnecessary any reference
to the fourth error assigned, relating to the additional question having to do with the contract with the
United States Navy, and to the point that this question was not mentioned in the protest filed with the
Bureau of Internal Revenue and so may not be raised on appeal. It is sufficient to state that, in our
opinion, the assessment and collection by the Philippine Government of the tax on sales of
merchandise made in the Philippines to the United States Army and the United States Navy is
illegal.
Judgment reversed, and the record ordered returned to the court of origin for further proceedings,
without express finding as to costs in either instance.
Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.










G.R. No. L-18125 May 31, 1963
BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,
vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY (NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roo for respondent National Waterworks and Sewerage Authority.
CONCEPCION, J .:
This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes, reservoir, intake and buildings used by
herein respondent, National Waterworks and Sewerage Authority hereinafter referred to as
NAWASA in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa
and Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1wph 1. t
The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage Authority (NWSA) is a public
corporation created by virtue of Republic Act No. 1383, and that it is owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage
systems placed under it:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over all
the property of the former Metropolitan Water District and all the existing local government-
owned waterworks and sewerage systems all over the Philippines, including the Cabuyao-
Sta. Rosa-Bian Waterworks System owned by the Province of Laguna (Section 8, Republic
Act No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act No.
1383, more particularly Section 2 thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA) has no capital stock
divided into shares of stocks, no stockholders, and is not authorized by its Charter to
distribute dividends; and, on the other hand, whatever surplus funds it has realized, may and
will after meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer services;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but that all
its surplus income are not declared as profits as this surplus are or may be invested for the
expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System and
described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2 hereof,
herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the Provincial Assessor of
Laguna, petitioner NWSA protested, claiming that the property described under Tax
Declaration No. 5987 (Exh. "A-l") are exempted from the payment of real estate taxes in view
of the nature and kind of said property and functions and activities of petitioner, as provided
in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;
x x x x x x x x x "
After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending that the properties in question are
subject to real estate tax because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or sovereign capacity, but in a
private, proprietary or patrimonial character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this exemption, even if applicable to
patrimonial property, must yield to the provisions of section 1 of Republic Act No. 104, under which
all corporations, agencies or instrumentalities owned or controlled by the Government are subject to
taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
SEC. 2. Incidence of real property tax. Except in chartered cities, there shall be levied,
assessed, and collected, an annual ad valorem tax on real property, including land,
buildings, machinery, and other improvements not hereinafter specifically exempted.
SEC. 3. Property exempt from tax. The exemptions shall be as follows:
(a) Property owned by . . . the Republic of the Philippines, any province, city, municipality or
municipal district. . . .
It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the Republic of the Philippines and falls
squarely within the letter of the above provision. This notwithstanding, petitioner Board maintains
that respondent NAWASA is not entitled to the benefits of the exemption established in said section
3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as it did in the case at
bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks System are patrimonial property of
said city, which held it in a proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject to taxation. In that case
we merely reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, G. R. No. L-
12032, decided on August 31, 1959, that municipal corporations hold in their proprietary character,
the assets of their respective waterworks, which, accordingly, cannot be taken or appropriated by the
National Government and placed under the NAWASA without payment of just compensation. Neither
the Cebu case nor that of Baguio sustains the theory that said assets are taxable.
Upon the other hand, in exempting from taxation "property owned by the Republic of the Philippines,
any province, city, municipality or municipal district . . .," said section 3(a) of Republic Act No. 470
makes no distinction between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances clearly showing that the
lawmaker intended the contrary, but no such facts and circumstances have been brought to our
attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point of dominion, than from
that of domain. Moreover, taxes are financial burdens imposed for the purpose of raising revenues
with which to defray the cost of the operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the effect of taking money from one
pocket to put it in another pocket (Cooley on Taxation, Sec. 621, 4th Edition.) Hence, it would not
serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on
account of the paper work, time and consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
. . . All corporations, agencies, or instrumentalities owned or controlled by the government
shall pay such duties, taxes, fees and other charges upon their transaction, business,
industries, sale, or income as are imposed by law upon individuals, associations or
corporations engaged in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to duties, taxes, fees and other
charges upon "transaction, business, industry, sale or income" and does not include taxes on
property like real estate tax.
WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to
costs. It is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, and
Makalintal, JJ., concur.
Labrador, J., took no part.





G.R. No. 51593 November 5, 1992
NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-appellants.

BELLOSILLO, J .:
Is a public land reserved by the President for warehousing purposes in favor of a government-owned
or controlled corporation,
1
as well as the warehouse subsequently erected thereon, exempt from real
property tax?
Petitioner National Development Company (NDC), a government-owned or controlled corporation
(GOCC) existing by virtue of C.A. 182
2
and E.O. 399,
3
is authorized to engage in commercial,
industrial, mining, agricultural and other enterprises necessary or contributory to economic development
or important to public interest. It also operates, in furtherance of its objectives, subsidiary corporations
one of which is the now defucnt National Warehousing Corporation (NWC).
4

On August 10, 1939, the President issued Proclamation No. 430
5
reserving Block no. 4, Reclamation
Area No. 4, of Cebu City, consisting of 4,599 square meters, for warehousing purposes under the
administration of NWC.
6
Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters
more or less, was constructed thereon.
7

On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and functions.
9

Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes on the
land and the warehouse thereon.
10
By the first quarter of 1970, a total of P100,316.31 was paid by
NDC
11
of which only P3,895.06 was under protest.
12

On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate taxes paid
to CEBU claiming that the land and the warehouse standing thereon belonged to the Republic and
therefore exempt from taxation.
13
CEBU did not acquiesce in the demand, hence, the present suit filed
25 October 1972 in the Court of First Instance of Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a decision
14
the
dispositive portion of which reads
WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru the
Treasurer of said City, to refund to the plaintiff, National Development Company, the
real estate taxes paid by it for the parcel of land covered by Presidential
Proclamation No. 430 of August 10, 1939, and the warehouse erected thereon from
and after October 25, 1966, with interests thereon at the legal rate from the date of
the filing of the complaint and the costs of the suit.
The defendants appealed to the Court of Appeals which however certified the case to Us as one
involving pure questions of law, pursuant to Sec. 17, R.A. 296.
In this appeal, CEBU assigns five (5) errors
15
imputed to the trial court which may be synopsized into
whether NDC is exempted from payment of the real estate taxes on the land reserved by the President
for warehousing purposes as well as the warehouse constructed thereon, and in the affirmative, whether
NDC may recover in refund unprotested real estate taxes it paid from 1948 to 1970.
On the first question, CEBU insists on taxability of the subject properties, claiming that no law grants
NDC exemption from real estate taxes, and that NDC, as recipient of the land reserved by the
President pursuant to Sec. 83 of the Public Land Act,
16
is liable for payment or ordinary (real estate)
taxes under Sec. 115 therefore. CEBU contends that the properties have ceased to be tax exempt under
the Assessment Law.
17
when the government disposed of them in favor of NDC, and even assuming that
title to the land remains with the government (ownership being the basis for real estate taxability under
the Assessment Law), the Supreme Court rulings establish increasing rather than "ownership" as basis
for real estate tax liability.
On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts properties
owned by the Republic from real estate tax, includes subject properties in the exemption. It invokes
the ruling in Board of Assessment Appeals vs. CTA & NWSA
18
which held that properties of NWSA, a
GOCC, were exempt from real estate tax because Sec. 3 of the Assessment Law applied to all
government properties whether held in governmental or proprietary capacity. NDC rejects the applicability
of Sec. 115 of the Public Land Act to the subject land, claiming that provision contemplates dispositions of
public land with eventual transfer of title. In addition, NDC believes that it is neither a grantee of a public
land nor an applicant within the purview of the same provision.
As already adverted to, one of the principal issues before Us is the interpretation of a provision of the
Assessment Law, the precursor of the then Real Property Tax Code and the Local Government
Code, where "ownership" of the property and not "use" is the test of tax liability.
19

Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption,
provides
Section 3. Property exempt from tax. The exemptions shall be as follows: (a)
Property owned by the United States of America, the Commonwealth of the
Philippines, any province, city, municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva
Ecija
20
where We held that its properties were not comprehended in Sec. 3, par (a), of the Assessment
Law. In part, We stated:
1. Commonwealth Act No. 182 which created NDC contains no provision exempting
it from the payment of real estate tax on properties it may acquire . . . There is
justification in the contention of plaintiff-appellee that . . . [I]t is undeniable that to any
municipality the principal source of revenue with which it would defray its operation
will came from real property taxes. If the National Development Company would be
exempt from paying real property taxes over these properties, the town of Gabaldon
will bee deprived of much needed revenues with which it will maintain itself and
finance the compelling needs of its inhabitants (p. 6, Brief of Plaintiff-Appellee).
2. Defendant-appellant NDC does not come under classification of municipal or
public corporation in the sense that it may sue and be sued in the same manner as
any other private corporations, and in this sense, it is an entity different from the
government, defendant corporation may be sued without its consent, and is subject
to taxation. In the case NDC vs. Jose Yulo Tobias, 7 SCRA 692, it was held that . . .
plaintiff is neither the Government of the Republic nor a branch or subdivision
thereof, but a government owned and controlled corporation which cannot be said to
exercise a sovereign function (Association Cooperativa de Credito Agricola de
Miagao vs. Monteclaro, 74 Phil. 281). it is a business corporation, and as such, its
causes of action are subject to the statute of limitations. . . . That plaintiff herein does
not exercise sovereign powers and, hence, cannot invoke the exemptions thereof
but is an agency for the performance of purely corporate, proprietary or business
functions, is apparent from its Organic Act (Commonwealth Act 182, as amended by
Commonwealth Act 311) pursuant to Section 3 of which it "shall be subject to the
provisions of the Corporation Law insofar as they are not inconsistent" with the
provisions of said Commonwealth Act, "and shall have the general powers
mentioned in said" Corporation Law, and, hence, "may engage in commercial,
industrial, mining, agricultural, and other enterprises which may be necessary or
contributory to the economic development of the country, or important in the public
interest," as well as "acquire, hold, mortgage and alienate personal and real property
in the Philippines or elsewhere; . . . make contracts of any kind and description", and
"perform any and all acts which a corporation or natural persons is authorized to
perform under the laws now existing or which may be enacted hereafter."
We find no compelling reason why the foregoing ruling, although referring to lands which would
eventually be transferred to private individuals, should not apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal and National
Waterworks and Sewerage Authority (NWSA). In that case, We held that properties of NWSA, a
GOCC, were exempt from real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish
between those possessed by the government in sovereign/governmental/political capacity and those
in private/proprietary/patrimonial character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is more
superficial than real. The NDC decision speaks of properties owned by NDC, while the BAA ruling
concerns properties belonging to the Republic. The latter case appears to be exceptional because
the parties therein stipulated
1. That the petitioner National Waterworks and Sewerage Authority (NAWASA) is a
public corporation created by virtue of Republic Act. No. 1383, and that it is owned by
the Government of the Philippines as well as all property comprising waterworks and
sewerage systems placed under it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the property involved in
this case "is owned by the Government of the Philippines." Hence, it belongs to the Republic of the
Philippines and falls squarely within letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of
subject properties should first be established. For, while it may be stated that the Republic owns
NDC, it does not necessary follow that properties owned by NDC, are also owned by Republic in
the same way that stockholders are not ipso factoowners of the properties of their corporation.
The Republic, like any individual, may form a corporation with personality and existence distinct from
its own. The separate personality allows a GOCC to hold and possess properties in its own name
and, thus, permit greater independence and flexibility in its operations. It may, therefore, be stated
that tax exemption of property owned by the Republic of the Philippines "refers to properties owned
by the Government and by its agencies which do not have separate and distinct personalities
(unincorporated entities). We find the separate opinion of Justice Bautista-Angelo in Gonzales
v. Hechanova, et al.,
21
appropriate and enlightening
. . . The Government of the Republic of the Philippines under the Revised
Administrative Code refers to that entity through which the functions of government
are exercised, including the various arms through which political authority is made
effective whether they be provincial, municipal or other form of local government,
whereas a government instrumentality refers to corporations owned or controlled by
the government to promote certain aspects of the economic life of our people. A
government agency therefore, must necessarily after refer to the government itself to
the Republic, as distinguished from any government instrumentality which has a
personality distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in
commercial enterprises all properties of the government and its unincorporated agencies possessed
in propriety character are taxable. Similarly, in the case at bar, NDC proceeded on the premise that
the BAA ruling declared all properties owed by GOCC's as properties in the name of the Republic,
hence, exempt under Sec. 3 of the Assessment Law.
22

To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment Law, it is
important to establish that the property is owned by the government or its unincorporated agency,
and once government ownership is determined, the nature of the use of the property, whether for
proprietary or sovereign purposes, becomes immaterial. What appears to have been ceded to NWC
(later transferred to NDC), in the case before Us, is merely the administration of the property while
the government retains ownership of what has been declared reserved for warehousing purposes
under Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from the court a quo to this
Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept back from sale or
disposition."
23
The land remains "absolute property of the government."
24
The government "does not
part with its title by reserving them (lands), but simply gives notice to all the world that it desires them for a
certain purpose."
25
Absolute disposition of land is not implied from reservation;
26
it merely means "a
withdrawal of a specified portion of the public domain from disposal under the land laws and the
appropriation thereof, for the time being, to some particular use or purpose of the general
government."
27
As its title remains with the Republic, the reserved land is clearly recovered by the tax
exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is a form
of disposition of public land which, subjects the recipient (NDC ) to real estate taxation under Sec.
115 of the Public Land Act. as amended by R.A. 436,
28
which estate:
Sec 115. All lands granted by virtue of this Act, including homesteads upon which
final proof has not been made or approved shall, even though and while the title
remains in the State, be subject to the ordinary taxes, which shall be paid by the
grantee or the applicant, beginning with the year next following the one in which the
homestead application has been filed, or the concession has been approved, or the
contract has been signed, as the case may be, on the basis of the value fixed in such
filing, approval or signing of the application, concession or contract.
The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in
Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), of the
Assessment Law. While ordinary public lands are tax exempt because title thereto belongs to the
Republic, Sec. 115 subjects them to real estate tax even before ownership thereto is transferred in
the name of the beneficiaries. Sec. 115 comprehends three (3) modes of disposition of Lands under
the Public Land Act, to wit: homestead, concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead application,
(b) approval of concession and, (c) signing of contract. Significantly, without these words, the date of
the accrual of the real estate tax would be indeterminate. Since NDC is not a homesteader and no
"contract" (bilateral agreement) was signed, it would appear, then, that reservation under Sec. 83,
being a unilateral act of the President, falls under "concession".
"Concession" as a technical term under the Public Land Act is synonymous with "alienation" and
"disposition", and is defined in Sec. 10 as "any of the methods authorized by this Act for the
acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral
lands." Logically, where Sec. 115 contemplates authorized methods for acquisition, lease, use, or
benefit under the Act, the taxability of the land would depend on whether reservation under Sec. 83
is one such method of acquisition, etc. Tersely put, is reservation synonymous with alienation? Or,
are the two terms antithetical and mutually exclusive? Indeed, reservation connotes retention, while
concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from that may be
subject of disposition, to wit
Sec. 8. Only those lands shall be declared open to disposition or concession which
have been officially delimited and classified and, when practicable, surveyed,
and which have not been reservedfor public or quasi-public uses, nor appropriated
by the Government, nor in any manner become private property , nor those on which
a private right authorized and recognized by this Act or any valid law may be
claimed, or which, having been reserved or appropriated, have ceased to be so.
Sec. 88. The tract or tracts of land reserved under the provisions of section eighty-
three shall be non-alienable and shall not be subject to occupation, entry, sale, lease,
or other disposition until again declared alienable under the provisions of this Act or
by proclamation of the President (Emphasis supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public land and
transform it into non-alienable or non-disposable under the Public Land Act. Section 115, on the
other hand, applies to disposable public lands. Clearly, therefore, Sec. 115 does not apply to lands
reserved under Sec. 83. Consequently, the subject reserved public land remains tax exempt.
However, as regards the warehouse constructed on a public reservation, a different rule should
apply because "[t]he exemption of public property from taxation does not extend to improvements on
the public lands made by pre-emptioners, homesteaders and other claimants, or occupants, at their
own expense, and these are taxable by the state . . ."
29
Consequently, the warehouse constructed on
the reserved land by NWC (now under administration by NDC), indeed, should properly be assessed real
estate tax as such improvement does not appear to belong to the Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by CEBU
should be refunded to NDC. This is in consonance with Sec. 40, par. (a) of the former Real Property
Tax Code which exempted from taxation real property owned by the Republic of the Philippines or
any of its political subdivisions, as well as any GOCC so exempt by its charter.
30

