G.R. No.

88291 May 31, 1991

ERNESTO M. MACEDA, petitioner,

vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President; HON. VICENTE R. JAYME,
in his capacity as Secretary of the Department of Finance; HON. SALVADOR MISON, in his capacity as Commissioner,
Bureau of Customs; HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL POWER
CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum Corporation;
Philippine National Oil Corporation; and Petrophil Corporation, respondents.

Villamor & Villamor Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex (Phils.), Inc.

GANCAYCO, J.:

This petition seeks 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.

The relevant facts are not in dispute.

On November 3, 1986, Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development
of hydraulic power and the production of power from other sources.1

On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges under—

Sec. 2. 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.

On September 10, 1971, Republic Act No. 6395 revised the charter of the NPC wherein Congress declared as a national
policy the total electrification of the Philippines through the development of power from all sources to meet the needs of
industrial development and rural electrification which should be pursued coordinately and supported by all
instrumentalities and agencies of the government, including its financial institutions.2 The corporate existence of NPC was
extended to carry out this policy, specifically to undertake the development of hydro electric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a
nationwide basis.3 Being a non-profit corporation, Section 13 of the law provided in detail the exemption of the NPC from
all taxes, duties, fees, imposts and other charges by the government and its instrumentalities.

On January 22, 1974, Presidential Decree No. 380 amended section 13, paragraphs (a) and (d) of Republic Act No. 6395 by
specifying, among others, the exemption of NPC from such taxes, duties, fees, imposts and other charges imposed "directly
or indirectly," on all petroleum products used by NPC in its operation. Presidential Decree No. 938 dated May 27, 1976
further amended the aforesaid provision by integrating the tax exemption in general terms under one paragraph.

On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of government-
owned or controlled corporations including their subsidiaries.4 However, said law empowered the President and/or the
then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn, or
otherwise revise the scope and coverage of any applicable tax and duty.

Pursuant to said law, on February 7, 1985, the FIRB issued Resolution No. 10-85 restoring the tax and duty exemption
privileges of NPC from June 11, 1984 to June 30, 1985. On January 7, 1986, the FIRB issued resolution No. 1-86 indefinitely
restoring the NPC tax and duty exemption privileges effective July 1, 1985.

However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty incentives granted to
government and private entities which had been restored under Presidential Decree Nos. 1931 and 1955 but it gave the
authority to FIRB to restore, revise the scope and prescribe the date of effectivity of such tax and/or duty exemptions.

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On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges effective March
10, 1987. On October 5, 1987, the President, through respondent Executive Secretary Macaraig, Jr., confirmed and
approved FIRB Resolution No. 17-87.

As alleged in the petition, the following are the background facts:

The following are the facts relevant to NPC's questioned claim for refunds of taxes and duties originally paid by
respondents Caltex, Petrophil and Shell for specific and ad valorem taxes to the BIR; and for Customs duties and
ad valorem taxes paid by PNOC, Shell and Caltex to the Bureau of Customs on its crude oil importation.

Many of the factual statements are reproduced from the Senate Committee on Accountability of Public Officers
and Investigations (Blue Ribbon) Report No. 474 dated January 12, 1989 and approved by the Senate on April 21,
1989 (copy attached hereto as Annex "A") and are identified in quotation marks:

1. Since May 27, 1976 when P.D. No. 938 was issued until June 11, 1984 when P.D. No. 1931 was promulgated
abolishing the tax exemptions of all government-owned or-controlled corporations, the oil firms never paid excise
or specific and ad valorem taxes for petroleum products sold and delivered to the NPC. This non-payment of taxes
therefore spanned a period of eight (8) years. (par. 23, p. 7, Annex "A")

During this period, the Bureau of Internal Revenue was not collecting specific taxes on the purchases of NPC of
petroleum products from the oil companies on the erroneous belief that the National Power Corporation (NPC)
was exempt from indirect taxes as reflected in the letter of Deputy Commissioner of Internal Revenue (DCIR)
Romulo Villa to the NPC dated October 29, 1980 granting blanket authority to the NPC to purchase petroleum
products from the oil companies without payment of specific tax (copy of this letter is attached hereto as
petitioner's Annex "B").

2. The oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC only after
the promulgation of P.D. No. 1931 on June 11, 1984, withdrawing all exemptions granted in favor of government-
owned or-controlled corporations and empowering the FIRB to recommend to the President or to the Minister of
Finance the restoration of the exemptions which were withdrawn. "Specifically, Caltex paid the total amount of
P58,020,110.79 in specific and ad valorem taxes for deliveries of petroleum products to NPC covering the period
from October 31, 1984 to April 27, 1985." (par. 23, p. 7, Annex "A")

3. Caltex billings to NPC until June 10, 1984 always included customs duty without the tax portion. Beginning June
11, 1984, when P.D. 1931 was promulgated abolishing NPC's tax exemptions, Caltex's billings to NPC always
included both duties and taxes. (Caturla, tsn, Oct. 10, 1988, pp. 1-5) (par. 24, p, 7, Annex "A")

4. For the sales of petroleum products delivered to NPC during the period from October, 1984 to April, 1985, NPC
was billed a total of P522,016,77.34 (sic) including both duties and taxes, the specific tax component being valued
at P58,020,110.79. (par. 25, p. 8, Annex "A").

5. Fiscal Incentives Review Board (FIRB) Resolution 10-85, dated February 7, 1985, certified true copy of which is
hereto attached as Annex "C", restored the tax exemption privileges of NPC effective retroactively to June 11,
1984 up to June 30, 1985. The first paragraph of said resolution reads as follows:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power
Corporation under C.A. No. 120, as amended, are restored up to June 30, 1985.

Because of this restoration (Annex "G") the NPC applied on September 11, 1985 with the BIR for a "refund of
Specific Taxes paid on petroleum products . . . in the total amount of P58,020,110.79. (par. 26, pp. 8-9, Annex "A")

6. In a letter to the president of the NPC dated May 8, 1985 (copy attached as petitioner's Annex "D"), Acting BIR
Commissioner Ruben Ancheta declared:

FIRB Resolution No. 10-85 serves as sufficient basis to allow NPC to purchase petroleum products from
the oil companies free of specific and ad valorem taxes, during the period in question.

The "period in question" is June 1 1, 1 984 to June 30, 1 985.

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7. On June 6, 1985—The president of the NPC, Mr. Gabriel Itchon, wrote Mr. Cesar Virata, Chairman of the FIRB
(Annex "E"), requesting "the FIRB to resolve conflicting rulings on the tax exemption privileges of the National
Power Corporation (NPC)." These rulings involve FIRB Resolutions No. 1-84 and 10-85. (par. 40, p. 12, Annex "A")

8. In a letter to the President of NPC (Annex "F"), dated June 26, 1985, Minister Cesar Virata confirmed the ruling
of May 8, 1985 of Acting BIR Commissioner Ruben Ancheta, (par. 41, p. 12, Annex "A")

9. On October 22, 1985, however, under BIR Ruling No. 186-85, addressed to Hanil Development Co., Ltd., a
Korean contractor of NPC for its infrastructure projects, certified true copy of which is attached hereto as
petitioner's Annex "E", BIR Acting Commissioner Ruben Ancheta ruled:

In Reply please be informed that after a re-study of Section 13, R.A. 6395, as amended by P.D. 938, this
Office is of the opinion, and so holds, that the scope of the tax exemption privilege enjoyed by NPC under
said section covers only taxes for which it is directly liable and not on taxes which are only shifted to it.
(Phil. Acetylene vs. C.I.R. et al., G.R. L-19707, Aug. 17, 1967) Since contractor's tax is directly payable by
the contractor, not by NPC, your request for exemption, based on the stipulation in the aforesaid contract
that NPC shall assume payment of your contractor's tax liability, cannot be granted for lack of legal basis."
(Annex "H") (emphasis added)

Said BIR ruling clearly states that NPC's exemption privileges covers (sic) only taxes for which it is directly liable
and does not cover taxes which are only shifted to it or for indirect taxes. The BIR, through Ancheta, reversed its
previous position of May 8, 1985 adopted by Ancheta himself favoring NPC's indirect tax exemption privilege.

10. Furthermore, "in a BIR Ruling, unnumbered, "dated June 30, 1986, "addressed to Caltex (Annex "F"), the BIR
Commissioner declared that PAL's tax exemption is limited to taxes for which PAL is directly liable, and that the
payment of specific and ad valorem taxes on petroleum products is a direct liability of the manufacturer or
producer thereof". (par. 51, p. 15, Annex "A")

11. On January 7, 1986, FIRB Resolution No. 1-86 was issued restoring NPC's tax exemptions retroactively from
July 1, 1985 to a indefinite period, certified true copy of which is hereto attached as petitioner's Annex "H".

12. NPC's total refund claim was P468.58 million but only a portion thereof i.e. the P58,020,110.79 (corresponding
to Caltex) was approved and released by way of a Tax Credit Memo (Annex "Q") dated July 7, 1986, certified true
copy of which [is) attached hereto as petitioner's Annex "F," which was assigned by NPC to Caltex. BIR
Commissioner Tan approved the Deed of Assignment on July 30, 1987, certified true copy of which is hereto
attached as petitioner's Annex "G"). (pars. 26, 52, 53, pp. 9 and 15, Annex "A")

The Deed of Assignment stipulated among others that NPC is assigning the tax credit to Caltex in partial settlement
of its outstanding obligations to the latter while Caltex, in turn, would apply the assigned tax credit against its
specific tax payments for two (2) months. (per memorandum dated July 28, 1986 of DCIR Villa, copy attached as
petitioner Annex "G")

13. As a result of the favorable action taken by the BIR in the refund of the P58.0 million tax credit assigned to
Caltex, the NPC reiterated its request for the release of the balance of its pending refunds of taxes paid by
respondents Petrophil, Shell and Caltex covering the period from June 11, 1984 to early part of 1986 amounting
to P410.58 million. (The claim of the first two (2) oil companies covers the period from June 11, 1984 to early part
of 1986; while that of Caltex starts from July 1, 1985 to early 1986). This request was denied on August 18, 1986,
under BIR Ruling 152-86 (certified true copy of which is attached hereto as petitioner's Annex "I"). The BIR ruled
that NPC's tax free privilege to buy petroleum products covered only the period from June 11, 1984 up to June 30,
1985. It further declared that, despite FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it
only enjoys special privilege for taxes for which it is directly liable. This ruling, in effect, denied the P410 Million
tax refund application of NPC (par. 28, p. 9, Annex "A")

14. NPC filed a motion for reconsideration on September 18, 1986. Until now the BIR has not resolved the motion.
(Benigna, II 3, Oct. 17, 1988, p. 2; Memorandum for the Complainant, Oct. 26, 1988, p. 15)." (par. 29, p. 9, Annex
"A")

15. On December 22, 1986, in a 2nd Indorsement to the Hon. Fulgencio S. Factoran, Jr., BIR Commissioner Tan, Jr.
(certified true copy of which is hereto attached and made a part hereof as petitioner's Annex "J"), reversed his
previous position and states this time that all deliveries of petroleum products to NPC are tax exempt, regardless
of the period of delivery.

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16. On December 17, 1986, President Corazon C. Aquino enacted Executive Order No. 93, entitled "Withdrawing
All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding the Powers of the Fiscal Incentives Review
Board and Other Purposes."

17. On June 24, 1987, the FIRB issued Resolution No. 17-87, which restored NPC's tax exemption privilege and
included in the exemption "those pertaining to its domestic purchases of petroleum and petroleum products, and
the restorations were made to retroact effective March 10, 1987, a certified true copy of which is hereto attached
and made a part hereof as Annex "K".

18. On August 6, 1987, the Hon. Sedfrey A. Ordoñez, Secretary of Justice, issued Opinion No. 77, series of 1987,
opining that "the power conferred upon Fiscal Incentives Review Board by Section 2a (b), (c) and (d) of Executive
order No. 93 constitute undue delegation of legislative power and, therefore, [are] unconstitutional," a copy of
which is hereto attached and made a part hereof as Petitioner's Annex "L."

19. On October 5, 1987, respondent Executive Secretary Macaraig, Jr. in a Memorandum to the Chairman of the
FIRB a certified true copy of which is hereto attached and made a part hereof as petitioner's Annex "M," confirmed
and approved FIRB Res. No. 17-87 dated June 24, 1987, allegedly pursuant to Sections 1 (f) and 2 (e) of Executive
Order No. 93.

20. Secretary Vicente Jayme in a reply dated May 20, 1988 to Secretary Catalino Macaraig, who by letter dated
May 2, 1988 asked him to rule "on whether or not, as the law now stands, the National Power Corporation is still
exempt from taxes, duties . . . on its local purchases of . . . petroleum products . . ." declared that "NPC under the
provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products
purchased locally and used for the generation of electricity," a certified true copy of which is attached hereto as
petitioner's Annex "N." (par. 30, pp. 9-10, Annex "A")

21. Respondent Executive Secretary came up likewise with a confirmatory letter dated June 1 5, 1988 but without
the usual official form of "By the Authority of the President," a certified true copy of which is hereto attached and
made a part hereof as Petitioner's Annex "O".

22. The actions of respondents Finance Secretary and the Executive Secretary are based on the RESOLUTION No.
17-87 of FIRB restoring the tax and duty exemption of the respondent NPC pertaining to its domestic purchases
of petroleum products (petitioner's Annex K supra).

23. Subsequently, the newspapers particularly, the Daily Globe, in its issue of July 11, 1988 reported that the Office
of the President and the Department of Finance had ordered the BIR to refund the tax payments of the NPC
amounting to Pl.58 Billion which includes the P410 Million Tax refund already rejected by BIR Commissioner Tan,
Jr., in his BIR Ruling No. 152-86. And in a letter dated July 28, 1988 of Undersecretary Marcelo B. Fernando to BIR
Commissioner Tan, Jr. the Pl.58 Billion tax refund was ordered released to NPC (par. 31, p. 1 0, Annex "A")

24. On August 8, 1988, petitioner "wrote both Undersecretary Fernando and Commissioner Tan requesting them
to hold in abeyance the release of the Pl.58 billion and await the outcome of the investigation in regard to Senate
Resolution No. 227," copies attached as Petitioner's Annexes "P" and "P-1 " (par. 32, p. 10, Annex "A").

Reacting to this letter of the petitioner, Undersecretary Fernando wrote Commissioner Tan of the BIR dated
August, 1988 requesting him to hold in abeyance the release of the tax refunds to NPC until after the termination
of the Blue Ribbon investigation.

