[G.R. No. 132527.

July 29, 2005]

COCONUT OIL REFINERS ASSOCIATION, INC. vs. HON. RUBEN TORRES

This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch from allowing, and
the private respondents from continuing with, the operation of tax and duty-free shops located at the Subic Special
Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare Section 5 of EO No. 80, EO No. 97-A,
and Section 4 of BCDA Board Resolution No. 93-05-034 as unconstitutional, illegal, and void.

FACTS:
1992, RA No. 7227 was enacted, providing for, 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 zones
in order to promote the economic and social development of Central Luzon in particular and the country in
general. Among the salient provisions are as follows:
SECTION 12. x x x 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 Subic Special
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 the Subic 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; x x x

1993, President Ramos issued EO No. 80, which declared, that Clark shall have all the applicable incentives
granted to the Subic Special Economic and Free Port Zone under RA No. 7227.

Pursuant to the directive under EO No. 80, the BCDA (Bases Conversion and Development Authority) passed
Resolution allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption
outside the CSEZ.

ISSUE: Whether or not the assailed issuances are unconstitutional, illegal and void for being:
1. An exercise of executive lawmaking, contrary to RA No. 7227
2. Violation of the Constitutional provisions, particularly the equal protection clause;
3. Prohibition of unfair competition and combinations in restraint of trade; and

HELD:
1. EXECUTIVE LEGISLATION - Invalid insofar as the CSEZ (Clark Special Economic Zone), as RA 7227 provides for the
grant of incentives to the SSEZ (Subic Special Economic Zone)

petitioners contend that the wording of RA No. 7227 clearly limits the grant of tax incentives to the importation of raw
materials, capital and equipment only. Hence, they claim that the assailed issuances constitute executive legislation for
invalidly granting tax incentives in the importation of consumer goods such as those being sold in the duty-free shops, in
violation of the letter and intent of RA No. 7227.

The Court held that Section 12 of RA No. 7227 clearly does not restrict the duty-free importation only to 'raw materials,
capital and equipment. To limit the tax-free importation privilege of enterprises located inside the special economic
zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a
free port where the 'free flow of goods or capital within, into, and out of the zones' is insured. The phrase 'tax and duty-
free importations of raw materials, capital and equipment was merely cited as an example of incentives that may be
given to entities operating within the zone.

On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable.
While Section 12 of RA No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar
grant in favor of other economic zones, including the CSEZ. Tax and duty-free incentives being in the nature of tax
exemptions, the basis thereof should be categorically and unmistakably expressed from the language of the statute.
Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in RA No. 7227, there
would be no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive Order No. 80 and
Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ.

2. EQUAL PROTECTION - VALID (no violation of equal protection clause)

Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be
limited to existing conditions only, and (4) apply equally to all members of the same class.

In this case, the Court found that theres real and substantial distinction between residents within the secured area and
those living within the economic zone but outside the fenced-off area. A significant distinction between the two groups
is that enterprises outside the zones maintain their businesses within Philippine customs territory, while private
respondents and the other duly-registered zone enterprises operate within the so-called 'separate customs territory.

The classification is also germane to the purpose of RA No. 7227 because its purpose is to convert the lands formerly
occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed
it necessary to extend economic incentives to the establishments within the zone to attract and encourage foreign and
local investors.

3. UNFAIR COMPETITION - VALID (No unfair Competition)

Court held that the mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others
does not render the issuance unconstitutional for espousing unfair competition. Said constitutional prohibition cannot
hinder the Legislature from using tax incentives as a tool to pursue RA No. 7227s policies of developing the SSEZ into a
self-sustaining entity that will generate employment and attract foreign and local investment.