As regards the requirement of paying under protest before judicial recourse, CEBU argues that in
any case NDC is not entitled to refund because Sec. 75 of R.A. 3857, the Revised Charter of the
City of Cebu,
31
requires paymentunder protest before resorting to judicial action for tax refund; that it
could not have acted on the first demand letter of NDC of 20 May 1970 because it was sent to the City
Assessor and not to the City Treasurer; that, consequently, there having been no appropriate prior
demand, resort to judicial remedy is premature; and, that even on the premise that there was proper
demand, NDC has yet to exhaust administrative remedies by way of appeal to the Department of Finance
and/or Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-under-protest requirement is Sec.
75 of the Revised Cebu City Charter because the issue is not the validity of tax assessment but
recovery of erroneous payments under Arts. 2154 and 2155 of the Civil Code.
32
It cites the case
of East Asiatic Co., Ltd. v. City of Davao
33
which held that where the tax is unauthorized, "it is not a tax
assessed under the charter of the appellant City of Davao and for that reason no protest is necessary for
a claim or demand for its refund." In Ramie Textiles, Inc. vs. Mathay, Sr.,
34
We held
. . . Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund. Section 54
35
of
Commonwealth Act No. 470 does not apply to petitioner which could conceivably not
have been expected to protest a payment it honestly believed to be due. The same refers
only to the case where the taxpayer, despite his knowledge of the erroneous or illegal
assessment, still pays and fails to make the proper protest, for in such case, he should
manifest an unwillingness to pay, and failing so, the taxpayer is deemed to have waved
his right to claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have waived his right. He
had no knowledge of the fact that it was exempted from payment of the realty tax
under Commonwealth Act No. 470. Payment was made through error or mistake, in
the honest belief that petitioner was liable, and therefore could not have been made
under protest, but with complete voluntariness. In any case, a taxpayer should not be
held to suffer loss by his good intention to comply with what he believes is his legal
obligation, where such obligation does not really exist . . . The fact that petitioner paid
thru error or mistake, and the government accepted the payment, gave rise to the
application of the principle ofsolutio indebiti under Article 2154 of the New Civil Code,
which provides that "if something is received when there is no right to demand it, and
it was unduly delivered through mistake, the obligation to return it arises." There is,
therefore, created a tie or juridical relation in the nature of solutio indebiti,expressly
classified as quasi-contract under Section 2, Chapter I of Title XVII of the New Civil
code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly at the expense of another . .
. Hence, it would seem unedifying for the government, that knowing it has no right at
all to collect or to receive money for alleged taxes paid by mistake, it would be
reluctant to return the same . . . Petitioner is not unsatisfied in the assessment of its
property. Assessment having been made, it paid the real estate taxes without
knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years, We also said
in Ramie Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio
indebiti, the claim for refund must be commenced within six (6) years from date of
payment pursuant to Article 1145 (2) of the New Civil Code
36
. . .
We sustain the appellate court to the extent that its decision covers improperly collected taxes on the
reserved land under Proclamation No. 430, thus
The defense of prescription invoked by the defendant which counsel for the plaintiff,
however, did not answer in its memorandum, is partly well-taken. Actions for refund
of taxes illegally collected must be commenced within six (6) years from the date of
collection. . . . .
The stipulation of facts and the pleadings filed by the parties do not contain data
specifying when and how much were paid by the year, of the taxes sought to be
refunded. Accordingly, the Court has no other alternative but to order the refund of
an undetermined amount based, however, on the date of payment counted six (6)
years backward from October 25, 1972, when the complaint in this case was filed.
37

As regards exhaustion of administrative remedies, We agree with the trial court that the case
constitutes an exception to the rule, as it involves purely question of law.
38
Specifically, on the
requirement of appeal to the Secretary of Finance, We further held in the same Ramie Textiles that
"[E]qually not applicable is Section 17 of Commonwealth Act No. 470
39
cited by respondent in relation to
the right of a, property owner to contest the validity of assessment . . ."
Respondent CEBU likewise invites Our attention to the availability of appeal to the Government
Auditing Office although no authority is cited to Us. We do not find any either to sustain the
procedure.
WHEREFORE, finding that National Development Company (NDC) is exempt from real estate tax on
the reserved land but liable for the warehouse erected thereon, the decision appealed from is
accordingly MODIFIED. Consequently, let this case be remanded to the court of origin, now the
Regional Trial Court of Manila, to determine the proper liability of NDC, particularly on its warehouse,
and effect the corresponding refund, payment or set-off, as the case may be, conformably with this
decision. No costs.
SO ORDERED.
Cruz, Padilla and Grio-Aquino, JJ., concur.
Medialdea, J., is on leave.

Footnotes
1 A government owned or controlled corporation is defined in Sec. 2 of P.D. 2029 as
"a stock or a non-stock corporation, whether performing governmental or propriety
functions, which is directly chartered by a special law or if organized under the
general corporation law is owned or controlled by 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 . . ."
2 C.A. 182, "An Act to create Public Corporation to be known as the 'National
Development Company', to Defined it Powers and Duties, to Appropriates the
Necessary Funds Therefor, Repealing Thereby Acts Numbered Twenty-Eight
Hundred and Forty-Nine and Twenty-Eight Hundred and Seventy-Three", which took
effect 1 January 1937.
3 E.O. 399, "Uniform Charter for Government Corporations", dated 5 January 1951.
4 Joint Stipulation of Facts, 1st and 2nd pars., Record on Appeal, p. 12.
5 Proclamation No. 430 provides: "Upon the recommendation of the Secretary of
Agriculture and Commerce and pursuant to the provision of Section Eighty-Three of
Commonwealth Act Numbered One Hundred and Forty-One, I hereby withdraw from
sale or settlement and reserve for warehouse purposes, under the administration of
the National Warehousing Corporation, subject to private rights, if any there be, block
numbered four of Reclamation Area Numbered Four of the City of Cebu.
6 Joint Stipulation of Facts, par. 3, Record on Appeal, pp. 12-13.
7 Ibid, par. 4.
8 E.O. 93, "Abolishing the National Enterprises Control Board, Creating the
Government Enterprises Council, Transferring the Metropolitan Transportation
Service to the Manila Railroad Company, Dissolving and Merging Certain
Corporations Owned or Controlled by the Government, and for Other Purposes",
effective 4 October 1947.
9 Joint Stipulation of Facts, par. 5, Record on Appeal, p. 13.
10 Ibid., par. 6.
11 Ibid.
12 P96,401.37 was paid without protest (see Joint Stipulation of Facts, par. 13,
Record on Appeal, pp. 14-15).
13 Joint Stipulation of Facts, par. 8, Record on Appeal, p. 14.
14 Penned by Judge Federico C. Alikpala, then Presiding Judge, CFI-Manila Br.
XXII, Record on Appeal, pp. 54-55.
15 The following are the five (5) errors assigned:
I The trial court erred in not finding that plaintiff National Development Company is
liable for real estate taxes when using the land building, subject of this case, for
business purposes.
II The trial court erred in not finding that plaintiff had not exhausted all administrative
remedies before filing the instant action.
III The trial court erred in not finding that reservations for public use by means of
presidential proclamation under Sections 83-85 of the Public Land Law are forms of
disposition or grants of public lands and, therefore, the lands so disposed of are
subject to real estate taxes.
IV The trial court erred in ordering defendant to refund plaintiff a portion of the taxes
paid when said payment was not made under protest as required by the City Charter
of the defendant City.
V The trial court erred in sentencing the City of Cebu to refund plaintiff the amounts
paid for real estate taxes for the land covered by Presidential Proclamation No. 438
and the warehouse erected thereon from and after 25 October 1966 with interest
thereon from date of filing of the complaint and cost of the suit (Brief for Defendant-
Appellants, pp. 1-3).
16 C.A. 141, approved 7 November 1936, Sec. 83 of which provides: "Upon the
recommendation of the Secretary of Agriculture and Commerce, the President may
designated by proclamation any tract or tracts of land of the public domain as
reservations for the use of the Commonwealth of the Philippines or of any of its
branches, or of the inhabitants thereof, in accordance with regulations prescribed for
this purpose, or for quasi-public uses or purposes, when the public interest requires
it, including reservations for highways, rights of way for railroads, hydraulic power
sites, irrigation systems, communal pastures or leguas comunales, public parks,
public quarries, public fishponds, workingmen's village and other improvements for
the public benefits.
17 C.A. 470, effective 1 January 1940.
18 118 Phil. 227. prom. 31 May 1963.
19 We held Province of Nueva Ecija v. Imperial Mining Company, Inc. G.R. No.
L-59463, prom. 19 November 1982, 118 SCRA 632; "When IMC in 1968 obtained
lease on the mineral land in question, the law governing real property taxation was
the former Assessment Law, Commonwealth Act 470, and the basis of realty taxation
thereunder was ownership or interest tantamount to ownership. A mere lessee of
mineral land was thereunder not liable for the payment of realty tax thereon . . . In
1974, a new Real Property Tax Code came into being when Presidential Decree 464
was issued. It changed the basis of real property taxation. It adopted the policy of
taxing real property on the basis of actual use, even if the user is not the owner.
20 G.R. No. 51223, 25 November 1983; 125 SCRA 752.
21 118 Phil. 1084, October 22, 1963.
22 Consequently, erroneous reliance by NWSA v. Quezon City, G.R. No. L-25310,
26 April 1968, 23 SCRA 286, and Social Security System v. City of Bacolod, G.R.
No. L-35726, 21 July 1982, 115 SCRA 412, on BAA v. CTA and NWSA, should be
reexamined. In NWSA v. Quezon City, We held: . . . The properties of NWSA are
exempt from realty tax as properties of the Republic of the Philippines under Sec. 47
(a) of Republic Act 537 (Revised Charter of Quezon City) . . .
In SSS v. City of Bacolod, We ruled: "What is decisive is that the properties
possessed by the SSS, albeit devoted to private or proprietary purpose, are in fact
owned by the government of the Philippines. As such they are exempt from realty
taxes . . .
The SSS case appears to have proceeded form the premise that properties of SSS
are ipso factoowned by the Republic. In fact, it views Sec. 16 of P.D. 24 exempting
SSS and its assets from taxation a confirmation of its ruling. We are not persuaded;
P.D. 24 speaks of properties owned by SSS, while the decision alludes to properties
owned by the Republic. That conclusion is a misapplication of the BAA ruling.
23 Black's Law Dictionary, 4th ed., p.1473, citing Donley v. Van Horn, 49 Cal. App.
383, 193 P. 514, 516.
24 73 CJS 720.
25 Footnote No. 85 in 73 CJS 717-717 citing US vs. Payne, D.C. Ark. 8 F 883, 2
McCrary 289.
26 Words and Phrases, Vol. 37, p. 167, citing Jackson v. Wilcox, 2 I11. (1 Scam)
344, 359.
27 73 CJS 717
28 R.A. 436, approved June 7, 1950.
29 84 CJS 383.
30 Sec. 40, P.D. 464, effective 1 June 1974, provides: "Exemption from Real
Property Tax. The exemption shall be as follow: (a) Real property owned by the
Republic of the Philippines or any of its political subdivisions and any government-
owned corporation so exempt by its charter: Provided, however, That this exemption
shall not apply to real property of the above-named entities the beneficial use of
which has been granted, for consideration or otherwise, to a taxable person . . .
31 Sec. 75, R.A. 3857, approved 10 June 1964, provides: "No court shall entertain
any suit assailing the validity of a tax assessed under this article until the taxpayer
shall have paid, under protest, the taxes assessed against him . . ."
32 Art. 2154 provides: "If something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to return it arises."
Art. 2155 provides: "Payment by reason of a mistake in the construction or
application of a doubtful or difficult question of law may come within the scope of the
proceeding article."
33 G.R. No. L-16253, 21 August 1962; 5 SCRA 873.
34 G.R. No. L-32364, 30 April 1979; 89 SCRA 586.
35 Sec. 54. Restriction upon power of court to impeach tax. No court shall
entertain any suit assailing the validity of a tax assessed under this Act until the
taxpayer shall have paid, under protest, the taxes assessed against his. . . .
36 Art. 1145, par. 2, provides: "The following actions must be commenced within six
years: . . . Upon aquasi-contract."
37 Record on Appeal, p.54.
38 Valmonte v. Belmonte, G.R. No. 74930, 13 February 1989; 170 SCRA 256.
39 Sec 17. Appeal by owner to the Board of Tax Appeals. Any owner who is not
satisfied with the action of a provincial assessor in the assessment of his property
may . . . appeal to the Board of Tax Appeals . . . Sec. 18 . . . If the taxpayer is not
satisfied with the decision of the Board of Tax Appeals, he may likewise appeal to the
Secretary of Finance. . .










































G.R. No. L-23623 June 30, 1977
ACTING COMMISSIONER OF CUSTOMS, petitioner,
vs.
MANILA ELECTRIC COMPANY and COURT OF TAX APPEALS, respondents.
Solicitor General Arturo A. Alafriz Assistant Solicitor General Felicisimo R. Rosete and Solicitor
Alejandro B. Afurong for petitioner.
Ross, Selph Salcedo, Del Rosario Bito & Misa for private respondent.

FERNANDO, J .:
The reversal by respondent Court of Tax Appeals of a determination by the then Acting
Commissioner of Customs, the late Norberto Romualdez, Jr., that private respondent Manila Electric
Company was not exempt from the payment of the special import tax under Republic Act No.
1394
1
for shipment to it of insulating oil, respondent Court entertaining the contrary view
2
led to this
petition for review. The contention pressed in support of the petition is that as a tax exemption is to be
construed strictly, the decision of the respondent Court, which assumed that insulating oil can be
considered as insulators must be reversed and set aside. The appealed decision of respondent Court in
the light of applicable authorities supplies the best refutation of such contention. It must be sustained.
The appealed decision
3
set forth that petitioner Manila Electric Co., nor private respondent, in appealing
from a determination by the then Acting Commissioner of Customs, now petitioner, "claims that it is
exempt from the special import tax not only by virtue of Section 6 of Republic Act No. 1394, which
exempts from said tax equipment and spare parts for use in industries, but also under Paragraph 9, Part
Two, of its franchise, which expressly exempts is insulators from all taxes of whatever kind and nature.
4
It
then made reference to the franchise of private respondent Manila Electric Co.: "Par. 9. The grantee shall
be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires,
transformers, and insulators), machinery and personal property as other persons are or may be hereafter
required by law to pay. In consideration of Part Two of the franchise herein granted, to wit, the right to
build and maintain in the City of Manila and its suburbs a plant for the conveying and furnishing of electric
current for light, heat, and power, and to charge for the same, the grantee shall pay to the City of Manila
two and one-half per centum of the gross earnings received from the business under this franchise in the
city and its suburbs: ... and shall be in lieu of all taxes and assessments of whatsoever nature, and by
whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly
exempted."
5
It noted that the above "exempts it from all taxes of whatever nature, and by whatever
authority, with respect to its insulators in consideration for the payment of the percentage tax on its gross
earnings."
6

The question then, according to such decision of respondent Court is: "Does the insulating oil in
question come within the meaning of the term 'insulator '?"
7
Then it went on: "insulating oils are
mineral oils of high di-electrics strength and high flash point employed in circuit breakers, switches,
transformers and other electric apparatus. An oil with a flash point of 285 F and fire point of 310 F is
considered safe. A clean, well- refined oil will have a minimum dielectric of 22,00 volts, but the presence
of a slow as 0.01% water will reduce the di-electric strength drastically. The insulating oils, therefore,
cannot be stored for long periods because of the danger of absorbing moisture. Impurities such as acids
or alkalies also detract from the strength of the oil. Since insulating oils are used for cooling as well as for
insulating, the viscosity should be low enough for free circulation, and they should not gum. (Materials
Handbook by George J. Brady, 8th Edition 1956, pp. 421-423.) ... ."
8

The last portion of the appealed decision explained why the determination of the Acting
Commissioner of Customs must be reversed: "There is no question that insulating oils of the type
imported by petitioner are 'used for cooling as well as for insulating,' and when used in oil circuit
breakers, they are 'required to maintain insulation between the contacts inside the tank and the tank
itself.' ... The decision appealed from not being in accordance with law, the same is hereby reversed.
Respondent is ordered to refund to petitioner the sum of P995.00 within thirty days from the date this
decision becomes final, without pronouncement as to costs."
9
It was therein made clear that private
respondent was not liable for the payment of the special import tax under Republic Act No. 1394.
As noted at the outset, the decision speaks for itself. It cannot be stigmatized as suffering from any
flaw that would call for its reversal.
1. It is to be admitted, as contended by petitioner, that this Court is committed to the principle that an
exemption from taxation must be justified by words too clear to be misread. As set forth in
Commissioner of Internal Revenue v. Guerrero:
10
"From 1906, in Catholic Church v. Hastings to 1966,
in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and uniform
holding that exemption from taxation is not favored and is never presumed, so that if granted it must be
strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation,
hence, an exempting provision should be construed strictissimi juris."
11
Such a ruling was reaffirmed in
subsequent decisions.
12
It does not mean, however, that petitioner should prevail, for as was
unequivocally set forth in the leading ease of Republic Flour Mills v. Commissioner of Internal
Revenue,
13
this Court speaking through Justice J.B.L. Reyes. "It is true that in the construction of tax
statutes tax exemptions (and deductions are of this nature) are not favored in the law, and are
construed strictissimi juris against the taxpayer. However, it is equally a recognized principle that where
the provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. In this ease, we
find the provision of Section 186-A -whenever a tax free product is utilized, ... all encompassing to
comprehend tax-free raw materials, even if imported. Where the law provided no qualification for the
granting of the privilege, the court is not at liberty to supply any.
14
That is what was done by respondent
Court of Tax Appeals. It showed fealty to this equally well. settled doctrine. It construed the statutory
provision as it is written. It is precluded, in the language of ;the Republic Flour Mills opinion, considering
that the law is clear and ambiguous, to look further for any legislative intent, as "the law must be taken as
it is, devoid of judicial addition or subtraction."
15
If there is an extended discussion of this point, it is due
solely to the emphasis placed on the matter by petitioner.
2. Moreover, the decision of respondent Court under review finds support in Balbas v.
Domingo.
16
Thus: "No other conclusion is possible in view of the well-settled principle that this Court is
bound by the finding of facts of the Court of Tax Appeals, only questions of law being open to it for
determination. As stated in another decision, 'only errors of law, and not rulings on the weight of
evidence, are reviewable by this Court.' The facts then as above ascertained cannot be disturbed. In our
latest decision, there is a categorical assertion that where the question is one of fact, it is no longer
reviewable.
17
Such a doctrine is not of limited application. It is a recognition of the wide discretion
enjoyed by the Court of Tax Appeals in construing tax statutes. So it was categorically held in Alhambra
Cigar and Cigarette Manufacturing Co. v. Commissioner of Internal Revenue:
18
"Nor as a matter of
principle is it advisable for this Court to set aside the conclusion reached by an agency such as the Court
of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertice on the subject, unless, as did
not happen here, there has been an abuse or improvident exercise of its authority.
19
That same approach
was reflected in Reyes v. Commissioner of Internal Revenue,
20
Chu Hoi Horn v. Court of Tax
Appeals,
21
Vi Ve Chemical Products v. Commissioner of Customs,
22
and Nasiad v. Court of Tax
Appeals.
23
The Vi Ve decision has some relevance. There the stand of the state that the Court of Tax
Appeals could rightfully determine that '"priopionic glycine" is the same as glutamic acid"
24
was
considered as well within the authority of respondent Court. It would be an affront to the sense of fairness
and of justice if in another case, respondent Court, in the exercise of its discretionary authority, after
determining that insulating oil comes within the term insulator, is not be upheld.
WHEREFORE, the petition for review is dismissed. No costs.
Barredo, Antonio and Concepcion, Jr., JJ., concur.
Aquino, J., concurs in the result.

