EN BANC

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).


EN BANC
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.




EN BANC


BRITISH AMERICAN TOBACCO, G.R. No. 163583
Petitioner,
Present:

Puno, C.J.,
Quisumbing,
Ynares-Santiago,
Carpio,
Austria-Martinez,
Corona,
- versus - Carpio Morales,
Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Leonardo-De Castro,
Brion,
Peralta, and
Bersamin, JJ.
JOSE ISIDRO N. CAMACHO,
in his capacity as Secretary of
the Department of Finance and
GUILLERMO L. PARAYNO, JR.,
in his capacity as Commissioner of
the Bureau of Internal Revenue,
Respondents.

PHILIP MORRIS PHILIPPINES
MANUFACTURING, INC.,
FORTUNE TOBACCO, CORP., Promulgated:
MIGHTY CORPOR.A.TION, and
JT INTERNATIONAL, S.A.,
Respondents-in-Intervention. April 15, 2009

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

RESOLUTI ON


YNARES-SANTIAGO, J .:


On August 20, 2008, the Court rendered a Decision partially granting the
petition in this case, viz:

WHEREFORE, the petition is PARTIALLY GRANTED and the
decision of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-
1032, is AFFIRMED withMODIFICATION. As modified, this Court declares
that:

(1) Section 145 of the NIRC, as amended by Republic Act No. 9334,
is CONSTITUTIONAL; and that

(2) Section 4(B)(e)(c), 2
nd
paragraph of Revenue Regulations No. 1-
97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections
II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes
packed by machine, are INVALID insofar as they grant the BIR the power to
reclassify or update the classification of new brands every two years or earlier.

SO ORDERED.

In its Motion for Reconsideration, petitioner insists that the assailed
provisions (1) violate the equal protection and uniformity of taxation clauses of the
Constitution, (2) contravene Section 19,
[1]
Article XII of the Constitution on unfair
competition, and (3) infringe the constitutional provisions on regressive and
inequitable taxation. Petitioner further argues that assuming the assailed
provisions are constitutional, petitioner is entitled to a downward reclassification of
Lucky Strike from the premium-priced to the high-priced tax bracket.

The Court is not persuaded.

The assailed law does not violate the equal
protection and uniformity of taxation
clauses.

Petitioner argues that the classification freeze provision violates the equal
protection and uniformity of taxation clauses because Annex D brands are taxed
based on their 1996 net retail prices while new brands are taxed based on their
present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc
City,
[2]
petitioner asserts that the assailed provisions accord a special or privileged
status to Annex D brands while at the same time discriminate against other
brands.

These contentions are without merit and a rehash of petitioners previous
arguments before this Court. As held in the assailed Decision, the instant case
neither involves a suspect classification nor impinges on a fundamental
right. Consequently, the rational basis test was properly applied to gauge the
constitutionality of the assailed law in the face of an equal protection challenge. It
has been held that in the areas of social and economic policy, a statutory
classification that neither proceeds along suspect lines nor infringes constitutional
rights must be upheld against equal protection challenge if there is any reasonably
conceivable state of facts that could provide a rational basis for the
classification.
[3]
Under the rational basis test, it is sufficient that the legislative
classification is rationally related to achieving some legitimate State interest. As
the Court ruled in the assailed Decision, viz:

A legislative classification that is reasonable does not offend the
constitutional guaranty of the equal protection of the laws. The classification is
considered valid and reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things
being equal, to both present and future conditions; and (4) it applies equally to all
those belonging to the same class.

The first, third and fourth requisites are satisfied. The classification freeze
provision was inserted in the law for reasons of practicality and expediency. That
is, since a new brand was not yet in existence at the time of the passage of RA
8240, then Congress needed a uniform mechanism to fix the tax bracket of a new
brand. The current net retail price, similar to what was used to classify the brands
under Annex D as of October 1, 1996, was thus the logical and practical
choice. Further, with the amendments introduced by RA 9334, the freezing of the
tax classifications now expressly applies not just to Annex D brands but to
newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and
any new brand that will be introduced in the future. (However, as will be
discussed later, the intent to apply the freezing mechanism to newer brands was
already in place even prior to the amendments introduced by RA 9334 to RA
8240.) This does not explain, however, why the classification is frozen after its
determination based on current net retail price and how this is germane to the
purpose of the assailed law. An examination of the legislative history of RA 8240
provides interesting answers to this question.