25. In the Bureau of Customs, oil companies import crude oil and before removal thereof from customs custody,
the corresponding customs duties and ad valorem taxes are paid. Bunker fuel oil is one of the petroleum products
processed from the crude oil; and same is sold to NPC. After the sale, NPC applies for tax credit covering the duties
and ad valorem exemption under its Charter. Such applications are processed by the Bureau of Customs and the
corresponding tax credit certificates are issued in favor of NPC which, in turn assigns it to the oil firm that imported
the crude oil. These certificates are eventually used by the assignee-oil firms in payment of their other duty and
tax liabilities with the Bureau of Customs. (par. 70, p. 19, Annex "A")

A lesser amount totalling P740 million, covering the period from 1985 to the present, is being sought by
respondent NPC for refund from the Bureau of Customs for duties paid by the oil companies on the importation
of crude oil from which the processed products sold locally by them to NPC was derived. However, based on
figures submitted to the Blue Ribbon Committee of the Philippine Senate which conducted an investigation on
this matter as mandated by Senate Resolution No. 227 of which the herein petitioner was the sponsor, a much

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 bigger figure was actually refunded to NPC representing duties and ad valorem taxes paid to the Bureau of
Customs by the oil companies on the importation of crude oil from 1979 to 1985.

26. Meantime, petitioner, as member of the Philippine Senate introduced P.S. Res. No. 227, entitled:

Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, To conduct a Formal and
Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies,
particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing
of the Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting
Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance, Their
Refusal to Pay Since 1976 Customs Duties Amounting to Billions of Pesos on Imported Crude Oil
Purportedly for the Use of the National Power Corporation, the Non-Payment of Surtax on Windfall Profits
from Increases in the Price of Oil Products in August 1987 amounting Maybe to as Much as Pl.2 Billion
Surtax Paid by Them in 1984 and For Other Purposes.

27. Acting on the above Resolution, the Blue Ribbon Committee of the Senate did conduct a lengthy formal inquiry
on the matter, calling all parties interested to the witness stand including representatives from the different oil
companies, and in due time submitted its Committee Report No. 474 . . . — The Blue Ribbon Committee
recommended the following courses of action.

1. Cancel its approval of the tax refund of P58,020,110.70 to the National Power Corporation (NPC) and
its approval of Tax Credit memo covering said amount (Annex "P" hereto), dated July 7, 1986, and cancel
its approval of the Deed of Assignment (Annex "Q" hereto) by NPC to Caltex, dated July 28, 1986, and
collect from Caltex its tax liabilities which were erroneously treated as paid or settled with the use of the
tax credit certificate that NPC assigned to said firm.:

1.1. NPC did not have any indirect tax exemption since May 27, 1976 when PD 938 was issued.
Therefore, the grant of a tax refund to NPC in the amount of P58 million was illegal, and therefore,
null and void. Such refund was a nullity right from the beginning. Hence, it never transferred any
right in favor of NPC.

2. Stop the processing and/or release of Pl.58 billion tax refund to NPC and/or oil companies on the same
ground that the NPC, since May 27, 1976 up to June 17, 1987 was never granted any indirect tax
exemption. So, the P1.58 billion represent taxes legally and properly paid by the oil firms.

3. Start collection actions of specific or excise and ad valorem taxes due on petroleum products sold to
NPC from May 27, 1976 (promulgation of PD 938) to June 17, 1987 (issuance of EO 195).

B. For the Bureau of Customs (BOC) to do the following:

1. Start recovery actions on the illegal duty refunds or duty credit certificates for purchases of petroleum products
by NPC and allegedly granted under the NPC charter covering the years 1978-1988 . . .

28. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the Bureau
of Internal Revenue and of Customs to proceed with the processing of claims for tax credits/refunds of the NPC,
respondent Executive Secretary rendered his ruling, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the clearance is hereby GRANTED and, accordingly, unless restrained by proper authorities,
that department and/or its line-tax bureaus may now proceed with the processing of the claims of the National Power
Corporation for duty and tax free exemption and/or tax credits/ refunds, if there be any, in accordance with the ruling of
that Department dated May 20,1988, as confirmed by this Office on June 15, 1988 . . .5

Hence, this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or
restraining order, praying among others that:

1. Upon filing of this petition, a temporary restraining order forthwith be issued against respondent FIRB Executive
Secretary Macaraig, and Secretary of Finance Jayme restraining them and other persons acting for, under, and in
their behalf from enforcing their resolution, orders and ruling, to wit:

A. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

5
 B. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");

C. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

D. Order of the Executive Secretary dated March 30, l989 (petitioner's Annex "Q"); and

E. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N").

2. Said temporary restraining order should also include respondent Commissioners of Customs Mison and Internal
Revenue Ong restraining them from processing and releasing any pending claim or application by respondent NPC
for tax and duty refunds.

3. Thereafter, and during the pendency of this petition, to issue a writ or preliminary injunction against above-
named respondents and all persons acting for and in their behalf.

4. A decision be rendered in favor of the petitioner and against the respondents:

A. Declaring that respondent NPC did not enjoy indirect tax exemption privilege since May 27, 1976 up to the
present;

B. Nullifying the setting aside the following:

1. FIRB Resolution No. 17-87 dated June 24, 1987 (petitioner's Annex "K");

2. Memorandum-Order of the Office of the President dated October 5, 1987 (petitioner's Annex "M");

3. Order of the Executive Secretary dated June 15, 1988 (petitioner's Annex "O");

4. Order of the Executive Secretary dated March 30, 1989 (petitioner's Annex "Q");

5. Ruling of the Finance Secretary dated May 20, 1988 (petitioner's Annex "N"

6. Tax Credit memo dated July 7, 1986 issued to respondent NPC representing tax refund for
P58,020,110.79 (petitioner's Annex "F");

7. Deed of Assignment of said tax credit memo to respondent Caltex dated July 30, 1987 (petitioner's
Annex "G");

8. Application of the assigned tax credit of Caltex in payment of its tax liabilities with the Bureau of Internal
Revenue and

9. Illegal duty and tax refunds issued by the Bureau of Customs to respondent NPC by way of tax credit
certificates from 1979 up to the present.

C. Declaring as illegal and null and void the pending claims for tax and duty refunds by respondent NPC with the
Bureau of Customs and the Bureau of Internal Revenue;

D. Prohibiting respondents Commissioner of Customs and Commissioner of Internal Revenue from enforcing the
abovequestioned resolution, orders and ruling of respondents Executive Secretary, Secretary of Finance, and FIRB
by processing and releasing respondent NPC's tax and duty refunds;

E. Ordering the respondent Commissioner of Customs to deny as being null and void the pending claims for refund
of respondent NPC with the Bureau of Customs covering the period from 1985 to the present; to cancel and
invalidate the illegal payment made by respondents Caltex, Shell and PNOC by using the tax credit certificates
assigned to them by NPC and to recover from respondents Caltex, Shell and PNOC all the amounts appearing in
said tax credit certificates which were used to settle their duty and tax liabilities with the Bureau of Customs.

F. Ordering respondent Commissioner of Internal Revenue to deny as being null and void the pending claims for
refund of respondent NPC with the Bureau of Internal Revenue covering the period from June 11, 1984 to June
17, 1987.

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 PETITIONER prays for such other relief and remedy as may be just and equitable in the premises.6

The issues raised in the petition are the following:

To determine whether respondent NPC is legally entitled to the questioned tax and duty refunds, this Honorable
Court must resolve the following issues:

Main issue—

Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with the enactment of
P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued on January 11, 1974.

Corollary issues—

1. Whether or not FIRB Resolution No. 10-85 dated February 7, 1985 which restored NPC's tax exemption privilege
effective June 11, 1984 to June 30, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 restoring NPC's tax
exemption privilege effective July 1, 1985 included the restoration of indirect tax exemption to NPC and

2. Whether or not FIRB could validly and legally issue Resolution No. 17-87 dated June 24, 1987 which restored
NPC's tax exemption privilege effective March 10, 1987; and if said Resolution was validly issued, the nature and
extent of the tax exemption privilege restored to NPC.7

In a resolution dated June 6, 1989, the Court, without giving due course to the petition, required respondents to comment
thereon, within ten (10) days from notice. The respondents having submitted their comment, on October 10, 1989 the
Court required petitioner to file a consolidated reply to the same. After said reply was filed by petitioner on November 15,
1989 the Court gave due course to the petition, considering the comments of respondents as their answer to the petition,
and requiring the parties to file simultaneously their respective memoranda within twenty (20) days from notice. The
parties having submitted their respective memoranda, the petition was deemed submitted for resolution.

First the preliminary issues.

Public respondents allege that petitioner does not have the standing to challenge the questioned orders and resolution.

In the 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 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.8

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.

Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for
petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section
11 of said law provides—

Sec. 11. Who may appeal; effect of appeal—Any person, association or corporation adversely affected by a
decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs (Commissioner of Customs)
or any provincial or City Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty
days after receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal
Revenue, the Commissioner of Customs or any provincial or city Board of Assessment Appeal who may appeal to the Court
of Tax Appeals. Petitioner does not fall under this category.

Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal Revenue to impose
a tax assessment not found by him to be proper. It would be tantamount to a usurpation of executive functions.9

Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the Commissioners of
Internal Revenue and Customs when the exercise of discretion is tainted with arbitrariness and grave abuse as to go
beyond statutory authority.10
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Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful exercise of
jurisdiction11 or to prevent the oppressive exercise of legal authority.12 Precisely, petitioner questions the lawfulness of
the acts of public respondents in this case.

Now to the main issue.

It may be useful to make a distinction, for the purpose of this disposition, between a direct tax and an indirect tax. A direct
tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in. Examples are the custom
duties and ad valorem taxes paid by the oil companies to the Bureau of Customs for their importation of crude oil, and
the specific and ad valorem taxes they pay to the Bureau of Internal Revenue after converting the crude oil into petroleum
products.

On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else ."13 For
example, the excise and ad valorem taxes that oil companies pay to the Bureau of Internal Revenue upon removal of
petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling
price."

The main thrust of the petition is that under the latest amendment to the NPC charter by Presidential Decree No. 938, the
exemption of NPC from indirect taxation was revoked and repealed. While petitioner concedes that NPC enjoyed broad
exemption privileges from both direct and indirect taxes on the petroleum products it used, under Section 13 of Republic
Act No, 6395 and more so under Presidential Decree No. 380, however, by the deletion of the phrases "directly or
indirectly" and "on all petroleum products used by the Corporation in the generation, transmission, utilization and sale of
electric power" he contends that the exemption from indirect taxes was withdrawn by P.D. No. 938.

Petitioner further states that the exemption of NPC provided in Section 13 of Presidential Decree No. 938 regarding the
payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax exemption. He cites Philippine
Aceytelene Co. Inc. vs. Commissioner of Internal Revenue.14 Petitioner emphasizes the principle in taxation that the
exception contained in the tax statutes must be strictly construed against the one claiming the exemption, and that the
rule that a tax statute granting exemption must be strictly construed against the one claiming the exemption is similar to
the rule that a statute granting taxing power is to be construed strictly, with doubts resolved against its
existence.15 Petitioner cites rulings of the BIR that the phrase exemption from "all taxes, etc." from "all forms of taxes"
and "in lieu of all taxes" covers only taxes for which the taxpayer is directly liable.16

On the corollary issues. First, FIRB Resolution Nos. 10-85 and 10-86 issued under Presidential Decree No. 1931, the relevant
provision of which are to wit:

P.D. No. 1931 provides as follows:

Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment
of duties, taxes . . . heretofore granted in favor of government-owned or controlled corporations are
hereby withdrawn. (Emphasis supplied.)

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal
Incentives Review Board . . . is hereby empowered to restore, partially or totally, the exemptions withdrawn by
Section 1 above . . . (Emphasis supplied.)

The relevant provisions of FIRB resolution Nos. 10-85 and 1-86 are the following:

Resolution. No. 10-85

BE IT RESOLVED AS IT IS HEREBY RESOLVED, That:

1. Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the National Power Corporation under C.A.
No. 120 as amended are restored up to June 30, 1985.

2. Provided, That to restoration does not apply to the following:

a. importations of fuel oil (crude equivalent) and coal as per FIRB Resolution No. 1-84;

b. commercially-funded importations; and

8
 c. interest income derived from any investment source.

3. Provided further, That in case of importations funded by international financing agreements, the NPC is hereby required
to furnish the FIRB on a periodic basis the particulars of items received or to be received through such arrangements, for
purposes of tax and duty exemptions privileges.17

Resolution No. 1-86

BE IT RESOLVED AS IT IS HEREBY RESOLVED: That:

1. Effective July 1, 1985, the tax and duty exemption privileges enjoyed by the National Power Corporation (NPC) under
Commonwealth Act No. 120, as amended, are restored: Provided, That importations of fuel oil (crude oil equivalent), and
coal of the herein grantee shall be subject to the basic and additional import duties; Provided, further, that the following
shall remain fully taxable:

a. Commercially-funded importations; and

b. Interest income derived by said grantee from bank deposits and yield or any other monetary benefits
from deposit substitutes, trust funds and other similar arrangements.

2. The NPC as a government corporation is exempt from the real property tax on land and improvements owned by
it provided that the beneficial use of the property is not transferred to another pursuant to the provisions of Sec. 10(a) of
the Real Property Tax Code, as amended.18

Petitioner does not question the validity and enforceability of FIRB Resolution Nos. 10-85 and 1-86. Indeed, they were
issued in compliance with the requirement of Section 2, P.D. No. 1931, whereby the FIRB should make the
recommendation subject to the approval of "the President of the Philippines and/or the Minister of Finance." While said
Resolutions do not appear to have been approved by the President, they were nevertheless approved by the Minister of
Finance who is also duly authorized to approve the same. In fact it was the Minister of Finance who signed and
promulgated said resolutions.19

The observation of Mr. Justice Sarmiento in the dissenting opinion that FIRB Resolution Nos. 10-85 and 1-86 which were
promulgated by then Acting Minister of Finance Alfredo de Roda, Jr. and Minister of Finance Cesar E.A Virata, as Chairman
of FIRB respectively, should be separately approved by said Minister of Finance as required by P.D. 1931 is, a superfluity.
An examination of the said resolutions which are reproduced in full in the dissenting opinion show that the said officials
signed said resolutions in the dual capacity of Chairman of FIRB and Minister of Finance.

