PLANTERS PRODUCTS VS FERTIPHIL

G.R. No. 166006

FACTS:
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws. They are both engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued
LOI No. 1465 which provided, among others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of fertilizers in the Philippines. The
LOI provides:

The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag. This capital
contribution shall be collected until adequate capital is raised to make PPI viable. Such
capital contribution shall be applied by FPA to all domestic sales of fertilizers in the
Philippines.

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount
collected to the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil
paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986.

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to accede to the demand.

Unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of

due process of law. Fertiphil alleged that the LOI solely favored PPI, a privately owned
corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer, FPA, through the Solicitor General, countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in ensuring the stability of the
fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage
from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the
seller.

ISSUE AND HELD:

LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE
FERTILIZER SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR
BENEFITING A FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR
MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A
VALID LEGISLATION PURSUANT TO THE EXERCISE OF TAXATION AND POLICE
POWER FOR PUBLIC PURPOSES.

The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues that, even if
the LOI is enacted under the police power, it is still unconstitutional because it did not
promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare, while the power of taxation is the power to levy taxes to be used for public purpose.
The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The lawful subjects and lawful means tests are used to determine
the validity of a law enacted under the police power. The power of taxation, on the other
hand, is circumscribed by inherent and constitutional limitations.

While it is true that the power of taxation can be used as an implement of police power, the
primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if
revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax.

III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS
REMITTED TO THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS
PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED
DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF
OPERATIVEFACT PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY
OF LOI 1465.

The general rule is that an unconstitutional law is void. It produces no rights, imposes no
duties and affords no protection. It has no legal effect. It is, in legal contemplation,
inoperative as if it has not been passed. Being void, Fertiphil is not required to pay the levy.
All levies paid should be refunded in accordance with the general civil code principle against
unjust enrichment. The general rule is supported by Article 7 of the Civil Code, which
provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance
shall not be excused by disuse or custom or practice to the contrary.
When the courts declare a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern.

Notes:

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only
for a public purpose. They cannot be used for purely private purposes or for the exclusive
benefit of private persons. The reason for this is simple. The power to tax exists for the
general welfare; hence, implicit in its power is the limitation that it should be used only for a
public purpose. It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States case bluntly put it: To lay with
one hand, the power of the government on the property of the citizen, and with the other to
bestow it upon favored individuals to aid private enterprises and build up private fortunes, is
nonetheless a robbery because it is done under the forms of law and is called taxation.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of
equity and fair play. It nullifies the effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of unconstitutionality is an operative fact and
may have consequences which cannot always be ignored. The past cannot always be erased
by a new judicial declaration.

The doctrine is applicable when a declaration of unconstitutionality will impose an undue

burden on those who have relied on the invalid law. Thus, it was applied to a criminal case
when a declaration of unconstitutionality would put the accused in double jeopardy or would
put in limbo the acts done by a municipality in reliance upon a law creating it.

Citizens Alliance for Consumer Protection v Energy Regulatory Board, 162 SCRA 521

Petitioner Valmonte in G.R. Nos. 79501-03 argues that the Oil Price Stabilization Fund
(OPSF) is a tax imposed on consumers which is "not intended for public purpose or for
government operations but to answer for the losses of oil companies.' Petitioner Valmonte not
only condemns the OPSF as "arbitrary and oppressive" but claims also that through said Fund,
"all oil consumers are being made to pay not only for their present oil consumption but also
for a portion of future consumption which may or may not come." Finally, it is alleged that
the OPSF provides "a fertile ground for unchecked graft and corruption" and "triggers the rise
not only [of] the prices of petroleum products but also [of] the prime commodities [sic]."
The foregoing arguments suggest the presence of misconceptions about the nature and
functions of the OPSF. The OPSF is a trust Account" which was established "for the purpose
of minimizing frequent price changes brought about by exchange rate adjustment and/or
changes in World market prices of crude oil and imported petroleum products ." 17 Under
P.D. No. 1956, as amended by Executive Order No. 137 dated 27 February 1987, this Trust
Account may be funded from any of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on
petroleum products subject to tax under this Decree arising from exchange rate adjustment, as
may be determined by the Minister of Finance in consultation with the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions of
government corporations, as may be determined by the Minister of Finance in consultation
with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to augment the resources of