x x x x

From the foregoing, it is quite evident that the classification freeze
provision could hardly be considered arbitrary, or motivated by a hostile or
oppressive attitude to unduly favor older brands over newer brands. Congress was
unequivocal in its unwillingness to delegate the power to periodically adjust the
excise tax rate and tax brackets as well as to periodically resurvey and reclassify
the cigarette brands based on the increase in the consumer price index to the DOF
and the BIR. Congress doubted the constitutionality of such delegation of power,
and likewise, considered the ethical implications thereof. Curiously,
the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-
competitive atmosphere in the market. Yet, as it is, this same criticism is being
foisted by petitioner upon the classification freeze provision.

To our mind, the classification freeze provision was in the main the result
of Congresss earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with other State
interests. In particular, the questioned provision addressed Congresss
administrative concerns regarding delegating too much authority to the DOF and
BIR as this will open the tax system to potential areas for abuse and
corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address
the problems of tax avoidance and tax evasion.

To elaborate a little, Congress could have reasonably foreseen that, under
the DOF proposal and the Senate Version, the periodic reclassification of brands
would tempt the cigarette manufacturers to manipulate their price levels or bribe
the tax implementers in order to allow their brands to be classified at a lower tax
bracket even if their net retail prices have already migrated to a higher tax bracket
after the adjustment of the tax brackets to the increase in the consumer price
index. Presumably, this could be done when a resurvey and reclassification is
forthcoming. As briefly touched upon in the Congressional deliberations, the
difference of the excise tax rate between the medium-priced and the high-priced
tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately
popular brand which sells around 100 million packs per year, this easily translates
to P336,000,000. The incentive for tax avoidance, if not outright tax evasion,
would clearly be present. Then again, the tax implementers may use the power to
periodically adjust the tax rate and reclassify the brands as a tool to unduly
oppress the taxpayer in order for the government to achieve its revenue targets for
a given year.

Thus, Congress sought to, among others, simplify the whole tax system for
sin products to remove these potential areas of abuse and corruption from both the
side of the taxpayer and the government. Without doubt, the classification freeze
provision was an integral part of this overall plan. This is in line with one of the
avowed objectives of the assailed law to simplify the tax administration and
compliance with the tax laws that are about to unfold in order to minimize losses
arising from inefficiencies and tax avoidance scheme, if not outright tax
evasion. RA 9334 did not alter this classification freeze provision of RA
8240. On the contrary, Congress affirmed this freezing mechanism by clarifying
the wording of the law. We can thus reasonably conclude, as the deliberations on
RA 9334 readily show, that the administrative concerns in tax administration,
which moved Congress to enact the classification freeze provision in RA 8240,
were merely continued by RA 9334. Indeed, administrative concerns may
provide a legitimate, rational basis for legislative classification. In the case at bar,
these administrative concerns in the measurement and collection of excise taxes
on sin products are readily apparent as afore-discussed.

Aside from the major concern regarding the elimination of potential areas
for abuse and corruption from the tax administration of sin products, the
legislative deliberations also show that the classification freeze provision was
intended to generate buoyant and stable revenues for government. With the
frozen tax classifications, the revenue inflow would remain stable and the
government would be able to predict with a greater degree of certainty the amount
of taxes that a cigarette manufacturer would pay given the trend in its sales
volume over time. The reason for this is that the previously classified cigarette
brands would be prevented from moving either upward or downward their tax
brackets despite the changes in their net retail prices in the future and, as a result,
the amount of taxes due from them would remain predictable. The classification
freeze provision would, thus, aid in the revenue planning of the government.

All in all, the classification freeze provision addressed Congresss
administrative concerns in the simplification of tax administration of sin products,
elimination of potential areas for abuse and corruption in tax collection, buoyant
and stable revenue generation, and ease of projection of revenues. Consequently,
there can be no denial of the equal protection of the laws since the rational-basis
test is amply satisfied.