Footnotes
1 Cf. See. 9 of Rep. Act No. 1394 (1955).
2 The decision was penned by the then Judge Roman Umali.
3 Annex C, Petition.
4 Ibid, 1.
5 Ibid, 1-2
6 Ibid, 2.
7 Ibid.
8 Ibid, 2-3.
9 Ibid, 3-4. While references was made to the franchise of private respondent, the
decision was likewise made to rest on the language of Republic Act No. 1394.
10 L-20812, September 22, 1967, 21 SCRA 180.
11 Ibid, 183-184. Catholic Church v. Hastings in reported in 5 Phil. 701 (1906) and
Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, L-21841, October
28,1966, in 18 SCRA 488. The opinion also cited Government v. Monte de Piedad,
35 Phil. 42 (1916). Asiatic Petroleum Go. vs. Llanes 49 Phil. 466 (1926); House v.
Posadas, 53 Phil. 338 (1929); Phil. Tel. and Tel. Co. vs. Collector, 58 Phil. 639
(1933); Greenfiled v. Meer, 77 Phil. 394 (1946); Collector of Internal Revenue v.
Manila Jockey Club, 98 Phil. 670 (1956); Phil. Guaranty Co., Inc. v. Commissioner,
L-22074, September 6, 1965, 15 SCRA 1; and Abad v. Court of Tax Appeals, L-
20834, October 19, 1966, 18 SCRA 374.
12 Cf. Commissioner of Internal Revenue v. Visayan Electric Co., L-22611, May 27,
1968, 23 SCRA 715; E. Rodriguez v. Collector of Internal Revenue, L-23041, July
31, 1969, 28 SCRA 1119; Asturias Sugar Central v. Commissioner of Customs, L-1
9337. Sept. 30, 1969, 29 SCRA 617; Philippine Iron Mines v. Commissioner of
Customs v. Philippine Acetylene Co., L-22443, May 29, 1971, 39 SCRA 70; Davao
Light and Power Co. v. Commissioner of Customs, L-28739, March 29, 1972, 44
SCRA 122; Wonder Mechnical Engineering Corp. v. Court of Tax Appeals, L-22895,
June 30, 1975, 64 SCRA 555; Commissioner of Internal Revenue v. P. J. Kiener Co.,
L-24754, July 18, 1975, 65 SCRA 142; Manila Electric Co. v. Vera, L-29987, Oct. 22,
1975, 67 SCRA 351.
13 L-25602, February 18, 1970, 31 SCRA 520.
14 Ibid, 527.
15 Ibid.
16 L-19804, October 23,1968,21 SCRA 444.
17 Ibid, 448. The opinion cited Sanchez v. Commissioner of Customs, 102 Phil. 37
(1957); Castro v. Collector of Internal Revenue, 114 Phil. 1032 (1962);
Commissioner of Internal Revenue v. Priscila Estate, Inc., L-18282, May 29, 1964,
11 SCRA vs. Philippine Guaranty Co., Inc. v. Commissioner of Internal Revenue, L-
22074, Sept. 6, 1965, 15 SCRA 1; and Republic v. Razon, L-17462, May 29, 1967,20
SCRA 234.
18 L-23226, November 28, 1967, l SCRA 1111.
19 Ibid, 1118-1119.
20 L-24020, July 29, 1968, 24 SCRA 198.
21 L-22046, October 29, 1968, 25 SCRA 809.
22 L-28693, September 30, 1974, 60 SCRA 52.
23 L-29318, November 29, 1974, 61 SCRA 238.
24 60 SCRA 52, 59.











Carlos Superdrug Corp. v. DSWD, 526 SCRA 130 (2007)
Post under case digests, Political Law at Wednesday, February 08, 2012 Posted by Schizophrenic Mind
Facts: Petitioners are domestic corporations and
proprietors operating drugstores in the Philippines.
Petitioners assail the constitutionality of Section 4(a) of RA
9257, otherwise known as the Expanded Senior Citizens
Act of 2003. Section 4(a) of RA 9257 grants twenty
percent (20%) discount as privileges for the
SeniorCitizens. Petitioner contends that said law is
unconstitutional because it constitutes deprivation
of private property.

Issue: Whether or not RA 9257 is unconstitutional

Held: Petition is dismissed. The law is a legitimate
exercise of police power which, similar to the power of
eminent domain, has general welfare for its object.

Accordingly, it has been described as the most essential,
insistent and the least limitable of powers, extending as it
does to all the great public needs. It is the power vested
in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws,
statutes, and ordinances, either with penaltiesor without,
not repugnant to the constitution, as they shall judge to be
for the good and welfare of the commonwealth, and of
thesubjects of the same.

For this reason, when the conditions so demand as
determined by the legislature, property rights must bow to
the primacy of police power because property rights,
though sheltered by due process, must yield to general
welfare.
























G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J .:p
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals
1
in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976
decision of the Board of Tax Assessment Appeals
2
in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
"Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands
on which another's dwelling is located, where such rentals do not exceed three hundred pesos
(P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act
also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity
thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently,
the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly reviewed by the Secretary of
Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They
averred that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income
derived from their properties. They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which the City Assessor
adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete
evidence which could overcome the presumptive regularity of the classification and
assessments appear to be in accordance with the base schedule of market values
and of the base schedule of building unit values, as approved by the Secretary of
Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither the owners nor their
authorized representatives were present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below street level and were affected by
the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the
lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and
PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1)
PD-266, the appealed Decision is modified by allowing a 20% reduction in their
respective market values and applying therein the assessment level of 30% to arrive
at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and study
of land values as in the case of properties affected by the Rent Control Law for they do not project
the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the properties predicated
upon prices paid in actual, market transactions would be a uniform and a more credible standards to
use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public respondents
would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market
value of properties within its coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988
Edition). However, it is conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and elements of value and
must exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to
tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities imposed
(Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller
and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing buyers. As a general rule, there were no
takers so that there can be no reasonable basis for the conclusion that these properties were
comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, 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 taxations, which
is the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

Footnotes
1 Penned by former Chairman and Acting Minister Pedro Almanzor and concurred in
by the then Minister of Justice Vicente Abad Santos and Minister of Local
Government and Community Development Jose Rono.
2 Rendered by then Acting Register of Deeds of Manila Teresita H. Noblejas and
concurred in by former City Engineer of Manila Romulo M. del Rosario and OIC of
the Office of the City of Auditor Raul C. Flores.























G.R. No. 119761 August 29, 1996
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION,respondents.

VITUG, J .:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of
respondent Court of Appeals
1
affirming the 10th August 1994 decision and the 11th October 1994
resolution of the Court of Tax Appeals
2
("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands
of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January
1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon
Diaz of the Presidential Commission on Good Government, "the initial position of the Commission
was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World
Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the
names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR'])
that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local
brand."
3
Ad Valorem taxes were imposed on these brands,
4
at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20%
5

A bill, which later became Republic Act ("RA") No. 7654,
6
was enacted, on 10 June 1993, by
the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new
law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal
Revenue Code ("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes.
xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied, assessed and collected
on cigarettes packed by machine a tax at the rates prescribed below based on the
constructive manufacturer's wholesale price or the actual manufacturer's wholesale
price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five
Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual manufacturer's
wholesale price whichever is higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes packed in twenties does not
exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty
percent (20%).
7
(Emphasis supplied)
About a month after the enactment and two (2) days before the effectivity of RA 7654,
Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full
text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
J
u
l
y

1
,

1
9
9
3
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION"
cigarettes which are locally manufactured are appropriately considered as locally
manufactured cigarettes bearing a foreign brand, this Office is compelled to review
the previous rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956,
provides:
On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. Whenever it has to
be determined whether or not a cigarette bears a foreign brand, the
listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable, ". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.
Since there is no showing who among the above-listed manufacturers of the
cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."
In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE"
and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD)
LIWAYWAY
VINZONS-
CHATO
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr.,
sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in
particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox
copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune
Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was
denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA.
8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands
of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by
Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes is found to be defective,
invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993,
the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55%
pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and
were therefore still classified as other locally manufactured cigarettes and taxed at
45% or 20% as the case may be.
Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune
Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined from collecting
the deficiency tax assessment made and issued on petitioner in relation to the
implementation of RMC No. 37-93.
SO ORDERED.
9

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for
reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's
10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the
appellate court's Special Thirteenth Division affirmed in all respects the assailed decision
and resolution.
In the instant petition, the Solicitor General argues: That
I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER
OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF
THE TAX CODE.
II. BEING AN INTERPRETATIVE RULING OR OPINION, THE
PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF
WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT
NECESSARY TO ITS VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN
NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO
ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY
SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM
RECLASSIFYING "HOPE," "MORE" AND "CHAMPION"
CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE
INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR
ENFORCEABILITY BUT INTO ITS CORRECTNESS OR
PROPRIETY; RMC 37-93 IS CORRECT.
10

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which
can thus become effective without any prior need for notice and hearing, nor publication, and
that its issuance is not discriminatory since it would apply under similar circumstances to all
locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for
the effective implementation of the provisions of the National Internal Revenue Code. Let it
be made clear that such authority of the Commissioner is not here doubted. Like any other
government agency, however, the CIR may not disregard legal requirements or applicable
principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances a legislative rule and
aninterpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance
Secretary,
11
the Court expressed:
. . . a legislative rule is in the nature of subordinate legislation, designed to implement
a primary legislation by providing the details thereof . In the same way that laws must
have the benefit of public hearing, it is generally required that before a legislative rule
is adopted there must be hearing. In this connection, the Administrative Code of
1987 provides:
Public Participation. If not otherwise required by law, an agency shall, as far as
practicable, publish or circulate notices of proposed rules and afford interested
parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates
shall have been published in a newspaper of general circulation at least two (2)
weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative rules are
designed to provide guidelines to the law which the administrative agency is in
charge of enforcing.
12

It should be understandable that when an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its bare issuance for it gives no real
consequence more than what the law itself has already prescribed. When, upon the other
hand, the administrative rule goes beyond merely providing for the means that can facilitate
or render least cumbersome the implementation of the law but substantially adds to or
increases the burden of those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been
issued, convinces us that the circular cannot be viewed simply as a corrective measure
(revoking in the process the previous holdings of past Commissioners) or merely as
construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
been made in order to place "Hope Luxury," "Premium More" and "Champion" within the
classification of locally manufactured cigarettes bearing foreign brands and to thereby have
them covered by RA 7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope
Luxury," "Premium More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence,
without RMC 37-93, the enactment of RA 7654, would have had no new tax rate
consequence on private respondent's products. Evidently, in order to place "Hope Luxury,"
"Premium More," and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so
doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-
legislative authority. The due observance of the requirements of notice, of hearing, and of
publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on compliance with
Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to
the tax paying public. Unless there is due notice, due compliance therewith may not
be reasonably expected. And most importantly, their strict enforcement could
possibly suffer from legal infirmity in the light of the constitutional provision on "due
process of law" and the essence of the Civil Code provision concerning effectivity of
laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2,
New Civil Code).
In order that there shall be a just enforcement of rules and regulations, in conformity
with the basic element of due process, the following procedures are hereby
prescribed for the drafting, issuance and implementation of the said Revenue Tax
Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations; (b)
Revenue Audit Memorandum Orders; and (c) Revenue Memorandum
Circulars and Revenue Memorandum Orders bearing on internal
revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the aforesaid
internal revenue tax issuances shall not begin to be operative until
after due notice thereof may be fairly presumed.
Due notice of the said issuances may be fairly presumed only after
the following procedures have been taken;
xxx xxx xxx
(5) Strict compliance with the foregoing procedures is
enjoined.
13

Nothing on record could tell us that it was either impossible or impracticable for the BIR to
observe and comply with the above requirements before giving effect to its questioned
circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform
and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated,
are to be treated alike or put on equal footing both in privileges and liabilities.
14
Thus, all
taxable articles or kinds of property of the same class must be taxed at the same rate
15
and the
tax must operate with the same force and effect in every place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and
"Champion" cigarettes and, unless petitioner would be willing to concede to the submission
of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice
Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and
thus violative of due process following the Ang Tibay
16
doctrine, the measure suffers from lack
of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing
foreign brands have not been similarly included within the scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of Monopoly,
Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being manufactured by United Tobacco,
Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha Tobacco,
Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by Rothman's,
Malaysia (Exhibit "U")
(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks,
Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by Rothman's,
Malaysia (Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra Tobacco,
Indonesia and Brown and Williamson, USA (Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha Tobacco,
Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan
Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar,
Sudan (Exhibit "U-4").
1
7
The court quoted at length from the transcript of the hearing conducted on 10 August 1993
by the Committee on Ways and Means of the House of Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You
don't have specific information on other tobacco manufacturers. Now, there are other
brands which are similarly situated. They are locally manufactured bearing foreign
brands. And may I enumerate to you all these brands, which are also listed in the
World Tobacco Directory . . . Why were these brand not reclassified at 55 if your
want to give a level playing filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue
Memorandum Circular that was supposed to come after RMC No. 37-93 which have
really named specifically the list of locally manufactured cigarettes bearing a foreign
brand for excise tax purposes and includes all these brands that you mentioned at 55
percent except that at that time, when we had to come up with this, we were forced
to study the brands of Hope, More and Champion because we were given
documents that would indicate the that these brands were actually being claimed or
patented in other countries because we went by Revenue Memorandum Circular
1488 and we wanted to give some rationality to how it came about but we couldn't
find the rationale there. And we really found based on our own interpretation that the
only test that is given by that existing law would be registration in the World Tobacco
Directory. So we came out with this proposed revenue memorandum circular which
we forwarded to the Secretary of Finance except that at that point in time, we went
by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that
on locally manufactured cigarettes which are currently classified and taxed at 55
percent. So we were saying that when this law took effect in July 3 and if we are
going to come up with this revenue circular thereafter, then I think our action would
really be subject to question but we feel that . . . Memorandum Circular Number 37-
93 would really cover even similarly situated brands. And in fact, it was really
because of the study, the short time that we were given to study the matter that we
could not include all the rest of the other brands that would have been really
classified as foreign brand if we went by the law itself. I am sure that by the reading
of the law, you would without that ruling by Commissioner Tan they would really have
been included in the definition or in the classification of foregoing brands. These
brands that you referred to or just read to us and in fact just for your information, we
really came out with a proposed revenue memorandum circular for those brands.
(Emphasis supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I
felt that we . . . I wanted to come up with a more extensive coverage and precisely
why I asked that revenue memorandum circular that would cover all those similarly
situated would be prepared but because of the lack of time and I came out with a
study of RA 7654, it would not have been possible to really come up with the
reclassification or the proper classification of all brands that are listed there. .
.(emphasis supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are similarly situated?
MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue
Memorandum Circular No. 37-93, the other brands came about the would have also
clarified RMC 37-93 by I was saying really because of the fact that I was just recently
appointed and the lack of time, the period that was allotted to us to come up with the
right actions on the matter, we were really caught by the July 3 deadline. But in fact,
We have already prepared a revenue memorandum circular clarifying with the other .
. . does not yet, would have been a list of locally manufactured cigarettes bearing a
foreign brand for excise tax purposes which would include all the other brands that
were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d,"
par. IX-4).
18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid
and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is
AFFIRMED. No costs.
SO ORDERED.
Kapunan, J., concurs.