Mr. Justice Sarmiento also makes reference to the case National Power Corporation vs. Province of Albay,20wherein the
Court observed that under P.D. No. 776 the power of the FIRB was only recommendatory and requires the approval of the
President to be valid. Thus, in said case the Court held that FIRB Resolutions Nos. 10-85 and 1-86 not having been approved
by the President were not valid and effective while the validity of FIRB 17-87 was upheld as it was duly approved by the
Office of the President on October 5, 1987.

However, under Section 2 of P.D. No. 1931 of June 11, 1984, hereinabove reproduced, which amended P.D. No. 776, it is
clearly provided for that such FIRB resolution, may be approved by the "President of the Philippines and/or the Minister
of Finance." To repeat, as FIRB Resolutions Nos. 10-85 and 1-86 were duly approved by the Minister of Finance, hence
they are valid and effective. To this extent, this decision modifies or supersedes the Court's earlier decision in Albay afore-
referred to.

Petitioner, however, argues that under both FIRB resolutions, only the tax and duty exemption privileges enjoyed by the
NPC under its charter, C.A. No. 120, as amended, are restored, that is, only its direct tax exemption privilege; and that it
cannot be interpreted to cover indirect taxes under the principle that tax exemptions are construed stricissimi juris against
the taxpayer and liberally in favor of the taxing authority.

Petitioner argues that the release by the BIR of the P58.0 million refund to respondent NPC by way of a tax credit
certificate21 which was assigned to respondent Caltex through a deed of assignment approved by the BIR22 is patently
illegal. He also contends that the pending claim of respondent NPC in the amount of P410.58 million with respondent BIR
for the sale and delivery to it of bunker fuel by respondents Petrophil, Shell and Caltex from July 1, 1985 up to 1986, being
illegal, should not be released.

9
Now to the second corollary issue involving the validity of FIRB Resolution No. 17-87 issued on June 24, 1987. It was issued
under authority of Executive Order No. 93 dated December 17, 1986 which grants to the FIRB among others, the power
to recommend the restoration of the tax and duty exemptions/incentives withdrawn thereunder.

Petitioner stresses that on August 6, 1987 the Secretary of Justice rendered Opinion No. 77 to the effect that the powers
conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive Order No. 93 "constitute undue delegation of
legislative power and is, therefore, unconstitutional." Petitioner observes that the FIRB did not merely recommend but
categorically restored the tax and duty exemption of the NPC so that the memorandum of the respondent Executive
Secretary dated October 5, 1987 approving the same is a surplusage.

Further assuming that FIRB Resolution No. 17-87 to have been legally issued, following the doctrine in Philippine
Aceytelene, petitioner avers that the restoration cannot cover indirect taxes and it cannot create new indirect tax
exemption not otherwise granted in the NPC charter as amended by Presidential Decree No. 938.

The petition is devoid of merit.

The NPC is a non-profit public corporation created for the general good and welfare23 wholly owned by the government
of the Republic of the Philippines.24 From the very beginning of its corporate existence, the NPC enjoyed preferential tax
treatment25 to enable the Corporation to pay the indebtedness and obligation and in furtherance and effective
implementation of the policy enunciated in Section one of "Republic Act No. 6395"26 which provides:

Sec. 1. 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 need 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 its financial institutions.

From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is obvious.

Under Republic Act No. 358, its exemption is provided as follows:

Sec. 2. 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."

Under Republic Act No. 6395:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and other
Charges by Government and Governmental Instrumentalities.— 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, 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 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. (Emphasis
supplied.)

Under Presidential Decree No. 380:

10
 Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees, Imposts and other
Charges by the Government and Government Instrumentalities.— 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:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and services 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, 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 governmental 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 operation and projects; and

(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 produced used by the Corporation in the generation, transmission, utilization, and sale of electric
power. (Emphasis supplied.)

Under Presidential Decree No. 938:

Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees, Imposts and Other
Charges by the Government and Government Instrumentalities.—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 the indebtedness and obligations and in furtherance and effective implementation
of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries 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.)

It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover "all taxes, duties,
fees, imposts, charges, etc. . . ." However, the amendment under Republic Act No. 6395 enumerated the details covered
by the exemption. Subsequently, P.D. No. 380, made even more specific the details of the exemption of NPC to cover,
among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938
amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "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."

The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has
been enjoying before. The rationale for this exemption is that being non-profit the NPC "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 the
indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of
this Act, . . ."27

The preamble of P.D. No. 938 states—

WHEREAS, in the application of the tax exemption provision of the Revised Charter, the non-profit character of
the NPC has not been fully utilized because of restrictive interpretations of the taxing agencies of the government
on said provisions. . . . (Emphasis supplied.)

It is evident from the foregoing that the lawmaker did not intend that the said provisions of P.D. No. 938 shall be construed
strictly against NPC. On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax
exempt status of NPC.

Hence, petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes granting tax
exemptions to NPC.

Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in
favor of a government political subdivision or instrumentality.28

11
 The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions,
even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize
differential treatment and foster impartiality, fairness, and equality of treatment among tax payers.

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or
its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to
be handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax liability of such agencies.29

In the case of property owned by the state or a city or other public corporations, the express exemption should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to
such property "exemption is the rule and taxation the exception."30

The contention of petitioner that the exemption of NPC from indirect taxes under Section 13 of R.A. No. 6395 and P.D.
No. 380, is deemed repealed by P.D. No. 938 when the reference to it was deleted is not well-taken.

Repeal by implication is not favored unless it is manifest that the legislature so intended. As laws are presumed to be
passed with deliberation and with knowledge of all existing ones on the subject, it is logical to conclude that in passing a
statute it is not intended to interfere with or abrogate a former law relating to the same subject matter, unless the
repugnancy between the two is not only irreconcilable but also clear and convincing as a result of the language used, or
unless the latter Act fully embraces the subject matter of the earlier.31 The first effort of a court must always be to reconcile
or adjust the provisions of one statute with those of another so as to give sensible effect to both provisions.32

The legislative intent must be ascertained from a consideration of the statute as a whole, and not of an isolated part or a
particular provision alone.33 When construing a statute, the reason for its enactment should be kept in mind and the
statute should be construed with reference to its intended scope and purpose34 and the evil sought to be remedied.35

The NPC is a government instrumentality with the enormous task of undertaking development of hydroelectric generation
of power and production of electricity from other sources, as well as the transmission of electric power on a nationwide
basis, to improve the quality of life of the people pursuant to the State policy embodied in Section E, Article II of the 1987
Constitution.

It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of
taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain its goals.

Further, the construction of P.D. No. 938 by the Office charged with its implementation should be given controlling
weight.36

Since the May 8, 1985 ruling of Commissioner Ancheta, to the letter of the Secretary of Finance of June 26, 1985 confirming
said ruling, the letters of the BIR of August 18, 1986, and December 22, 1986, the letter of the Secretary of Finance of
February 19, 1987, the Memorandum of the Executive Secretary of October 9, 1987, by authority of the President,
confirming and approving FIRB Resolution No. 17-87, the letter of the Secretary of Finance of May 20, 1988 to the
Executive Secretary rendering his opinion as requested by the latter, and the latter's reply of June 15, 1988, it was
uniformly held that the grant of tax exemption to NPC under C.A. No. 120, as amended, included exemption from payment
of all taxes relative to NPC's petroleum purchases including indirect taxes.37 Thus, then Secretary of Finance Vicente Jayme
in his letter of May 20, 1988 to the Executive Secretary Macaraig aptly stated the justification for this tax exemption of
NPC —

The issue turns on the effect to the exemption of NPC from taxes of the deletion of the phrase 'taxes imposed
indirectly on oil products and its exemption from 'all forms of taxes.' It is suggested that the change in language
evidenced an intention to exempt NPC only from taxes directly imposed on or payable by it; since taxes on fuel-
oil purchased by it; since taxes on fuel-oil purchased by NPC locally are levied on and paid by its oil suppliers, NPC
thereby lost its exemption from those taxes. The principal authority relied on is the 1967 case of Philippine
Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056.

First of all, tracing the changes made through the years in the Revised Charter, the strengthening of NPC's
preferential tax treatment was clearly the intention. To the extent that the explanatory "whereas clauses" may
disclose the intent of the law-maker, the changes effected by P.D. 938 can only be read as being expansive rather
than restrictive, including its version of Section 13.

12
Our Tax Code does not recognize that there are taxes directly imposed and those imposed indirectly. The textbook
distinction between a direct and an indirect tax may be based on the possibility of shifting the incidence of the
tax. A direct tax is one which is demanded from the very person intended to be the payor, although it may
ultimately be shifted to another. An example of a direct tax is the personal income tax. On the other hand, indirect
taxes are those which are demanded from one person in the expectation and intention that he shall indemnify
himself at the expense of another. An example of this type of tax is the sales tax levied on sales of a commodity.

The distinction between a direct tax and one indirectly imposed (or an indirect tax) is really of no moment. What
is more relevant is that when an "indirect tax" is paid by those upon whom the tax ultimately falls, it is paid not as
a tax but as an additional part of the cost or of the market price of the commodity.

This distinction was made clear by Chief Justice Castro in the Philippine Acetylene case, when he analyzed the
nature of the percentage (sales) tax to determine whether it is a tax on the producer or on the purchaser of the
commodity. Under out Tax Code, the sales tax falls upon the manufacturer or producer. The phrase "pass on" the
tax was criticized as being inaccurate. Justice Castro says that the tax remains on the manufacturer alone. The
purchaser does not pay the tax; he pays an amount added to the price because of the tax. Therefore, the tax is
not "passed on" and does not for that reason become an "indirect tax" on the purchaser. It is eminently possible
that the law maker in enacting P.D. 938 in 1976 may have used lessons from the analysis of Chief Justice Castro in
1967 Philippine Acetylene case.

When P.D. 938 which exempted NPC from "all forms of taxes" was issued in May 1976, the so-called oil crunch had
already drastically pushed up crude oil Prices from about $1.00 per bbl in 1971 to about $10 and a peak (as it
turned out) of about $34 per bbl in 1981. In 1974-78, NPC was operating the Meralco thermal plants under a lease
agreement. The power generated by the leased plants was sold to Meralco for distribution to its customers. This
lease and sale arrangement was entered into for the benefit of the consuming public, by reducing the burden on
the swiftly rising world crude oil prices. This objective was achieved by the use of NPC's "tax umbrella under its
Revised Charter—the exemption from specific taxes on locally purchased fuel oil. In this context, I can not interpret
P.D. 938 to have withdrawn the exemption from tax on fuel oil to which NPC was already entitled and which
exemption Government in fact was utilizing to soften the burden of high crude prices.

There is one other consideration which I consider pivotal. The taxes paid by oil companies on oil products sold to
NPC, whether paid to them by NPC or no never entered into the rates charged by NPC to its customers not even
during those periods of uncertainty engendered by the issuance of P.D. 1931 and E. 0. 93 on NP/Cs tax status. No
tax component on the fuel have been charged or recovered by NPC through its rates.

There is an import duty on the crude oil imported by the local refineries. After the refining process, specific and ad
valorem taxes are levied on the finished products including fuel oil or residue upon their withdrawal from the
refinery. These taxes are paid by the oil companies as the manufacturer thereof.

In selling the fuel oil to NPC, the oil companies include in their billings the duty and tax component. NPC pays the
oil companies' invoices including the duty component but net of the tax component. NPC then applies for drawback
of customs duties paid and for a credit in amount equivalent to the tax paid (by the oil companies) on the products
purchased. The tax credit is assigned to the oil companies—as payment, in effect, of the tax component shown in
the sales invoices. (NOTE: These procedures varied over time—There were instances when NPC paid the tax
component that was shifted to it and then applied for tax credit. There were also side issues raised because of
P.D. 1931 and E.O. 93 which withdrew all exemptions of government corporations. In these latter instances, the
resolutions of the Fiscal Incentives Review Board (FIRB) come into play. These incidents will not be touched upon
for purposes of this discussion).

NPC rates of electricity are structured such that changes in its cost of fuel are automatically (without need of fresh
approvals) reflected in the subsequent months billing rates.

This Fuel Cost Adjustment clause protects NPC's rate of return. If NPC should ever accept liability to the tax and
duty component on the oil products, such amount will go into its fuel cost and be passed on to its customers
through corresponding increases in rates. Since 1974, when NPC operated the oil-fired generating stations leased
from Meralco (which plants it bought in 1979), until the present time, no tax on fuel oil ever went into NPC's electric
rates.

That the exemption of NPC from the tax on fuel was not withdrawn by P.D. 938 is impressed upon me by yet
another circumstance. It is conceded that NPC at the very least, is exempt from taxes to which it is directly liable.
NPC therefore could very well have imported its fuel oil or crude residue for burning at its thermal plants. There

13
 would have been no question in such a case as to its exemption from all duties and taxes, even under the strictest
interpretation that can be put forward. However, at the time P.D. 938 was issued in 1976, there were already
operating in the Philippines three oil refineries. The establishment of these refineries in the Philippines involved
heavy investments, were economically desirable and enabled the country to import crude oil and process / refine
the same into the various petroleum products at a savings to the industry and the public. The refining process
produced as its largest output, in volume, fuel oil or residue, whose conventional economic use was for burning in
electric or steam generating plants. Had there been no use locally for the residue, the oil refineries would have
become largely unviable.

Again, in this circumstances, I cannot accept that P.D. 938 would have in effect forced NPC to by-pass the local oil
refineries and import its fossil fuel requirements directly in order to avail itself of its exemption from "direct
taxes." The oil refineries had to keep operating both for economic development and national security reasons. In
fact, the restoration by the FIRB of NPC's exemption after P.D. 1931 and E.O. 93 expressly excluded direct fuel oil
importations, so as not to prejudice the continued operations of the local oil refineries.

To answer your query therefore, it is the opinion of this Department that NPC under the provisions of its Revised
Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used
for the generation of electricity.

The Department in issuing this ruling does so pursuant to its power and function to supervise and control the
collection of government revenues by the application and implementation of revenue laws. It is prepared to take
the measures supplemental to this ruling necessary to carry the same into full effect.

As presented rather extensively above, the NPC electric power rates did not carry the taxes and duties paid on the
fuel oil it used. The point is that while these levies were in fact paid to the government, no part thereof was
recovered from the sale of electricity produced. As a consequence, as of our most recent information, some P1.55
B in claims represent amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be
specific order to the Bureaus concerned for the resumption of the processing of these claims."38

In the latter of June 15, 1988 of then Executive Secretary Macaraig to the then Secretary of Finance, the said opinion ruling
of the latter was confirmed and its implementation was directed.39

The Court finds and so holds that the foregoing reasons adduced in the aforestated letter of the Secretary of Finance as
confirmed by the then Executive Secretary are well-taken. When the NPC was exempted from all forms of taxes, duties,
fees, imposts and other charges, under P.D. No. 938, it means exactly what it says, i.e., all forms of taxes including those
that were imposed directly or indirectly on petroleum products used in its operation.

