G.R. No.

L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant
appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and
Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case
No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as
involving only pure questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June 19,
1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint with preliminary injunction before the Court of
First Instance of Leyte for that court to declare Section 2 of Republic Act No.
2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of
1962, of the municipality of Tanauan, Leyte, null and void.

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962,
levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the
person, fun company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons produced or
manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264]
declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay
the taxes due under the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act
of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power,
confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject
matter and the production tax rates imposed therein are practically the same, and second,
that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter
addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to
enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
1962, levies and collects "from soft drinks producers and manufacturers a tai of onesixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of
computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report, of the total number of bottles
produced and corked during the month. 3

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as

a matter of right to every independent government, without being expressly conferred by
the people. 6 It is a power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. The exception, however, lies in the
case of municipal corporations, to which, said theory does not apply. Legislative powers
may be delegated to local governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication, the legislative power to
create political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local

government unit shall have the power to create its sources of revenue and to levy taxes,
subject to such limitations as may be provided by law." Withal, it cannot be said that
Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited 6 the exact measure of that which is
exercised by itself. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant that there may be delegated such measure of power
to impose and collect taxes as the legislature may deem expedient. Thus, municipalities
may be permitted to tax subjects which for reasons of public policy the State has not
deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be
passed over under the guise of the taxing power, except when the taking of the property is
in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2)
the rule on uniformity of taxation is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due
process is usually violated where the tax imposed is for a private as distinguished from a
public purpose; a tax is imposed on property outside the State, i.e., extraterritorial
taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes.
But, a tax does not violate the due process clause, as applied to a particular taxpayer,
although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the amount
of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to
the amount of the tax and the manner in which it shall be apportioned are generally not
necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. 13 The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States and some states of the
Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is imposed by the State and the other by the
city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose practically the
same tax rate. The thesis proceeds from its assumption that both ordinances are valid and

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

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco
other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels,
coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine,
opium and other habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1- centavos per
case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would not
support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the reates of imposable taxes. 25
This is in line with the constutional policy of according the widest possible autonomy to
local governments in matters of local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance
should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of
the law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more
than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on
manufacturers, producers, importers and dealers of soft drinks and/or mineral waters
under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968,
of defendant Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only municipal license
taxes upon persons engaged in any business or occupation but also to levy for public
purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes
within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known
as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27
of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No.
23, same series, is hereby declared of valid and legal effect. Costs against petitionerappellant.
SO ORDERED.
HON. EXECUTIVE SECRETARY, et al. v. SOUTHWING HEAVY INDUSTRIES, INC., et
al.
The instant consolidated petitions seek to annul and set aside the Decisions of the
Regional Trial Court of Olongapo City, Branch 72, in Civil Case No. 20-0-04 and Civil Case
No. 22-0-04, both dated May 24, 2004; and the February 14, 2005 Decision of the Court of
Appeals in CA-G.R. SP. No. 83284, which declared Article 2, Section 3.1 of Executive Order
No. 156 (EO 156) unconstitutional. Said executive issuance prohibits the importation into
the country, inclusive of the Special Economic and Freeport Zone or theSubic Bay Freeport
(SBF or Freeport), of used motor vehicles, subject to a few exceptions.

The undisputed facts show that on December 12, 2002, President

Gloria Macapagal-Arroyo, through Executive Secretary Alberto G. Romulo, issued EO 156,
entitledPROVIDING FOR A COMPREHENSIVE INDUSTRIAL POLICY AND DIRECTIONS FOR THE
MOTOR VEHICLE DEVELOPMENT PROGRAM AND ITS IMPLEMENTING GUIDELINES. The
challenged provision states:
3.1 The importation into the country, inclusive of
the Freeport, of all types of used motor vehicles is prohibited,
except for the following:
3.1.1 A vehicle that is owned and for the personal use of a
returning resident or immigrant and covered by an authority to import
issued under the No-dollar Importation Program. Such vehicles cannot be
resold for at least three (3) years;
3.1.2 A vehicle for the use of an official of the Diplomatic Corps and
authorized to be imported by the Department of Foreign Affairs;
3.1.3 Trucks excluding pickup trucks;
1. with GVW of 2.5-6.0 tons covered by an authority to
import issued by the DTI.
2. With GVW above 6.0 tons.
3.1.4 Buses:
1. with GVW of 6-12 tons covered by an authority to import
issued by DTI;
2. with GVW above 12 tons.
3.1.5 Special purpose vehicles:
1.
fire trucks
2.
ambulances
3.
funeral hearse/coaches
4.
crane lorries
5.
tractor heads and truck tractors
6.
boom trucks
7.
tanker trucks
8.
tank lorries with high pressure spray gun
9.
reefers or refrigerated trucks
10. mobile drilling derricks
11. transit/concrete mixers
12. mobile radiological units
13. wreckers or tow trucks
14. concrete pump trucks
15. aerial/bucket flat-form trucks
16. street sweepers
17. vacuum trucks
18. garbage compactors
19. self loader trucks
20. man lift trucks
21. lighting trucks

22. trucks mounted with special purpose equipment

23. all other types of vehicle designed for a specific use.

From the foregoing decision, petitioners sought relief before this Court via a
petition for review on certiorari, docketed as G.R. No. 164171.

The issuance of EO 156 spawned three separate actions for declaratory relief before
Branch 72 of the Regional Trial Court of Olongapo City, all seeking the declaration of the
unconstitutionality of Article 2, Section 3.1 of said executive order. The cases were filed by
herein respondent entities, who or whose members, are classified as Subic Bay Freeport
Enterprises and engaged in the business of, among others, importing and/or trading used
motor vehicles.

G.R. No. 164172:

G.R. No. 164171:

In this case, the trial court likewise rendered a summary judgment on May 24,
2004, holding that Article 2, Section 3.1 of EO 156, is repugnant to the constitution.
[5]
Elevated to this Court via a petition for review on certiorari, Civil Case No. 22-0-04 was
docketed as G.R. No. 164172.

On January 16, 2004, respondents Southwing Heavy Industries, Inc., (SOUTHWING)

United Auctioneers, Inc. (UNITED AUCTIONEERS), and Microvan, Inc. (MICROVAN),
instituted a declaratory relief case docketed as Civil Case No. 20-0-04, [1] against the
Executive Secretary, Secretary of Transportation and Communication, Commissioner of
Customs, Assistant Secretary and Head of the Land Transportation Office, Subic Bay
Metropolitan Authority (SBMA), Collector of Customs for the Port atSubic Bay Freeport
Zone, and the Chief of the Land Transportation Office at Subic Bay Freeport Zone.
SOUTHWING, UNITED AUCTIONEERS and MICROVAN prayed that judgment be
rendered (1) declaring Article 2, Section 3.1 of EO 156 unconstitutional and illegal; (2)
directing the Secretary of Finance, Commissioner of Customs, Collector of Customs and the
Chairman of the SBMA to allow the importation of used motor vehicles; (2) ordering the
Land Transportation Office and its subordinates inside the Subic Special Economic Zone to
process the registration of the imported used motor vehicles; and (3) in general, to allow
the unimpeded entry and importation of used motor vehicles subject only to the payment
of the required customs duties.
Upon
filing
of
petitioners
answer/comment,
respondents SOUTHWING and MICROVAN filed a motion for summary judgment which was
granted by the trial court. OnMay 24, 2004, a summary judgment was rendered declaring
that Article 2, Section 3.1 of EO 156 constitutes an unlawful usurpation of legislative power
vested by the Constitution with Congress. The trial court further held that the proviso is
contrary to the mandate of Republic Act No. 7227 (RA 7227) or the Bases Conversion and
Development Act of 1992 which allows the free flow of goods and capital within
the Freeport. The dispositive portion of the said decision reads:
WHEREFORE, judgment is hereby rendered in favor of petitioner
declaring Executive Order 156 [Article 2, Section] 3.1 for being
unconstitutional and illegal; directing respondents Collector of Customs
based at SBMA to allow the importation and entry of used motor vehicles
pursuant to the mandate of RA 7227; directing respondent Chief of the
Land Transportation Office and its subordinates inside the Subic Special
Economic Zone or SBMA to process the registration of imported used motor
vehicle; and in general, to allow unimpeded entry and importation of used
motor vehicles to the Philippines subject only to the payment of the
required customs duties.

On January 20, 2004, respondent Subic Integrated Macro Ventures Corporation (MACRO
VENTURES) filed with the same trial court, a similar action for declaratory relief docketed
as Civil Case No. 22-0-04,[3] with the same prayer and against the same parties [4] as those
in Civil Case No. 20-0-04.