Separate Opinions

BELLOSILLO, J .: separate opinion:
RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June
1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal
Revenue Code (NIRC) to read
Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There
shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or
the actual manufacturer's wholesale price, whichever is higher.
(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less
than Five Pesos (P5.00) per pack (emphasis supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium
More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-
45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner
of Internal Revenue issued RMC 37-93 reclassifying "Hope, Moreand Champion being manufactured
by Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes."
1
RMC 37-93 in effect subjected Hope
Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1), NIRC,
as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA
7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of
the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to no one in
particular. It was only when the reclassification of respondent corporation's cigarette brands was
reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of
respondent corporation learned of the matter, prompting him to inquire into its veracity and to
request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith
denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July
1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.
On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled
Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: Hope, More andChampion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable
. . . . Accordingly, the deficiency ad valorem tax assessment issued on petitioner
Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby cancelled for lack of legal basis.
2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC
37-93 was in itself discriminatory. The motion to reconsider its decision was denied by the
CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the
decision of the CTA.
3
Hence, the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope
Luxury, Premium Moreand Champion as locally manufactured cigarettes bearing brands is merely
an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary.
4
It maintains that neither is the
assailed revenue memorandum circular discriminatory as it merely "lays down the test in determining
whether or not a locally manufactured cigarette bears a foreign brand using (only) the cigarette
brandsHope, More and Champion as specific examples."
5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative
ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis
Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor
General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also argues that
RMC 37-93 discriminates against its cigarette brands since those of its competitors which are
similarly situated have not been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance
of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.
A brief discourse on the powers and functions of administrative bodies may be instructive.
Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or
administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports to do no more
than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to
no single person or party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce the law and is
intended merely to clarify statutory provisions for proper observance by the people. In Taada
v. Tuvera,
6
this Court expressly said that "[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power to hear and
determine questions of fact to which the legislative policy is to apply and to decide in accordance
with the standards laid down by the law itself in enforcing and administering the same law.
7
The
administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which
is essentially of an executive or administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or administrative duty entrusted to it.
8
In
carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific
persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must
be observed in the conduct of the proceedings.
The importance of due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an administrative
proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of
the proceeding. The right to reasonable prior notice and hearing embraces not only the right to
present evidence but also the opportunity to know the claims of the opposing party and to meet
them. The right to submit arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the
government proposes and to be heard upon its proposal before it issues its final command.
There are cardinal primary rights which must be respected in administrative proceedings. The
landmark case ofAng Tibay v. The Court of Industrial Relations
9
enumerated these rights: (1) the right
to a hearing, which includes the right of the party interested or affected to present his own case and
submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the
decision must have something to support itself; (4) the evidence must be substantial; (5) the decision
must be rendered on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its
decision in such manner that the parties to the proceeding may know the various issues involved and the
reasons for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice
and hearing, or an adjudicatory rule which demands the observance of due process, a close
examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at
first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means
Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956,
provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of whether or not the
right to use or title to the foreign brand was sold or transferred by its owner to the
local manufacturer. Whenever it has to be determined whether or not a cigarette
bears a foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury),
(Premium) More and Champion are manufactured by other foreign manufacturers
Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by: (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.
From this finding, petitioner thereafter formulates an inference that since it cannot be determined
who among the manufacturers are the real owners of the brands in question, then these cigarette
brands should be considered foreign brands
Since there is no showing who among the above-listed manufacturers of the
cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."
Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands
In view of the foregoing, the aforesaid brands of
cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and
interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a
conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing
are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of
evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88,
dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine
whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no
hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of
the imagination can RMC 37-93 be considered purely as an interpretative rule requiring no
previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue operates.
It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of
Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of
taxation. But the similarity between the two revenue memorandum circulars ends there. For in
properly determining whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have
no to be considered.
We quote RMC 47-91 promulgated 11 June 1991
Revenue Memorandum Circular No. 47-91
SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.
For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August
17, 1990:
COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attention:
Ms. Esmyrna E. Reyes
Vice President
Finance
S i r s :
This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of
BIR Ruling dated January 8, 1988 which considered copra as an
agricultural food product in its original state. In this connection, you
request for a confirmation of your opinion as aforestated.
In reply, please be informed that copra, being an agricultural non-food
product, is exempt from VAT only if sale is made by the primary
producer pursuant to Section 103 (a) of the Tax Code, as amended.
Thus as a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.
Very
truly
yours,
(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue
As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.
(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue
Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it
simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official
stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there
were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no
dispositive portion directed at any particular party.
Another difference is that in the instant case, the issuance of the assailed revenue memorandum
circular operated to subject the taxpayer to the new law which was yet to take effect, while
in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify
the prevailing position and ruling of the administrative agency, and no new law yet to take effect was
involved. It merely interpreted an existing law which had already been in effect for some time and
which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was
ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was
promulgated two days before the expiration of the old law and a few hours before the effectivity of
the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3)
cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum
circular
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand
using the cigarette brandsHope, More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation
and solely on respondent corporation as its deficiency ad valorem tax assessment on its
removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation
was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter,
and was indiscriminately directed to all copra traders with no particular individual in mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be
disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do
we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.
In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the
wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private
respondents. It is simply the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end the manner and the circumstances under which the cigarettes of private
respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule
which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.
In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also
voted to uphold the constitutional right of the taxpayer concerned to due process and equal
protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein and of the majority have yet to
varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should
be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at
all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have
earlier expressed, if placed under similar circumstances in some future time, I shall have to brave
again the prospect of another vilification and a tarnished image if only to show proudly to the whole
world that under the present dispensation judicial independence in our country is a true component
of our democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of
such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily
issued without prior notice and hearing, and singling out private respondent alone when two
days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of
private respondent at a higher rate. Obviously, this was to make it appear that even before the
anticipated date of effectivity of the statute which was undeniably priorly known to petitioner
these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving
them into the purview of the law that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of the questioned
memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were
being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on the old, lower tax rate.
Had there been previous notice and hearing, as claimed by private respondent, it could have very
well presented its side, either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the
ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are
also to consider the claim of private respondent that the new tax is even higher than the cost of its
cigarettes.
Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J .: dissenting
Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for
deficiency ad valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes
from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that
the circular, upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the Circular in question, in
the first place, did not give prior notice and hearing, and so, it could not have been valid and
effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were
considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and
hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due
process clause of the Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect
only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of
the same kind or classification as these cigarettes manufactured by private respondent.
With all due respect, I disagree with the majority in its disquisition of the issues and its resulting
conclusions.
Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular
Section 245 of the National Internal Revenue Code, as amended, provides:
Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations.
The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code . . . without prejudice to the power of the Commissioner of
Internal Revenue to make rulings or opinions in connection with the implementation
of the provisions of internal revenue laws, including rulings on the classification of
articles for sales tax and similar purposes.
The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It
was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as
amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a
foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes
are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:
. . . Whenever it has to be determined whether or not a cigarette bears a foreign
brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
There is only one World Tobacco Directory for a given current year, and the same is
mandated by law to be the BIR Commissioner's controlling basis for determining whether or
not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco Directory for
the given current year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette manufacturers,
and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such
a determination because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it
by the legislature in recognition of its more encompassing and unequalled expertise in the
field of taxation.
The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is
not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177
SCRA 72, 79). More and more administrative bodies are necessary to help in the
regulation of society's ramified activities. "Specialized in the particular field assigned
to them, they can deal with the problems thereof with more expertise and dispatch
than can be expected from the legislature or the courts of justice" . . .
1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner
was acting well within her prerogatives when she issued the questioned Circular. And in the exercise
of such prerogatives under the law, she has in her favor the presumption of regular performance of
official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse
of discretion in order to be overturned and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act
No. 7654
2
on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be
reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of our
legislators to the effect that the said Act was intended to freeze the current classification of cigarettes and
make the same an integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify
cigarettes must be reckoned from the effectivity of the said Act and not before. Suffice it to say that
indisputable is the plain fact that the questioned Circular was issued on July 1, 1993, while the said Act
took effect on July 3, 1993.
The contents of the questioned circular have not
been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code,
as amended, levies the following ad valorem taxes on cigarettes in accordance with their
predetermined classifications as established by the Commissioner of Internal Revenue:
. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the right to
use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%).
xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid by private respondent
as ad valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were
amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was
45% at the most. The reason for this is that apparently, petitioner's predecessors have all made
determinations to the effect that the said cigarettes were to be considered "other locally
manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even
petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination
as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other
locally manufactured cigarettes" was based on private respodnent's convenient move of changing
the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand.
Having registered these brands with the Philippine Patent Office and with corresponding evidence to
the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than
45% which is the rate applicable to cigarettes considered as locally manufactured brands.
How these past determinations pervaded notwithstanding their erroneous basis is only tempered by
their innate quality of being merely errors in interpretative ruling, the formulation of which does not
bind the government. Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and rectified.
Petitioner correctly emphasizes that:
. . . the registration of said brands in the name of private respondent is proof only that
it is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming
arguendo that private respondent is the exclusive owner of said brands in the
Philippines, it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by different entities in
different countries. Moreover, it cannot be said that the brands registered in the
names of private respondent are not the same brands listed in the WTD because
private respondent is one of the manufacturers of said brands listed in the WTD.
3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned
Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the
World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous and makes such error the
principal proof of its claim that the nature of the determination embodied in the questioned Circular
requires a hearing on the facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation,
recognized in that expertise by the legislature that vested in her the power to make rules respecting
classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under
Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended,
simply followed the law as she understood it. Her task was to determine which cigarette brands were
foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more extensive public exposure
and international reputation; their competitive edge against local brands may easily be checked by
imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance
that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether
manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to
be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the
sales in the Philippines of which are greatly boosted by its international exposure and reputation.
The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles underlying
taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in
favor of the Government, for Government can not survive without the funds to underwrite its varied
operational expenses in pursuit of the welfare of the society which it serves and protects.
Private respondent claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested
rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the Government which,
because of erroneous determinations made by its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount
of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights
to speak of respecting a wrong construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or overrule the same.
4

The Questioned Circular embodies an interpretative
ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical administrative agency vested with a fusion of different
governmental powers: the power to investigate, initiate action and control the range of investigation,
the power to promulgate rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities.
5
In the realm of administrative law, we
understand that such an empowerment of administrative agencies was evolved in response to the needs
of a changing society. This development arose as the need for broad social control over complex
conditions and activities became more and more pressing, and such complexity could no longer be dealt
with effectivity and directly by the legislature or the judiciary. The theory which underlies the
empowerment of administrative agencies like the Bureau of Internal Revenue, is that the issues with
which such agencies deal ought to be decided by experts, and not be a judge, at least not in the first
instance or until the facts have been sifted and arranged.
6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to
make rules. The necessity for vesting administrative agencies with this power stems from the
impracticability of the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation.
7

The rules that administrative agencies may promulgate may either be legislative or interpretative.
The former is a form of subordinate legislation whereby the administrative agency is acting in a
legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation
of legislative power.
8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the
statute being administered, to say what it means."
9

There can be no doubt that there is a distinction between an administrative rule or
regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid law,
while when it renders an opinion or gives a statement of policy, it merely interprets a
pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been
said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)
A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature,
even if the courts are not in agreement with the policy stated therein or its innate
wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation
of the law is at best merely advisory, for it is the courts that finally determine what the
law means.
10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends
upon whether the statute places specific 'sanctions' behind the regulations authorized, as for
example, by making it a criminal offense to disobey them, or by making conformity with their
provisions a condition of the exercise of legal privileges."
11
This is because interpretative regulations
are by nature simply statutory interpretations, which have behind them no statutory sanction. Such
regulations, whether so expressly authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by statute.
The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making
powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such
powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by
any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of
cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed in favor of the
Government whose survival depends on the contributions that taxpayers give to the public coffers
that finance public services and other governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal
Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to
various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily
interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy
involving his tax liability. It also asseverates that the questioned circular involved administrative
action that is particular and immediate, thereby rendering it subject to the requirements of notice and
hearing in compliance with the due process clause of the Constitution.
We find private respondent's arguments to be rather strained.
Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited
provisions in the National Internal Revenue Code, as amended. Such determination was an
interpretation by petitioner of the said legal provisions. If in the course of making the interpretation
and embodying the same in the questioned circular which the petitioner subsequently issued after
making such a determination, private respondent's cigarettes products, by their very nature of being
foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the
controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come
to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a
tax rate higher than what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by petitioner of here
duties under the law. No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in accordance with law may not
be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature.
Such an exercise in driving home a point is illogical as it is fallacious and misplaced.
Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well
as a hearing" and "for this reason, in most instances, interpretative regulations are not given the
force of law."
12
Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published."
13
And it is now settled that only legislative regulations and not interpretative
rulings must have the benefit of public
hearing.
14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and
giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2)
petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis
of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in
favor of the Government to the end that Government collects as much tax money as it is entitled to
in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the questioned circular; and (4)
a similar circular declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner,
15
this Court must not be
blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and
hearing.
Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution
Private respondent anchors its claim of violation of its equal protection rights upon the too obvious
fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacture are enumerated in the
questioned circular, private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A scrutiny of the
questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular. Significantly, indicated as the
subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private respondent's own action of
conveniently changing its brand names to avoid falling under a classification that would subject it to
higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his
initial determination that private respondent's cigarette brands are foreign brands. The consequent
specific mention of such brands in the questioned Circular, does not change the fact that the
questioned Circular has always been intended for and did cover, all cigarettes similarly situated as
"Hope," "More" and "Champion." Petitioner is thus correct in stating that:
. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes
are actually determined as locally manufactured cigarettes bearing a foreign brand,
RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93
is not discriminatory.
16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned
Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and
unenforceable and has rendered the assessment against private respondent of deficiency ad
valorem excise taxes to be without legal basis. The majority agrees with private respondent and
respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's
arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting
interpretative ruling that the petitioner had power to promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals
and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of
Internal Revenue denying private respondent's request for a review, reconsideration and recall of
Revenue Memorandum Circular No. 37-93 dated July 1, 1993.
Padilla, J., concurs.