Moreover, petitioners contention that the assailed provisions violate the
uniformity of taxation clause is similarly unavailing. In Churchill v.
Concepcion,
[4]
we explained that a tax is uniform when it operates with the same
force and effect in every place where the subject of it is found.
[5]
It does not
signify an intrinsic but simply a geographical uniformity.
[6]
A levy of tax is not
unconstitutional because it is not intrinsically equal and uniform in its
operation.
[7]
The uniformity rule does not prohibit classification for purposes of
taxation.
[8]
As ruled in Tan v. Del Rosario, Jr.:
[9]


Uniformity of taxation, like the kindred concept of equal protection,
merely requires that all subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities (citations omitted). Uniformity does
not forfend classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being equal, to both present and
future conditions, and (4) the classification applies equally well to all those
belonging to the same class (citations omitted).
[10]


In the instant case, there is no question that the classification freeze
provision meets the geographical uniformity requirement because the assailed law
applies to all cigarette brands in the Philippines. And, for reasons already adverted
to in our August 20, 2008 Decision, the above four-fold test has been met in the
present case.

Petitioners reliance on Ormoc Sugar Co. is misplaced. In said case, the
controverted municipal ordinance specifically named and taxed only the Ormoc
Sugar Company, and excluded any subsequently established sugar central from its
coverage. Thus, the ordinance was found unconstitutional on equal protection
grounds because its terms do not apply to future conditions as well. This is not the
case here. The classification freeze provision uniformly applies to all cigarette
brands whether existing or to be introduced in the market at some future time. It
does not purport to exempt any brand from its operation nor single out a brand for
the purpose of imposition of excise taxes.

At any rate, petitioners real disagreement lies with the legitimate State
interests. Although it concedes that the Court utilized the rationality test and that
theclassification freeze provision was necessitated by several legitimate State
interests, however, it refuses to accept the justifications given by Congress for
theclassification freeze provision. As we elucidated in our August 20, 2008
Decision, this line of argumentation revolves around the wisdom and expediency
of the assailed law which we cannot inquire into, much less overrule. Equal
protection is not a license for courts to judge the wisdom, fairness, or logic of
legislative choices.
[11]
We reiterate, therefore, that petitioners remedy is with
Congress and not this Court.

The assailed provisions do not violate the
constitutional prohibition on unfair
competition.

Petitioner asserts that the Court erroneously applied the rational basis test
allegedly because this test does not apply in a constitutional challenge based on a
violation of Section 19, Article XII of the Constitution on unfair
competition. Citing Tatad v. Secretary of the Department of Energy,
[12]
it argues
that theclassification freeze provision gives the brands under Annex D a decisive
edge because it constitutes a substantial barrier to the entry of prospective players;
that the Annex D provision is no different from the 4% tariff differential which
we invalidated in Tatad; that some of the new brands, like Astro, Memphis, Capri,
L&M, Bowling Green, Forbes, and Canon, which were introduced into the market
after the effectivity of the assailed law on January 1, 1997, were killed by Annex
D brands because the former brands were reclassified by the BIR to higher tax
brackets; that the finding that price is not the only factor in the market as there are
other factors like consumer preference, active ingredients, etc. is contrary to the
evidence presented and the deliberations in Congress; that the classification freeze
provisionwill encourage predatory pricing in contravention of the constitutional
prohibition on unfair competition; and that the cumulative effect of the operation
of theclassification freeze provision is to perpetuate the oligopoly of intervenors
Philip Morris and Fortune Tobacco in contravention of the constitutional edict for
the State to regulate or prohibit monopolies, and to disallow combinations in
restraint of trade and unfair competition.

The argument lacks merit. While previously arguing that the rational basis
test was not satisfied, petitioner now asserts that this test does not apply in this case
and that the proper matrix to evaluate the constitutionality of the assailed law is the
prohibition on unfair competition under Section 19, Article XII of the
Constitution. It should be noted that during the trial below, petitioner did not
invoke said constitutional provision as it relied solely on the alleged violation of
the equal protection and uniformity of taxation clauses. Well-settled is the rule
that points of law, theories, issues and arguments not adequately brought to the
attention of the lower court will not be ordinarily considered by a reviewing court
as they cannot be raised for the first time on appeal.
[13]
At any rate, even if we
were to relax this rule, as previously stated, the evidence presented before the trial
court is insufficient to establish the alleged violation of the constitutional
proscription against unfair competition.