G.R. No. 168741

On January 22, 2003, respondent Motor Vehicle Importers Association of Subic Bay
Freeport, Inc. (ASSOCIATION), filed another action for declaratory relief with essentially the
same prayer as those in Civil Case No. 22-0-04 and Civil Case No. 20-0-04, against the
Executive Secretary, Secretary of Finance, Chief of the Land Transportation Office,
Commissioner of Customs, Collector of Customs at SBMA and the Chairman of SBMA. This
was docketed as Civil Case No. 30-0-2003,[6] before the same trial court.
In
a
decision
dated March
10,
2004,
the
court a
quo granted
the ASSOCIATIONs prayer and declared the assailed proviso as contrary to the Constitution,
to wit:
WHEREFORE, judgment is hereby rendered in favor of petitioner
declaring Executive Order 156 [Article 2, Section] 3.1 for being
unconstitutional and illegal; directing respondents Collector of Customs
based at SBMA to allow the importation and entry of used motor vehicles
pursuant to the mandate of RA 7227; directing respondent Chief of the
Land Transportation Office and its subordinates inside the Subic Special
Economic Zone or SBMA to process the registration of imported used motor
vehicles; directing the respondent Chairman of the SBMA to allow the entry
into the Subic Special Economic Zone or SBMA imported used motor
vehicle; and in general, to allow unimpeded entry and importation of used
motor vehicles to the Philippines subject only to the payment of the
required customs duties.
SO ORDERED.[7]
Aggrieved, the petitioners in Civil Case No. 30-0-2003, filed a petition for
certiorari[8] with the Court of Appeals (CA-G.R. SP. No. 83284) which denied the petition
onFebruary 14, 2005 and sustained the finding of the trial court that Article 2, Section 3.1
of EO 156, is void for being repugnant to the constitution. The dispositive portion thereof,
reads:

SO ORDERED.[2]
WHEREFORE, the instant petition for certiorari is hereby
DENIED. The assailed decision of the Regional Trial Court, Third Judicial

Region, Branch 72, Olongapo City, in Civil Case No. 30-0-2003, accordingly,
STANDS.
SO ORDERED.[9]
The aforequoted decision of the Court of Appeals was elevated to this Court and
docketed as G.R. No. 168741. In a Resolution dated October 4, 2005,[10] said case was
consolidated with G.R. No. 164171 and G.R. No. 164172.
Petitioners are now before this Court contending that Article 2, Section 3.1 of EO
156 is valid and applicable to the entire country, including the Freeeport. In support of their
arguments, they raise procedural and substantive issues bearing on the constitutionality of
the assailed proviso. The procedural issues are: the lack of respondents locusstandi to
question the validity of EO 156, the propriety of challenging EO 156 in a declaratory relief
proceeding and the applicability of a judgment on the pleadings in this case.
Petitioners argue that respondents will not be affected by the importation ban
considering that their certificate of registration and tax exemption do not authorize them
to engage in the importation and/or trading of used cars. They also aver that the actions
filed by respondents do not qualify as declaratory relief cases. Section 1, Rule 63 of the
Rules of Court provides that a petition for declaratory relief may be filed before there is a
breach or violation of rights. Petitioners claim that there was already a breach of
respondents supposed right because the cases were filed more than a year after the
issuance of EO 156. In fact, in Civil Case No. 30-0-2003, numerous warrants of seizure and
detention were issued against imported used motor vehicles belonging to
respondent ASSOCIATIONs members.
Petitioners arguments lack merit.
The established rule that the constitutionality of a law or administrative issuance
can be challenged by one who will sustain a direct injury as a result of its
enforcement[11]has been satisfied in the instant case. The broad subject of the prohibited
importation is all types of used motor vehicles. Respondents would definitely suffer a
direct injury from the implementation of EO 156 because their certificate of registration
and tax exemption authorize them to trade and/or import new and used motor vehicles
and spare parts, except used cars.[12] Other types of motor vehicles imported and/or
traded by respondents and not falling within the category of used cars would thus be
subjected to the ban to the prejudice of their business. Undoubtedly, respondents have the
legal standing to assail the validity of EO 156.
As to the propriety of declaratory relief as a vehicle for assailing the executive
issuance, suffice it to state that any breach of the rights of respondents will not affect the
case.In Commission on Audit of the Province of Cebu v. Province of Cebu,[13] the Court
entertained a suit for declaratory relief to finally settle the doubt as to the proper
interpretation of the conflicting laws involved, notwithstanding a violation of the right of
the party affected. We find no reason to deviate from said ruling mindful of the significance
of the present case to the national economy.
So also, summary judgments were properly rendered by the trial court because the
issues involved in the instant case were pure questions of law. A motion for summary
judgment is premised on the assumption that the issues presented need not be tried either

because these are patently devoid of substance or that there is no genuine issue as to any
pertinent fact. It is a method sanctioned by the Rules of Court for the prompt disposition of
a civil action in which the pleadings raise only a legal issue, not a genuine issue as to any
material fact.[14]
At any rate, even assuming the procedural flaws raised by petitioners truly exist,
the Court is not precluded from brushing aside these technicalities and taking cognizance
of the action filed by respondents considering its importance to the public and in keeping
with the duty to determine whether the other branches of the government have kept
themselves within the limits of the Constitution.[15]
We now come to the substantive issues, which are: (1) whether there is
statutory basis for the issuance of EO 156; and (2) if the answer is in the affirmative,
whether the application of Article 2, Section 3.1 of EO 156, reasonable and within the
scope provided by law.
The main thrust of the petition is that EO 156 is constitutional because it was
issued pursuant to EO 226, the Omnibus Investment Code of the Philippines and that its
application should be extended to the Freeport because the guarantee of RA 7227 on the
free flow of goods into the said zone is merely an exemption from customs duties and
taxes on items brought into the Freeport and not an open floodgate for all kinds of goods
and materials without restriction.
In G.R. No. 168741, the Court of Appeals invalidated Article 2, Section 3.1 of EO
156, on the ground of lack of any statutory basis for the President to issue the same. It
held that the prohibition on the importation of used motor vehicles is an exercise of police
power vested on the legislature and absent any enabling law, the exercise thereof by the
President through an executive issuance, is void.
Police power is inherent in a government to enact laws, within constitutional limits,
to promote the order, safety, health, morals, and general welfare of society. It is lodged
primarily with the legislature. By virtue of a valid delegation of legislative power, it may
also be exercised by the President and administrative boards, as well as the lawmaking
bodies on all municipal levels, including the barangay.[16] Such delegation confers upon the
President quasi-legislative power which may be defined as the authority delegated by
the law-making body to the administrative body to adopt rules and regulations intended to
carry out the provisions of the law and implement legislative policy. [17] To be valid, an
administrative issuance, such as an executive order, must comply with the following
requisites:
(1)
(2)
(3)
(4)

Its promulgation must be authorized by the legislature;

It must be promulgated in accordance with the prescribed procedure;
It must be within the scope of the authority given by the legislature; and
It must be reasonable.[18]

Contrary to the conclusion of the Court of Appeals, EO 156 actually satisfied

the first requisite of a valid administrative order. It has both constitutional and statutory
bases.
Delegation of legislative powers to the President is permitted in Section 28(2) of
Article VI of the Constitution. It provides:

(2) The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage andwharfage dues,
and other duties or imposts within the framework of the national
development program of the Government.[19] (Emphasis supplied)
The relevant statutes to execute this provision are:
1) The Tariff and Customs Code which authorizes the President, in the interest of
national economy, general welfare and/or national security, to, inter alia, prohibit the
importation of any commodity. Section 401 thereof, reads:
Sec. 401. Flexible Clause.
a. In the interest of national economy, general welfare
and/or national security, and subject to the limitations herein
prescribed, the President, upon recommendation of the National
Economic and Development Authority (hereinafter referred to as
NEDA), is hereby empowered: x x x (2) to establish import quota or
to
ban
imports
of
any
commodity,
as
may
be
necessary; x x x Provided, That upon periodic investigations by the Tariff
Commission and recommendation of the NEDA, the President may cause a
gradual reduction of protection levels granted in Section One hundred and
four of this Code, including those subsequently granted pursuant to this
section. (Emphasis supplied)
2) Executive Order No. 226, the Omnibus Investment Code of the Philippines which
was issued on July 16, 1987, by then President Corazon C. Aquino, in the exercise of
legislative power under the Provisional Freedom Constitution, [20] empowers the President to
approve or reject the prohibition on the importation of any equipment or raw materials or
finished products. Pertinent provisions thereof, read:
ART. 4. Composition of the board. The Board of Investments shall
be composed of seven (7) governors: The Secretary of Trade and Industry,
three (3) Undersecretaries of Trade and Industry to be chosen by the
President; and three (3) representatives from the government agencies
and the private sector x x x.
ART. 7. Powers and duties of the Board.
xxxx
(12) Formulate and implement rationalization programs for certain
industries whose operation may result in dislocation, overcrowding or
inefficient use of resources, thus impeding economic growth.For this
purpose, the Board may formulate guidelines for progressive
manufacturing programs, local content programs, mandatory sourcing
requirements and dispersal of industries. In appropriate cases and
upon approval of the President, the Board may restrict, either