Separate Opinions

BELLOSILLO, J .: separate opinion:
RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June
1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal
Revenue Code (NIRC) to read
Sec. 142. Cigars and cigarettes. . . . . (c) Cigarettes packed by machine. There
shall be levied, assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below based on the constructive manufacturer's wholesale price or
the actual manufacturer's wholesale price, whichever is higher.
(1) On locally manufactured cigarettes which are currently classified and taxed at
fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less
than Five Pesos (P5.00) per pack (emphasis supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that
the minimum tax shall not be less than Three Pesos (P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium
More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-
45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner
of Internal Revenue issued RMC 37-93 reclassifying "Hope, Moreand Champion being manufactured
by Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes."
1
RMC 37-93 in effect subjected Hope
Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1), NIRC,
as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA
7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of
the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to no one in
particular. It was only when the reclassification of respondent corporation's cigarette brands was
reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of
respondent corporation learned of the matter, prompting him to inquire into its veracity and to
request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith
denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July
1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.
On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled
Revenue Memorandum Circular No. 37-93 reclassifying the brands of
cigarettes, viz: Hope, More andChampion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable
. . . . Accordingly, the deficiency ad valorem tax assessment issued on petitioner
Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby cancelled for lack of legal basis.
2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due
process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC
37-93 was in itself discriminatory. The motion to reconsider its decision was denied by the
CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the
decision of the CTA.
3
Hence, the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope
Luxury, Premium Moreand Champion as locally manufactured cigarettes bearing brands is merely
an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental
Association of Coco Traders, Inc. v. Department of Finance Secretary.
4
It maintains that neither is the
assailed revenue memorandum circular discriminatory as it merely "lays down the test in determining
whether or not a locally manufactured cigarette bears a foreign brand using (only) the cigarette
brandsHope, More and Champion as specific examples."
5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative
ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis
Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor
General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also argues that
RMC 37-93 discriminates against its cigarette brands since those of its competitors which are
similarly situated have not been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance
of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.
A brief discourse on the powers and functions of administrative bodies may be instructive.
Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or
administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make
rules and regulations which results in delegated legislation that is within the confines of the granting
statute and the doctrine of nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory
regulations under which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports to do no more
than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to
no single person or party in particular but concerns all those belonging to the same class which may
be covered by the said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce the law and is
intended merely to clarify statutory provisions for proper observance by the people. In Taada
v. Tuvera,
6
this Court expressly said that "[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the power of the
administrative agency to adjudicate the rights of persons before it. It is the power to hear and
determine questions of fact to which the legislative policy is to apply and to decide in accordance
with the standards laid down by the law itself in enforcing and administering the same law.
7
The
administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which
is essentially of an executive or administrative nature, where the power to act in such manner is incidental
to or reasonably necessary for the performance of the executive or administrative duty entrusted to it.
8
In
carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them
as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific
persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must
be observed in the conduct of the proceedings.
The importance of due process cannot be underestimated. Too basic is the rule that no person shall
be deprived of life, liberty or property without due process of law. Thus when an administrative
proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of
the proceeding. The right to reasonable prior notice and hearing embraces not only the right to
present evidence but also the opportunity to know the claims of the opposing party and to meet
them. The right to submit arguments implies that opportunity otherwise the right may as well be
considered impotent. And those who are brought into contest with government in a quasi-judicial
proceeding aimed at the control of their activities are entitled to be fairy advised of what the
government proposes and to be heard upon its proposal before it issues its final command.
There are cardinal primary rights which must be respected in administrative proceedings. The
landmark case ofAng Tibay v. The Court of Industrial Relations
9
enumerated these rights: (1) the right
to a hearing, which includes the right of the party interested or affected to present his own case and
submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the
decision must have something to support itself; (4) the evidence must be substantial; (5) the decision
must be rendered on the evidence presented at the hearing, or at least contained in the record and
disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply accept the views of a
subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its
decision in such manner that the parties to the proceeding may know the various issues involved and the
reasons for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice
and hearing, or an adjudicatory rule which demands the observance of due process, a close
examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at
first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means
Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956,
provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five
percent (55%) Provided, That this rate shall apply regardless of whether or not the
right to use or title to the foreign brand was sold or transferred by its owner to the
local manufacturer. Whenever it has to be determined whether or not a cigarette
bears a foreign brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand regardless of whether
or not the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is, however, not
definitely determinable,
". . . the listing of brands manufactured in foreign countries appearing in the current
World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury),
(Premium) More and Champion are manufactured by other foreign manufacturers
Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan
Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune
Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured by: (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies,
Switzerland.
From this finding, petitioner thereafter formulates an inference that since it cannot be determined
who among the manufacturers are the real owners of the brands in question, then these cigarette
brands should be considered foreign brands
Since there is no showing who among the above-listed manufacturers of the
cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held
in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made."
Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation
reclassifying its cigarette brands as locally manufactured bearing foreign brands
In view of the foregoing, the aforesaid brands of
cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco
Corporation are hereby considered locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and
interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a
conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing
are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of
evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88,
dated August 24, 1988, which provides that "in cases where it cannot be established or there is
dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine
whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no
hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of
the imagination can RMC 37-93 be considered purely as an interpretative rule requiring no
previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue operates.
It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of
Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of
taxation. But the similarity between the two revenue memorandum circulars ends there. For in
properly determining whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have
no to be considered.
We quote RMC 47-91 promulgated 11 June 1991
Revenue Memorandum Circular No. 47-91
SUBJECT : Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.
For the information and guidance of all officials and employees and others
concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August
17, 1990:
COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attention:
Ms. Esmyrna E. Reyes
Vice President
Finance
S i r s :
This has reference to your letter dated January 16, 1990 wherein you
represented that inspite of your VAT registration of your copra trading
company, you are supposed to be exempt from VAT on the basis of
BIR Ruling dated January 8, 1988 which considered copra as an
agricultural food product in its original state. In this connection, you
request for a confirmation of your opinion as aforestated.
In reply, please be informed that copra, being an agricultural non-food
product, is exempt from VAT only if sale is made by the primary
producer pursuant to Section 103 (a) of the Tax Code, as amended.
Thus as a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b) (1) of
Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.
Very
truly
yours,
(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue
As a clarification, this is the present and official stand of this Office unless sooner
revoked or amended. All revenue officials and employees are enjoined to give this
Circular as wide a publicity as possible.
(Sgd.)
JOSE
U.
ONG
Commi
ssioner
of
Internal
Reven
ue
Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it
simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official
stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner
manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there
were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no
dispositive portion directed at any particular party.
Another difference is that in the instant case, the issuance of the assailed revenue memorandum
circular operated to subject the taxpayer to the new law which was yet to take effect, while
in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify
the prevailing position and ruling of the administrative agency, and no new law yet to take effect was
involved. It merely interpreted an existing law which had already been in effect for some time and
which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was
ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was
promulgated two days before the expiration of the old law and a few hours before the effectivity of
the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3)
cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum
circular
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More,
and Champion being manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays
down the test in determining whether or not a locally manufactured cigarette bears a foreign brand
using the cigarette brandsHope, More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation
and solely on respondent corporation as its deficiency ad valorem tax assessment on its
removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e.,
from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation
was supposed to have received the facsimile message sent by Deputy Commissioner Victor A.
Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already
P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and
declare what has been the official stand of the administrative agency on the specific subject matter,
and was indiscriminately directed to all copra traders with no particular individual in mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be
disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do
we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by
constitutional mandate, the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.
In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the
wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private
respondents. It is simply the faithful observance by government by government of the basic
constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end the manner and the circumstances under which the cigarettes of private
respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule
which therefore requires reasonable notice and hearing before its issuance. It should not be
confused with RMC 47-91, which is a mere interpretative rule.
In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also
voted to uphold the constitutional right of the taxpayer concerned to due process and equal
protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who
constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein and of the majority have yet to
varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should
be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial
objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at
all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have
earlier expressed, if placed under similar circumstances in some future time, I shall have to brave
again the prospect of another vilification and a tarnished image if only to show proudly to the whole
world that under the present dispensation judicial independence in our country is a true component
of our democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of
such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily
issued without prior notice and hearing, and singling out private respondent alone when two
days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of
private respondent at a higher rate. Obviously, this was to make it appear that even before the
anticipated date of effectivity of the statute which was undeniably priorly known to petitioner
these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving
them into the purview of the law that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of the questioned
memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were
being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially
because private respondent was still selling its cigarettes at a price based on the old, lower tax rate.
Had there been previous notice and hearing, as claimed by private respondent, it could have very
well presented its side, either by opposing the reclassification, or by acquiescing thereto but
increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the
ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are
also to consider the claim of private respondent that the new tax is even higher than the cost of its
cigarettes.
Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J .: dissenting
Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for
deficiency ad valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes
from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that
the circular, upon which the assessment was based and made, is defective, invalid and
unenforceable for having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the Circular in question, in
the first place, did not give prior notice and hearing, and so, it could not have been valid and
effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were
considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and
hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due
process clause of the Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect
only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of
the same kind or classification as these cigarettes manufactured by private respondent.
With all due respect, I disagree with the majority in its disquisition of the issues and its resulting
conclusions.
Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular
Section 245 of the National Internal Revenue Code, as amended, provides:
Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations.
The Secretary of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code . . . without prejudice to the power of the Commissioner of
Internal Revenue to make rulings or opinions in connection with the implementation
of the provisions of internal revenue laws, including rulings on the classification of
articles for sales tax and similar purposes.
The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It
was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as
amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a
foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes
are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:
. . . Whenever it has to be determined whether or not a cigarette bears a foreign
brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
There is only one World Tobacco Directory for a given current year, and the same is
mandated by law to be the BIR Commissioner's controlling basis for determining whether or
not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a
determination, petitioner should inquire into the entries in the World Tobacco Directory for
the given current year and shall be held bound by such entries therein. She is not required to
subject the results of her inquiries to feedback from the concerned cigarette manufacturers,
and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the
law does not, in the first place, require debate or hearing thereon. Petitioner may make such
a determination because she is the Chief Executive Officer of the administrative agency that
is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it
by the legislature in recognition of its more encompassing and unequalled expertise in the
field of taxation.
The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is
not unconstitutional, unreasonable and oppressive. It has been necessitated by "the
growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177
SCRA 72, 79). More and more administrative bodies are necessary to help in the
regulation of society's ramified activities. "Specialized in the particular field assigned
to them, they can deal with the problems thereof with more expertise and dispatch
than can be expected from the legislature or the courts of justice" . . .
1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to
classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner
was acting well within her prerogatives when she issued the questioned Circular. And in the exercise
of such prerogatives under the law, she has in her favor the presumption of regular performance of
official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse
of discretion in order to be overturned and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act
No. 7654
2
on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be
reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of our
legislators to the effect that the said Act was intended to freeze the current classification of cigarettes and
make the same an integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify
cigarettes must be reckoned from the effectivity of the said Act and not before. Suffice it to say that
indisputable is the plain fact that the questioned Circular was issued on July 1, 1993, while the said Act
took effect on July 3, 1993.
The contents of the questioned circular have not
been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code,
as amended, levies the following ad valorem taxes on cigarettes in accordance with their
predetermined classifications as established by the Commissioner of Internal Revenue:
. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall apply regardless of whether or not the right to
use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%).
xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid by private respondent
as ad valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were
amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was
45% at the most. The reason for this is that apparently, petitioner's predecessors have all made
determinations to the effect that the said cigarettes were to be considered "other locally
manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even
petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination
as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise
taxes. Apparently, the past determination that the said cigarettes were to be classified as "other
locally manufactured cigarettes" was based on private respodnent's convenient move of changing
the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that
"Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand.
Having registered these brands with the Philippine Patent Office and with corresponding evidence to
the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than
45% which is the rate applicable to cigarettes considered as locally manufactured brands.
How these past determinations pervaded notwithstanding their erroneous basis is only tempered by
their innate quality of being merely errors in interpretative ruling, the formulation of which does not
bind the government. Advantage over such errors may precipitously be withdrawn from those who
have been benefiting from them once the same have been discovered and rectified.
Petitioner correctly emphasizes that:
. . . the registration of said brands in the name of private respondent is proof only that
it is the exclusive owner thereof in the Philippines; it does not necessarily follow,
however, that it is the exclusive owner thereof in the whole world. Assuming
arguendo that private respondent is the exclusive owner of said brands in the
Philippines, it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by different entities in
different countries. Moreover, it cannot be said that the brands registered in the
names of private respondent are not the same brands listed in the WTD because
private respondent is one of the manufacturers of said brands listed in the WTD.
3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned
Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the
World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing
this out, private respondent concludes that the entire Circular is erroneous and makes such error the
principal proof of its claim that the nature of the determination embodied in the questioned Circular
requires a hearing on the facts and a debate on the applicable law. Such a determination is
adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion.
Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation,
recognized in that expertise by the legislature that vested in her the power to make rules respecting
classification of articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations specifically under
Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended,
simply followed the law as she understood it. Her task was to determine which cigarette brands were
foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more extensive public exposure
and international reputation; their competitive edge against local brands may easily be checked by
imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance
that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether
manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to
be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the
sales in the Philippines of which are greatly boosted by its international exposure and reputation.
The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify
articles for taxation purposes, to interpret the laws which she is mandated to administer. In
interpreting the same, petitioner must, in general, be guided by the principles underlying
taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in
favor of the Government, for Government can not survive without the funds to underwrite its varied
operational expenses in pursuit of the welfare of the society which it serves and protects.
Private respondent claims that its business will be destroyed by the imposition of additional ad
valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested
rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the
past. Of course private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the Government which,
because of erroneous determinations made by its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount
of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights
to speak of respecting a wrong construction of the law by administrative officials, and such wrong
interpretation does not place the Government in estoppel to correct or overrule the same.
4

The Questioned Circular embodies an interpretative
ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical administrative agency vested with a fusion of different
governmental powers: the power to investigate, initiate action and control the range of investigation,
the power to promulgate rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities.
5
In the realm of administrative law, we
understand that such an empowerment of administrative agencies was evolved in response to the needs
of a changing society. This development arose as the need for broad social control over complex
conditions and activities became more and more pressing, and such complexity could no longer be dealt
with effectivity and directly by the legislature or the judiciary. The theory which underlies the
empowerment of administrative agencies like the Bureau of Internal Revenue, is that the issues with
which such agencies deal ought to be decided by experts, and not be a judge, at least not in the first
instance or until the facts have been sifted and arranged.
6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to
make rules. The necessity for vesting administrative agencies with this power stems from the
impracticability of the lawmakers providing general regulations for various and varying details
pertinent to a particular legislation.
7

The rules that administrative agencies may promulgate may either be legislative or interpretative.
The former is a form of subordinate legislation whereby the administrative agency is acting in a
legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation
of legislative power.
8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the
statute being administered, to say what it means."
9

There can be no doubt that there is a distinction between an administrative rule or
regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid law,
while when it renders an opinion or gives a statement of policy, it merely interprets a
pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p.
194). Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided in
the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often times left to
the administrative agency entrusted with its enforcement. In this sense, it has been
said that rules and regulations are the product of a delegated power to create new or
additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)
A rule is binding on the courts as long as the procedure fixed for its promulgation is
followed and its scope is within the statutory authority granted by the legislature,
even if the courts are not in agreement with the policy stated therein or its innate
wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation
of the law is at best merely advisory, for it is the courts that finally determine what the
law means.
10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends
upon whether the statute places specific 'sanctions' behind the regulations authorized, as for
example, by making it a criminal offense to disobey them, or by making conformity with their
provisions a condition of the exercise of legal privileges."
11
This is because interpretative regulations
are by nature simply statutory interpretations, which have behind them no statutory sanction. Such
regulations, whether so expressly authorized by statute or issued only as an incident of statutory
administration, merely embody administrative findings of law which are always subject to judicial
determination as to whether they are erroneous or not, even when their issuance is authorized by statute.
The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making
powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such
powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured
cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by
any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of
cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the
government agency she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal
construction consistent with the rule that revenue laws are to be construed in favor of the
Government whose survival depends on the contributions that taxpayers give to the public coffers
that finance public services and other governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the
enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal
Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private
respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to
various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily
interpretative and not legislative. Private respondent insists that the questioned circular is
adjudicatory in nature because it determined the rights of private respondent in a controversy
involving his tax liability. It also asseverates that the questioned circular involved administrative
action that is particular and immediate, thereby rendering it subject to the requirements of notice and
hearing in compliance with the due process clause of the Constitution.
We find private respondent's arguments to be rather strained.
Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited
provisions in the National Internal Revenue Code, as amended. Such determination was an
interpretation by petitioner of the said legal provisions. If in the course of making the interpretation
and embodying the same in the questioned circular which the petitioner subsequently issued after
making such a determination, private respondent's cigarettes products, by their very nature of being
foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the
controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come
to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a
tax rate higher than what was previously imposed thereupon based on past rulings of other revenue
commissioners, such a situation is simply a consequence of the performance by petitioner of here
duties under the law. No adjudication took place, much less was there any controversy ripe for
adjudication. The natural consequences of making a classification in accordance with law may not
be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature.
Such an exercise in driving home a point is illogical as it is fallacious and misplaced.
Private respondent concedes that under general rules of administrative law, "a ruling which is merely
'interpretative' in character may not require prior notice to affected parties before its issuance as well
as a hearing" and "for this reason, in most instances, interpretative regulations are not given the
force of law."
12
Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published."
13
And it is now settled that only legislative regulations and not interpretative
rulings must have the benefit of public
hearing.
14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and
giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2)
petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis
of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in
favor of the Government to the end that Government collects as much tax money as it is entitled to
in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is
provided in the aforecited section that was construed by petitioner in the questioned circular; and (4)
a similar circular declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative,
much less, an adjudicatory, action on the part of the revenue commissioner,
15
this Court must not be
blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and
hearing.
Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution
Private respondent anchors its claim of violation of its equal protection rights upon the too obvious
fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the
questioned circular. Because only the cigarettes that they manufacture are enumerated in the
questioned circular, private respondent proceeded to attack the same as being discriminatory
against it. On the surface, private respondent seems to have a point there. A scrutiny of the
questioned Circular, however, will show that it is undisputedly one of general application for all
cigarettes that are similarly situated as private respondent's brands. The new interpretation of
Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands,
which illustration is properly a subject of the questioned Circular. Significantly, indicated as the
subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The
reclassification resulted in the foregrounding of private respondent's cigarette brands, which
incidentally is largely due to the controversy spawned no less by private respondent's own action of
conveniently changing its brand names to avoid falling under a classification that would subject it to
higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his
initial determination that private respondent's cigarette brands are foreign brands. The consequent
specific mention of such brands in the questioned Circular, does not change the fact that the
questioned Circular has always been intended for and did cover, all cigarettes similarly situated as
"Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or
not a locally manufactured cigarette bears a foreign brand using the cigarette brands
"Hope," More and "Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette brands
aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes
are actually determined as locally manufactured cigarettes bearing a foreign brand,
RMC 37-93 does not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does
not exclude the coverage of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as
locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93
is not discriminatory.
16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned
Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and
unenforceable and has rendered the assessment against private respondent of deficiency ad
valorem excise taxes to be without legal basis. The majority agrees with private respondent and
respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's
arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting
interpretative ruling that the petitioner had power to promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals
and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of
Internal Revenue denying private respondent's request for a review, reconsideration and recall of
Revenue Memorandum Circular No. 37-93 dated July 1, 1993.
Padilla, J., concurs.
Footnotes
1 Through Associate Justices Justo P. Torres, Jr. ( ponente ), Corona Ibay-Somera and
Conrado M. Vasquez, Jr. (members).
2 Penned by Presiding Judge Ernesto D. Acosta and concurred in by Associate Judges
Ramon O. De Veyra and Manuel K. Gruba.
3 Emphasis supplied. Rollo, pp. 55-58.
4 Since the institution of Executive Order No. 22 on 23 June 1986.
5 Rollo, p. 56.
6 An Act Revising The Excise Tax Base, Allocating a Portion Of The Incremental Revenue
Collected For The Emergency Employment Program For Certain Workers Amending For The
Purpose Section 142 Of The National Internal Revenue Code, As Amended, And For Other
Purposes.
7 Official Gazette, Vol. 89., No. 32, 09 August 1993, p. 4476.
8 The petition was subsequently amended on 12 August 1993.
9 Rollo, pp. 115-116.
10 Rollo, pp. 21-22.
11 238 SCRA 63.
12 Emphasis supplied. At p. 69.
13 Rollo, pp. 65-66.
14 See Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371.
15 City of Baguio vs. De Leon, 25 SCRA 938.
16 Ang Tibay vs. Court of Industrial Relations, 69 Phil. 635.
17 Rollo, pp. 97-98.
18 Rollo, pp. 98-100.
Bellosillo, J.; concurring
1 See penultimate paragraph of RMC 37-93.
2 Decision penned by Presiding Judge Ernesto D. Acosta, concurred in by Associate Jusges
Manuel K. Gruba and Ramon O. De Veyra.
3 Special Thirteenth Division; Decision penned by Associate Justice Justo P. Torres as
Chairman, concurred in by Associate Justices Corona Ibay-Somera and Conrado M.
Vasquez, Jr.
4 G.R. No. 108524, 10 November 1994; 238 SCRA 63.
5 Petition for Review, p. 28; Rollo, p. 38.
6 No. L-63915, 29 December 1986, 146 SCRA 446.
7 Hormed v. Helvering, 312 U.S. 552; Reetz v. Michigan, 188 U.S. 505; Gudmindson v.
Cardollo, 126 F 2d. 521.
8 Collins v. Selectmen of Brookline, 91 N.E. 2d, 747.
9 69 Phil. 635 (1940).
Hermosisima, Jr., J., dissenting
1 Phil. Association of Service Exporters, Inc. vs. Torres, 212 SCRA 304.
2 Entitled, "An Act Revising the Excise Tax Base, Allocting a Portion of the Incremental
Revenue Collected for the Emergency Employment Program for Certain Workers Amending
for the Purpose Section 142 of the National Internal Revenue Code, as amended, and for
Other Purposes," 89 O.G. 4475-4480, August 9, 1993.
3 Petition for Review dated May 9, 1995, p. 38, Rollo, p. 48.
4 Tan Guan vs. Court of Appeals, 19 SCRA 903; Compania General de Tabacos de Filipinas
vs. City of Manila, 8 SCRA 367.
5 1 Am. Jur. 2d., p. 816.
6 73 C.J.S. pp. 295-296.
7 1 Am. Jur. 2d., p. 890.
8 1 Am. Jur. 2d., p. 892.
9 de Leon, Hector, Administrative Law, 1989 ed., p. 67.
10 Victorias Milling Co. Inc. vs. Social Security Commission, 114 Phil. 558.
11 de Leon, supra, p. 69.
12 Comment of Fortune Tobacco Corporation, p. 52; Rollo, p. 199.
13 Tanada vs. Tuvera, 146 SCRA 454.
14 Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary,
238 SCRA 63.
15 Ibid.
16 Petition for Review dated May 9, 1995, pp. 28-29, Rollo, pp. 38-39.