Reference is made in the dissenting opinion to contrary rulings of the BIR that the exemption of the NPC extends only to
taxes for which it is directly liable and not to taxes merely shifted to it. However, these rulings are predicated on Philippine
Acytelene.

The doctrine in Philippine Acytelene decided in 1967 by this Court cannot apply to the present case. It involved the sales
tax of products the plaintiff sold to NPC from June 2, 1953 to June 30,1958 when NPC was enjoying tax exemption from
all taxes under Commonwealth Act No. 120, as amended by Republic Act No. 358 issued on June 4, 1949 hereinabove
reproduced.

In said case, this Court held, that the sales tax is due from the manufacturer and not the buyer, so plaintiff cannot claim
exemptions simply because the NPC, the buyer, was exempt.

However, on September 10, 1971, Republic Act No. 6395 was passed as the revised charter of NPC whereby Section 13
thereof was amended by emphasizing its non-profit character and expanding the extent of its tax exemption.

As petitioner concedes, Section 13(d) aforestated of this amendment under Republic Act No. 6345 spells out clearly the
exemption of the NPC from indirect taxes. And as hereinabove stated, in P.D. No. 380, the exemption of NPC from indirect
taxes was emphasized when it was specified to include those imposed "directly and indirectly."

Thereafter, under P.D. No. 938 the tax exemption of NPC was integrated under Section 13 defining the same in general
terms to cover "all forms of taxes, duties, fees, imposts, etc." which, as hereinabove discussed, logically includes
exemption from indirect taxes on petroleum products used in its operation.

14
This is the status of the tax exemptions the NPC was enjoying when P.D. No. 1931 was passed, on the authority of which
FIRB Resolution Nos. 10-85 and 1-86 were issued, and when Executive Order No. 93 was promulgated, by which FIRB
Resolution 17-87 was issued.

Thus, the ruling in Philippine Acetylene cannot apply to this case due to the different environmental circumstances. As a
matter of fact, the amendments of Section 13, under R.A. No. 6395, P.D. No, 380 and P.D. No. 838 appear to have been
brought about by the earlier inconsistent rulings of the tax agencies due to the doctrine in Philippine Acetylene, so as to
leave no doubt as to the exemption of the NPC from indirect taxes on petroleum products it uses in its operation.
Effectively, said amendments superseded if not abrogated the ruling in Philippine Acetylene that the tax exemption of NPC
should be limited to direct taxes only.

In the light of the foregoing discussion the first corollary issue must consequently be resolved in the affirmative, that is,
FIRB Resolution No. 10-85 dated February 7, 1985 and FIRB Resolution No. 1-86 dated January 7, 1986 which restored
NPC's tax exemption privileges included the restoration of the indirect tax exemption of the NPC on petroleum products
it used.

On the second corollary issue as to the validity of FIRB resolution No. 17-87 dated June 24, 1987 which restored NPC's tax
exemption privilege effective March 10, 1987, the Court finds that the same is valid and effective.

It provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products, granted
under the terms and conditions of Commonwealth Act No. 120 (Creating the National Power Corporation, defining
its powers, objectives and functions, and for other purposes), as amended, are restored effective March 10, 1987,
subject to the following conditions:

1. The restoration of the tax and duty exemption privileges does not apply to the following:

1.1. Importation of fuel oil (crude equivalent) and coal;

1.2. Commercially-funded importations (i.e., importations which include but are not limited to those
financed by the NPC's own internal funds, domestic borrowings from any source whatsoever, borrowing
from foreign-based private financial institutions, etc.); and

1.3. Interest income derived from any source.

2. The NPC shall submit to the FIRB a report of its expansion program, including details of disposition of relieved
tax and duty payments for such expansion on an annual basis or as often as the FIRB may require it to do so. This
report shall be in addition to the usual FIRB reporting requirements on incentive availment.40

Executive Order No. 93 provides as follows—

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 international agreements to which the Government of the Republic of the
Philippines is a signatory;

c) those enjoyed-by enterprises registered with:

(i) the Board of Investments pursuant to Presidential Decree No. 1789, as amended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66, as amended;

(iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant
to Presidential Decree No. 538, as amended;

15
 d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instruction 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;

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/of duty exemption that may be restored.

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or 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 commitments 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:

a) the effect on relative price levels;

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

c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served.

True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that the powers
conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No. 93 constitute undue delegation of
legislative power and is therefore unconstitutional. However, he was overruled by the respondent Executive Secretary in
a letter to the Secretary of Finance dated March 30, 1989. The Executive Secretary, by authority of the President, has the
power to modify, alter or reverse the construction of a statute given by a department secretary.41

A reading of Section 3 of said law shows that it set the policy to be the greater national interest. The standards of the
delegated power are also clearly provided for.

The required "standard" need not be expressed. In Edu vs. Ericta42 and in De la Llana vs. Alba43 this Court held: "The
standard may be either express or implied. If the former, the non-delegated objection is easily met. The standard though
does not have to be spelled out specifically. It could be implied from the policy and purpose of the act considered as a
whole."

In People vs. Rosenthal44 the broad standard of "public interest" was deemed sufficient. In Calalang vs. Williams,45, it was
"public welfare" and in Cervantes vs. Auditor General,46 it was the purpose of promotion of "simplicity, economy and

16
efficiency." And, implied from the purpose of the law as a whole, "national security" was considered sufficient
standard47 and so was "protection of fish fry or fish eggs.48

The observation of petitioner that the approval of the President was not even required in said Executive Order of the tax
exemption privilege approved by the FIRB unlike in previous similar issuances, is not well-taken. On the contrary, under
Section l(f) of Executive Order No. 93, aforestated, such tax and duty exemptions extended by the FIRB must be approved
by the President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive Secretary, by authority
of the President, on October 15, 1987.49

Mr. Justice Isagani A. Cruz commenting on the delegation of legislative power stated —

The latest in our jurisprudence indicates that delegation of legislative power has become the rule and its non-
delegation the exception. The reason is the increasing complexity of modern life and many technical fields of
governmental functions as in matters pertaining to tax exemptions. This is coupled by the growing inability of the
legislature to cope directly with the many problems demanding its attention. The growth of society has ramified
its activities and created peculiar and sophisticated problems that the legislature cannot be expected reasonably
to comprehend. Specialization even in legislation has become necessary. To many of the problems attendant upon
present day undertakings, the legislature may not have the competence, let alone the interest and the time, to
provide the required direct and efficacious, not to say specific solutions.50

Thus, in the case of Tablarin vs. Gutierrez,51 this Court enunciated the rationale in favor of delegation of legislative
functions—

One thing however, is apparent in the development of the principle of separation of powers and that is that the
maxim of delegatus non potest delegare or delegati potestas non potest delegare, adopted this practice
(Delegibus et Consuetudiniis Anglia edited by G.E. Woodline, Yale University Press, 1922, Vol. 2, p. 167) but which
is also recognized in principle in the Roman Law d. 17.18.3) has been made to adapt itself to the complexities of
modern government, giving rise to the adoption, within certain limits, of the principle of subordinate legislation,
not only in the United States and England but in practically all modern governments. (People vs. Rosenthal and
Osmeña, 68 Phil. 318, 1939). Accordingly, with the growing complexities of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater power by the legislative, and toward the approval of the
practice by the Courts. (Emphasis supplied.)

The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption
privileges of persons or entities would be restored. The task may be assigned to an administrative body like the FIRB.

Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such presumption can
be overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor of
constitutionality of legislation should be adopted.52

E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB And as above discussed,
the tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes exemption from
indirect taxes and duties on petroleum products used in its operation.

Indeed, the validity of Executive Order No. 93 as well as of FIRB Resolution No. 17-87 has been upheld in Albay.53

In the dissenting opinion of Mr. Justice Cruz, it is stated that P.D. Nos. 1931 and 1955 issued by President Marcos in 1984
are invalid as they were presumably promulgated under the infamous Amendment No. 6 and that as they cover
tax exemption, under Section 17(4), Article VIII of the 1973 Constitution, the same cannot be passed "without the
concurrence of the majority of all the members of the Batasan Pambansa." And, even conceding that the reservation of
legislative power in the President was valid, it is opined that it was not validly exercised as there is no showing that such
presidential encroachment was justified under the conditions then existing. Consequently, it is concluded that Executive
Order No. 93, which was intended to implement said decrees, is also illegal. The authority of the President to sub-delegate
to the FIRB powers delegated to him is also questioned.

In Albay,54 as above stated, this Court upheld the validity of P.D. Nos. 776 and 1931. The latter decree withdrew tax
exemptions of government-owned or controlled corporations including their subsidiaries but authorized the FIRB to
restore the same. Nevertheless, in Albay, as above-discussed, this Court ruled that the tax exemptions under FIRB
Resolution Nos. 10-85 and 1-86 cannot be enforced as said resolutions were only recommendatory and were not duly
approved by the President of the Philippines as required by P.D. No. 776.55 The Court also sustained in Albaythe validity

17
of Executive Order No. 93, and of the tax exemptions restored under FIRB Resolution No. 17-87 which was issued pursuant
thereto, as it was duly approved by the President as required by said executive order.

Moreover, under Section 3, Article XVIII of the Transitory Provisions of the 1987 Constitution, it is provided that:

All existing laws, decrees, executive orders, proclamation, letters of instructions, and other executive issuances
not inconsistent with this constitution shall remain operative until amended, repealed or revoked.

Thus, P.D. Nos. 776 and 1931 are valid and operative unless it is shown that they are inconsistent with the
Constitution.1âwphi1

Even assuming arguendo that P.D. Nos. 776, 1931 and Executive Order No. 93 are not valid and are unconstitutional, the
result would be the same, as then the latest applicable law would be P.D. No. 938 which amended the NPC charter by
granting exemption to NPC from all forms of taxes. As above discussed, this exemption of NPC covers direct and indirect
taxes on petroleum products used in its operation. This is as it should be, if We are to hold as invalid and inoperative the
withdrawal of such tax exemptions under P.D. No. 1931 as well as under Executive Order No. 93 and the delegation of the
power to restore these exemptions to the FIRB.

The Court realizes the magnitude of the consequences of this decision. To reiterate, in Albay this Court ruled that the NPC
is liable for real estate taxes as of June 11, 1984 (the date of promulgation of P.D. No. 1931) when NPC had ceased to
enjoy tax exemption privileges since FIRB Resolution Nos. 1085 and 1-86 were not validly issued. The real estate tax liability
of NPC from June 11, 1984 to December 1, 1990 is estimated to amount to P7.49 billion plus another P4.76 billion in fuel
import duties the firm had earlier paid to the government which the NPC now proposed to pass on to the consumers by
another 33-centavo increase per kilowatt hour in power rates on top of the 17-centavo increase per kilowatt hour that
took effect just over a week ago.,56 Hence, another case has been filed in this Court to stop this proposed increase without
a hearing.

As above-discussed, at the time FIRB Resolutions Nos. 10-85 and 1-86 were issued, P.D. No. 776 dated August 24, 1975
was already amended by P.D. No. 1931 ,57 wherein it is provided that such FIRB resolutions may be approved not only by
the President of the Philippines but also by the Minister of Finance. Such resolutions were promulgated by the Minister
of Finance in his own right and also in his capacity as FIRB Chairman. Thus, a separate approval thereof by the Minister of
Finance or by the President is unnecessary.

As earlier stated a reexamination of the ruling in Albay on this aspect is therefore called for and consequently, Albaymust
be considered superseded to this extent by this decision. This is because P.D. No. 938 which is the latest amendment to
the NPC charter granting the NPC exemption from all forms of taxes certainly covers real estate taxes which are direct
taxes.

This tax exemption is intended not only to insure that the NPC shall continue to generate electricity for the country but
more importantly, to assure cheaper rates to be paid by the consumers.

The allegation that this is in effect allowing tax evasion by oil companies is not quite correct.1a\^/phi1 There are various
arrangements in the payment of crude oil purchased by NPC from oil companies. Generally, the custom duties paid by the
oil companies are added to the selling price paid by NPC. As to the specific and ad valorem taxes, they are added a part of
the seller's price, but NPC pays the price net of tax, on condition that NPC would seek a tax refund to the oil companies.
No tax component on fuel had been charged or recovered by NPC from the consumers through its power rates.58 Thus,
this is not a case of tax evasion of the oil companies but of tax relief for the NPC. The billions of pesos involved in these
exemptions will certainly inure to the ultimate good and benefit of the consumers who are thereby spared the additional
burden of increased power rates to cover these taxes paid or to be paid by the NPC if it is held liable for the same.

The fear of the serious implication of this decision in that NPC's suppliers, importers and contractors may claim the same
privilege should be dispelled by the fact that (a) this decision particularly treats of only the exemption of the NPC from all
taxes, duties, fees, imposts and all other charges imposed by the government on the petroleum products it used or uses
for its operation; and (b) Section 13(d) of R.A. No. 6395 and Section 13(d) of P.D. No. 380, both specifically exempt the
NPC from all taxes, duties, fees, imposts and all other charges imposed by the government on all petroleum products used
in its operation only, which is the very exemption which this Court deems to be carried over by the passage of P.D. No.
938. As a matter of fact in Section 13(d) of P.D. No. 380 it is specified that the aforesaid exemption from taxes, etc. covers
those "directly or indirectly" imposed by the "Republic of the Philippines, its provincies, cities, municipalities and other
government agencies and instrumentalities" on said petroleum products. The exemption therefore from direct and
indirect tax on petroleum products used by NPC cannot benefit the suppliers, importers and contractors of NPC of other
products or services.

18
The Court realizes the laudable objective of petitioner to improve the revenue of the government. The amount of revenue
received or expected to be received by this tax exemption is, however, not going to any of the oil companies. There would
be no loss to the government. The said amount shall accrue to the benefit of the NPC, a government corporation, so as to
enable it to sustain its tremendous task of providing electricity for the country and at the least cost to the consumers.
Denying this tax exemption would mean hampering if not paralyzing the operations of the NPC. The resulting increased
revenue in the government will also mean increased power rates to be shouldered by the consumers if the NPC is to
survive and continue to provide our power requirements.59 The greater interest of the people must be paramount.

WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs.

SO ORDERED.