Indeed, in Tatad we ruled that a law which imposes substantial barriers to
the entry and exit of new players in our downstream oil industry may be struck
down for being violative of Section 19, Article XII of the
Constitution.
[14]
However, we went on to say in that case that if they are
insignificant impediments, they need not be stricken down.
[15]
As we stated in our
August 20, 2008 Decision, petitioner failed to convincingly prove that there is a
substantial barrier to the entry of new brands in the cigarette market due to
the classification freeze provision. We further observed that several new brands
were introduced in the market after the assailed law went into effect thus negating
petitioners sweeping claim that the classification freeze provision is an
insurmountable barrier to the entry of new brands. We also noted that price is not
the only factor affecting competition in the market for there are other factors such
as taste, brand loyalty, etc.

We see no reason to depart from these findings for the following reasons:

First, petitioner did not lay down the factual foundations, as supported by
verifiable documentary proof, which would establish, among others, the cigarette
brands in competition with each other; the current net retail prices of Annex D
brands, as determined through a market survey, to provide a sufficient point of
comparison with those covered by the BIRs market survey of new brands; and the
causal connection with as well as the extent of the impact on the competition in the
cigarette market of the classification freeze provision. Other than petitioners self-
serving allegations and testimonial evidence, no adequate documentary evidence
was presented to substantiate its claims. Absent ample documentary proof, we
cannot accept petitioners claim that the classification freeze provision is an
insurmountable barrier to the entry of new players.

Second, we cannot lend credence to petitioners claim that it cannot produce
cigarettes that can compete with Marlboro and Philip Morris in the high-priced tax
bracket. Except for its self-serving testimonial evidence, no sufficient
documentary evidence was presented to substantiate this claim. The current net
retail price, which is the basis for determining the tax bracket of a cigarette brand,
more or less consists of the costs of raw materials, labor, advertising and profit
margin. To a large extent, these factors are controllable by the manufacturer, as
such, the decision to enter which tax bracket will depend on the pricing strategy
adopted by the individual manufacturer. The same holds true for its claims that
other new brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and
Canon, were killed by Annex D brands due to the effects of the operation of
the classification freeze provision over time. The evidence that petitioner
presented before the trial court failed to substantiate the basis for these claims.

Essentially, petitioner would want us to accept its conclusions of law
without first laying down the factual foundations of its arguments. This Court,
which is not a trier of facts, cannot take judicial notice of the factual premises of
these arguments as petitioner now seems to suggest. The evidence should have
been presented before the trial court to allow it to examine and determine for itself
whether such factual premises, as supported by sufficient documentary evidence,
provide reasonable basis for petitioners conclusion that there arose an
unconstitutional unfair competition due to the operation of the classification freeze
provision. Petitioner should be reminded that it appealed this case from the
adverse ruling of the trial court directly to this Court on pure questions of law
instead of resorting to the Court of Appeals.

Third, Tatad is not applicable to the instant case. In Tatad, we found that
the 4% tariff differential between imported crude oil and imported refined
petroleum products erects a high barrier to the entry of new players because (1) it
imposes an undue burden on new players to spend billions of pesos to build
refineries in order to compete with the old players, and (2) new players, who opt
not to build refineries, suffer from the huge disadvantage of increasing their
product cost by 4%.
[16]
The tariff was imposed on the raw materials uniformly used
by the players in the oil industry. Thus, the adverse effect on competition arising
from this discriminatory treatment was readily apparent. In contrast, the excise tax
under the assailed law is imposed based on the current net retail price of a cigarette
brand. As previously explained, the current net retail price is determined by the
pricing strategy of the manufacturer. This Court cannot simply speculate that the
reason why a new brand cannot enter a specific tax bracket and compete with the
brands therein was because of the classification freeze provision, rather than the
manufacturers own pricing decision or some other factor solely attributable to the
manufacturer. Again, the burden of proof in this regard is on petitioner which it
failed to muster.

Fourth, the finding in our August 20, 2008 Decision that price is not the only
factor which affects consumer behavior in the cigarette market is based on
petitioners own evidence. On cross-examination, petitioners witness admitted
that notwithstanding the change in price, a cigarette smoker may prefer the old
brand because of its addictive formulation.
[17]
As a result, even if we were to
assume that the classification freeze provision distorts the pricing scheme of the
market players, it is not clear whether a substantial barrier to the entry of new
players would thereby be created because of these other factors affecting consumer
behavior.