G.R. No. L-1104 May 31, 1949
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,
vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF
MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees.
Francisco Zulueta and Poblador Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and Manuel D.
Baldeo as amicus curiae.
PERFECTO, J .:
Twelve corporation engaged in motion picture business have initiated these proceeding through a
complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila
which was enacted by the municipalBoard of said city on April 25 1946 approved by the Mayor on
April 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION
TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES
THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHER
PURPOSES.
SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies,
theatrical shows and boxing exhibitions, as provided for in sections 633 and 778 of
Ordinance No. 1600, known as the Revised Ordinance of the City of Manila, as amended,
there shall be collected from the place of amusement which are specifically mentioned above
the following fees on the price of every admission ticket sold by such enterprises:
a. For every ticket sold the price of which is from P0.25
to P0.99
P0.05
b. For every ticket sold the price of which is from P1 to
P1.99
0.10
c. For every ticket sold the price of which is from P2 to
P2.99
0.15
d. for every ticket sold the price of which is from P3 to
P4.99
0.20
e. or every ticket sold the price of which is from P5 to
P5.99
0.25
f. For every ticket sold the price of which is from P0 to
P14.99
0.35
g. For ticket sold thee price of which is from P15 or more 0.50
SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorof such
cinematographs, theater, vaudeville companies, theatrical show and boxing exhibition to
provide himself with tickets which shall be serially numbered, indication therein the name of
amusement place and the fee charge for admission. Before such ticket are sold he same
shall be presented to the office of the city Treasurer for registration. Tickets once issued and
presented at the gate of entrance shall be cut by the gatekeeper into halves, the first half to
be returned to the customer and the other half to be retained by the gate keeper.
It shall also be the duty of said proprietor lessee promoter or operator to deliver to the Office
of the City Treasurer the fees corresponding to the number of ticket old by him within two
days after the performances or exhibition has taken place.
SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge are
collection for and in behalf of any charitable education or religion institution or association.
All place of amusement which are operate by U.S. Army and Navy with fund belonging to the
U.S. Government are hereby exempted from fees herein imposed.
SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction
thereof be punished by a fine of not more than P200 or by imprisonment for not more than
six months or by both such fine and imprisonment in the discretion of the court. If the
violation is committed by the club firm or corporation the manager the managing director or
person charged with the management of the business of such club firm or corporation shall
be criminally responsible therefor.
SEC. 5. This Ordinance shall take effect on the May 1, 1946.
Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they are
interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and void
upon the following grounds: (a) For violation the Constitution more particular the provision regarding
the uniformity and equality of taxation and thee equal protection of the laws; (b) because the
Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City of
Manila; (c) because it contravenes violates and is inconsistent with, existing nationallegislation more
particularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capricious
unreasonable oppressive and is contrary to and violation our basic and recognizes principles of
taxation and licensing laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by the
Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and
regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the
license fee for and regulate the business of theatrical performances public exhibition circus and
other performances and places of amusement; (b) that the graduated tax required by said ordinance
being applied to all cinematographs, theaters, vaudeville companies theatricalshow and boxing
exhibitions similarly situated and as a class without distinction or exception the same does not
violate the prohibition against uniformity and equality of taxation; (c) that the graduated tax
onadmission tickets to theaters and other places of amusement imposed by the National Internal
Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the National
Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by
and for the purposes of the Government of the City of Manila, and there is no case of double
taxation, (d) that said ordinance having been enacted under the express power of the Municipal
Board to tax for revenue as distinguishedfrom its power to license for purely police purposes, the fact
that the amount collected thereunder are higher than what are needed for police regulation and
supervision does not render said ordinance unfair unjust capricious unreasonable and oppressive;
(e) that consideration the nature of the business of the plaintiffs and the enormous volume of
business they handle the graduated tax fixed by the ordinance is not unreasonable.
Defendants allege also that since May 1, 1946, when the ordinance in question took effect plaintiffs
have been charging the theater-going public increased prices for admission to the cinematographs
owned and operated to the graduated tax imposed by said ordinance and as a result while refusing
to pay said tax but at the same time collecting an amount equal to said tax plaintiffs have taken
undue advantage of said ordinance to realized more profits.
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a
decision upholding the validity of Ordinance No. 2958.
Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will consider
them separately.
Appellants contend that the lower court erred in holding that under section 2444 (m) of the Revised
administrative Code the Municipal Board of the City ofManila had the power to enact Ordinance No.
2958.
Section 2444 (m) of the Revised Administrative code reads as follows:
To tax fix the license fee and regulate the business of hotels restaurants refreshment places,
cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of and to tax fix the license fee for and
regulate the businessof lively stables, the license fee for and regulate the business of livery
stable, boarding stables, embalmers, public billiard table public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circusand other similar parades, public vehicles,
race tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus
andother performances and places of amusements, match factories, blacksmith shops,
foundries, steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar,
pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or
any Ofthe products thereof and of all other highly combustible or explosivematerials and
other establishment likely to endanger the public safety or give rise to conflagration or
explosion and subject to the provision of ordinance issue by the (Philippines Health Service)
Bureau of Health in accordance with law tanneries, renders tallow chandlers bone factories
and soap factories.
Appellants line of argument runs as follows:
By virtue of the specific power granted in the above quoted provision of the Revised Administration
Code Ordinance No. 2958 was enacted.
On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as the
National Internal Revenue Code section 18, 260 and 261 of which read as follows:
SEC. 18. Sources of revenue. The following taxes fees and charges are deemed to be
national internal revenue taxes:
(a) Income tax;
(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on banks and insurance
companies franchise taxes on amusements charges on forest product fees for
sealing weights and measures firearms license fees radio registration fees and water
rentals.
SEC. 260. Amusement taxes. There shall be collected from the proprietor, lessee, or
operation of theater cinematographs, concert halls, circuses, boxing exhibition and other
places of amusement the following taxes:
(a) When the amount paid for admission exceeds twenty-nine centavos, two centavos on
each admission;
(b) When the amount paid for admission exceeds twenty-nine but does not exceed thirty-nine
centavos, three centavos on each admission;
(c) When the amount paid for admission exceeds thirty-nine centavos but does not exceed
forty-nine centavos four centavos on each admission.
(d) When the amount paid for admission exceeds forty-nine centavos but does not exceed
fifty-nine centavos five admission.
(e) When the amount paid for admission exceeds fifty-nine centavos but does not exceed
sixty-nine centavos six centavos on each admission.
(f) When the amount paid for admission exceeds sixty-nine centavos but does not exceed
seventy nine centavos seven centavos on each admission.
(g) When the amount paid for admission exceeds seventy nine centavos but does not
exceed eighty-nine centavos eight centavos on each admission;
(h) When the amount paid for admission exceeds eighty-nine centavos but does not exceed
ninty-nine centavos, nine centavos on each admission;
(i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on each
admission.
In the case of theaters or cinematographs, the taxes herein prescribed shall first be decuted
and withheld by the proprietros, lessees, or operators of such theaters or cinematogrphs and
paid to the Collector of Internal Revenue before the gross receipts are divided between the
proprietros, lessees, or operators of the theaters of cinematographs and the distributors of
the cinematographic films.
In the case of cockpits, race tracks, and cabarets, there shall be collected from the
proprietor, lessee, or operator a tax equivalent to ten per centum of the gross receipts,
irrespective of whether or not any amount is charged or paid for admission: Provided,
however, That in the case of race tracks, this tax is in addition to the privilege tax prescribed
in seciton 193. for the purpose of the amusement tax, the term "gross receipts" embraces all
the receipts of the proprietor, lessee, or operator of the amusement place, excluding the
receipts derived by him from the sale of liquors, beverages, or other articles subject to
specific tax, or from any business subject to tax under this Code. (This section was amended
by section 8, Republic Act No. 39, effective October 1, 1946. We are quoting the original
provision to show the status of the law when the Ordinance was passed.)
SEC. 261. Exemption. The tax herein imposed shall not be paid where the admission fee
or charges are collected by or for and in behalf of any religious, charitable, scientific, or
educational institution or association, and where no part of the net proceeds of such
admission fees or charges inures to the benefit of any private stockholder or individual.
Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven
schedules and other details of said ordinance are, in every respect, identical with the amusement tax
provided by section 260 of Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon the City
of Manila the power to impose a tax on business but not on amusement and, consequently,
Ordinance No. 2958 was enacted beyond the charter powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted to the
City of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority to
impose a tax on business, with exclusion of the power to impose a tax amusement; but, the
assumption is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m).
The distinction made by plaintiffs as to the power to tax on business and the power to tax on
amusement has no ground under the provisions of section 2444(m) of the Revised Administrative
Code. The tax therein authorized cannot be defined as tax on business and cannot be restricted
within a smaller scope than what is authorized by the words used, to the extent of excluding what
plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code includes theaters,
cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing
halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances,
public exhibition, circus and other performances and places of amusements, will show conclusively
that the power to tax amusement is expressly included within the power granted by section 2444(m)
of the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of the
Revised Administrative Code was repealed or the power therein contained was withdrawn by the
National Assembly by the enactment of Commonwealth Act No. 466 known as the National Internal
Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing section
2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On April 25, 1940,
the National Assembly enacted Commonwealth Act No. 466, including provisions on amusement
tax, covering the whole field on taxation and provided for more than what the ordinance in question
has provided. As a result, there are two taxing powers seeking to occupy exactly the same field of
legislation, and so the apparent conflict must be resolved with the conclusion that, with the
enactment of Commonwealth Act No. 466, as later amended by Republic Act No. 39, section
2444(m) of the Revised Administrative Code has been impliedly repealed and the power therein
delegated to the City of Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary.
Both provisions of law may stand together and be enforced at the same time without any
incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958 violated the
principle of equality and uniformity of taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art.
VI, Constitution of the philippines).
To support this contenttion, appellantts point out to the fact that the ordinance in question does not
tax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits,
cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely no
merit. The fact that some places of amusement are not taxed while others, such as cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of
amusements or places of amusement are taxed, is no argument at all against the equality and
uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation; and the appellants cannot point out what places of amusement taxed by the
ordinance do not constitute a class by themselves and which can be confused with those not
included in the ordinance.
The judgment of the trial court is affirmed with costs against appellants.
Paras, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.
Perfecto, J., We certify that the Chief Justice voted to affirm the appealed judgment.

















G.R. No. L-2947 January 11, 1951
MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T. SORDAN, plaintiffs-
appellants,
vs.
MANUEL DE LA FUENTE, defendant-appellee.
Soriano, Garde and Cervania for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for appellee.
TUASON, J .:
This action was instituted for a declaratory relief by the Manila Race Horses Trainers Association,
Inc., a non-stock corporation duly organized and existing under and by virtue of the laws of the
Philippines, who allege that they are owners of boarding stables for race horses and that their rights
as such are affected by Ordinance No. 3065 of the City of Manila approved on July 1, 1947.
1
They
made the Mayor of Manila defendant and prayed that said ordinance be declared invalid as violative
of the Philippine Constitution.
The case was submitted on the pleadings, and the decision was that the ordinance in question "is
constitutional and valid and has been enacted in accordance with the powers of the Municipal Board
granted by the Charter of the City of Manila."
On appeal, the plaintiffs as appellants make three assignments of error, the first two of which are
discussed jointly in their brief under two separate topics.
First, it is maintained that the ordinance under consideration is a tax on race horses as distinct from
boarding stables. It is argued that by section 2 the basis of the license fees "is the number of race
horses kept or maintained in the boarding stables to be paid by the maintainers at the rate of P10.00
a year for each race horse;" that "the fee is increased correspondingly P10 for each additional race
horse maintained or fed in the stable;" and that "by the same token, an empty stable for race horse
pays no license fee at all."
The spirit, rather than the letter, of an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that
which is in the letter, although not within the spirit, is not within the ordinance. (62 C. J. S., 845.)
From the context of Ordinance No. 3065, the intent to tax or license stables and not horses is clearly
manifest. The tax is assessed not on the owners of the horses but on the owners of the stables, as
counsel admit in their brief, although there is nothing, of course, to stop stable owners from shifting
the tax to the horse owners in the form of increased rents or fees, which is generally the case.
It is also plain from the text of the whole ordinance that the number of horses is used in the
assessment purely as a method of fixing an equitable and practical distribution of the burden
imposed by the measure. Far from being obnoxious, the method is fair and just. It is but fair and just
that for a boarding stable where only one horse is maintained proportionately less amount should be
exacted than for a stable where more horses are kept and from which greater income is derived.
We do not share plaintiff's opinion, apropos the second proposition, that the ordinance in question is
discriminatory and savors of class legislation. In taxing only boarding stables for race horses, we do
not believe that the ordinance, makes arbitrary classification. In the case of Eastern Theatrical Co.
Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,
*
it was said there is equality and uniformity in
taxation if all articles or kinds of property of the same class are taxed at the same rate. Thus, it was
held in that case, that "the fact that some places of amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other
kinds of amusements or places of amusement are taxed, is not argument at all against the equality
and uniformity of tax imposition." Applying this criterion to the present case, there would be
discrimination if some boarding stables of the same class used for the same number of horses were
not taxed or were made to pay less or more than others.
From the viewpoint of economics and public policy the taxing of boarding stables for race horses to
the exclusion of boarding stables for horses dedicated to other purposes is not indefensible. The
owners of boarding stables for race horses and, for that matter, the race horse owners themselves,
who in the scheme of shifting may carry the taxation burden, are a class by themselves and
appropriately taxed where owners of other kinds of horses are taxed less or not at all, considering
that equity in taxation is generally conceived in terms of ability to pay in relation to the benefits
received by the taxpayer and by the public from the business or property taxed. Race horses are
devoted to gambling if legalized, their owners derive fat income and the public hardly any profit from
horse racing, and this business demands relatively heavy police supervision. Taking everything into
account, the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discrimatory within the meaning of the Constitution.
One ground of attack in the court below on the constitutionality of the ordinance variance between
the title and the subject matter apparently has been abandoned. In its place a new question is
brought up on the appeal in the third and last assignment of error. It is now contended, for the first
time, that "the Municipal Board of Manila (is) without power to enact ordinance taxing private stables
for race horses," and that the lower court erred in not so declaring. This assignment of error has
reference to Class B or the second sub-paragraph of section 1 of the ordinance.
Not having been raised in the pleading, this question was properly ignored, not to say that even it
had been raised it would not have been available as basis for a declaration of nullity of the
ordinance. The clause of the ordinance taxing or licensing boarding stables for race horses does not
prejudice the plaintiffs in any material way, and it is well settled that a person who is not adversely
affected by a licensing ordinance may not attack its validity. Stated differently, he may not complain
that a licensing ordinance is invalid as against a class other than that to which he belongs. (62 C. J.
S.830, 831.) By analogy, where a municipal ordinance is valid in some of its parts and invalid as to
others and the valid parts are separable from the invalid ones in which latter case the valid
provisions stand as operative the plaintiff may contest the validity of the provisions that injure his
interest but not those that do not.
We are of the opinion that the trial court committed no error and the judgment is affirmed with costs
against the plaintiff-appellants.
Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and Bautista Angelo,
JJ., concur.