the Fund through an appropriate Order that may be issued by the Board of Energy requiring
payment of persons or companies engaged in the business of importing, manufacturing and/or
marketing petroleum products;

d) Any resulting peso costs differentials in case the actual peso costs paid by oil companies
in the importation of crude oil and petroleum products is less than the peso costs computed
using the reference foreign exchange rate as fixed by the Board of Energy. (Emphasis
supplied)

Upon the other hand, funds may be drawn from said Trust Account only for the following
purposes:

l) To reimburse the oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustment and/or increase in world market prices of
crude oil;

2) To reimburse the oil companies for possible cost underrecovery incurred as a result of
the reduction of domestic prices of petroleum products. The magnitude of the underrecovery,
if any, shall be determined by the Ministry of Finance. 'Cost underrecovery' shall include the
following:

i. Reduction in oil company take as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of the oil
companies at the time of the price change,
ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated
price reductions,

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.

The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary
from day to day is of judicial notice. Freight rates for hauling crude oil and petroleum
products from sources of supply to the Philippines may also vary from time to time. The
exchange rate of the peso vis-a-vis the U.S. dollar and other convertible foreign currencies
also changes from day to day. These fluctuations in world market prices and in tanker rates
and foreign exchange rates would in a completely free market translate into corresponding
adjustments in domestic prices of oil and petroleum products with sympathetic frequency. But
domestic prices which vary from day to day or even only from week to week would result in a
chaotic market with unpredictable effects upon the country's economy in general. The OPSF
was established precisely to protect local consumers from the adverse consequences that such
frequent oil price adjustments may have upon the economy. Thus, OPSF serves as a pocket,
as it were, into which a portion of the purchase price of oil and petroleum products paid by
consumers as well as some tax revenues are inputted and from which amounts are drawn from
time to time to reimburse oil companies, when appropriate situations arise, for increases in, as
well as underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism
through which the domestic consumer prices of oil and petroleum products are stabilized,
instead of fluctuating every so often, and oil companies are allowed to recover those portions
of their costs which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also put into it, the OPSF
is in effect a device through which the domestic prices of petroleum products are subsidized
in part. It appears to the Court that the establishment and maintenance of the OPSF is well
within that pervasive and non-waivable power and responsibility of the government to secure
the physical and economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the state. The stabilization and
subsidy of domestic prices of petroleum products and fuel oil clearly critical in importance
considering, among other things, the continuing high level of dependence of the country on
imported crude oil are appropriately regarded as public purposes.

Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its
favor the presumption of validity and constitutionality 18 which petitioners Valmonte and the
KMU have not overturned. Petitioners have not undertaken to Identify the provisions in the
Constitution which they claim to have been violated by that statute. This Court, however, is
not compelled to speculate and to imagine how the assailed legislation may possibly offend
some provision of the Constitution. 19 The Court notes, further, in this respect that petitioners
have in the main put in question the wisdom, justice and expediency of the establishment of
the OPSF, issues which are not properly addressed to this Court and which this Court may not
constitutionally pass upon. Those issues should be addressed rather to the political
departments of government: the President and the Congress
G.R. No. 185023 : August 24, 2011

CITY OF PASIG REPRESENTED BY THE CITY TREASURER AND THE CITY

ASSESSOR, Petitioner, v. REPUBLIC OF THE PHILIPPINES REPRESENTED BY
THE PRESIDENTIAL COMMISSION ON GOOD GOVERNANCE, Respondent.

CARPIO, J.:
FACTS:

Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land, with a total
area of 18.4891 hectares, situated in Pasig City. The properties are covered by Transfer
Certificate of Title (TCT) Nos. 337158 and 469702 and Tax Declaration Nos.E-030-01185
and E-030-01186 under the name of MPLDC.Portions of the properties are leased to different
business establishments.