G.R. No. 76633 October 18, 1988

EASTERN SHIPPING LINES, INC., petitioner,

vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA), MINISTER OF LABOR AND EMPLOYMENT, HEARING
OFFICER ABDUL BASAR and KATHLEEN D. SACO, respondents.

Jimenea, Dala & Zaragoza Law Office for petitioner.

The Solicitor General for public respondent.

Dizon Law Office for respondent Kathleen D. Saco.

CRUZ, J.:

The private respondent in this case was awarded the sum of P192,000.00 by the Philippine Overseas Employment
Administration (POEA) for the death of her husband. The decision is challenged by the petitioner on the principal ground
that the POEA had no jurisdiction over the case as the husband was not an overseas worker.

Vitaliano Saco was Chief Officer of the M/V Eastern Polaris when he was killed in an accident in Tokyo, Japan, March 15,
1985. His widow sued for damages under Executive Order No. 797 and Memorandum Circular No. 2 of the POEA. The
petitioner, as owner of the vessel, argued that the complaint was cognizable not by the POEA but by the Social Security
System and should have been filed against the State Insurance Fund. The POEA nevertheless assumed jurisdiction and
after considering the position papers of the parties ruled in favor of the complainant. The award consisted of P180,000.00
as death benefits and P12,000.00 for burial expenses.

The petitioner immediately came to this Court, prompting the Solicitor General to move for dismissal on the ground of
non-exhaustion of administrative remedies.

Ordinarily, the decisions of the POEA should first be appealed to the National Labor Relations Commission, on the
theory inter alia that the agency should be given an opportunity to correct the errors, if any, of its subordinates. This case
comes under one of the exceptions, however, as the questions the petitioner is raising are essentially questions of
law. 1 Moreover, the private respondent himself has not objected to the petitioner's direct resort to this Court, observing
that the usual procedure would delay the disposition of the case to her prejudice.

The Philippine Overseas Employment Administration was created under Executive Order No. 797, promulgated on May 1,
1982, to promote and monitor the overseas employment of Filipinos and to protect their rights. It replaced the National
Seamen Board created earlier under Article 20 of the Labor Code in 1974. Under Section 4(a) of the said executive order,
the POEA is vested with "original and exclusive jurisdiction over all cases, including money claims, involving employee-
employer relations arising out of or by virtue of any law or contract involving Filipino contract workers, including seamen."
These cases, according to the 1985 Rules and Regulations on Overseas Employment issued by the POEA, include "claims
for death, disability and other benefits" arising out of such employment. 2

The petitioner does not contend that Saco was not its employee or that the claim of his widow is not compensable. What
it does urge is that he was not an overseas worker but a 'domestic employee and consequently his widow's claim should
have been filed with Social Security System, subject to appeal to the Employees Compensation Commission.

19
We see no reason to disturb the factual finding of the POEA that Vitaliano Saco was an overseas employee of the petitioner
at the time he met with the fatal accident in Japan in 1985.

Under the 1985 Rules and Regulations on Overseas Employment, overseas employment is defined as "employment of a
worker outside the Philippines, including employment on board vessels plying international waters, covered by a valid
contract. 3 A contract worker is described as "any person working or who has worked overseas under a valid employment
contract and shall include seamen" 4 or "any person working overseas or who has been employed by another which may
be a local employer, foreign employer, principal or partner under a valid employment contract and shall include
seamen." 5 These definitions clearly apply to Vitaliano Saco for it is not disputed that he died while under a contract of
employment with the petitioner and alongside the petitioner's vessel, the M/V Eastern Polaris, while berthed in a foreign
country. 6

It is worth observing that the petitioner performed at least two acts which constitute implied or tacit recognition of the
nature of Saco's employment at the time of his death in 1985. The first is its submission of its shipping articles to the POEA
for processing, formalization and approval in the exercise of its regulatory power over overseas employment under
Executive Order NO. 797. 7 The second is its payment 8 of the contributions mandated by law and regulations to the
Welfare Fund for Overseas Workers, which was created by P.D. No. 1694 "for the purpose of providing social and welfare
services to Filipino overseas workers."

Significantly, the office administering this fund, in the receipt it prepared for the private respondent's signature, described
the subject of the burial benefits as "overseas contract worker Vitaliano Saco." 9 While this receipt is certainly not
controlling, it does indicate, in the light of the petitioner's own previous acts, that the petitioner and the Fund to which it
had made contributions considered Saco to be an overseas employee.

The petitioner argues that the deceased employee should be likened to the employees of the Philippine Air Lines who,
although working abroad in its international flights, are not considered overseas workers. If this be so, the petitioner
should not have found it necessary to submit its shipping articles to the POEA for processing, formalization and approval
or to contribute to the Welfare Fund which is available only to overseas workers. Moreover, the analogy is hardly
appropriate as the employees of the PAL cannot under the definitions given be considered seamen nor are their
appointments coursed through the POEA.

The award of P180,000.00 for death benefits and P12,000.00 for burial expenses was made by the POEA pursuant to its
Memorandum Circular No. 2, which became effective on February 1, 1984. This circular prescribed a standard contract to
be adopted by both foreign and domestic shipping companies in the hiring of Filipino seamen for overseas employment.
A similar contract had earlier been required by the National Seamen Board and had been sustained in a number of cases
by this Court. 10 The petitioner claims that it had never entered into such a contract with the deceased Saco, but that is
hardly a serious argument. In the first place, it should have done so as required by the circular, which specifically declared
that "all parties to the employment of any Filipino seamen on board any ocean-going vessel are advised to adopt and use
this employment contract effective 01 February 1984 and to desist from using any other format of employment contract
effective that date." In the second place, even if it had not done so, the provisions of the said circular are nevertheless
deemed written into the contract with Saco as a postulate of the police power of the State. 11

But the petitioner questions the validity of Memorandum Circular No. 2 itself as violative of the principle of non-delegation
of legislative power. It contends that no authority had been given the POEA to promulgate the said regulation; and even
with such authorization, the regulation represents an exercise of legislative discretion which, under the principle, is not
subject to delegation.

The authority to issue the said regulation is clearly provided in Section 4(a) of Executive Order No. 797, reading as follows:

... The governing Board of the Administration (POEA), as hereunder provided shall promulgate the
necessary rules and regulations to govern the exercise of the adjudicatory functions of the Administration
(POEA).

Similar authorization had been granted the National Seamen Board, which, as earlier observed, had itself prescribed a
standard shipping contract substantially the same as the format adopted by the POEA.

The second challenge is more serious as it is true that legislative discretion as to the substantive contents of the law cannot
be delegated. What can be delegated is the discretion to determine how the law may be enforced, not whatthe law shall
be. The ascertainment of the latter subject is a prerogative of the legislature. This prerogative cannot be abdicated or
surrendered by the legislature to the delegate. Thus, in Ynot v. Intermediate Apellate Court 12 which annulled Executive
Order No. 626, this Court held:

20
 We also mark, on top of all this, the questionable manner of the disposition of the confiscated property
as prescribed in the questioned executive order. It is there authorized that the seized property shall be
distributed to charitable institutions and other similar institutions as the Chairman of the National Meat
Inspection Commission may see fit, in the case of carabaos.' (Italics supplied.) The phrase "may see fit" is
an extremely generous and dangerous condition, if condition it is. It is laden with perilous opportunities
for partiality and abuse, and even corruption. One searches in vain for the usual standard and the
reasonable guidelines, or better still, the limitations that the officers must observe when they make their
distribution. There is none. Their options are apparently boundless. Who shall be the fortunate
beneficiaries of their generosity and by what criteria shall they be chosen? Only the officers named can
supply the answer, they and they alone may choose the grantee as they see fit, and in their own exclusive
discretion. Definitely, there is here a 'roving commission a wide and sweeping authority that is not
canalized within banks that keep it from overflowing,' in short a clearly profligate and therefore invalid
delegation of legislative powers.

There are two accepted tests to determine whether or not there is a valid delegation of legislative power, viz, the
completeness test and the sufficient standard test. Under the first test, the law must be complete in all its terms and
conditions when it leaves the legislature such that when it reaches the delegate the only thing he will have to do is enforce
it. 13 Under the sufficient standard test, there must be adequate guidelines or stations in the law to map out the boundaries
of the delegate's authority and prevent the delegation from running riot. 14

Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to step
into the shoes of the legislature and exercise a power essentially legislative.

The principle of non-delegation of powers is applicable to all the three major powers of the Government but is especially
important in the case of the legislative power because of the many instances when its delegation is permitted. The
occasions are rare when executive or judicial powers have to be delegated by the authorities to which they legally certain.
In the case of the legislative power, however, such occasions have become more and more frequent, if not necessary. This
had led to the observation that the delegation of legislative power has become the rule and its non-delegation the
exception.

The reason is the increasing complexity of the task of government and the growing inability of the legislature to cope
directly with the myriad problems demanding its attention. The growth of society has ramified its activities and created
peculiar and sophisticated problems that the legislature cannot be expected reasonably to comprehend. Specialization
even in legislation has become necessary. To many of the problems attendant upon present-day undertakings, the
legislature may not have the competence to provide the required direct and efficacious, not to say, specific solutions.
These solutions may, however, be expected from its delegates, who are supposed to be experts in the particular fields
assigned to them.

The reasons given above for the delegation of legislative powers in general are particularly applicable to administrative
bodies. With the proliferation of specialized activities and their attendant peculiar problems, the national legislature has
found it more and more necessary to entrust to administrative agencies the authority to issue rules to carry out the general
provisions of the statute. This is called the "power of subordinate legislation."

With this power, administrative bodies may implement the broad policies laid down in a statute by "filling in' the details
which the Congress may not have the opportunity or competence to provide. This is effected by their promulgation of
what are known as supplementary regulations, such as the implementing rules issued by the Department of Labor on the
new Labor Code. These regulations have the force and effect of law.

Memorandum Circular No. 2 is one such administrative regulation. The model contract prescribed thereby has been
applied in a significant number of the cases without challenge by the employer. The power of the POEA (and before it the
National Seamen Board) in requiring the model contract is not unlimited as there is a sufficient standard guiding the
delegate in the exercise of the said authority. That standard is discoverable in the executive order itself which, in creating
the Philippine Overseas Employment Administration, mandated it to protect the rights of overseas Filipino workers to "fair
and equitable employment practices."

Parenthetically, it is recalled that this Court has accepted as sufficient standards "Public interest" in People v.
Rosenthal 15 "justice and equity" in Antamok Gold Fields v. CIR 16 "public convenience and welfare" in Calalang v.
Williams 17 and "simplicity, economy and efficiency" in Cervantes v. Auditor General, 18 to mention only a few cases. In the
United States, the "sense and experience of men" was accepted in Mutual Film Corp. v. Industrial Commission, 19 and
"national security" in Hirabayashi v. United States. 20

21
It is not denied that the private respondent has been receiving a monthly death benefit pension of P514.42 since March
1985 and that she was also paid a P1,000.00 funeral benefit by the Social Security System. In addition, as already observed,
she also received a P5,000.00 burial gratuity from the Welfare Fund for Overseas Workers. These payments will not
preclude allowance of the private respondent's claim against the petitioner because it is specifically reserved in the
standard contract of employment for Filipino seamen under Memorandum Circular No. 2, Series of 1984, that—

Section C. Compensation and Benefits.—

1. In case of death of the seamen during the term of his Contract, the employer shall pay his beneficiaries
the amount of:

a. P220,000.00 for master and chief engineers

b. P180,000.00 for other officers, including radio operators and master electrician

c. P 130,000.00 for ratings.

2. It is understood and agreed that the benefits mentioned above shall be separate and distinct from, and
will be in addition to whatever benefits which the seaman is entitled to under Philippine laws. ...

3. ...

c. If the remains of the seaman is buried in the Philippines, the owners shall pay the
beneficiaries of the seaman an amount not exceeding P18,000.00 for burial expenses.

The underscored portion is merely a reiteration of Memorandum Circular No. 22, issued by the National Seamen Board
on July 12,1976, providing an follows:

Income Benefits under this Rule Shall be Considered Additional Benefits.—

All compensation benefits under Title II, Book Four of the Labor Code of the Philippines (Employees
Compensation and State Insurance Fund) shall be granted, in addition to whatever benefits, gratuities or
allowances that the seaman or his beneficiaries may be entitled to under the employment contract
approved by the NSB. If applicable, all benefits under the Social Security Law and the Philippine Medicare
Law shall be enjoyed by the seaman or his beneficiaries in accordance with such laws.

The above provisions are manifestations of the concern of the State for the working class, consistently with the social
justice policy and the specific provisions in the Constitution for the protection of the working class and the promotion of
its interest.

One last challenge of the petitioner must be dealt with to close t case. Its argument that it has been denied due process
because the same POEA that issued Memorandum Circular No. 2 has also sustained and applied it is an uninformed
criticism of administrative law itself. Administrative agencies are vested with two basic powers, the quasi-legislative and
the quasi-judicial. The first enables them to promulgate implementing rules and regulations, and the second enables them
to interpret and apply such regulations. Examples abound: the Bureau of Internal Revenue adjudicates on its own revenue
regulations, the Central Bank on its own circulars, the Securities and Exchange Commission on its own rules, as so too do
the Philippine Patent Office and the Videogram Regulatory Board and the Civil Aeronautics Administration and the
Department of Natural Resources and so on ad infinitum on their respective administrative regulations. Such an
arrangement has been accepted as a fact of life of modern governments and cannot be considered violative of due process
as long as the cardinal rights laid down by Justice Laurel in the landmark case of Ang Tibay v. Court of Industrial
Relations 21 are observed.

Whatever doubts may still remain regarding the rights of the parties in this case are resolved in favor of the private
respondent, in line with the express mandate of the Labor Code and the principle that those with less in life should have
more in law.

When the conflicting interests of labor and capital are weighed on the scales of social justice, the heavier influence of the
latter must be counter-balanced by the sympathy and compassion the law must accord the underprivileged worker. This
is only fair if he is to be given the opportunity and the right to assert and defend his cause not as a subordinate but as a
peer of management, with which he can negotiate on even plane. Labor is not a mere employee of capital but its active
and equal partner.

22
WHEREFORE, the petition is DISMISSED, with costs against the petitioner. The temporary restraining order dated
December 10, 1986 is hereby LIFTED. It is so ordered.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 111812 May 31, 1995

DIONISIO M. RABOR, petitioner,

vs.
CIVIL SERVICE COMMISSION, respondent.

FELICIANO, J.:

Petitioner Dionisio M. Rabor is a Utility Worker in the Office of the Mayor, Davao City. He entered the government service
as a Utility worker on 10 April 1978 at the age of 55 years.