Footnotes
1
AN ORDINANCE PROVIDING FOR LICENSE FEES ON PERSONS MAINTAINING OR
CONDUCTING ANY BOARDING STABLE FOR HORSE RACES AND/OR HORSE
STABLES, OR PLACES WHERE HORSE ARE KEPT, FED, OR BOARDED FOR OTHERS,
FOR COMPENSATION OR HIRE, AND/OR FOR PRIVATE, AND FOR OTHER
PURPOSES.
Be it ordained by the Municipal Board of the City of Manila, that:
SECTION 1. License. No person shall own, keep, maintain, or conduct any boarding
stable, or place where race horse are kept, fed, or boarded for others, for compensation or
hire, and/or for race horse stable privately owned not for hire, without first having obtained a
permit from the Mayor and license therefor from the City Treasurer.
SEC. 2. Fees. For every license granted under the provisions of this ordinance, there shall
be paid an annual license fee, which may be paid either annually, semestrally or quarterly at
the option of the taxpayer, to wit:
Boarding stable for race horses:
Class A For each race horse, kept, maintained,
fed or boarded in boarding
stables........................................................
P10.00


Class B For each race horse, kept, maintained,
or fed in private race horse
stables........................................................
P5.00
SEC. 3. Contents of application. Every application for the license in this ordinance
required, shall be accompanied by a sworn statement of the greatest number of animals to
be kept by the applicant, which statement shall be the basis for computing the amount of
fees to be paid for such license.
SEC. 4. Effectivity. This ordinance shall take effect upon its approval.
*
83 Phil., 852.








G.R. No. L-4817 May 26, 1954
SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J .:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf
and in behalf of other professionals practising in the City of Manila who may desire to join it." Object
of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the provision of
the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under
protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion of
the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment
of the tax was not legally authorized. From this decision both parties appealed to this Court, and the
only question they have presented for our determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on
this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this
municipal occupation tax; and in any event, the Legislature may, in its discretion, select what
occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp.
3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the
said tax, it has withheld that authority from other chartered cities, not to mention municipalities. We
do not think it is for the courts to judge what particular cities or municipalities should be empowered
to impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National Government and with a population and
volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers
a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.


Separate Opinions
PARAS, C.J ., dissenting:
I am constrained to dissent from the decision of the majority upon the ground that the Municipal
Board of Manila cannot outlaw what Congress of the Philippines has already authorized. The
plaintiffs-appellants two lawyers, a physician, an accountant, a dentist and a pharmacist had
already paid the occupation tax under section 201 of the National Internal Revenue Code and are
thereby duly licensed to practice their respective professions throughout the Philippines; and yet
they had been required to pay another occupation tax under Ordinance No. 3398 for practising in the
City of Manila. This is a glaring example of contradiction the license granted by the National
Government is in effect withdrawn by the City in case of non-payment of the tax under the
ordinance. I fit be argued that the national occupation tax is collected to allow the professional
residing in Manila to pursue his calling in other places in the Philippines, it should then be exacted
only from professionals practising simultaneously in and outside of Manila. At any rate, we are
confronted with the following situation: Whereas the professionals elsewhere pay only one
occupation tax, in the City of Manila they have to pay two, although all are on equal footing insofar
as opportunities for earning money out of their pursuits are concerned. The statement that practice
in Manila is more lucrative than in the provinces, may be true perhaps with reference only to a
limited few, but certainly not to the general mass of practitioners in any field. Again, provincial
residents who have occasional or isolated practice in Manila may have to pay the city tax. This
obvious discrimination or lack of uniformity cannot be brushed aside or justified by any trite
pronouncement that double taxation is legitimate or that legislation may validly affect certain classes.
My position is that a professional who has paid the occupation tax under the National Internal
Revenue Code should be allowed to practice in Manila even without paying the similar tax imposed
by Ordinance No. 3398. The City cannot give what said professional already has. I would not say
that this Ordinance, enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the
Revised Charter of Manila, as amended by Republic Act No. 409, empowering the Board to impose
a municipal occupation tax not to exceed P50 per annum, is invalid; but that only one tax, either
under the Internal Revenue Code or under Ordinance No. 3398, should be imposed upon a
practitioner in Manila.

















G.R. No. L-24756 October 31, 1968
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J .:
In this appeal, a lower court decision upholding the validity of an ordinance
1
of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio
is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with
a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has
been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City
Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from
the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the
consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no question
about the liability of defendant-appellant for the above license fee, it being shown in the partial
stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving income
therefrom during the period covered by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending
the city charter of Baguio
2
empowering it to fix the license fee and regulate "businesses, trades and
occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of
Baguio,
3
the effect of the amendatory section insofar as it would expand the previous power vested
by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its
power to license the power to tax and to regulate. And it is precisely having in view this amendment
that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to
levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology
used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if defendant-
appellant were to be sustained in his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language used in the amendatory act. That is
about all that needs to be said in upholding the lower court, considering that the City of Baguio was
not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however,
defendant-appellant likewise alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now
turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in
the suit for the collection of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now, that while the amount of P300 sought
was within the jurisdiction of the City Court of Baguio where this action originated, since the principal
issue was the legality and constitutionality of the challenged ordinance, it is not such City Court but
the Court of First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently,
on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v.
Sabillano.
4
The plaintiff in that case filed a claim for the payment of his salary before the Justice of
the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the enforcement of the decision of the
Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money
claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,
5
a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of
the amount involved. The thought that the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is
raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not
admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here,
the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a
defense against its enforcement from one adversely affected, the matter should be elevated to the
Court of First Instance. For the City Court could rely on the presumption of the validity of such
ordinance,
6
and the mere fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for
collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the
ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to
any one that the power to declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the responsibility."
7
While it
remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe
certain constitutional rights of a litigant exists, still it should be exercised with due care and
circumspection, considering not only the presumption of validity but also the relatively modest rank
of a city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample
statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings unconstitutional on other grounds."
8
With that
decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical
state. In a 1947 decision, however,
9
we quoted with approval this excerpt from a leading American
decision:
10
"Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation
may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it
being widely recognized that there is nothing inherently obnoxious in the requirement that license
fees or taxes be exacted with respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof."
11

The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the constitutional requirement of uniformity.
In Philippine Trust Company v. Yatco,
12
Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject
may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.
13
Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la
Fuente
14
incorporated the above excerpt in his opinion and continued: "Taking everything into
account, the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later,
15
is that the statute or ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as accepting the view in a leading
American case
16
that "inequalities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."
17

It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking
in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed "is excessive,
unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection.
A reading of the ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,
18
similarly the act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should
be the case considering that such city official is called upon to see to it that revenues due the City
are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be
resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met
by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes
to it from the functional and pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of
official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of
affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against
defendant-appellant.
Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.


Footnotes
1
Ordinance No. 218.
2
Section 2553, paragraph (c), Revised Administrative Code.
3
91 Phil. 854, 856-857 (1952).
4
L-20977.
5
101 Phil. 859 (1957).
6
U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor of
Manila, L-24693, July 31, 1967.
7
Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927).
8
Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 (1920).
9
Wise & Co. v. Meer, 78 Phil. 655.
10
Helmich v. Hellman, 276 US 233 (1928).
11
Punsalan v. Municipal Board of Manila, 95 Phil. 46, 49 (1954).
12
69 Phil. 420 (1940).
13
83 Phil. 852, 862 (1949).
14
88 Phil. 60, 65 (1951).
15
Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
16
Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937).
17
Lutz v. Araneta, 98 Phil. 148, 153 (1955).
18
Villena v. Sec. of the Interior, 67 Phil. 451 (1939).








G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner,
Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO,
Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J .:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further
amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the
net profits of taxable partnership, (f) adjusted gross income.
2
Petitioner
3
as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers.
4
He characterizes the above sction as arbitrary amounting to class legislation,
oppressive and capricious in character
5
For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses
6
of the Constitution as well as of the rule requiring uniformity in
taxation.
7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days
from notice. Such an answer, after two extensions were granted the Office of the Solicitor General,
was filed on May 28, 1982.
8
The facts as alleged were admitted but not the allegations which to their
mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being
those stated [in their] Special and Affirmative Defenses."
9
The answer then affirmed: "Batas Pambansa
Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly
quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so
clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private
enterprise and initiative and which the government was called upon to enter optionally, and only
'because it was better equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet the increasing
social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is
the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to
tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the
due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure.
if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is
merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web
of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the
power to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to abide by
its command, then this Court must so declare and adjudge it null. The injury thus is centered on the
question of whether the imposition of a higher tax rate on taxable net income derived from business
or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation,
as here. does not suffice. There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void or its face, he has not
made out a case. This is merely to adhere to the authoritative doctrine that were the due process
and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad
standards, there is a need for of such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to amount
to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of
this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred.
That properly calls for the application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case
of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process
grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act assailed, far from being inspired by
the attainment of the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should
be treated in the same fashion, whatever restrictions cast on some in the group equally binding on
the rest."
20
That same formulation applies as well to taxation measures. The equal protection clause is,
of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to
all and the affairs of men being governed by that serene and impartial uniformity, which is of the very
essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific
difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution
does not require things which are different in fact or opinion to be treated in law as though they were the
same."
21
Hence the constant reiteration of the view that classification if rational in character is allowable.
As a matter of fact, in a leading case of Lutz V. Araneta,
22
this Court, through Justice J.B.L. Reyes, went
so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.'"
23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The
rule of taxation shag be uniform and equitable."
24
This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco,
25
decided in 1940, when the tax "operates with the same force and
effect in every place where the subject may be found. "
26
He likewise added: "The rule of uniformity does
not call for perfect uniformity or perfect equality, because this is hardly attainable."
27
The problem of
classification did not present itself in that case. It did not arise until nine years later, when the Supreme
Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, ... .
28
As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform."
29
There is quite a similarity
then to the standard of equal protection for all that is required is that the tax "applies equally to all
persons, firms and corporations placed in similar situation."
30

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


Separate Opinions

AQUINO, J ., concurring:
I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J ., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote
for dismissal.


Separate Opinions
AQUINO, J ., concurring:
I concur in the result. The petitioner has no cause of action for prohibition.
ABAD SANTOS, J ., dissenting:
This is a frivolous suit. While the tax rates for compensation income are lower than those for net
income such circumtance does not necessarily result in lower tax payments for these receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the
basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote
for dismissal.
Footnotes
1 Petitioner must have realized that a suit for declaratory relief must be filed with
Regional Trial Courts.
2 Batas Pambansa Blg. 135, Section 21 (1981).
3 The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal
Revenue; Romulo Villa, Deputy Commissioner, Bureau of Internal Revenue; Tomas
Toledo, Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister of
Budget; Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A.
Virata, Minister of Finance.
4 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of
Section 1 further Amending Section 21 of the National Internal Revenue Code of
1977. Par. (a) reads: "(a) On taxable compensation income. A tax is hereby
imposed upon the taxable compensation income as determined in Section 28 (a)
received during each taxable year from all sources by every individual, whether a
citizen of the Philippines, determined in accordance with the following schedule:
Not over P2,500
0%
Over P 2,500 but not over P
5,000
1%
Over P 5,000 but not over
10,000
P 25 + 3% of excess over P 5,000
Over P 10,000 but not over P
20,000
P 175 + 7 % of excess over P 10,000
Over P 20,000 but not over P
40,000
P 875 + 11%, of excess over P 20,000
Over P 40.000 but not over P
60,000
P 3,075 + I 15% of excess over P
40,000
Over P 60,000 but not over
P100,000
P 6,075 + 19% of excess over P 60,000
Over P100,000 but not over
P250,000
P 13,675 + 24% excess over P100,000
Over P250,000 but not over
P500,000
P 49,675 + 29% of excess over
P250,000
Over P500,000 P 122,175 + 35% of excess over
P500,000
Par. (b) reads: "(b) On taxable net income. A tax is hereby imposed upon the
taxable net income as determined in Section 29 (a) received during each taxable
year from all sources by every individual, whether a citizen of the Philippines, or an
alien residing in the Philippines determined in accordance with the following
schedule:
Not over P10,000
5%
Over P 10,000 but not over P
30,000
P 500 + 15% of excess over P 10,000
Over P 30,000 but not over
P150,000
P 3,500 + 30% of excess over P
30,000
Over P150,000 but not over
P500,000
P 39,500 + 45% of excess over
P150,000
Over P500,000 P197,000 + 601% of excess over
P500,000
5 Ibid Statement, par. 4.
6 Article IV, Section 1 of the Constitution reads: "No person shall be deprived of life,
liberty or property without due process of law, nor shall any person be denied the
equal protection of the laws."
7 Article VII, Section 7. par. (1) of the Constitution reads: "The rule of taxation shall
be uniform and equitable. The Batasang Pambansa shall evolve a progressive
system of taxation."
8 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant
Solicitor General Eduardo D. Montenegro and Solicitor Erlinda B, Masakayan.
9 Answer, pars. 1-6.
10 Ibid, par. 6.
11 Agricultural Credit and Cooperative Financing Administration v. Consideration of
Unions in Government Corporation and Offices, L-21484, November 29, 1969, 30
SCRA 649, 662.
12 Cf, Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J.
13 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919).
14 McColloch v. Maryland 4 Wheaton 316,
15 306 US 466 ( 938).
16 Ibid, 489
17 Ibid. 490.
18 Cf. Ermita-Malate Hotel and Motel Operator S Association v. Hon. City Mayor,
127 Phil. 306, 315 ( 1967); U.S. v. Salaveria, 39 Phil. 102,111 (1918) and Ebona v.
Daet, 85 Phil, 369 (1950). Likewise referred to is O'Gorman and Young v. Hartford
Fire Insurance Co 282 US 251, 328 (1931).
19 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells
Fargo Bank and Union Trust Co. v. Collector, 70 Phil. 325 (1940); Republic v. Oasan
Vda. de Fernandez, 99 Phil. 934 (1956).
20 The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure
Administration, L-21064, February 18, 1970, 31 SCRA 413, 435 and reiterated in
Bautista v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The
former deals with an eminent domain proceeding and the latter with a suit contesting
the validity of a police power measure.
21 Tigner v. Texas, 310 US 141, 147 (1940).
22 98 Phil. 148 (1955).
23 Ibid, 153.
24 Article VIII, Section 17, par. 1, first sentence of the Constitution
25 69 Phil. 420 (1940).
26 Ibid, 426.
27 Ibid, 424.
28 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949).
29 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60,65 (1951).
30 Uy Matias v. City of Cebu, 93 Phil. 300 (1953).
31 While petitioner cited figures to sustain in his assertion, public respondents
refuted with other figures that argue against his submission. One reason for requiring
declaratory relief proceedings to start in regional trial courts is precisely to enable
petitioner to prove his allegation, absent an admission in the answer.