totally or partially, the importation of any equipment or raw

materials or finished products involved in the rationalization
program; (Emphasis supplied)
3) Republic Act No. 8800, otherwise known as the Safeguard Measures Act (SMA),
and entitled An Act Protecting Local Industries By Providing Safeguard Measures To Be
Undertaken In Response To Increased Imports And Providing Penalties For Violation Thereof,
[21]
designated the Secretaries[22] of the Department of Trade and Industry (DTI) and the
Department of Agriculture, in their capacity as alter egos of the President, as the
implementing authorities of the safeguard measures, which include, inter alia, modification
or imposition of any quantitative restriction on the importation of a product into the
Philippines. The purpose of the SMA is stated in the declaration of policy, thus:
SEC. 2. Declaration of Policy. The State shall promote
competitiveness of domestic industries and producers based on sound
industrial and agricultural development policies, and efficient use of
human, natural and technical resources. In pursuit of this goal and in the
public interest, the State shall provide safeguard measures to protect
domestic industries and producers from increased imports which cause or
threaten to cause serious injury to those domestic industries and
producers.
There are thus explicit constitutional and statutory permission authorizing the
President to ban or regulate importation of articles and commodities into the country.
Anent the second requisite, that is, that the order must be issued or promulgated
in accordance with the prescribed procedure, it is necessary that the nature of the
administrative issuance is properly determined. As in the enactment of laws, the general
rule is that, the promulgation of administrative issuances requires previous notice and
hearing, the only exception being where the legislature itself requires it and mandates that
the regulation shall be based on certain facts as determined at an appropriate
investigation.[23] This exception pertains to the issuance of legislative rules as
distinguished from interpretative rules which give no real consequence more than what
the law itself has already prescribed; [24] and are designed merely to provide guidelines to
the law which the administrative agency is in charge of enforcing. [25] A legislative rule, on
the other hand, is in the nature of subordinate legislation, crafted to implement a primary
legislation.
In Commissioner of Internal Revenue v. Court of Appeals,[26] and Commissioner of
Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[27] the Court enunciated the
doctrine that when an administrative rule goes beyond merely providing for the means
that can facilitate or render less cumbersome the implementation of the law and
substantially increases the burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard and, thereafter, to be duly informed,
before the issuance is given the force and effect of law.
In the instant case, EO 156 is obviously a legislative rule as it seeks to implement
or execute primary legislative enactments intended to protect the domestic industry by
imposing a ban on the importation of a specified product not previously subject to such
prohibition. The due process requirements in the issuance thereof are embodied in
Section401[28] of the Tariff and Customs Code and Sections 5 and 9 of the SMA [29] which

essentially mandate the conduct of investigation and public hearings before the regulatory
measure or importation ban may be issued.
In the present case, respondents neither questioned before this Court nor with the
courts below the procedure that paved the way for the issuance of EO 156. What they
challenged in their petitions before the trial court was the absence of substantive due
process in the issuance of the EO. [30] Their main contention before the court a quo is that
the importation ban is illogical and unfair because it unreasonably drives them out of
business to the prejudice of the national economy.
Considering the settled principle that in the absence of strong evidence to the
contrary, acts of the other branches of the government are presumed to be valid, [31] and
there being no objection from the respondents as to the procedure in the promulgation of
EO 156, the presumption is that said executive issuance duly complied with the procedures
and limitations imposed by law.
To determine whether EO 156 has complied with the third and fourth requisites of a
valid administrative issuance, to wit, that it was issued within the scope of authority given
by the legislature and that it is reasonable, an examination of the nature of a Freeport
under RA 7227 and the primordial purpose of the importation ban under the questioned EO
is necessary.
RA 7227 was enacted providing for, among other things, the sound and balanced
conversion of the Clark and Subic military reservations and their extensions into
alternative productive uses in the form of Special Economic and Freeport Zone, or
the Subic Bay Freeport, in order to promote the economic and social development of
Central Luzon in particular and the country in general.
The Rules and Regulations Implementing RA 7227 specifically defines the territory
comprising the Subic Bay Freeport, referred to as the Special Economic and Freeport Zone
in Section 12 of RA 7227 as "a separate customs territory consisting of the City
of Olongapo and the Municipality of Subic, Province of Zambales, the lands occupied by
the Subic Naval Base and its contiguous extensions as embraced, covered and defined by
the 1947 Philippine-U.S. Military Base Agreement as amended and within the territorial
jurisdiction of Morong and Hermosa, Province of Bataan, the metes and bounds of which
shall be delineated by the President of the Philippines; provided further that pending
establishment of secure perimeters around the entire SBF, the SBF shall refer to the area
demarcated by the SBMA pursuant to Section 13[32] hereof."

Government Code, the Subic Special Economic Zone shall be developed

into a self-sustaining, industrial, commercial, financial and investment
center to generate employment opportunities in and around the zone and
to attract and promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or movement
of goods and capital within, into and exported out of the SubicSpecial
Economic Zone, as well as provide incentives such as tax and duty-free
importations of raw materials, capital and equipment. However,
exportation or removal of goods from the territory of theSubic Special
Economic Zone to the other parts of the Philippine territory shall be subject
to customs duties and taxes under the Customs and Tariff Code and other
relevant tax laws of the Philippines;
The Freeport was designed to ensure free flow or movement of goods and capital
within a portion of the Philippine territory in order to attract investors to invest their capital
in a business climate with the least governmental intervention. The concept of this zone
was explained by Senator Guingona in this wise:
Senator Guingona. Mr. President, the special economic zone is
successful in many places, particularly Hong Kong, which is a free port. The
difference between a special economic zone and an industrial estate is
simply expansive in the sense that the commercial activities, including the
establishment of banks, services, financial institutions, agro-industrial
activities, maybe agriculture to a certain extent.
This delineates the activities that would have the least of
government intervention, and the running of the affairs of the
special economic zone would be run principally by the investors
themselves, similar to a housing subdivision, where the
subdivision owners elect their representatives to run the affairs of
the subdivision, to set the policies, to set the guidelines.
We would like to see Subic area converted into a little Hong
Kong, Mr. President, where there is a hub of free port and free
entry, free duties and activities to a maximum spur generation of
investment and jobs.

Among the salient provisions of RA 7227 are as follows:

SECTION 12. Subic Special Economic Zone.
xxxx
The abovementioned zone shall be subject to the following
policies:
xxxx
(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of the Local

While the investor is reluctant to come in the Philippines, as a rule,

because of red tape and perceived delays, we envision this special
economic zone to be an area where there will be minimum government
interference.
The initial outlay may not only come from the Government or the
Authority as envisioned here, but from them themselves, because they
would be encouraged to invest not only for the land but also for the
buildings and factories. As long as they are convinced that in such an area
they can do business and reap reasonable profits, then many from other
parts, both local and foreign, would invest, Mr. President. [33] (Emphasis,
added)

With minimum interference from the government, investors can, in general,

engage in any kind of business as well as import and export any article into and out of
theFreeport. These are among the rights accorded to Subic Bay Freeport Enterprises under
Section 39 of the Rules and Regulations Implementing RA 7227, thus
SEC. 39. Rights and Obligations.- SBF Enterprises shall have the
following rights and obligations:
a. To freely engage in any business, trade, manufacturing, financial or
service activity, and to import and export freely all types of goods
into and out of the SBF, subject to the provisions of the Act, these
Rules and other regulations that may be promulgated by the SBMA;
Citing, inter alia, the interpellations of Senator Enrile, petitioners claim that the
free flow or movement of goods and capital only means that goods and material brought
within the Freeport shall not be subject to customs duties and other taxes and should not
be construed as an open floodgate for entry of all kinds of goods. They thus surmise that
the importation ban on motor vehicles is applicable within the Freeport. Pertinent
interpellations of Senator Enrile on the concept of Freeport is as follows:
Senator Enrile: Mr. President, I think we are talking here of
sovereign concepts, not territorial concepts. The concept that we are
supposed to craft here is to carve out a portion of our terrestrial domain as
well as our adjacent waters and say to the world: Well, you can set up your
factories in this area that we are circumscribing, and bringing your
equipment and bringing your goods, you are not subject to any taxes and
duties because you are not within the customs jurisdiction of the Republic
of the Philippines, whether you store the goods or only for purposes of
transshipment or whether you make them into finished products again to
be reexported to other lands.
xxxx
My understanding of a free port is, we are in effect carving
out a part of our territory and make it as if it were foreign
territory for purposes of our customs laws, and that people can
come, bring their goods, store them there and bring them out
again, as long as they do not come into the domestic commerce of
the Republic.
We do not really care whether these goods are stored here. The
only thing that we care is for our people to have an employment because
of the entry of these goods that are being discharged, warehoused and
reloaded into the ships so that they can be exported. That will generate
employment for us. For as long as that is done, we are saying, in effect,
that we have the least contact with our tariff and customs laws and our tax
laws. Therefore, we consider these goods as outside of the customs
jurisdiction of the Republic of the Philippines as yet, until we draw them
from this territory and bring them inside our domestic commerce. In which