Last, the claim that the assailed provisions encourage predatory pricing was
never raised nor substantiated before the trial court. It is merely an afterthought
and cannot be given weight.

In sum, the totality of the evidence presented by petitioner before the trial
court failed to convincingly establish the alleged violation of the constitutional
prohibition on unfair competition. It is a basic postulate that the one who
challenges the constitutionality of a law carries the heavy burden of proof for laws
enjoy a strong presumption of constitutionality as it is an act of a co-equal branch
of government. Petitioner failed to carry this burden.

The assailed law does not transgress the
constitutional provisions on regressive and
inequitable taxation.

Petitioner argues that the classification freeze provision is a form of
regressive and inequitable tax system which is proscribed under Article VI, Section
28(1)
[18]
of the Constitution. It claims that people in equal positions should be
treated alike. The use of different tax bases for brands under Annex D vis--vis
new brands is discriminatory, and thus, iniquitous. Petitioner further posits that
the classification freeze provision is regressive in character. It asserts that the
harmonization of revenue flow projections and ease of tax administration cannot
override this constitutional command.

We note that the points raised by petitioner with respect to alleged
inequitable taxation perpetuated by the classification freeze provision are a mere
reformulation of its equal protection challenge. As stated earlier, the assailed
provisions do not infringe the equal protection clause because the four-fold test is
satisfied. In particular, the classification freeze provision has been found to
rationally further legitimate State interests consistent with rationality
review. Petitioners repackaged argument has, therefore, no merit.

Anent the issue of regressivity, it may be conceded that the assailed law
imposes an excise tax on cigarettes which is a form of indirect tax, and thus,
regressive in character. While there was an attempt to make the imposition of the
excise tax more equitable by creating a four-tiered taxation system where higher
priced cigarettes are taxed at a higher rate, still, every consumer, whether rich or
poor, of a cigarette brand within a specific tax bracket pays the same tax rate. To
this extent, the tax does not take into account the persons ability to
pay. Nevertheless, this does not mean that the assailed law may be declared
unconstitutional for being regressive in character because the Constitution does not
prohibit the imposition of indirect taxes but merely provides that Congress shall
evolve a progressive system of taxation. As we explained in Tolentino v. Secretary
of Finance:
[19]


[R]egressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation."
This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of
social, economic and political inequalities [Art. XIII, Section 1] or for the
promotion of the right to "quality education" [Art. XIV, Section 1]. These
provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.
[20]



Petitioner is not entitled to a downward
reclassification of Lucky Strike.

Petitioner alleges that assuming the assailed law is constitutional, its Lucky
Strike brand should be reclassified from the premium-priced to the high-priced tax
bracket. Relying on BIR Ruling No. 018-2001 dated May 10, 2001, it claims that
it timely sought redress from the BIR to have the market survey conducted within
three months from product launch, as provided for under Section 4(B)
[21]
of
Revenue Regulations No. 1-97, in order to determine the actual current net retail
price of Lucky Strike, and thus, fix its tax classification. Further, the upward
reclassification of Lucky Strike amounts to deprivation of property right without
due process of law. The conduct of the market survey after two years from product
launch constitutes gross neglect on the part of the BIR. Consequently, for failure
of the BIR to conduct a timely market survey, Lucky Strikes classification based
on its suggested gross retail price should be deemed its official tax classification.
Finally, petitioner asserts that had the market survey been timely conducted
sometime in 2001, the current net retail price of Lucky Strike would have been
found to be under the high-priced tax bracket.

These contentions are untenable and misleading.

First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose
of fixing Lucky Strikes initial tax classification based on its suggested gross retail
price relative to its planned introduction of Lucky Strike in the market sometime in
2001 and not for the conduct of the market survey within three months from
product launch. In fact, the said Ruling contained an express reservation that the
tax classification of Lucky Strike set therein is without prejudice, however, to the
subsequent conduct of a survey x x x in order to determine if the actual gross retail
price thereof is consistent with [petitioners] suggested gross retail price.
[22]
In
short, petitioner acknowledged that the initial tax classification of Lucky Strike
may be modified depending on the outcome of the survey which will determine the
actual current net retail price of Lucky Strike in the market.