Sometime in May 1991,1 Alma, D. Pagatpatan, an official in the Office of the Mayor of Davao City, advised Dionisio M.
Rabor to apply for retirement, considering that he had already reached the age of sixty-eight (68) years and seven (7)
months, with thirteen (13) years and one (1) month of government service. Rabor responded to this advice by exhibiting
a "Certificate of Membership"2 issued by the Government Service Insurance System ("GSIS") and dated 12 May 1988. At
the bottom of this "Certificate of Membership" is a typewritten statement of the following tenor: "Service extended to
comply 15 years service reqts." This statement is followed by a non-legible initial with the following date "2/28/91."

Thereupon, the Davao City Government, through Ms. Pagatpatan, wrote to the Regional Director of the Civil Service
Commission, Region XI, Davao City ("CSRO-XI"), informing the latter of the foregoing and requesting advice "as to what
action [should] be taken on this matter."

In a letter dated 26 July 1991, Director Filemon B. Cawad of CSRO-XI advised Davao City Mayor Rodrigo R. Duterte as
follows:

Please be informed that the extension of services of Mr. Rabor is contrary to M.C. No. 65 of the Office of
the President, the relevant portion of which is hereunder quoted:

Officials and employees who have reached the compulsory retirement age of 65 years
shall not be retained the service, except for extremely meritorious reasons in which case
the retention shall not exceed six (6) months.

IN VIEW WHEREFORE, please be advised that the services of Mr. Dominador [M.] Rabor as Utility Worker
in that office, is already non-extend[i]ble.3

Accordingly, on 8 August l991, Mayor Duterte furnished a copy of the 26 July 1991 letter of Director Cawad to Rabor and
advised him "to stop reporting for work effective August 16, 1991."4

Petitioner Rabor then sent to the Regional Director, CSRO-XI, a letter dated 14 August 1991, asking for extension of his
services in the City Government until he "shall have completed the fifteen (15) years service [requirement] in the
Government so that [he] could also avail of the benefits of the retirement laws given to employees of the Government."
The extension he was asking for was about two (2) years. Asserting that he was "still in good health and very able to
perform the duties and functions of [his] position as Utility Worker," Rabor sought "extension of [his] service as an
exception to Memorandum Circular No. 65 of the Office of the President."5 This request was denied by Director Cawad on
15 August 1991.

Petitioner Rabor next wrote to the Office of the President on 29 January 1992 seeking reconsideration of the decision of
Director Cawad, CSRO-XI. The Office of the President referred Mr. Rabor's letter to the Chairman of the Civil Service
Commission on 5 March 1992.

In its Resolution No. 92-594, dated 28 April 1992, the Civil Service Commission dismissed the appeal of Mr. Rabor and
affirmed the action of Director Cawad embodied in the latter's letter of 26 July 1991. This Resolution stated in part:
23
 In his appeal, Rabor requested that he be allowed to continue rendering services as Utility Worker in order
to complete the fifteen (15) year service requirement under P.D. 1146.

CSC Memorandum Circular No. 27, s. 1990 provides, in part:

1. Any request for extension of service of compulsory retirees to complete the fifteen
years service requirement for retirement shall be allowed only to permanent appointees
in the career service who are regular members of the Government Service Insurance
System (GSIS) and shall be granted for a period of not exceeding one (1) year.

Considering that as early as October 18, 1988, Rabor was already due for retirement, his request for
further extension of service cannot be given due course.6 (Emphasis in the original)

On 28 October 1992, Mr. Rabor sought reconsideration of Resolution No. 92-594 of the Civil Service Commission this time
invoking the Decision of this Court in Cena v. Civil Service Commission.7 Petitioner also asked for reinstatement with back
salaries and benefits, having been separated from the government service effective 16 August 1991. Rabor's motion for
reconsideration was denied by the Commission.

Petitioner Rabor sent another letter dated 16 April 1993 to the Office of the Mayor, Davao City, again requesting that he
be allowed to continue rendering service to the Davao City Government as Utility Worker in order to complete the fifteen
(15) years service requirement under P.D. No. 1146. This request was once more denied by Mayor Duterte in a letter to
petitioner dated 19 May 1993. In this letter, Mayor Duterte pointed out that, under Cena grant of the extension of service
was discretionary on the part of the City Mayor, but that he could not grant the extension requested. Mayor Duterte's
letter, in relevant part, read:

The matter was referred to the City Legal Office and the Chairman of the Civil Service Commission, in the
advent of the decision of the Supreme Court in the Cena vs. CSC, et al. (G.R. No. 97419 dated July 3, 1992),
for legal opinion. Both the City Legal Officer and the Chairman of the Civil Service Commission are one in
these opinion that extending you an appointment in order that you may be able to complete the fifteen-
year service requirement is discretionary [on the part of] the City Mayor.

Much as we desire to extend you an appointment but circumstances are that we can no longer do so. As
you are already nearing your 70th birthday may no longer be able to perform the duties attached to your
position. Moreover, the position you had vacated was already filled up.

We therefore regret to inform you that we cannot act favorably on your request.8 (Emphases supplied)

At this point, Mr. Rabor decided to come to this Court. He filed a Letter/Petition dated 6 July 1993 appealing from Civil
Service Resolution No. 92-594 and from Mayor Duterte's letter of 10 May 1993.

The Court required petitioner Rabor to comply with the formal requirements for instituting a special civil action
of certiorari to review the assailed Resolution of the Civil Service Commission. In turn, the Commission was required to
comment on petitioner's Letter/Petition.9 The Court subsequently noted petitioner's Letter of 13 September 1993 relating
to compliance with the mentioned formal requirements and directed the Clerk of Court to advise petitioner to engage the
services of counsel or to ask for legal assistance from the Public Attorney's Office (PAO). 10

The Civil Service Commission, through the Office of the Solicitor General, filed its comment on 16 November 1993. The
Court then resolved to give due course to the Petition and required the parties to file memoranda. Both the Commission
and Mr. Rabor (the latter through PAO counsel) did so.

In this proceeding, petitioner Rabor contends that his claim falls squarely within the ruling of this Court in Cena v. Civil
Service Commission. 11

Upon the other hand, the Commission seeks to distinguish this case from Cena. The Commission, through the Solicitor
General, stressed that in Cena, this Court had ruled that the employer agency, the Land Registration Authority of the
Department of Justice, was vested with discretion to grant to Cena the extension requested by him. The Land Registration
Authority had chosen not to exercise its discretion to grant or deny such extension. In contrast, in the instant case, the
Davao City Government did exercise its discretion on the matter and decided to deny the extension sought by petitioner
Rabor for legitimate reasons.

24
While the Cena decision is barely three (3) years old, the Court considers that it must reexamine the doctrine of Cena and
the theoretical and policy underpinnings thereof. 12

We start by recalling the factual setting of Cena.

Gaudencio Cena was appointed Registrar of the Register of Deeds of Malabon, Metropolitan Manila, on 16 July 1987. He
reached the compulsory retirement age of sixty-five (65) years on 22 January 1991. By the latter date, his government
service would have reached a total of eleven (11) years, nine (9) months and six (6) days. Before reaching his 65th birthday,
Cena requested the Secretary of Justice, through the Administrator of the Land Registration Authority ("LRA") that he be
allowed to extend his service to complete the fifteen-year service requirement to enable him to retire with the full benefit
of an Old-Age Pension under Section 11 (b) of P.D. No. 1146. If Cena's request were granted, he would complete fifteen
(15) years of government service on 15 April 1994, at the age of sixty-eight (68) years.

The LRA Administrator sought a ruling from the Civil Service Commission on whether or not Cena's request could be
granted considering that Cena was covered by Civil Service Memorandum No. 27, Series of 1990. On 17 October 1990, the
Commission allowed Cena a one (1) year extension of his service from 22 January 1991 to 22 January 1992 under its
Memorandum Circular No. 27. Dissatisfied, Cena moved for reconsideration, without success. He then came to this Court,
claiming that he was entitled to an extension of three (3) years, three (3) months and twenty-four (24) days to complete
the fifteen-year service requirement for retirement with full benefits under Section 11 (b) of P.D. No. 1146.

This Court granted Cena' s petition in its Decision of 3 July 1992. Speaking through Mr. Justice Medialdea, the Court held
that a government employee who has reached the compulsory retirement age of sixty-five (65) years, but at the same
time has not yet completed fifteen (15) years of government service required under Section 11 (b) of P.D. No. 1146 to
qualify for the Old-Age Pension Benefit, may be granted an extension of his government service for such period of time as
may be necessary to "fill up" or comply with the fifteen (15)-year service requirement. The Court also held that the
authority to grant the extension was a discretionary one vested in the head of the agency concerned. Thus the Court
concluded:

Accordingly, the Petition is GRANTED. The Land Registration Authority (LRA) and Department of
Justice has the discretion to allow petitioner Gaudencio Cena to extend his 11 years, 9 months and 6
days of government to complete the fifteen-year service so that he may retire with full benefits under
Section 11, paragraph (b) of P.D. 1146.13 (Emphases supplied)

The Court reached the above conclusion primarily on the basis of the "plain and ordinary meaning" of Section 11 (b) of
P.D. No. 1146. Section 11 may be quoted in its entirety:

Sec. 11 Conditions for Old-Age Pension. — (a) Old-Age Pension shall be paid to a member who

(1) has at least fifteen (15) years of service;

(2) is at least sixty (60) years of age; and

(3) is separated from the service.

(b) unless the service is extended by appropriate authorities, retirement shall be compulsory for an
employee at sixty-five-(65) years of age with at least fifteen (15) years of service; Provided, that if he has
less than fifteen (15) years of service, he shall he allowed to continue in the service to completed the
fifteen (15) years. (Emphases supplied)

The Court went on to rely upon the canon of liberal construction which has often been invoked in respect of retirement
statutes:

Being remedial in character, a statute granting a pension or establishing [a] retirement plan should be
liberally construed and administered in favor of persons intended to be benefitted thereby. The liberal
approach aims to achieve the humanitarian purposes of the law in order that efficiency, security and well-
being of government employees may be enhanced.14 (Citations omitted)

While Section 11 (b) appeared cast in verbally unqualified terms, there were (and still are) two (2) administrative issuances
which prescribe limitations on the extension of service that may be granted to an employee who has reached sixty-five
(65) years of age.

25
The first administrative issuance is Civil Service Commission Circular No. 27, Series of 1990, which should be quoted in its
entirety:

TO : ALL HEADS OF DEPARTMENTS, BUREAUS AND AGENCIES OF THE NATIONAL/LOCAL GOVERNMENTS

INCLUDING GOVERNMENT- OWNED AND/OR CONTROLLED CORPORATIONS WITH ORIGINAL CHARTERS.

SUBJECT : Extension of Service of Compulsory Retiree to Complete the Fifteen Years Service Requirement
for Retirement Purposes.

Pursuant to CSC Resolution No. 90-454 dated May 21, 1990, the Civil Service Commission hereby adopts
and promulgates the following policies and guidelines in the extension of services of compulsory retirees
to complete the fifteen years service requirement for retirement purposes:

1. Any request for the extension of service of compulsory retirees to complete the fifteen
(15) years service requirement for retirement shall be allowed only to permanent
appointees in the career service who are regular members of the Government Service
Insurance System (GSIS), and shall be granted for a period not exceeding one (1) year.

2. Any request for the extension of service of compulsory retiree to complete the fifteen
(15) years service requirement for retirement who entered the government service at 57
years of age or over upon prior grant of authority to appoint him or her, shall no longer
be granted.

3. Any request for the extension of service to complete the fifteen (15) years service
requirement of retirement shall be filled not later than three (3) years prior to the date
of compulsory retirement.

4. Any request for the extension of service of a compulsory retiree who meets the
minimum number of years of service for retirement purposes may be granted for six (6)
months only with no further extension.

This Memorandum Circular shall take effect immediately. (Emphases supplied)

The second administrative issuance — Memorandum Circular No. 65 of the Office of the President, dated 14 June 1988 —
provides:

xxx xxx xxx

WHEREAS, this Office has been. receiving requests for reinstatement and/or retention in the service
of employees who have reached the compulsory retirement age of 65 years, despite the strict conditions
provided for in Memorandum Circular No. 163, dated March 5, 1968, as amended.

WHEREAS, the President has recently adopted a policy to adhere more strictly to the law providing for
compulsory retirement age of 65 years and, in extremely meritorious cases, to limit the service beyond
the age of 65 years to six (6) months only.

WHEREFORE, the pertinent provision of Memorandum Circular No. 163 or on the retention in the service
of officials or employees who have reached the compulsory retirement age of 65 years, is hereby amended
to read as follows:

Officials or employees who have reached the compulsory retirement age of 65

years shall not be retained in the service, except for extremely meritorious reasons in
which case the retention shall not exceed six (6) months.

All heads of departments, bureaus, offices and instrumentalities of the government including
government-owned or controlled corporations, are hereby enjoined to require their respective offices to
strictly comply with this circular.

This Circular shall take effect immediately.

26
 By authority of the
President

(Sgd.)

CATALINO MACARAIG,
JR.
Executive Secretary

Manila, June 14, 1988.15 (Emphasis supplied)

Medialdea, J. resolved the challenges posed by the above two (2) administrative regulations by, firstly, considering
as invalid Civil Service Memorandum No. 27 and, secondly, by interpreting the Office of the President's Memorandum
Circular No. 65 as inapplicable to the case of Gaudencio T. Cena.