case, they have to pass through our customs gate. I thought we are
carving out this entire area and convert it into this kind of concept. [34]
However, contrary to the claim of petitioners, there is nothing in the foregoing
excerpts which absolutely limits the incentive to Freeport investors only to exemption from
customs duties and taxes. Mindful of the legislative intent to attract investors, enhance
investment and boost the economy, the legislature could not have limited the enticement
only to exemption from taxes. The minimum interference policy of the government on
the Freeport extends to the kind of business that investors may embark on and the articles
which they may import or export into and out of the zone. A contrary interpretation would
defeat the very purpose of the Freeport and drive away investors.
It does not mean, however, that the right of Freeport enterprises to import all types
of goods and article is absolute. Such right is of course subject to the limitation that
articles absolutely prohibited by law cannot be imported into the Freeport.[35] Nevertheless,
in determining whether the prohibition would apply to the Freeport, resort to the purpose
of the prohibition is necessary.
In issuing EO 156, particularly the prohibition on importation under Article 2,
Section 3.1, the President envisioned to rationalize the importation of used motor vehicles
and to enhance the capabilities of the Philippine motor manufacturing firms to be globally
competitive producers of completely build-up units and their parts and components for the
local and export markets.[36] In justifying the issuance of EO 156, petitioners alleged that
there has been a decline in the sales of new vehicles and a remarkable growth of the sales
of imported used motor vehicles. To address the same, the President issued the questioned
EO to prevent further erosion of the already depressed market base of the local motor
vehicle industry and to curtail the harmful effects of the increase in the importation of used
motor vehicles.[37]
Taking our bearings from the foregoing discussions, we hold that the importation
ban runs afoul the third requisite for a valid administrative order. To be valid, an
administrative issuance must not be ultra vires or beyond the limits of the authority
conferred. It must not supplant or modify the Constitution, its enabling statute and other
existing laws, for such is the sole function of the legislature which the other branches of
the government cannot usurp. As held in United BF Homeowners Association v. BF Homes,
Inc.:[38]
The rule-making power of a public administrative body is a
delegated legislative power, which it may not use either to abridge the
authority given it by Congress or the Constitution or to enlarge its power
beyond the scope intended. Constitutional and statutory provisions control
what rules and regulations may be promulgated by such a body, as well as
with respect to what fields are subject to regulation by it. It may not make
rules and regulations which are inconsistent with the provisions of the
Constitution or a statute, particularly the statute it is administering or
which created it, or which are in derogation of, or defeat, the purpose of a
statute.
In the instant case, the subject matter of the laws authorizing the President to
regulate or forbid importation of used motor vehicles, is the domestic industry. EO 156,

however, exceeded the scope of its application by extending the prohibition on the
importation of used cars to the Freeport, which RA 7227, considers to some extent, a
foreign territory. The domestic industry which the EO seeks to protect is actually
the customs territory which is defined under the Rules and Regulations Implementing RA
7227, as follows:
the portion of the Philippines outside the Subic Bay Freeport
where the Tariff and Customs Code of the Philippines and other
national tariff and customs laws are in force and effect.[39]
The proscription in the importation of used motor vehicles should be operative only
outside the Freeport and the inclusion of said zone within the ambit of the prohibition is an
invalid modification of RA 7227. Indeed, when the application of an administrative issuance
modifies existing laws or exceeds the intended scope, as in the instant case, the issuance
becomes void, not only for being ultra vires, but also for being unreasonable.
This brings us to the fourth requisite. It is an axiom in administrative law that
administrative authorities should not act arbitrarily and capriciously in the issuance of
rules and regulations. To be valid, such rules and regulations must be reasonable and fairly
adapted to secure the end in view. If shown to bear no reasonable relation to the purposes
for which they were authorized to be issued, then they must be held to be invalid. [40]
There is no doubt that the issuance of the ban to protect the domestic industry is
a reasonable exercise of police power. The deterioration of the local motor manufacturing
firms due to the influx of imported used motor vehicles is an urgent national concern that
needs to be swiftly addressed by the President. In the exercise of delegated police power,
the executive can therefore validly proscribe the importation of these vehicles. Thus,
in Taxicab Operators of Metro Manila, Inc. v. Board of Transportation,[41] the Court held that
a regulation phasing out taxi cabs more than six years old is a valid exercise of police
power. The regulation was sustained as reasonable holding that the purpose thereof was to
promote the convenience and comfort and protect the safety of the passengers.
The problem, however, lies with respect to the application of the importation ban
to the Freeport. The Court finds no logic in the all encompassing application of the assailed
provision to the Freeport which is outside the customs territory. As long as the used motor
vehicles do not enter the customs territory, the injury or harm sought to be prevented or
remedied will not arise. The application of the law should be consistent with the purpose of
and reason for the law. Ratione cessat lex, et cessat lex. When the reason for the law
ceases, the law ceases. It is not the letter alone but the spirit of the law also that gives it
life.[42] To apply the proscription to the Freeport would not serve the purpose of the
EO.Instead of improving the general economy of the country, the application of the
importation ban in the Freeport would subvert the avowed purpose of RA 7227 which is to
create a market that would draw investors and ultimately boost the national economy.
In similar cases, we also declared void the administrative issuance or ordinances
concerned for being unreasonable. To illustrate, in De la Cruz v. Paras,[43] the Court held as
unreasonable and unconstitutional an ordinance characterized by overbreadth. In that
case, the Municipality of Bocaue, Bulacan, prohibited the operation of all night clubs,
cabarets and dance halls within its jurisdiction for the protection of public morals. As
explained by the Court:

x x x It cannot be said that such a sweeping exercise of a lawmaking power

by Bocaue could qualify under the term reasonable. The objective of
fostering public morals, a worthy and desirable end can be attained by a
measure that does not encompass too wide a field. Certainly the
ordinance on its face is characterized by overbreadth. The purpose sought
to be achieved could have been attained by reasonable restrictions rather
than by an absolute prohibition. The admonition in Salaveria should be
heeded: The Judiciary should not lightly set aside legislative action when
there is not a clear invasion of personal or property rights under the guise
of police regulation. It is clear that in the guise of a police regulation, there
was in this instance a clear invasion of personal or property rights,
personal in the case of those individuals desirous of patronizing those night
clubs and property in terms of the investments made and salaries to be
earned by those therein employed.
Lupangco v. Court of Appeals,[44] is a case involving a resolution issued by the
Professional Regulation Commission which prohibited examinees from attending review
classes and receiving handout materials, tips, and the like three days before the date of
examination in order to preserve the integrity and purity of the licensure examinations in
accountancy. Besides being unreasonable on its face and violative of academic freedom,
the measure was found to be more sweeping than what was necessary, viz:
Needless to say, the enforcement of Resolution No. 105 is not a
guarantee that the alleged leakages in the licensure examinations will be
eradicated or at least minimized. Making the examinees suffer by depriving
them of legitimate means of review or preparation on those last three
precious days when they should be refreshing themselves with all that they
have learned in the review classes and preparing their mental and
psychological make-up for the examination day itself would be like
uprooting the tree to get rid of a rotten branch. What is needed to be done
by the respondent is to find out the source of such leakages and stop it
right there. If corrupt officials or personnel should be terminated from their
loss, then so be it. Fixers or swindlers should be flushed out. Strict
guidelines to be observed by examiners should be set up and if violations
are committed, then licenses should be suspended or revoked. x x x
In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,[45] the Court likewise struck
down as unreasonable and overbreadth a city ordinance granting an exclusive franchise for
25 years, renewable for another 25 years, to one entity for the construction and operation
of one common bus and jeepney terminal facility in Lucena City. While professedly aimed
towards alleviating the traffic congestion alleged to have been caused by the existence of
various bus and jeepney terminals within the city, the ordinance was held to be beyond
what is reasonably necessary to solve the traffic problem in the city.
By parity of reasoning, the importation ban in this case should also be declared
void for its too sweeping and unnecessary application to the Freeport which has no bearing
on the objective of the prohibition. If the aim of the EO is to prevent the entry of used
motor vehicles from the Freeport to the customs territory, the solution is not to forbid entry
of these vehicles into the Freeport, but to intensify governmental campaign and measures
to thwart illegal ingress of used motor vehicles into the customs territory.