Second, there was no upward reclassification of Lucky Strike because it was
taxed based on its suggested gross retail price from the time of its introduction in
the market in 2001 until the BIR market survey in 2003. We reiterate that Lucky
Strikes actual current net retail price was surveyed for the first time in 2003 and
was found to be from P10.34 to P11.53 per pack, which is within the premium-
priced tax bracket. There was, thus, no prohibited upward reclassification of
Lucky Strike by the BIR based on its current net retail price.

Third, the failure of the BIR to conduct the market survey within the three-
month period under the revenue regulations then in force can in no way make the
initial tax classification of Lucky Strike based on its suggested gross retail price
permanent. Otherwise, this would contravene the clear mandate of the law which
provides that the basis for the tax classification of a new brand shall be the current
net retail price and not the suggested gross retail price. It is a basic principle of
law that the State cannot be estopped by the mistakes of its agents.

Last, the issue of timeliness of the market survey was never raised before the
trial court because petitioners theory of the case was wholly anchored on the
alleged unconstitutionality of the classification freeze provision. As a
consequence, no documentary evidence as to the actual net retail price of Lucky
Strike in 2001, based on a market survey at least comparable to the one mandated
by law, was presented before the trial court. Evidently, it cannot be assumed that
had the BIR conducted the market survey within three months from its product
launch sometime in 2001, Lucky Strike would have been found to fall under the
high-priced tax bracket and not the premium-priced tax bracket. To so hold would
run roughshod over the States right to due process. Verily, petitioner prosecuted
its case before the trial court solely on the theory that the assailed law is
unconstitutional instead of merely challenging the timeliness of the market
survey. The rule is that a party is bound by the theory he adopts and by the cause
of action he stands on. He cannot be permitted after having lost thereon to
repudiate his theory and cause of action, and thereafter, adopt another and seek to
re-litigate the matter anew either in the same forum or on appeal.
[23]
Having
pursued one theory and lost thereon, petitioner may no longer pursue another
inconsistent theory without thereby trifling with court processes and burdening the
courts with endless litigation.

WHEREFORE, the motion for reconsideration is DENIED.


EN BANC

G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,
as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his
capacity as the Commissioner of Customs, respondents.
R E S O L U T I O N