We turn first to the Civil Service Commission's Memorandum Circular No. 27. Medialdea, J. wrote:

The Civil Service Commission Memorandum Circular No. 27 being in the nature of an administrative
regulation, must be governed by the principle that administrative regulations adopted under legislative
authority by a particular department must be in harmony with the provisions of the law, and should be
for the sole purpose of carrying into effect its general provisions (People v. Maceren, G.R. No. L-32166,
October 18, 1977, 79 SCRA 450; Teoxon v. Members of the Board of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel v. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao
v. Casteel, L-21906, August 29, 1969, 29 SCRA 350). . . . . The rule on limiting to one the year the extension
of service of an employee who has reached the compulsory retirement age of sixty-five (65) years, but has
less than fifteen (15) years of service under Civil Service Memorandum Circular No. 27, S. 1990,
cannot likewise be accorded validity because it has no relationship or connection with any provision of P.D.
1146 supposed to be carried into effect. The rule was an addition to or extension of the law, not merely a
mode of carrying it into effect. The Civil Service Commission has no power to supply perceived omissions
in P.D. 1146. 16 (Emphasis supplied)

It will be seen that Cena, in striking down Civil Service Commission Memorandum No. 27, took a very narrow view on the
question of what subordinate rule-making by an administrative agency is permissible and valid. That restrictive view must
be contrasted with this Court's earlier ruling in People v. Exconde, 17 where Mr. Justice J.B.L. Reyes said:

It is well established in this jurisdiction that, while the making of laws is a non-delegable activity that
corresponds exclusively to Congress, nevertheless, the latter may constitutionally delegate authority and
promulgate rules and regulations to implement a given legislation and effectuate its policies, for the
reason that the legislature often finds it impracticable (if not impossible) to anticipate and provide for the
multifarious and complex situations that may be met in carrying the law into effect. All that is required is
that the regulation should be germane to the objects and purposes of the law; that the regulation be not
in contradiction with it, but conform to standards that the law prescribes.18 (Emphasis supplied)

In Tablarin v. Gutierrez, 19 the Court, in sustaining the validity of a MECS Order which established passing a uniform
admission test called the National Medical Admission Test (NMAT) as a prerequisite for eligibility for admission into
medical schools in the Philippines, said:

The standards set for subordinate legislation in the exercise of rule making authority by an administrative
agency like the Board of Medical Education are necessarily broad and highly abstract. As explained by
then Mr. Justice Fernando in Edu v. Ericta (35 SCRA 481 [1970]) —

The standards may be either expressed or implied. If the former, the non-delegation
objection is easily met. The Standard though does not have to be spelled out specifically.
It could be implied from the policy and purpose of the act considered as a whole. In the
Reflector Law, clearly the legislative objective is public safety. What is sought to be
attained in Calalang v. William is "safe transit upon the roads."

We believe and so hold that the necessary standards are set forth in Section 1 of the 1959 Medical Act:
"the standardization and regulation of medical education" and in Section 5 (a) and 7 of the same Act, the
body of the statute itself, and that these considered together are sufficient compliance with the

27
 requirements of the non-delegation principle.20 (Citations omitted; emphasis partly in the original and
partly supplied)

In Edu v. Ericta, 21 then Mr. Justice Fernando stressed the abstract and very general nature of the standards which our
Court has in prior case law upheld as sufficient for purposes of compliance with the requirements for validity of
subordinate or administrative rule-making:

This Court has considered as sufficient standards, "public welfare," (Municipality of Cardona v.
Municipality of Binangonan, 36 Phil. 547 [1917]); "necessary in the interest of law and order," (Rubi v.
Provincial Board, 39 Phil. 660 [1919]); "public interest," (People v. Rosenthal, 68 Phil. 328 [1939]);
and "justice and equity and substantial merits of the case," (International Hardwood v. Pangil Federation
of Labor, 17 Phil. 602 [1940]). 22 (Emphasis supplied)

Clearly, therefore, Cena when it required a considerably higher degree of detail in the statute to be implemented, went
against prevailing doctrine. It seems clear that if the governing or enabling statute is quite detailed and specific to begin
with, there would be very little need (or occasion) for implementing administrative regulations. It is, however, precisely
the inability of legislative bodies to anticipate all (or many) possible detailed situations in respect of any relatively complex
subject matter, that makes subordinate, delegated rule-making by administrative agencies so important and unavoidable.
All that may be reasonably; demanded is a showing that the delegated legislation consisting of administrative regulations
are germane to the general purposes projected by the governing or enabling statute. This is the test that is appropriately
applied in respect of Civil Service Memorandum Circular No. 27, Series of 1990, and to this test we now turn.

We consider that the enabling statute that should appropriately be examined is the present Civil Service law — found in
Book V, Title I, Subtitle A, of Executive Order No. 292 dated 25 July 1987, otherwise known as the Administrative Code of
1987 — and not alone P.D. No. 1146, otherwise known as the "Revised Government Service Insurance Act of 1977." For
the matter of extension of service of retirees who have reached sixty-five (65) years of age is an area that is covered by
both statutes and not alone by Section 11 (b) of P.D. 1146. This is crystal clear from examination of many provisions of the
present civil service law.

Section 12 of the present Civil Service law set out in the 1987 Administrative Code provides, in relevant part, as follows:

Sec. 12 Powers and Functions. — The [Civil Service] Commission shall have the following powers and
functions:

xxx xxx xxx

(2) Prescribe, amend and enforce rules and regulations for carrying into effect the provisions of the Civil
Service Law and other pertinent laws;

(3) Promulgate policies, standards and guidelines for the Civil Service and adopt plans and programsto
promote economical, efficient and effective personnel administration in the government;

xxx xxx xxx

(10) Formulate, administer and evaluate programs relative to the development and retention of aqualified
and competent work force in the public service;

xxx xxx xxx

(14) Take appropriate action on all appointments and other personnel matters in the Civil
Service including extension of service beyond retirement age;

xxx xxx xxx

(17) Administer the retirement program for government officials and employees, and accredit government
services and evaluate qualifications for retirement;

xxx xxx xxx

(19) Perform all functions properly belonging to a central personnel agency and such other functions as
may be provided by law. (Emphasis supplied)
28
It was on the bases of the above quoted provisions of the 1987 Administrative Code that the Civil Service Commission
promulgated its Memorandum Circular No. 27. In doing so, the Commission was acting as "the central personnel agency
of the government empowered to promulgate policies, standards and guidelines for efficient, responsive and effective
personnel administration in the government." 23 It was also discharging its function of "administering the retirement
program for government officials and employees" and of "evaluat[ing] qualifications for retirement."

In addition, the Civil Service Commission is charged by the 1987 Administrative Code with providing leadership and
assistance "in the development and retention of qualified and efficient work force in the Civil Service" (Section 16 [10]) and
with the "enforcement of the constitutional and statutory provisions, relative to retirement and the regulation for
the effective implementation of the retirement of government officials and employees" (Section 16 [14]).

We find it very difficult to suppose that the limitation of permissible extensions of service after an employee has reached
sixty-five (65) years of age has no reasonable relationship or is not germane to the foregoing provisions of the present
Civil Service Law. The physiological and psychological processes associated with ageing in human beings are in fact related
to the efficiency and quality of the service that may be expected from individual persons. The policy considerations which
guided the Civil Service Commission in limiting the maximum extension of service allowable for compulsory retirees, were
summarized by Griño-Aquino, J. in her dissenting opinion in Cena:

Worth pondering also are the points raised by the Civil Service Commission that extending the service of
compulsory retirees for longer than one (1) year would: (1) give a premium to late-comers in the
government service and in effect discriminate against those who enter the service at a younger age;
(2) delay the promotion of the latter and of next-in-rank employees; and (3) prejudice the chances for
employment of qualified young civil service applicants who have already passed the various government
examination but must wait for jobs to be vacated by "extendees" who have long passed the mandatory
retirement age but are enjoying extension of their government service to complete 15 years so they may
qualify for old-age pension. 24 (Emphasis supplied).

Cena laid heavy stress on the interest of retirees or would be retirees, something that is, in itself, quite appropriate. At
the same time, however, we are bound to note that there should be countervailing stress on the interests of the employer
agency and of other government employees as a whole. The results flowing from the striking down of the limitation
established in Civil Service Memorandum Circular No. 27 may well be "absurd and inequitable," as suggested by Mme.
Justice Griño-Aquino in her dissenting opinion. An employee who has rendered only three (3) years of government service
at age sixty-five (65) can have his service extended for twelve (12) years and finally retire at the age of seventy-seven (77).
This reduces the significance of the general principle of compulsory retirement at age sixty-five (65) very close to the
vanishing point.

The very real difficulties posed by the Cena doctrine for rational personnel administration and management in the Civil
Service, are aggravated when Cena is considered together with the case of Toledo v. Civil Service
Commission. 25 Toledo involved the provisions of Rule III, Section 22, of the Civil Service Rules on Personnel Action and
Policies (CSRPAP) which prohibited the appointment of persons fifty-seven (57) years old or above in government service
without prior approval of the Civil Service Commission. Civil Service Memorandum Circular No. 5, Series of 1983 provided
that a person fifty-seven (57) years of age may be appointed to the Civil Service provided that the exigencies of the
government service so required and provided that the appointee possesses special qualifications not possessed by other
officers or employees in the Civil Service and that the vacancy cannot be filled by promotion of qualified officers or
employees of the Civil Service. Petitioner Toledo was appointed Manager of the Education and Information Division of the
Commission on Elections when he was almost fifty-nine (59) years old. No authority for such appointment had been
obtained either from the President of the Philippines or from the Civil Service Commission and the Commission found that
the other conditions laid down in Section 22 of Rule III, CSRPAP, did not exist. The Court nevertheless struck down Section
22, Rule III on the same exceedingly restrictive view of permissible administrative legislation that Cena relied on.26

When one combines the doctrine of Toledo with the ruling in Cena, very strange results follow. Under these combined
doctrines, a person sixty-four (64) years of age may be appointed to the government service and one (1) year later may
demand extension of his service for the next fourteen (14) years; he would retire at age seventy-nine (79). The net effect
is thus that the general statutory policy of compulsory retirement at sixty-five (65) years is heavily eroded and effectively
becomes unenforceable. That general statutory policy may be seen to embody the notion that there should be a certain
minimum turn-over in the government service and that opportunities for government service should be distributed as
broadly as possible, specially to younger people, considering that the bulk of our population is below thirty (30) years of
age. That same general policy also reflects the life expectancy of our people which is still significantly lower than the life
expectancy of, e.g., people in Northern and Western Europe, North America and Japan.

Our conclusion is that the doctrine of Cena should be and is hereby modified to this extent: that Civil Service Memorandum
Circular No. 27, Series of 1990, more specifically paragraph (1) thereof, is hereby declared valid and effective. Section 11
29
(b) of P.D. No. 1146 must, accordingly, be read together with Memorandum Circular No. 27. We reiterate, however, the
holding in Cena that the head of the government agency concerned is vested with discretionary authority to allow or
disallow extension of the service of an official or employee who has reached sixty-five (65) years of age without completing
fifteen (15) years of government service; this discretion is, nevertheless, to be exercised conformably with the provisions
of Civil Service Memorandum Circular No. 27, Series of 1990.

We do not believe it necessary to deal specifically with Memorandum Circular No. 65 of the Office of the President dated
14 June 1988. It will be noted from the text quoted supra (pp. 11-12) that the text itself of Memorandum Circular No. 65
(and for that matter, that of Memorandum Circular No. 163, also of the Office of the President, dated 5 March
1968) 27 does not purport to apply only to officers or employees who have reached the age of sixty-five (65) years and who
have at least fifteen (l5) years of government service. We noted earlier that Cena interpreted Memorandum Circular No.
65 as referring only to officers and employees who have both reached the compulsory retirement age of sixty-five (65)
and completed the fifteen (15) years of government service. Cena so interpreted this Memorandum Circular precisely
because Cena had reached the conclusion that employees who have reached sixty-five (65) years of age, but who have
less than fifteen (15) years of government service, may be allowed such extension of service as may be needed to complete
fifteen (15) years of service. In other words, Cena read Memorandum Circular No. 65 in such a way as to comfort
with Cena's own conclusion reached without regard to that Memorandum Circular. In view of the conclusion that we today
reached in the instant case, this last ruling of Cena is properly regarded as merely orbiter.

We also do not believe it necessary to determine whether Civil Service Memorandum Circular No. 27 is fully compatible
with Office of the President's Memorandum Circular No. 65; this question must be reserved for detailed analysis in some
future justiciable case.

Applying now the results of our reexamination of Cena to the instant case, we believe and so hold that Civil Service
Resolution No. 92-594 dated 28 April 1992 dismissing the appeal of petitioner Rabor and affirming the action of CSRO-XI
Director Cawad dated 26 July 1991, must be upheld and affirmed.

ACCORDINGLY, for all the foregoing, the Petition for Certiorari is hereby DISMISSED for lack of merit. No pronouncement
as to costs.

SO ORDERED.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza and Francisco, JJ., concur.

G.R. Nos. L-8895 and L-9191 April 30, 1957

SALVADOR A. ARANETA, ETC., ET AL., petitioners,

vs.
THE HON. MAGNO S. GATMAITAN, ETC., ET AL., respondents.

EXEQUIEL SORIANO, ET AL., petitioners-appellees,

vs.
SALVADOR ARANETA, ETC., ET AL., respondents-appellants.

Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Solicitor Troadio T. Quiazon
for petitioners.
San Juan, Africa and Benedicto for respondents.

FELIX, J.:

San Miguel Bay, located between the provinces of Camarines Norte and Camarines Sur, a part of the National waters of
the Philippines with an extension of about 250 square miles and an average depth of approximately 6 fathoms (Otter trawl
explorations in Philippine waters p. 21, Exh. B), is considered as the most important fishing area in the Pacific side of the
Bicol region. Sometime in 1950, trawl1 operators from Malabon, Navotas and other places migrated to this region most of
them settling at Sabang, Calabanga, Camarines Sur, for the purpose of using this particular method of fishing in said bay.
On account of the belief of sustenance fishermen that the operation of this kind of gear caused the depletion of the marine
resources of that area, there arose a general clamor among the majority of the inhabitants of coastal towns to prohibit
the operation of trawls in San Miguel Bay. This move was manifested in the resolution of December 18, 1953 (Exh. F),
passed by the Municipal Mayors' League condemning the operation of trawls as the cause of the wanton destruction of
the shrimp specie and resolving to petition the President of the Philippines to regulate fishing in San Miguel Bay by
declaring it closed for trawl fishing at a certain period of the year. In another resolution dated March 27, 1954, the same

30
League of Municipal Mayor, prayed the President to protect them and the fish resources of San Miguel Bay by banning
the operation of trawls therein (Exh. 4). The Provincial Governor also made proper presentations to this effect and
petitions in behalf of the non-trawl fishermen were likewise presented to the President by social and civic organizations
as the NAMFREL (National Movement for Free Elections) and the COMPADRE (Committee for Philippine Action in
Development, Reconstruction and Education), recommending the cancellation of the licenses of trawl operators after
investigation, if such inquiry would substantiate the charges that the operation of said fishing method was detrimental to
the welfare of the majority of the inhabitants (Exh. 2).

In response to these pleas, the President issued on April 5, 1954, Executive Order No. 22 (50 Off. Gaz., 1421) prohibiting
the use of trawls in San Miguel Bay, but said executive order was amended by Executive Order No. 66, issued on September
23, 1954 (50 Off. Gaz., 4037), apparently in answer to a resolution of the Provincial Board of Camarines Sur recommending
the allowance of trawl fishing during the typhoon season only. On November 2, 1954, however, Executive Order No. 80
(50 Off. Gaz., 5198) was issued reviving Executive Order No. 22, to take effect after December 31, 1954.