In 1986, the registered owner of MPLDC, Jose Y. Campos (Campos), voluntarily surrendered
MPLDC to the Republic of the Philippines.

On 30 September 2002, the Pasig City Assessors Office sent MPLDC two notices of tax
delinquency for its failure to pay real property tax on the properties for the period 1979 to
2001 totaling P256,858,555.86. In a letter dated 29 October 2002, Independent Realty
Corporation (IRC) President Ernesto R.Jalandoni(Jalandoni) and Treasurer Rosario Razon
informed the Pasig City Treasurer that the tax for the period 1979 to 1986 had been paid, and
that the properties were exempt from tax beginning 1987.
In letters dated 10 July 2003 and 8 January 2004, the Pasig City Treasurer informed MPLDC
and IRC that the properties were not exempt from tax. In a letter dated 16 February 2004,
MPLDC General Manager Antonio Merelos(Merelos) andJalandoniagain informed the Pasig
City Treasurer that the properties were exempt from tax. In a letter dated 11 March 2004, the
Pasig City Treasurer again informed Merelos that the properties were not exempt from tax.

On 20 October 2005, the Pasig City Assessors Office sent MPLDC a notice of final demand
for payment of tax for the period 1987 to 2005 totaling P389,027,814.48. On the same day,
MPLDC paidP2,000,000partial payment under protest.

On 9 November 2005, MPLDC received two warrants of levy on the properties. On 1

December 2005, respondent Republic of the Philippines, through the Presidential
Commission on Good Government (PCGG), filed with the RTC a petition for prohibition
with prayer for issuance of a temporary restraining order or writ of preliminary injunction to
enjoin petitioner Pasig City from auctioning the properties and from collecting real property
tax.

On 2 December 2005, the Pasig City Treasurer offered the properties for sale at public
auction. Since there was no other bidder, Pasig City bought the properties and was issued the
corresponding certificates of sale.

On 19 December 2005, PCGG filed with the RTC an amended petition for certiorari,
prohibition and mandamus against Pasig City.

RTC granted the petition for certiorari, prohibition and mandamus.

Pasig City appealed to the Court of Appeals. In its 31 March 2008 Decision, the Court of
Appeals set aside the RTCs 6 November 2006 Decision.

Hence, the present petition.

ISSUE:

Whether the lower courts erred in ordering Pasig City to assess and collect real property tax
from the lessees of the properties.

HELD:
TAXATION LAW: properties owned by the Republic of the Philippines are exempt from real
property tax; exception

Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the
Philippines are exempt from real property tax except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.Thus, the portions of the
properties not leased to taxable entities are exempt from real estate tax while the portions of
the properties leased to taxable entities are subject to real estate tax. The law imposes the
liability to pay real estate tax on the Republic of the Philippines for the portions of the
properties leased to taxable entities. It is, of course, assumed that the Republic of the
Philippines passes on the real estate tax as part of the rent to the lessees.

Article 420 of the Civil Code classifies as properties of public dominion those that are
intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores,roadsteads and those that are intended for some public service or
for the development of the national wealth. Properties of public dominion are not only exempt
from real estate tax,they are exempt from sale at public auction. In Heirs of Mario Malabanan
v. Republic, the Court held that, It is clear that property of public dominion, which generally
includes property belonging to the State, cannot be subject of the commerce of man.

In the present case, the parcels of land are not properties of public dominion because they are
not intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores,roadsteads. Neither are they intended for some public
service or for the development of the national wealth. MPLDC leases portions of the
properties to different business establishments. Thus, the portions of the properties leased to
taxable entities are not only subject to real estate tax, they can also be sold at public auction to
satisfy the tax delinquency.