MENDOZA, J .:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply.
In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders
Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution. Although
they admit that H. No. 11197 was filed in the House of Representatives where it passed three
readings and that afterward it was sent to the Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that the Senate did not pass it on second and
third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have
done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of
S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes
the text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the President
on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the
House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3,
1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD
TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by
the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the
Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on
which the laws were approved by the President and dates the separate bills of the two chambers of
Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR
THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO
REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO
PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF
GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES
RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO
THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION
OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR
OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES
OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE
OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A
NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5,
1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of
its power to propose amendments to bills required to originate in the House, passed its own version
of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would make
if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is
submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and
"the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be
like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following
provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and
private bills shall originate exclusively in the Assembly, but the Senate may propose
or concur with amendments. In case of disapproval by the Senate of any such bills,
the Assembly may repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be submitted to
the President for corresponding action. In the event that the Senate should fail to
finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill
shall be deemed enacted and may be submitted to the President for corresponding
action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal.
It deleted everything after the first sentence. As rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO,
KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the
people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from
which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by
the House, however, the Senate certainly can pass its own version on the same subject matter. This
follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently
without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the
United States Congress contained provisions for the imposition of an inheritance tax .
This was changed by the Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme Court to be sufficiently broad
to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55
L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247
(1961))
The above-mentioned bills are supposed to be initiated by the House of
Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation
involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose
or concur with amendments to the bills initiated by the House of Representatives.
Thus, in one case, a bill introduced in the U.S. House of Representatives was
changed by the Senate to make a proposed inheritance tax a corporation tax. It is
also accepted practice for the Senate to introduce what is known as an amendment
by substitution, which may entirely replace the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill
as a substitute, in which case it will be known as a committee bill; or (4) to make no
report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must be
preserved although the text of the Senate amendment may be incorporated in place of the original
body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S.
No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any
which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that
S. No. 1630 is an independent and distinct bill. Hence their repeated references to its certification
that it was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between
the reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude
that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates that
the provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was
a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the
Senate on second and three readings. It was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be
passed by the House of Representatives before the two bills could be referred to the Conference
Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When
the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been
passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill
is passed by the House but not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the House, can the two bills be
the subject of a conference, and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance does not refer to
investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of
deposits in banks but also investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in
cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct
and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that
because the President separately certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The certification had to be made of the version
of the same revenue bill which at the momentwas being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on
March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified.
For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was being considered by the House. This bill
was later substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision
that the phrase "except when the President certifies to the necessity of its immediate enactment,
etc." in Art. VI, 26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final form
[must be] distributed to the members three days before its passage" but also the requirement that
before a bill can become a law it must have passed "three readings on separate days." There is not
only textual support for such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
prior to its passage, except when the President shall have certified to the necessity of
its immediate enactment. Upon the last reading of a bill, no amendment thereof shall
be allowed and the question upon its passage shall be taken immediately thereafter,
and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days,
and printed copies thereof in its final form have been distributed to the Members
three days before its passage, except when the Prime Minister certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the
present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been
distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the call
of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it
was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on
third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the
Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of
the constitutional policy of full public disclosure and the people's right to know (Art. II, 28 and Art.
III, 7) the Conference Committee met for two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case who
on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of
their meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing versions of
the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a
point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of
the conference committee regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which provides specifically that
the conference report must be accompanied by a detailed statement of the effects of
the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill
have been amended. In this case before us an entire bill is presented; therefore, it
can be easily seen from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
the provisions of the Rules, and the reason for the requirement in the provision cited
by the gentleman from Pangasinan is when there are only certain words or phrases
inserted in or deleted from the provisions of the bill included in the conference report,
and we cannot understand what those words and phrases mean and their relation to
the bill. In that case, it is necessary to make a detailed statement on how those
words and phrases will affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not necessary. So when the reason
for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the Senate
and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A.
No. 7354 and that copiesthereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative journals certify that
the measure was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the
Constitution. We are bound by such official assurances from a coordinate
department of the government, to which we owe, at the very least, a becoming
courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a
1979 study:
Conference committees may be of two types: free or instructed. These committees
may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and this is
why they are often critically referred to as "the little legislatures." Once bills have
been sent to them, the conferees have almost unlimited authority to change the
clauses of the bills and in fact sometimes introduce new measures that were not in
the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it
this way: "I killed a bill on export incentives for my interest group [copra] in the
conference committee but I could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under
Art. VI, 16(3) each house has the power "to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26
(1) of the Constitution which provides that "Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed or collected by any municipal, city, provincial or
national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National
Internal Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added
tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING
ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in
the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions
of the NIRC, among which is 103(q), in order to widen the base of the VAT. Actually, it is the bill
which becomes a law that is required to express in its title the subject of legislation. The titles of H.
No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions
sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It
contained a provision repealing all franking privileges. It was contended that the withdrawal of
franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court
held:
To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional Limitations,
8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its
title, but matter germane to the subject as expressed in the title, and
adopted to the accomplishment of the object in view, may properly be
included in the act. Thus, it is proper to create in the same act the
machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its
execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have
special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee of
free press prohibits are laws which single out the press or target a group belonging to the press for
special treatment or which in any way discriminate against the press on the basis of the content of
the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L.
Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts
only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied
only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have
been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing
or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes.
It was, however, later made to pay a special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-
60)
The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the
First Amendment along with the wares and merchandise of hucksters and peddlers
and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to those
who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the
petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by
7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in 108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of
Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it
is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord,
City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform.
. . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold
to the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
17(1) of the 1973 Constitution from which the present Art. VI, 28(1) was taken. Sales taxes are
also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:
(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-
60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right
or privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is
not made concrete by a series of hypothetical questions asked which are no different from those
dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void on its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not really
settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the government." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P.
Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this
Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the
government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December
31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not
the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and
non-stock, non-profit educational institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to as many people as possible, especially
those living in the rural areas, than there is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of
these cases. We have now come to the conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency
must be addressed to Congress as the body which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.
SO ORDERED.
Narvasa, C.J., Feliciano, Melo, Kapunan, Francisco and Hermosisima, Jr., JJ., concur.
Padilla and Vitug, JJ., maintained their separate opinion.
Regalado, Davide, Jr., Romero, Bellosillo and Puno, JJ, maintained their dissenting opinion.
Panganiban, J., took no part.