G.R. No. L-3538 May 28, 1952
JUAN LUNA SUBDIVISION, INC., plaintiff-appellee,
vs.
M. SARMIENTO, ET AL., defendants-appellants.
Gibbs, Gibbs, Chuidian and Quasha for appellee.
City Fiscal Eugenio Angeles and Assistant Fiscal Cornelio S. Ruperto for appellant.
La O and Feria for defendant Philippine Trust Co.
TUASON, J .:
This is an appeal by the City Treasure of the City of Manila from the following judgment handed
down in the above-entitled cause:
POR TODAS CONSIDERACIONES, el Jugado dicta sentencia ordenado: que el demandado
Tesorero de la Ciudad de Manila pague a la demandante la cantidad de P2,210.52 sin
intereses; que la demandada Philippine Trust Companypague a la demandante la suma de
P105 sin intereses.
The Philippine Trust Company did not appeal.
The facts of the case, in so far as they are not in controversy, are these: The plaintiff was a
corporation duly organized and existing under the laws of the Philippines with principal office in
Manila. On December 29, 1941 it issued to the City Treasurer of Manila, and the City Treasurer
accepted checks No. 628334 for P2,210.52 drawn upon the Philippine Trust Company with which it
had a credit balance of P4,940.17 on its account. This check was to be applied to plaintiff's land tax
for the second semester of 1941 the exact amount of which was yet undetermine and so it was
entered in the ledger, Exhibit "F", as deposit by the taxpayer. On February 20, 1942, presumably
after the exact amount had been verified, which was P341.60, the balance of P1,868.92, covered by
voucher No. 1487 of the City Treasure's office, was noted in the ledger as a credit to the Juan Luna
Subdivision, Inc.
Further than this, the records of the City Treasurer's office do not show what was done with the
check. But the books of the Philippine Trust Company do reveal that it was deposited with the
Philippine National Bank, the City Treasurer's sole depository, on December 29, 1941, and that it
was presented by that Bank to the Philippine Trust Company on May 1, 1944 and was cashed by the
drawee. Manuel F. Garcia, Assistant Treasurer of the Philippine Trust Company, testified that soon
after his bank was authorized in March, 1942, to reopen for business (it had been closed by order of
the Japanese military authorities,) it received from the Philippine National Bank a bundle of checks,
including appellees check No. 628334, drawn upon the Philippine Trust Company before the
Japanese occupation and held in abeyance by the Philippine National Bank pending resumption of
operation by the Philippine Trust Company; that these checks, including the appellee's check, were
accepted and the amounts thereof debited against the respective drawer's accounts; that with
respect to check No. 628334, the operation was effected on May 1, 1944.
The City refused after liberation to refund the plaintiff's deposit or apply it to such future taxes as
might be found due, while the Philippine Trust Company was unwilling to reverse its debit entry
against the Juan Luna Subdivision, Inc. It was upon this predicament that the Juan Luna
Subdivision, Inc. brought this suit against the City Treasurer and the Philippine Trust Company as
defendants in the alternative. The purpose of the action is determine which of the two defendants is
liable for plaintiff's check. There is a separate cause of action which concerns the plaintiff and the
City Treasurer alone.
On the main cause of action the burden of the City Treasurer's defense is that his office was not
benefited why the check. He denies that the said check was cashed "or rather there was no proof
that it was." It is pointed out that Mr. Gibbs, testifying in open court, admitted that he had never
received nor could he have received the cancelled checks;" that "the courts finding that sum
P2,210.52 was in fact and in truth added to the actual cash of the Treasurer of the City of Manila is
based on conjectures and surprises without any support of pertinent and competent proof;" that
"special ledger sheet of the City Treasurer . . . simply showed that some accounting transaction in
the book value was done or accomplished but these accounting processes did not show that actual
payment had been made (by the Philippine National Bank) to the City Treasurer, and that the City
Treasurer had in effect received said amount represented by said checks;" that "the burden of
proving that the check in question was in fact paid rest on the defendant Philippine Trust Company."
It is further argued that "there is a lot of difference between the book value and the cash value of this
check," that the acceptance by the City Treasurer and the issuance of the Official Receipt No.
755402 on December 29, 1941 in favor of Juan Luna Subdivision, Inc. did not simultaneously and
automatically place in the hands of the City Treasurer the cash value represented by the said checks
in the amount of P2,210.52".
That the plaintiff's check was deposited by the City Treasurer with the Philippine National Bank, and
the latter was paid the cash equivalent thereof by the Philippine Trust Company, admits of no doubt.
The entries in the books of the latter bank are not in the least impugned. Whether the City Treasurer
was paid that amount by the Philippine National Bank or given credit for it, the City Treasurer would
neither admit nor deny. He said:
A. Not that I am not willing (to admit); I am willing, but I am not the right party to admit that
the check was actually collected by the City of Manila from the Philippine Trust Company,
The Philippine Trust Company never submitted any financial statement. To my knowledge,
the City Treasurer of Manila has never been informed by the Philippine Trust Company or by
the Philippine National Bank, which is the depository of the City of Manila, that same check
was collected by the City Manila from the Philippine National Bank; by that I am not trying to
say that the check was not actually collected by the City.
x x x x x x x x x
Q. This particular check in question pertains to the revenue account of the City of Manila, is
that right?
A. Yes, sir.
Q. Ordinarily it would be deposited with the Philippine National Bank, is that right?
A. That is right.
Q. And the Philippine National Bank has not rendered you any account of its collections?
A. I would not say that; they probably gave us statement, but as we have lost our records
pertaining to the occupation and the pre-war years, I could not make a categorial statement.
From the fact that the Philippine National Bank was open throughout the Japanese occupation and
the other facts heretofore admitted or not denied, it is to be presumed that the Philippine National
Bank credited the City Treasurer with the amount of the check in question, and that the City
Treasurer, taking ordinary care of his concerns, withdrew that amount. This is in accordance with the
presumption that things happened according to the ordinary course of business and habits. The
burden is on the City Treasurer, not on the plaintiff, to rebut these presumptions.
But the point is not material at all as far as the plaintiff is concerned. What became of the check or
where the money went is a matter between the City Treasurer and the Philippine National Bank. The
drawer of the check had funds on deposit to meet it; the City Treasurer accepted it and deposited it
with the Philippine National Bank, and the Philippine National Bank, collected the equivalent amount
from the drawee Bank. In the light of these circumstances, the City Treasurer became the Philippine
National Bank's creditor and the Juan Luna Subdivision, Inc. was released from liability on its
checks. If the City Treasurer did not collect his credit from the Philippine National Bank or otherwise
make use of it, he alone was to blame and should suffer the consequences of his neglect. That the
City Treasurer held the check merely in trust for plaintiff does not alter the situation as far as his
branch of the case goes.
The amount to be refunded to the plaintiff is the subject of another disagreement between the Juan
Luna Subdivision, Inc. and the City Treasurer. This is the ground of other cause of action heretofore
referred to.
The plaintiff claims the whole amount of the check contending that taxes for the last semester of
1941 have been remitted by Commonwealth Act No. 703.
Section 1 of this Act, which was approved on November 1, 1945, provides:
All land taxes and penalties due and payable for the years nineteen hundred and forty-two
nineteen hundred and forty-three nineteen hundred and forty-four and fifty per cent of the tax
due for nineteen hundred and forty-five, are hereby remitted. The land taxes and penalties
due and payable for the second semester of the year nineteen hundred and forty-one shall
also be remitted the if the remaining fifty per cent corresponding to the year nineteen
hundred and forty-five shall been paid on or before December thirty-first, nineteen hundred
and forty-five.
Does this provision cover taxes paid before its enactment as the plaintiff maintains and the court
below held, or does it refer, as the City Treasurer believes, only to taxes which were still unpaid?
There is no ambiguity in the language of the law. It says "taxes and penalties due and payable," the
literal meaning of which taxes owned or owing. (See Webster's New International Dictionary) Note
that the provision speaks of penalties, and note that penalties accrue only when taxes are not paid
on time. The word "remit" underlined by the appellant does not help its theory, for to remit to desist
or refrain from exacting, inflicting, or enforcing something as well as to restore what has already
been taken. (Webster's New International Dictionary.)
We do not see that literal interpretation of Commonwealth Act No. 703 runs counter and does
violence to its spirit and intention , nor do we think that such interpretation would be "constitutionally
bad" in that "it would unduly discriminate against taxpayers who had paid in favor of delinquent
taxpayers."
The remission of taxes due and payable to the exclusion of taxes already collected does not
constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to
attack as class legislation only if all taxpayers belonging to one class were not treated alike. They
are not.
As to the justice of the measure, the confinement of the condonation to deliquent taxes was not
without good reason. The property owners who had paid their taxes before liberation and those who
had not were not on the same footing on the need of material relief. It is true that the ravages and
devastations wrought by was operations had rendered the bulk of the people destitute or
impoverished and that it was this situation which prompted the passage of Commonwealth Act No.
703. But it is also true that the taxpayers who had been in arrears in their obligation would have to
satisfy their liability with genuine currency, while the taxes paid during the occupation had been
satisfied in Japanese military notes, many of them at a time when those notes were well-nigh
worthless. To refund those taxes with the restored currency, even if the Government could afford to
do so, would be unduly to enrich many of the payers at a greater expense to the people at large.
What is more, the process of refunding would entail a tremendous amount of work and difficulties,
what with the destruction of tax records and the great number of claimants who would take
advantage of such grace.
It is said that the plaintiff's check was in the nature of deposit, held trust by the City Treasurer, and
that for this reason, plaintiff's taxes are to be regarded as still due and payable. This argument is well
taken but only to the extent of P1,868.92. The amount of P341.60 as early as February 20, 1942,
had been applied to the second half of plaintiff's 1941 tax and become part of the general funds of
the city treasury. From that date that tax was legally and actually paid and settled.
The appealed judgment should, therefore, be modified so that the defendant City Treasurer shall
refund to the plaintiff the sum of P1,868.92 instead P2,210.52, without costs. It is so ordered.
Paras, C.J., Feria, Pablo, Bengzon, Montemayor, Bautista Angelo and Labrador, JJ., concur.












G.R. No. L-4376 May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY
MAYOR, all of the City of Manila, respondents-appellees.
Teotimo A. Roja for appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.
BAUTISTA ANGELO, J .:
This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the
Municipal Board of the City of Manila on March 24, 1950.
The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said
association, also a public service operator of the trucks in said City, challenge the validity of said
ordinance on the ground that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends
against the rule of uniformity of taxation; and (3) it constitutes double taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance
imposes a property tax which is within the power of the City of Manila to impose under its Revised
Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the
rule of uniformity of taxation, nor does it constitute double taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of the
ordinance and dismissed the petition. Hence this appeal.
The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority
conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board
the power "to tax motor and other vehicles operating within the City of Manila the provisions of any
existing law to the contrary notwithstanding." It is contended that this power is broad enough to
confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor
vehicles operating within the city limits.
In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal
corporation to impose tax on motor vehicles operating in any highway in the Philippines. The
pertinent provisions are contained in section 70 (b) which provide in part:
No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the
operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this
Act shall be construed to exempt any motor vehicle from the payment of any lawful and
equitable insular, local or municipal property tax imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that
sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting
the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When
section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles
operating within its limit, it can only refers to property tax as a different interpretation would make it
repugnant to the Motor Vehicle Law.
Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a
Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it
provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds
of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended
exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the
wording used in the ordinance in the light in the purpose for which the tax is created, can we
consider the tax thus imposed as property tax, as claimed by respondents?
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities,
the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered
from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a
tax is in its nature an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act which is taxed.
Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a
tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a
privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It
has also been held that
The character of the tax as a property tax or a license or occupation tax must be determined
by its incidents, and from the natural and legal effect of the language employed in the act or
ordinance, and not by the name by which it is described, or by the mode adopted in fixing its
amount. If it is clearly a property tax, it will be so regarded, even though nominally and in
form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons
on account of their business, it will be construed as a license or occupation tax, even though
it is graduated according to the property used in such business, or on the gross receipts of
the business. (37 C.J., 172)
The ordinance in question falls under the foregoing rules. While it refers to property tax and it is
fixed ad valoremyet we cannot reject the idea that it is merely levied on motor vehicles operating
within the City of Manila with the main purpose of raising funds to be expended exclusively for the
repair, maintenance and improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution of the proceeds that are raised for the
same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the
Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for
the same purpose. It is for this reason that we believe that the ordinance in question merely imposes
a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above
adverted to.
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City
of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private
use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets and public
highways. The distinction is important if we note that the ordinance intends to burden with the tax
only those registered in the City of Manila as may be inferred from the word "operating" used therein.
The word "operating" denotes a connotation which is akin to a registration, for under the Motor
Vehicle Law no motor vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a
temporary stay or for short errands, and it cannot be denied that they contribute in no small degree
to the deterioration of the streets and public highway. The fact that they are benefited by their use
they should also be made to share the corresponding burden. And yet such is not the case. This is
an inequality which we find in the ordinance, and which renders it offensive to the Constitution.
Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.
Paras, C.J., Bengzon and Tuason, JJ., concur.
Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.



















G.R. No. L-23794 February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF ORMOC CITY, HON.
ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and Teehankee, Carreon & Taada for plaintiff-
appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J .:
On January 29, 1964, the Municipal Board of Ormoc City passed
1
Ordinance No. 4, Series of
1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar
Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to
the United States of America and other foreign countries."
2

Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. on March
20, 1964 for P7,087.50 and on April 20, 1964 for P5,000, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte,
with service of a copy upon the Solicitor General, a complaint
3
against the City of Ormoc as well as
its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is unconstitutional
for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of
uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden
under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City under Section 15-kk of its charter and under Section 2
of Republic Act 2264, otherwise known as the Local Autonomy Act, is authorized to impose; and that
the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic
Act 2264 because the tax is on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance was within defendant city's power
to enact under the Local Autonomy Act and that the same did not violate the afore-cited
constitutional limitations. After pre-trial and submission of the case on memoranda, the Court of First
Instance, on August 6, 1964, rendered a decision that upheld the constitutionality of the ordinance
and declared the taxing power of defendant chartered city broadened by the Local Autonomy Act to
include all other forms of taxes, licenses or fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar Company, Inc. Appellant
alleges the same statutory and constitutional violations in the aforesaid taxing ordinance mentioned
earlier.
Section 1 of the ordinance states: "There shall be paid to the City Treasurer on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a
municipal tax equivalent to one per centum (1%) per export sale to the United States of America and
other foreign countries." Though referred to as a tax on the export of centrifugal sugar produced at
Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax
applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal Board to levy such an export tax,
in view of Section 2287 of the Revised Administrative Code which denies from municipal councils
the power to impose an export tax. Section 2287 in part states: "It shall not be in the power of the
municipal council to impose a tax in any form whatever, upon goods and merchandise carried into
the municipality, or out of the same, and any attempt to impose an import or export tax upon such
goods in the guise of an unreasonable charge for wharfage use of bridges or otherwise, shall be
void."
Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave
chartered cities, municipalities and municipal districts authority to levy for public purposes just and
uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the Revised
Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin Bay Mining Co. v.
Municipality of Roxas
4
held the former to have been repealed by the latter. And expressing Our
awareness of the transcendental effects that municipal export or import taxes or licenses will have
on the national economy, due to Section 2 of Republic Act 2264, We stated that there was no other
alternative until Congress acts to provide remedial measures to forestall any unfavorable results.
The point remains to be determined, however, whether constitutional limits on the power of
taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed.
The Constitution in the bill of rights provides: ". . . nor shall any person be denied the equal
protection of the laws." (Sec. 1 [1], Art. III) In Felwa vs. Salas,
5
We ruled that the equal protection
clause applies only to persons or things identically situated and does not bar a reasonable
classification of the subject of legislation, and a classification is reasonable where (1) it is based on
substantial distinctions which make real differences; (2) these are germane to the purpose of the
law; (3) the classification applies not only to present conditions but also to future conditions which
are substantially identical to those of the present; (4) the classification applies only to those who
belong to the same class.
A perusal of the requisites instantly shows that the questioned ordinance does not meet them,
for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and
none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true,
was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in
terms applicable to future conditions as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff,
for the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject
to the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the
entity to be levied upon.
Appellant, however, is not entitled to interest; on the refund because the taxes were not
arbitrarily collected (Collector of Internal Revenue v. Binalbagan).
6
At the time of collection, the
ordinance provided a sufficient basis to preclude arbitrariness, the same being then presumed
constitutional until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed, the challenged ordinance is
declared unconstitutional and the defendants-appellees are hereby ordered to refund the
P12,087.50 plaintiff-appellant paid under protest. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.1wph 1. t
Footnotes
1
Resolution No. 30, Series of 1964.
2
Section 1, emphasis supplied.
3
An action for declaratory judgment was also filed on May 23, 1964 (Civil Case No. 665-0)
but this and the present case were tried jointly.
4
L-20125, July 20, 1965.
5
L-26511, Oct. 29, 1966.
6
L-12752, Jan. 30, 1965.




















G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J .:p
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals
1
in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976
decision of the Board of Tax Assessment Appeals
2
in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E,
"Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City
Assessor of Manila" upholding the classification and assessments made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands
on which another's dwelling is located, where such rentals do not exceed three hundred pesos
(P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act
also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity
thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently,
the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly reviewed by the Secretary of
Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They
averred that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income
derived from their properties. They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which the City Assessor
adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete
evidence which could overcome the presumptive regularity of the classification and
assessments appear to be in accordance with the base schedule of market values
and of the base schedule of building unit values, as approved by the Secretary of
Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither the owners nor their
authorized representatives were present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below street level and were affected by
the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the
lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and
PD-3824 is affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1)
PD-266, the appealed Decision is modified by allowing a 20% reduction in their
respective market values and applying therein the assessment level of 30% to arrive
at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and study
of land values as in the case of properties affected by the Rent Control Law for they do not project
the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the properties predicated
upon prices paid in actual, market transactions would be a uniform and a more credible standards to
use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public respondents
would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market
value of properties within its coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988
Edition). However, it is conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and elements of value and
must exercise a prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to
tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities imposed
(Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller
and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing buyers. As a general rule, there were no
takers so that there can be no reasonable basis for the conclusion that these properties were
comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, 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 taxations, which
is the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

Footnotes
1 Penned by former Chairman and Acting Minister Pedro Almanzor and concurred in
by the then Minister of Justice Vicente Abad Santos and Minister of Local
Government and Community Development Jose Rono.
2 Rendered by then Acting Register of Deeds of Manila Teresita H. Noblejas and
concurred in by former City Engineer of Manila Romulo M. del Rosario and OIC of
the Office of the City of Auditor Raul C. Flores.