At this juncture, it must be mentioned that on June 19, 1993, President Fidel V.
Ramos issued Executive Order No. 97-A, Further Clarifying The Tax And Duty-Free Privilege
Within The Subic Special Economic And Free Port Zone, Section 1 of which provides:
SECTION 1. The following guidelines shall govern the tax and dutyfree privilege within the Secured Area of the Subic Special Economic and
Free Port Zone:
1.1. The Secured Area consisting of the presently fenced-in
former Subic Naval Base shall be the only completely tax and duty-free
area in the SSEFPZ. Business enterprises and individuals (Filipinos and
foreigners) residing within the Secured Area are free to import raw
materials, capital goods, equipment, and consumer items tax and dutryfree. Consumption items, however, must be consumed within the Secured
Area. Removal of raw materials, capital goods, equipment and consumer
items out of the Secured Area for sale to non-SSEFPZ registered
enterprises shall be subject to the usual taxes and duties, except as may
be provided herein.
In Tiu v. Court of Appeals[46] as reiterated in Coconut Oil Refiners Association, Inc. v.
Torres,[47] this provision limiting the special privileges on tax and duty-free importation in
the presently fenced-in former Subic Naval Base has been declared valid and constitutional
and in accordance with RA 7227. Consistent with these rulings and for easier management
and monitoring of activities and to prevent fraudulent importation of merchandise and
smuggling, the free flow and importation of used motor vehicles shall be operative only
within the secured area.
In sum, the Court finds that Article 2, Section 3.1 of EO 156 is void insofar as it is
made applicable to the presently secured fenced-in former Subic Naval Base area as stated
in Section 1.1 of EO 97-A. Pursuant to the separability clause[48] of EO 156, Section 3.1 is
declared valid insofar as it applies to the customs territory or the Philippine territory
outside the presently secured fenced-in former Subic Naval Base area as stated in Section
1.1 of EO 97-A. Hence, used motor vehicles that come into the Philippine territory via the
secured fenced-in former Subic Naval Base area may be stored, used or traded therein, or
exported out of the Philippine territory, but they cannot be imported into the Philippine
territory outside of the secured fenced-in former Subic Naval Base area.
WHEREFORE, the petitions are PARTIALLY GRANTED and the May 24, 2004 Decisions of
Branch 72, Regional Trial Court of Olongapo City, in Civil Case No. 20-0-04 and Civil Case
No. 22-0-04; and the February 14, 2005 Decision of the Court of Appeals in CA-G.R. SP No.
63284, are MODIFIED insofar as they declared Article 2, Section 3.1 of Executive Order
No. 156, void in its entirety.
Said provision is declared VALID insofar as it applies to the Philippine territory outside the
presently fenced-in former Subic Naval Base area and VOID with respect to its application
to the secured fenced-in former Subic Naval Base area.
SO ORDERED.

G.R. No. L-4043

May 26, 1952

CENON S. CERVANTES, petitioner,

vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.
Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying petitioner's claim for
quarters allowance as manager of the National Abaca and Other Fibers Corporation,
otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000
a year. By a resolution of the Board of Directors of this corporation approved on January 19
of that year, he was granted quarters allowance of not exceeding P400 a month effective
the first of that month. Submitted the Control Committee of the Government Enterprises
Council for approval, the said resolution was on August 3, 1949, disapproved by the said
Committee on strenght of the recommendation of the NAFCO auditor, concurred in by the
Auditor General, (1) that quarters allowance constituted additional compensation
prohibited by the charter of the NAFCO, which fixes the salary of the general manager
thereof at the sum not to exceed P15,000 a year, and (2) that the precarious financial
condition of the corporation did not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action
and approve his claim for allowance for January to June 15, 1949, amounting to P1,650.
The claim was again referred by the Control Committee to the auditor General for
comment. The latter, in turn referred it to the NAFCO auditor, who reaffirmed his previous
recommendation and emphasized that the fact that the corporation's finances had not
improved. In view of this, the auditor General also reiterated his previous opinion against
the granting of the petitioner's claim and so informed both the Control Committee and the
petitioner. But as the petitioner insisted on his claim the Auditor General Informed him on
June 19, 1950, of his refusal to modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939,
with a capital stock of P20,000,000, 51 per cent of which was to be able to be subscribed
by the National Government and the remainder to be offered to provincial, municipal, and
the city governments and to the general public. The management the corporation was
vested in a board of directors of not more than 5 members appointed by the president of
the Philippines with the consent of the Commission on Appointments. But the corporation
was made subject to the provisions of the corporation law in so far as they were
compatible with the provisions of its charter and the purposes of which it was created and
was to enjoy the general powers mentioned in the corporation law in addition to those

granted in its charter. The members of the board were to receive each a per diem of not to
exceed P30 for each day of meeting actually attended, except the chairman of the board,
who was to be at the same time the general manager of the corporation and to receive a
salary not to exceed P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the
Philippines, among other things, to effect such reforms and changes in government owned
and controlled corporations for the purpose of promoting simplicity, economy and
efficiency in their operation Pursuant to this authority, the President on October 4, 1947,
promulgated Executive Order No. 93 creating the Government Enterprises Council to be
composed of the President of the Philippines as chairman, the Secretary of Commerce and
Industry as vice-chairman, the chairman of the board of directors and managing heads of
all such corporations as ex-officio members, and such additional members as the President
might appoint from time to time with the consent of the Commission on Appointments. The
council was to advise the President in the excercise of his power of supervision and control
over these corporations and to formulate and adopt such policy and measures as might be
necessary to coordinate their functions and activities. The Executive Order also provided
that the council was to have a Control Committee composed of the Secretary of Commerce
and Industry as chairman, a member to be designated by the President from among the
members of the council as vice-chairman and the secretary as ex-officio member, and with
the power, among others
(1) To supervise, for and under the direction of the President, all the corporations
owned or controlled by the Government for the purpose of insuring efficiency and
economy in their operations;
(2) To pass upon the program of activities and the yearly budget of expenditures
approved by the respective Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government
Enterprises Council with the approval of the President. (Sec. 3, Executive Order No.
93.)
With its controlling stock owned by the Government and the power of appointing its
directors vested in the President of the Philippines, there can be no question that the
NAFCO is Government controlled corporation subject to the provisions of Republic Act No.
51 and the executive order (No. 93) promulgated in accordance therewith. Consequently, it
was also subject to the powers of the Control Committee created in said executive order,
among which is the power of supervision for the purpose of insuring efficiency and
economy in the operations of the corporation and also the power to pass upon the program
of activities and the yearly budget of expenditures approved by the board of directors. It
can hardly be questioned that under these powers the Control Committee had the right to
pass upon, and consequently to approve or disapprove, the resolution of the NAFCO board
of directors granting quarters allowance to the petitioners as such allowance necessarily

constitute an item of expenditure in the corporation's budget. That the Control Committee
had good grounds for disapproving the resolution is also clear, for, as pointed out by the
Auditor General and the NAFCO auditor, the granting of the allowance amounted to an
illegal increase of petitioner's salary beyond the limit fixed in the corporate charter and
was furthermore not justified by the precarious financial condition of the corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only because it is
based on a law that is unconstitutional as an illegal delegation of legislature power to
executive, but also because it was promulgated beyond the period of one year limited in
said law.
The second ground ignores the rule that in the computation of the time for doing an act,
the first day is excluded and the last day included (Section 13 Rev. Ad. Code.) As the act
was approved on October 4, 1946, and the President was given a period of one year within
which to promulgate his executive order and that the order was in fact promulgated on
October 4, 1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a policy and a
standard is established by the statute" there is no undue delegation. (11 Am. Jur. 957).
Republic Act No. 51 in authorizing the President of the Philippines, among others, to make
reforms and changes in government-controlled corporations, lays down a standard and
policy that the purpose shall be to meet the exigencies attendant upon the establishment
of the free and independent government of the Philippines and to promote simplicity,
economy and efficiency in their operations. The standard was set and the policy fixed. The
President had to carry the mandate. This he did by promulgating the executive order in
question which, tested by the rule above cited, does not constitute an undue delegation of
legislative power.
It is also contended that the quarters allowance is not compensation and so the granting of
it to the petitioner by the NAFCO board of directors does not contravene the provisions of
the NAFCO charter that the salary of the chairman of said board who is also to be general
manager shall not exceed P15,000 per anum. But regardless of whether quarters
allowance should be considered as compensation or not, the resolution of the board of the
directors authorizing payment thereof to the petitioner cannot be given effect since it was
disapproved by the Control Committee in the exercise of powers granted to it by Executive
Order No. 93. And in any event, petitioner's contention that quarters allowance is not
compensation, a proposition on which American authorities appear divided, cannot be
insisted on behalf of officers and employees working for the Government of the Philippines
and its Instrumentalities, including, naturally, government-controlled corporations. This is
so because Executive Order No. 332 of 1941, which prohibits the payment of additional
compensation to those working for the Government and its Instrumentalities, including
government-controlled corporations, was in 1945 amended by Executive Order No. 77 by
expressly exempting from the prohibition the payment of quarters allowance "in favor of

local government officials and employees entitled to this under existing law." The
amendment is a clear indication that quarters allowance was meant to be included in the
term "additional compensation", for otherwise the amendment would not have expressly
excepted it from the prohibition. This being so, we hold that, for the purpose of the
executive order just mentioned, quarters allowance is considered additional compensation
and, therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.

preliminary work. 3 The main source of funds for the NPC was the flotation of bonds in the
capital markets 4 and these bonds
. . . issued under the authority of this Act shall be exempt from the
payment of all taxes by the Commonwealth of the Philippines, or by any
authority, branch, division or political subdivision thereof and subject to the
provisions of the Act of Congress, approved March 24, 1934, otherwise
known as the Tydings McDuffle Law, which facts shall be stated upon the
face of said bonds. . . . . 5