In sum, only those portions of the properties leased to taxable entities are subject to real estate
tax for the period of such leases. Pasig City must, therefore, issue to respondent new real
property tax assessments covering the portions of the properties leased to taxable entities. If
the Republic of the Philippines fails to pay the real property tax on the portions of the
properties leased to taxable entities, then such portions may be sold at public auction to
satisfy the tax delinquency.
CIR V SAN MIG CORPORATION

FACTS:

Respondent San Miguel Corporation, a domestic corporation engaged in the manufacture and
sale of fermented liquor, produces as one of its products Red Horse beer which is sold in
500-ml. and 1-liter bottle variants.

On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of 1997 took effect.
Section 143 of the Tax Reform Act of 1997 reads:
SEC. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise tax on
beer, lager beer, ale, porter and other fermented liquors except tuba, basi, tapuy and similar
domestic fermented liquors in accordance with the following schedule:
(a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume
capacity is less than Fourteen pesos and fifty centavos (P14.50), the tax shall be Six pesos and
fifteen centavos (P6.15) per liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume
capacity is Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the
tax shall be Nine pesos and fifteen centavos (P9.15) per liter;
(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume
capacity is more than Twenty-two pesos (P22.00), the tax shall be Twelve pesos and fifteen
centavos (P12.15) per liter.
Variants of existing brands which are introduced in the domestic market after the effectivity
of Republic Act No. 8240 shall be taxed under the highest classification of any variant of that
brand.
Fermented liquor which are brewed and sold at micro-breweries or small establishments such
as pubs and restaurants shall be subject to the rate in paragraph (c) hereof.
The excise tax from any brand of fermented liquor within the next three (3) years from the
effectivity of Republic Act No. 8240 shall not be lower than the tax which was due from each
brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be
increased by twelve percent (12%) on January 1, 2000.

Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue Regulations No.
17-99 increasing the applicable tax rates on fermented liquor by 12%

Respondent, however, later contended that the said qualification in the last paragraph of
Section 1 of Revenue Regulations No. 17-99 has no basis in the plain wording of Section 143

Petitioner contends that the last paragraph of Section 1 of Revenue Regulations No. 17-99
providing that the new specific tax rate for any brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquors shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000, is a valid administrative interpretation of Section
143 of the Tax Reform Act of 1997. It carries out the legislative intent behind the enactment
of R.A. No. 8240, which is to increase government revenues through the collection of higher
excise taxes on fermented liquor.

HELD:
Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It provides for two
periods: the first is the 3-year transition period beginning January 1, 1997, the date when R.A.
No. 8240 took effect, until December 31, 1999; and the second is the period thereafter.
During the 3-year transition period, Section 143 provides that the excise tax from any brand
of fermented liquor shall not be lower than the tax which was due from each brand on
October 1, 1996. After the transitory period, Section 143 provides that the excise tax rate shall
be the figures provided under paragraphs (a), (b) and (c) of Section 143 but increased by 12%,
without regard to whether such rate is lower or higher than the tax rate that is actually being
paid prior to January 1, 2000 and therefore, without regard to whether the revenue collection
starting January 1, 2000 may turn out to be lower than that collected prior to said date.
Revenue Regulations No. 17-99, however, created a new tax rate when it added in the last
paragraph of Section 1 thereof, the qualification that the tax due after the 12% increase
becomes effective shall not be lower than the tax actually paid prior to January 1, 2000. As
there is nothing in Section 143 of the Tax Reform Act of 1997 which clothes the BIR with the
power or authority to rule that the new specific tax rate should not be lower than the excise
tax that is actually being paid prior to January 1, 2000, such interpretation is clearly an invalid
exercise of the power of the Secretary of Finance to interpret tax laws and to promulgate rules
and regulations necessary for the effective enforcement of the Tax Reform Act of 1997. Said
qualification must, perforce, be struck down as invalid and of no effect.
It bears reiterating that tax burdens are not to be imposed, nor presumed to be imposed
beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. In case of discrepancy between the basic law and a rule or
regulation issued to implement said law, the basic law prevails as said rule or regulation
cannot go beyond the terms and provisions of the basic law. It must be stressed that the
objective of issuing BIR Revenue Regulations is to establish parameters or guidelines within
which our tax laws should be implemented, and not to amend or modify its substantive
meaning and import.