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of
the President, HON. VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter of
indirect tax exemption of the private respondent National Power Corporation (NPC) is
brought to this Court a second time. Unfazed by the Decision We promulgated on May 31,
1991 1 petitioner Ernesto Maceda asks this Court to reconsider said Decision. Lest We be
criticized for denying due process to the petitioner. We have decided to take a second look
at the issues. In the process, a hearing was held on July 9, 1992 where all parties
presented their respective arguments. Etched in this Court's mind are the paradoxical
claims by both petitioner and private respondents that their respective positions are for
the benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National
Power Corporation, a public corporation, mainly to develop hydraulic power from all water
sources in the Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in
the Philippine Treasury for the purpose of organizing the NPC and conducting its

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed
for the initial operations of the NPC and reiterating the provision of the flotation of bonds
as soon as the first construction of any hydraulic power project was to be decided by the
NPC Board. 6 The provision on tax exemption in relation to the issuance of the NPC bonds
was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment
of the bond's principal and interest in "gold coins" but adding that payment could be made
in United States dollars. 7 The provision on tax exemption in relation to the issuance of the
NPC bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the
Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment
of any and all NPC loans. 8 He was also authorized to contract on behalf of the NPC with the
International Bank for Reconstruction and Development (IBRD) for NPC loans for the
accomplishment of NPC's corporate objectives 9 and for the reconstruction and
development of the economy of the country.10 It was expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts,
charges, contributions and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first
time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of
bonds. 12 As to the pertinent tax exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation
shall be exempt from all taxes, duties, fees, imposts, charges, and
restrictions of the Republic of the Philippines, its provinces, cities and
municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the
IBRD, the President of the Philippines was authorized to negotiate, contract and guarantee

loans with the Export-Import Bank of of Washigton, D.C., U.S.A., or any other international
financial institution. 14 The tax provision for repayment of these loans, as stated in R.A. No.
357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for
real estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation
shall be exempt from all taxes, except real property tax, and from all
duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities, and municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be
funded by the increased indebtedness 16 should bear the National Economic Council's
stamp of approval. The tax exemption provision related to the payment of this total
indebtedness was not amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans
NPC was authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in
R.A. No. 357. 17 The tax provision related to the repayment of these loans was not
amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December
31, 2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No.
2058 were expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation
into a stock corporation with an authorized capital stock of P100,000,000.00 divided into
1,000.000 shares having a par value of P100.00 each, with said capital stock wholly
subscribed to by the Government. 20 No tax exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized
capital stock to P250,000,000.00 with the increase to be wholly subscribed by the
Government. 21 No tax provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax
provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A.
No. 120, as amended. Declared as primary objectives of the nation were:

Declaration of Policy. Congress hereby declares that (1) the

comprehensive development, utilization and conservation of Philippine
water resources for all beneficial uses, including power generation, and (2)
the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and
dispersal and the needs of rural electrification are primary objectives of the
nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a)
(Authority to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign
Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt
from the payment of all taxes by the Republic of the Philippines, or by any
authority, branch, division or political subdivision thereof which facts shall
be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b),
states as follows:
The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well as
the importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedeness
incurred under this Act, shall also be exempt from all taxes, fees, imposts,
other charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which
declares the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared
exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges costs and
service fees in any court or administrative proceedings in which it may be
a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, and municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax,
and wharfage fees on import of foreign goods required for its operations
and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its provinces,
cities, municipalities and other government agencies and instrumentalities,
on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring
that the electrification of the entire country was one of the primary
concerns of the country. And in connection with this, it was specifically
stated that:
The setting up of transmission line grids and the construction of associated
generation facilities in Luzon, Mindanao and major islands of the country,
including the Visayas, shall be the responsibility of the National Power
Corporation (NPC) as the authorized implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and operate as a
single integrated system all generating facilities supplying electric power
to the entire area embraced by any grid set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to
fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to
P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of
P3,000,000,000.00 at any one time, 30 and the NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:

The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well as
the importation of machinery, equipment, materials, supplies and services,
by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct
and indirect taxes, fees, imposts, other charges and restrictions, including
import restrictions previously and presently imposed, and to be imposed by
the Republic of the Philippines, or any of its agencies and political
subdivisions.32 (Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and
restrictions to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities
including the taxes, duties, fees, imposts and other charges provided for
under the Tariff and Customs Code of the Philippines, Republic Act
Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972, and
Presidential Decree No. 69, dated November 24, 1972, and costs and
service fees in any court or administrative proceedings in which it may be
a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric
power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's
sale of electricity to its different customers. 34 No tax exemption provision was amended,
deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be
appropriated annually to cover the unpaid subscription of the Government in the NPC
authorized capital stock, which amount would be taken from taxes accruing to the General
Funds of the Government, proceeds from loans, issuance of bonds, treasury bills or notes
to be issued by the Secretary of Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and

transmission facilities which includes nuclear power generation, the
present capitalization of National Power Corporation (NPC) and the ceilings
for domestic and foreign borrowings are deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the Revised Charter,
the non-profit character of NPC has not been fully utilized because of
restrictive interpretation of the taxing agencies of the government on said
provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain the
declared objective of total electrification of the country, further
amendments of certain sections of Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic
indebtedness ceiling was increased to P12,000,000,000.00, 40 the total foreign loan ceiling
was raised to US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to
read as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay to its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of all forms of
taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882,
1177, 1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with
regard to imports as follows:

WHEREAS, importations by certain government agencies, including

government-owned or controlled corporation, are exempt from the
payment of customs duties and compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to protect
domestic industries, it is necessary to restrict and regulate such tax-free
importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution, and do hereby
decree and order the following:
Sec. 1. All importations of any government agency, including governmentowned or controlled corporations which are exempt from the payment of
customs duties and internal revenue taxes, shall be subject to the prior
approval of an Inter-Agency Committee which shall insure compliance with
the following conditions:
(a) That no such article of local manufacture are available in sufficient
quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and
will be used exclusively by the grantee of the exemption for its operations
and projects or in the conduct of its functions; and
(c) The shipping documents covering the importation are in the name of
the grantee to whom the goods shall be delivered directly by customs
authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the
tax-free importation of government agencies in accordance with the
conditions set forth in Section 1 hereof and the regulations to be
promulgated to implement the provisions of this Decree. Provided,
however, That any government agency or government-owned or controlled
corporation, or any local manufacturer or business firm adversely affected
by any decision or ruling of the Inter-Agency Committee may file an appeal
with the Office of the President within ten days from the date of notice
thereof. . . . .
xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar

provisions of all general and special laws and decrees are hereby amended
accordingly.
xxx xxx xxx

and since there was a

. . . need for government-owned or controlled corporations and all other
units of government enjoying tax privileges to share in the requirements of
development, fiscal or otherwise, by paying the duties, taxes and other
charges due from them. 47

On July 30, 1977, P.D. 1177 was issued as it was

it was decreed that:
. . . declared the policy of the State to formulate and implement a National
Budget that is an instrument of national development, reflective of national
objectives, strategies and plans. The budget shall be supportive of and
consistent with the socio-economic development plan and shall be oriented
towards the achievement of explicit objectives and expected results, to
ensure that funds are utilized and operations are conducted effectively,
economically and efficiently. The national budget shall be formulated within
a context of a regionalized government structure and of the totality of
revenues and other receipts, expenditures and borrowings of all levels of
government-owned or controlled corporations. The budget shall likewise be
prepared within the context of the national long-term plan and of a longterm budget program. 43

Sec. 1. The provisions of special on general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes, fees,
imposts and other charges heretofore granted in favor of governmentowned or controlled corporations including their subsidiaries, are hereby
withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon
the recommendation of the Fiscal Incentives Review Board created under
Presidential Decree No. 776, is hereby empowered to restore, partially or
totally, the exemptions withdrawn by Section 1 above, any applicable tax
and duty, taking into account, among others, any or all of the following:

In line with such policy, the law decreed that

1) The effect on the relative price levels;

All units of government, including government-owned or controlled corporations, shall pay

income taxes, customs duties and other taxes and fees are imposed under revenues laws:
provided, that organizations otherwise exempted by law from the payment of such
taxes/duties may ask for a subsidy from the General Fund in the exact amount of
taxes/duties due: provided, further, that a procedure shall be established by the Secretary
of Finance and the Commissioner of the Budget, whereby such subsidies shall
automatically be considered as both revenue and expenditure of the General Fund. 44

2) The relative contribution of the corporation to the revenue generation

effort;

The law also declared that

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof
which are inconsistent with the provisions of the Decree are hereby
repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself in
after the Aquino assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed
the grant of tax privileges to any government-owned or controlled
corporation and all other units of government; 46

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other
laws, decrees, executive orders, administrative orders, rules, regulations or
parts thereof which are inconsistent with this Decree are hereby repealed,
amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential
restoration or grant of tax exemption to other government and private entities without
benefit of review by the Fiscal Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11,
1984 and October 14, 1984, respectively, withdrew the tax and duty

exemption privileges, including the preferential tax treatment, of

government and private entities with certain exceptions, in order that the
requirements of national economic development, in terms of fiscals and
other resources, may be met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges were
restored by the Fiscal Incentives Review Board (FIRB), a number of affected
entities, government and private, had their tax and duty exemption
privileges restored or granted by Presidential action without benefit or
review by the Fiscal Incentives Review Board (FIRB);
xxx xxx xxx
Since it was decided that:

(iii) the Philippine Veterans Investment Development

Corporation Industrial Authority pursuant to Presidential
Decree No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the provisions
of Letter of Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;

[A]ssistance to government and private entities may be better provided

where necessary by explicit subsidy and budgetary support rather than tax
and duty exemption privileges if only to improve the fiscal monitoring
aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government and
private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the
Government of the Republic of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree
No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to
Presidential Decree No. 66 as amended;

f) those approved by the President upon the

recommendation of the Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential
Decree No. 776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in
part;
b) revise the scope and coverage of tax and/or duty exemption that may
be restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date of period of effectivity of the restoration of tax and/or
duty exemption;
e) formulate and submit to the President for approval, a complete system
for the grant of subsidies to deserving beneficiaries, in lieu of or in
combination with the restoration of tax and duty exemptions or preferential
treatment in taxation, indicating the source of funding therefor, eligible
beneficiaries and the terms and conditions for the grant thereof taking into
consideration the international commitment of the Philippines and the
necessary precautions such that the grant of subsidies does not become
the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives

Review Board shall take into account any or all of the following
considerations:

Examples: the internal revenue indirect taxes (specific tax, percentage

taxes, (VAT) and the tariff and customs indirect taxes (import duties,
special import tax and other dues) 52

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be
reduced to the following:

c) nature of the activity the beneficiary is engaged; and

(1) What kind of tax exemption privileges did NPC have?
d) in general, the greater national interest to be served.
(2) For what periods in time were these privileges being enjoyed?
xxx xxx xxx
(3) If there are taxes to be paid, who shall pay for these taxes?
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified
accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and
regulations, to be issued by the Ministry of Finance. 49 Said rules and regulations were
promulgated and published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the
Official Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be
lawyers, learn in their TAXATION I course, which fro convenient reference, is as follows:

V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the
phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as
amended by P.D. No. 380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention
that the NPC was to be completely tax exempt from all forms of taxes direct and
indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its
operations upon its creation by virtue of C.A. No. 120.

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes
(estate tax, donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for it, not as a
tax, but as a part of the purchase price.

When the NPC was authorized to contract with the IBRD for foreign financing, any loans
obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds aside issuance of
bonds it was again specifically exempted from all types of taxes "to facilitate payment of
its indebtedness." Even when the ceilings for domestic and foreign borrowings were
periodically increased, the tax exemption privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep.
Act No. 987, as above stated. The exemption was, however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax
exemptions allowed NPC. Its section 13(d) is the starting point of this bone of contention
among the parties. For easy reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by
the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission,
utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as
follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. (Emphasis
supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple
paragraph as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of ALL FORMS
OF taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied)
Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and
Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were made by the same person, it would
have been very easy for him to retain the same or similar language used in
P.D. No. 380 P.D. No. 938 if his intention were to preserve the indirect tax
exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter
what his fault were. It should be noted that section 13, R.A. No. 6395, provided for tax
exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES,
ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as
qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have
considered all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No.
380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No.
6395, as amended by P.D. No. 938.
One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness,
at any one time, and U$4 Billion in total foreign loans at any one time. The NPC must be
and has to be exempt from all forms of taxes if this goal is to be achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be
remembered that to pay the government share in its capital stock P.D. No. 758 was issued
mandating that P200 Million would be appropriated annually to cover the said unpaid
subscription of the Government in NPC's authorized capital stock. And significantly one of
the sources of this annual appropriation of P200 million is TAX MONEY accruing to the

General Fund of the Government. It does not stand to reason then that former President
Marcos would order P200 Million to be taken partially or totally from tax money to be used
to pay the Government subscription in the NPC, on one hand, and then order the NPC to
pay all its indirect taxes, on the other.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both
direct and indirect taxes under P.D. No. 938.

The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d)
into the phrase "All FORMS OF" is supported by the fact that he did not do the same for the
tax exemption provision for the foreign loans to be incurred.

Five (5) years on into the now discredited New Society, the Government decided to
rationalize government receipts and expenditures by formulating and implementing a
National Budget. 60 The NPC, being a government owned and controlled corporation had to
be shed off its tax exemption status privileges under P.D. No. 1177. It was, however,
allowed to ask for a subsidy from the General Fund in the exact amount of taxes/duties
due.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well as
the importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all taxes, fees, imposts,
other charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by
the Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all direct and
indirect taxes, fees, imposts, other charges and restrictions, including
import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and
political subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8
(b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this
particular Section 8 (b) had to do only with loans and machinery imported, paid for from
the proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT
UP WITH, and so, the tax exemption stood as is with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege
extended to "taxes, fees, imposts, other charges . . . to be imposed" in the future surely,
an indication that the lawmakers wanted the NPC to be exempt from ALL FORMS of taxes
direct and indirect.
59

VI

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation
privileges. It allowed, however, NPC to appeal said repeal with the Office of the President
and to avail of tax-free importation privileges under its Section 1, subject to the prior
approval of an Inter-Agency Committed created by virtue of said P.D. No. 882. It is
presumed that the NPC, being the special creation of the State, was allowed to continue its
tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the
abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common
Reply/Comment to private Respondents' "Opposition" and "Comment" to Motion for
Reconsideration, four (4) months AFTER the motion for Reconsideration had been filed.
During oral arguments heard on July 9, 1992, he proceeded to discuss this tax exemption
withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No.
133 (S '77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No.
474, the basis of the petition at bar, fails to yield any mention of said P.D. No. 1177's effect
on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court
declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was
not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax
exemption privileges as this statute has been reiterated twice in P.D. No. 1931. The
express repeal of tax privileges of any government-owned or controlled corporation
(GOCC). NPC included, was reiterated in the fourth whereas clause of P.D. No. 1931's
preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent with
Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was
tasked with recommending the partial or total restoration of tax exemptions withdrawn by
Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy
contemplated in Section 23, P.D. No. 1177. Considering, however, that under Section 16 of
P.D. No. 1177, NPC had to submit to the Office of the President its request for the P200

million mandated by P.D. No. 758 to be appropriated annually by the Government to cover
its unpaid subscription to the NPC authorized capital stock and that under Section 22, of
the same P.D. No. NPC had to likewise submit to the Office of the President its internal
operating budget for review due to capital inputs of the government (P.D. No. 758) and to
the national government's guarantee of the domestic and foreign indebtedness of the NPC,
it is clear that NPC was covered by P.D. No. 1177.

statutory authority by creating and not merely restoring the tax exempt
status of NPC. The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise abolished all duties
and tax exemptions but allowed the President upon recommendation of the
FIRB to restore those abolished.
The Court disagrees.

There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that
suddenly found themselves having to pay taxes. It will be noted that Section 23, P.D. No.
1177, mandated that the Secretary of Finance and the Commissioner of the Budget had to
establish the necessary procedure to accomplish the tax payment/tax subsidy scheme of
the Government. In effect, NPC, did not put any cash to pay any tax as it got from the
General Fund the amounts necessary to pay different revenue collectors for the taxes it
had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost
all its duty and tax exemptions, whether direct or indirect. And so there
was nothing to be withdrawn or to be restored under P.D. No. 1931, issued
on June 11, 1984. This is evident from sections 1 and 2 of said P.D. No.
1931, which reads:
"Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment
of duties, taxes, fees, imports and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries are hereby
withdrawn."
Sec. 2. The President of the Philippines and/or the Minister
of Finance, upon the recommendation of the Fiscal
Incentives Review Board created under P.D. No. 776, is
hereby empowered to restore partially or totally, the
exemptions withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's status.
Since it had already lost all its tax exemptions privilege with the issuance
of P.D. No. 1177 seven (7) years earlier or on July 30, 1977, there were no
tax exemptions to be withdrawn by section 1 which could later be restored
by the Minister of Finance upon the recommendation of the FIRB under
Section 2 of P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and
1-86, were all illegally and validly issued since FIRB acted beyond their

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially
the same terms the provisions of the act or acts so revised and
consolidated, the revision and consolidation shall be taken to be a
continuation of the former act or acts, although the former act or acts may
be expressly repealed by the revised and consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be
enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of
Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said
Section 1, P.D. No. 1931 was deemed to be a continuation of the first half of Section 23,
P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on the subsidy scheme
for former tax exempt GOCCs had been expressly repealed by Section 2 with its institution
of the FIRB recommendation of partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same
NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer
obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for
a total restoration of its tax exemption privileges, which, it did, and the same were granted
under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86
were both legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not
created NPC's tax exemption status but merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the
now rather infamous Amendment No. 6 70 as there was no showing that President Marcos'
encroachment on legislative prerogatives was justified under the then prevailing condition
that he could legislate "only if the Batasang Pambansa 'failed or was unable to act
inadequately on any matter that in his judgment required immediate action' to meet the
'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue decrees not only
when the Interim Batasang Pambansa failed or was unable to act adequately on any
matter for any reason that in his (Marcos') judgment required immediate action, but also
when there existed a grave emergency or a threat or thereof. It must be remembered that
said Presidential Decree was issued only around nine (9) months after the Philippines
unilaterally declared a moratorium on its foreign debt payments 72 as a result of the
economic crisis triggered by loss of confidence in the government brought about by the
Aquino assassination. The Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white
elephant of a Bataan Nuclear Power Plant on its back. 75 From all indications, it must have
been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D.
No. 1931, under his Amendment 6 power. 76

In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups
and scientist-doctors, respectively. Thus, there was a need for procedural due process to
be followed.

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption
shall be passed without the concurrence of a majority of all the members of the Batasang
Pambansa" 77 does not apply as said P.D. No. 1931 was not passed by the Interim Batasang
Pambansa but by then President Marcos under His Amendment No. 6 power.

It should be noted that NPC was not asking to be granted tax exemption privileges for the
first time. It was just asking that its tax exemption privileges be restored. It is for these
reasons that, at least in NPC's case, the recommendation and approval of NPC's tax
exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same person
acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and Minister
of Finance, respectively, do not violate procedural due process.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his
Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time,
President Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax
exemption privileges. The same was granted under FIRB Resolution No. 17-87 78 dated June
24, 1987 which restored NPC's tax exemption privileges effective, starting March 10, 1987,
the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is
no indication, however, from the records of the case whether or not similar approvals were
given by then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led
some quarters to believe that a "travesty of justice" might have occurred when the
Minister of Finance approved his own recommendation as Chairman of the Fiscal Incentives
Review Board as what happened inZambales Chromate vs. Court of Appeals 80 when the
Secretary of Agriculture and Natural Resources approved a decision earlier rendered by
him when he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential
Executive Assistant Clave affirmed, on appeal to Malacaang, his own decision as
Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due process"
being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister
of Finance when the same were recommended by him in his capacity as Chairman of the
Fiscal Incentives Review Board. 84

In the case of the tax exemption restoration of NPC, there is no other comparable entity
not even a single public or private corporation whose rights would be violated if NPC's
tax exemption privileges were to be restored. While there might have been a MERALCO
before Martial Law, it is of public knowledge that the MERALCO generating plants were sold
to the NPC in line with the State policy that NPC was to be the State implementing arm for
the electrification of the entire country. Besides, MERALCO was limited to Manila and its
environs. And as of 1984, there was no more MERALCO as a producer of electricity
which could have objected to the restoration of NPC's tax exemption privileges.

While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino
on October 5, 1987, the view has been expressed that President Aquino, at least with
regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly
not a delegate of the legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and
Legislative powers. Thus, there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93
(S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy
to be carried out 85 and it fixed the standard to which the delegate had to conform in the
performance of his functions, 86 both qualities having been enunciated by this Court
in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges
restored from June 11, 1984 up to the present.
VII
The next question that projects itself is who pays the tax?

The answer to the question could be gleamed from the manner by which the Commissaries
of the Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their
defendants but groceries and other goods free of all taxes and duties if bought from any
AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad
valorem and other taxes on the goods earmarked for AFP Commissaries as an added cost
of operation and distribute it over the total units of goods sold as it would any other cost.
Thus, even the ordinary supermarket buyer probably pays for the specific,ad valorem and
other taxes which theses suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to
absorb the taxes they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice
renders an opinion, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from "all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines and its provinces, cities, and municipalities." This exemption is
broad enough to include all taxes, whether direct or indirect, which the
National Power Corporation may be required to pay, such as the specific
tax on petroleum products. That it is indirect or is of no amount [should be
of no moment], for it is the corporation that ultimately pays it. The view
which refuses to accord the exemption because the tax is first paid by the
seller disregards realities and gives more importance to form than to
substance. Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions taxpayers have to pay are
in the nature of indirect taxes. To limit the exemption granted the National
Power Corporation to direct taxes notwithstanding the general and broad
language of the statue will be to thwrat the legislative intention in giving
exemption from all forms of taxes and impositions without distinguishing
between those that are direct and those that are not. (Emphasis supplied)

In view of all the foregoing, the Court rules and declares that the oil companies which
supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold
to NPC. By the very nature of indirect taxation, the economic burden of such taxation is
expected to be passed on through the channels of commerce to the user or consumer of
the goods sold. Because, however, the NPC has been exempted from both direct and
indirect taxation, the NPC must beheld exempted from absorbing the economic burden of
indirect taxation. This means, on the one hand, that the oil companies which wish to sell to
NPC absorb all or part of the economic burden of the taxes previously paid to BIR, which
could they shift to NPC if NPC did not enjoy exemption from indirect taxes. This means also,
on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price
of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies because
to do so may be more convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas NPC is entitled to be reimbursed
by the BIR for that part of the buying price of NPC which verifiably represents the tax
already paid by the oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these indirect
taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on June 16, 1987
by virtue of which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%)
PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF
CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code,
as amended, is hereby amended to read as follows:
Par. (b) For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .

4. Fuel oil, commercially known as bunker oil and on similar fuel oils having
more or less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord,
nineteen hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about
who is going to bear the economic burden of the ad valorem taxes. What this Court will
now dispose of are petitioner's complaints that some indirect tax money has been illegally
refunded by the Bureau of Internal Revenue to the NPC and that more claims for refunds by
the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of
the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific
and ad valorem taxes during the period from October 31, 1984 to April 27,
1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC did not have
indirect tax exemptions with the enactment of P.D. No. 938. As We have already ruled
otherwise, the only questions left are whether NPC Is entitled to a tax refund for the tax
component of the price of the bunker fuel oil purchased from Caltex (Phils.) Inc. and
whether the Bureau of Internal Revenue properly refunded the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR
issues its letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from
the oil companies pursuant to FIRB Resolution No. 10-85. 92 Since the tax exemption
restoration was retroactive to June 11, 1984 there was a need. therefore, to recover said
amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad valorem taxes
on the bunker oil it sold NPC during the period above indicated and had billed NPC
correspondingly. 93 It should be noted that the NPC, in its letter-claim dated September 11,
1985 to the Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY
AND UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker fuel
oil price it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230 of the
National Internal Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. No suit or
proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or

illegally assessed or collected, or of any penalty claimed to have been

collected without authority, or of any sum alleged to have been excessive
or in any Manner wrongfully collected. until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration
of two years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment; Provided, however,
That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly, to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the
Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax
exemption.
Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's
claim for P410.580,000.00 which represents specific and ad valorem taxes paid by the oil
companies to the BIR from June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not
reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated
In paragraph No. 2 of the Deed of Assignment 97executed by and between NPC and Caltex
(Phils.) Inc., as follows:
That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of
Internal Revenue amounting to P442,887,716.16. P58.020,110.79 of which
is due to Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot
restrain the BIR from refunding said amount because of Our ruling that NPC has both direct
and indirect tax exemption privileges. Neither can We order the BIR to refund said amount
to NPC as there is no pending petition for review on certiorari of a suit for its collection
before Us. At any rate, at this point in time, NPC can no longer file any suit to collect said
amount EVEN IF lt has previously filed a claim with the BIR because it is time-barred under
Section 230 of the National Internal Revenue Code of 1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the expiration
of two years from the date of payment of the tax or penalty REGARDLESS

of any supervening cause that may arise afterpayment. . . . (Emphasis

supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that
payment by NPC for the amount of P410,580,000.00 had been made on said date. it is
clear that more than two (2) years had already elapsed from said date. At the same time,
We should note that there is no legal obstacle to the BIR granting, even without a suit by
NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been made
seasonably, and assuming the amounts covered had actually been paid previously by the
oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is
hereby DENIED for lack of merit and the decision of this Court promulgated on May 31,
1991 is hereby AFFIRMED.
SO ORDERED.

MACEDA vs. MACARAIG, JR.

197 SCRA 771
GR No. 88291 May 31, 1991
"A taxpayer may question the legality of a law or regulation when it involves illegal
expenditure of public money."

FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and
resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of
Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB
for exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358,
RA 6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or
indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all
GOCCs including the NPC but granted the President and/or the Secretary of Finance by
recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the
latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the
NPC. The actions of the respondents were thus questioned by the petitioner by this petition
for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction
and/or restraining order. To which public respondents argued, among others, that petitioner
does not have the standing to challenge the questioned orders and resolution because he
was not in any way affected by such grant of tax exemptions.
ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the
FIRB restoring the tax exemptions?
HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity
as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that
petitioner must show that he has sustained direct injury as a result of the action and that it
is not sufficient for him to have a mere general interest common to all members of the
public. The Court however agrees with the petitioner that as a taxpayer he may file the
instant petition following the ruling in Lozada when it involves illegal expenditure of public
money. The petition questions the legality of the tax refund to NPC by way of tax credit
certificates and the use of said assigned tax credits by respondent oil companies to pay for
their tax and duty liabilities to the BIR and Bureau of Customs.