A group of Otter trawl operators took the matter to the court by filing a complaint for injunction and/or declaratory relief
with preliminary injunction with the Court of First Instance of Manila, docketed as Civil Case No. 24867, praying that a writ
of preliminary injunction be issued to restrain the Secretary of Agriculture and Natural Resources and the Director of
Fisheries from enforcing said executive order; to declare the same null and void, and for such other relief as may be just
and equitable in the premises.

The Secretary of Agriculture and Natural Resources and the Director of Fisheries, represented by the Legal Adviser of said
Department and a Special Attorney of the Office of the Solicitor General, answered the complaint alleging, among other
things, that of the 18 plaintiff (Exequiel Soriano, Teodora Donato, Felipe Concepcion, Venancio Correa, Santo Gaviana,
Alfredo General, Constancio Gutierrez, Arsenio de Guzman, Pedro Lazaro, Porfirio Lazaro, Deljie de Leon, Jose
Nepomuceno, Bayani Pingol, Claudio Salgado, Porfirio, San Juan, Luis Sioco, Casimiro Villar and Enrique Voluntad), only 11
were issued license to operate fishing boats for the year 1954 (Annex B, petition — L-8895); that the executive orders in
question were issued accordance with law; that the encouragement by the Bureau of Fisheries of the use of Otter trawls
should not be construed to mean that the general welfare of the public could be disregarded, and set up the defenses
that since plaintiffs question the validity of the executive orders issued by the President, then the Secretary of Agriculture
and Natural Resources and the Director of Fisheries were not the real parties in interest; that said executive orders do not
constitute a deprivation of property without due process of law, and therefore prayed that the complaint be dismissed
(Exh. B, petition, L-8895).

During the trial of the case, the Governor of Camarines Sur appearing for the municipalities of Siruma, Tinambac,
Calabanga, Cabusao and Sipocot, in said province, called the attention of the Court that the Solicitor General had not been
notified of the proceeding. To this manifestation, the Court ruled that in view of the circumstances of the case, and as the
Solicitor General would only be interested in maintaining the legality of the executive orders sought to be impugned,
section 4 of Rule 66 could be interpreted to mean that the trial could go on and the Solicitor General could be notified
before judgement is entered.

After the evidence for both parties was submitted and the Solicitor General was allowed to file his memorandum, the
Court rendered decision on February 2, 1955, the last part of which reads as follows:

The power to close any definite area of the Philippine waters, from the fact that Congress has seen fit to define
under what conditions it may be done by the enactment of the sections cited, in the mind of Congress must be of
transcendental significance. It is primarily within the fields of legislation not of execution: for it goes far and says
who can and who can not fish in definite territorial waters. The court can not accept that Congress had intended
to abdicate its inherent right to legislate on this matter of national importance. To accept respondents' view would
be to sanction the exercise of legislative power by executive decrees. If it is San Miguel Bay now, it may be Davao
Gulf tomorrow, and so on. That may be done only by Congress. This being the conclusion, there is hardly need to
go any further. Until the trawler is outlawed by legislative enactment, it cannot be banned from San Miguel Bay
by executive proclamation. The remedy for respondents and population of the coastal towns of Camarines Sur is
to go to the Legislature. The result will be to issue the writ prayed for, even though this be to strike at public
clamor and to annul the orders of the President issued in response therefor. This is a task unwelcome and
unpleasant; unfortunately, courts of justice use only one measure for both the rich and poor, and are not bound
by the more popular cause when they give judgments.

IN VIEW WHEREOF, granted; Executive Order Nos. 22, 66 and 80 are declared invalid; the injunction prayed for is
ordered to issue; no pronouncement as to costs.

Petitioners immediately filed an ex-parte motion for the issuance of a writ of injunction which was opposed by the Solicitor
General and after the parties had filed their respective memoranda, the Court issued an order dated February 19, 1955,
31
denying respondents' motion to set aside judgement and ordering them to file a bond in the sum of P30,000 on or before
March 1, 1955, as a condition for the non-issuance of the injunction prayed for by petitioners pending appeal. The Solicitor
General filed a motion for reconsideration which was denied for lack of merit, and the Court, acting upon the motion for
new trial filed by respondents, issued another order on March 3, 1965, denying said motion and granting the injunction
prayed for by petitioners upon the latter's filing a bond for P30,000 unless respondents could secure a writ of preliminary
injunction from the Supreme Court on or before March 15, 1955. Respondents, therefore, brought the matter to this Court
in a petition for prohibition and certiorariwith preliminary injunction, docketed as G.R. No. L-8895, and on the same day
filed a notice to appeal from the order of the lower court dated February 2, 1955, which appeal was docketed in this Court
as G.R. No. L-9191.

In the petition for prohibition and certiorari, petitioners (respondents therein) contended among other things, that the
order of, the respondent Judge requiring petitioners Secretary of Agriculture and Natural Resources and the Director of
Fisheries to post a bond in the sum of P30,000 on or before March 1, 1955, had been issued without jurisdiction or in
excess thereof, or at the very least with grave abuse of discretion, because by requiring the bond, the Republic of the
Philippines was in effect made a party defendant and therefore transformed the suit into one against the Government
which is beyond the jurisdiction of the respondent Judge to entertain; that the failure to give the Solicitor General the
opportunity to defend the validity of the challenged executive orders resulted in the receipt of objectionable matters at
the hearing; that Rule 66 of the Rules of Court does not empower a court of law to pass upon the validity of an executive
order in a declaratory relief proceeding; that the respondent Judge did not have the power to grant the injunction as
Section 4 of Rule 39 does not apply to declaratory relief proceedings but only to injunction, receivership and patent
accounting proceedings; and prayed that a writ of preliminary injunction be issued to enjoin the respondent Judge from
enforcing its order of March 3, 1955, and for such other relief as may be deem just and equitable in the premises. This
petition was given due course and the hearing on the merits was set by this Court for April 12, 1955, but no writ of
preliminary injunction was issued.

Meanwhile, the appeal (G.R. No. L-9191) was heard on October 3, 1956, wherein respondents-appellants ascribed to the
lower court the commission of the following errors:

1. In ruling that the President has no authority to issue Executive Orders Nos. 22, 66 and 80 banning the operation
of trawls in San Miguel Bay;

2. In holding that the power to declare a closed area for fishing purposes has not been delegated to the President
of the Philippines under the Fisheries Act;

3. In not considering Executive Orders Nos. 22, 66 and 80 as declaring a closed season pursuant to Section 7, Act
4003, as amended, otherwise known as the Fisheries Act;

4. In holding that to uphold the validity of Executive Orders Nos. 22 and 80 would be to sanction the exercise of
legislative power by executive decrees;

5. In its suggestion that the only remedy for respondents and the people of the coastal towns of Camarines Sur
and Camarines Norte is to go to the Legislature; and

6. In declaring Executive Orders Nos. 22, 66 and 80 invalid and in ordering the injunction prayed for to issue.

As Our decision in the prohibition and certiorari case (G.R. No. L-8895) would depend, in the last analysis, on Our ruling in
the appeal of the respondents in case G.R. No. L-9191, We shall first proceed to dispose of the latter case.

It is indisputable that the President issued Executive Orders Nos. 22, 66 and 80 in response to the clamor of the inhabitants
of the municipalities along the coastline of San Miguel Bay. They read as follows:

EXECUTIVE ORDER No. 22

PROHIBITING THE USE OF TRAWLS IN SAN MIGUEL BAY

In order to effectively protect the municipal fisheries of San Miguel Bay, Camarines Norte and Camarines Sur, and
to conserve fish and other aquatic resources of the area, I, RAMON MAGSAYSAY, President of the Philippines, by
virtue of the powers vested in me by law, do hereby order that:

1. Fishing by means of trawls (utase, otter and/or perenzella) of any kind, in the waters comprised within San
Miguel Bay, is hereby prohibited.

32
 2. Trawl shall mean, for the purpose of this Order, a fishing net made in the form of a bag with the mouth kept
open by a device, the whole affair being towed, dragged, trailed or trawled on the bottom of the sea to capture
demersal, ground or bottom species.

3. Violation of the provisions of this Order shall subject the offender to the penalty provided under Section 83 of
Act 4993, or more than six months, or both, in the discretion of the Court.

Done in the City of Manila, this 5th day of April, nineteen hundred and fifty-four and of the Independence of the
Philippines, the eighth. (50 Off. Gaz. 1421)

EXECUTIVE ORDER No. 66

AMENDING EXECUTIVE ORDER No. 22, DATED APRIL 5, 1954, ENTITLED "PROHIBITING THE USE OF TRAWLS IN SAN
MIGUEL BAY"

By virtue of the powers voted in me by law, I, RAMON MAGSAYSAY, President of the Philippines, do hereby amend
Executive Order No. 22, dated April 5, 1954, so as to allow fishing by means of trawls, as defined in said Executive
Order, within that portion of San Miguel Bay north of a straight line drawn from Tacubtacuban Hill in the
Municipality of Tinambac, Province of Camarines Sur. Fishing by means of trawls south of said line shall still be
absolutely prohibited.

Done in the City of Manila, this 23rd day of September, in the year of our Lord, nineteen hundred and fifty-four,
and of the Independence of the Philippines, the ninth." (50 Off. Gaz. 4037).

EXECUTIVE ORDER No. 80.

FURTHER AMENDING EXECUTIVE ORDER No. 22, DATED APRIL 5, 1954, AS AMENDED BY EXECUTIVE ORDER No.
66, DATED SEPTEMBER 23, 1954.

By virtue of the powers vested in me by law, I, RAMON MAGSAYSAY, President of the Philippines, do hereby
amend Executive Order No. 66 dated September 23, 1954, so as to allow fishing by means of trawls, as defined in
Executive Order No. 22, dated April 5, 1954, within the portion of San Miguel Bay North of a straight line drawn
from Tacubtacuban Hill in the Municipality of Mercedes, Province of Camarines Norte to Balocbaloc Point in the
Municipality of Tinambac, Province of Camarines Sur, until December 31, 1954, only.

Thereafter, the provisions of said Executive Order No. 22 absolutely prohibiting fishing by means of trawls in all
the waters comprised within the San Miguel Bay shall be revived and given full force and effect as originally
provided therein.

Done in the City of Manila, this 2nd day of November, in the year of Our Lord, nineteen hundred and fifty-four
and of the Independence of the Philippines, the ninth. (50 Off. Gaz. 5198)

It is likewise admitted that petitioners assailed the validity of said executive orders in their petition for a writ of injunction
and/or declaratory relief filed with the Court of First Instance of Manila, and that the lower court, upon declaring Executive
Orders Nos. 22, 66 and 80 invalid, issued an order requiring the Secretary of Agriculture and Natural Resources and the
Director of Fisheries to post a bond for P30,000 if the writ of injunction restraining them from enforcing the executive
orders in question must be stayed.

The Solicitor General avers that the constitutionality of an executive order cannot be ventilated in a declaratory relief
proceeding. We find this untenable, for this Court taking cognizance of an appeal from the decision of the lower court in
the case of Hilado vs. De la Costa, et al., 83 Phil., 471, which involves the constitutionality of another executive order
presented in an action for declaratory relief, in effect accepted the propriety of such action.

This question being eliminated, the main issues left for Our determination with respect to defendants' appeal (G.R. No. L-
9191), are:

(1) Whether the Secretary of an Executive Department and the Director of a Bureau, acting in their capacities as such
Government officials, could lawfully be required to post a bond in an action against them;

33
(2) Whether the President of the Philippines has authority to issue Executive Orders Nos. 22, 66 and 80, banning the
operation of trawls in San Miguel Bay, or, said in other words, whether said Executive Orders Nos. 22, 66 and 80 were
issued in accordance with law; and.

(3) Whether Executive Orders Nos. 22, 66 and 80 were valid, for the issuance thereof was not in the exercise of legislative
powers unduly delegated to the President.

Counsel for both parties presented commendable exhaustive defenses in support of their respective stands. Certainly,
these cases deserve such efforts, not only because the constitutionality of an act of a coordinate branch in our tripartite
system of Government is in issue, but also because of the number of inhabitants, admittedly classified as "subsistence
fishermen", that may be affected by any ruling that We may promulgate herein.

I. As to the first proposition, it is an elementary rule of procedure that an appeal stays the execution of a judgment. An
exception is offered by section 4 of Rule 39 of the Rules of Court which provides that:

SEC. 4. INJUNCTION, RECEIVERSHIP AND PATENT ACCOUNTING, NOT STAYED. — Unless otherwise ordered by the
court, a judgment in an action for injunction or in a receivership action, or a judgment or order directing an
accounting in an action for infringement of letter patent, shall not be stayed after its rendition and before an
appeal is taken or during the pendency of an appeal. The trial court, however, in its discretion, when an appeal is
taken from a judgement granting, dissolving or denying an injunction, may make an order suspending, modifying,
restoring, or granting such injunction during the pendency of an appeal, upon such terms as to bond or otherwise
as it may consider proper for the security of the rights of the adverse party.

This provision was the basis of the order of the lower court dated February 19, 1955, requiring the filing by the respondents
of a bond for P30,000 as a condition for the non-issuance of the injunction prayed for by plaintiffs therein, and which the
Solicitor General charged to have been issued in excess of jurisdiction. The State's counsel, however, alleges that while
judgment could be stayed in injunction, receivership and patent accounting cases and although the complaint was styled
"Injunction, and/or Declaratory Relief with Preliminary Injunction", the case is necessarily one for declaratory relief, there
being no allegation sufficient to convince the Court that the plaintiffs intended it to be one for injunction. But aside from
the title of the complaint, We find that plaintiffs pray for the declaration of the nullity of Executive Order Nos. 22, 66 and
80; the issuance of a writ of preliminary injunction, and for such other relief as may be deemed just and equitable. This
Court has already held that there are only two requisites to be satisfied if an injunction is to issue, namely, the existence
of the right sought to be protected, and that the acts against which the injunction is to be directed are violative of said
right (North Negros Sugar Co., Inc. vs.Serafin Hidalgo, 63 Phil., 664). There is no question that at least 11 of the complaining
trawl operators were duly licensed to operate in any of the national waters of the Philippines, and it is undeniable that
the executive enactment's sought to be annulled are detrimental to their interests. And considering further that the
granting or refusal of an injunction, whether temporary or permanent, rests in the sound discretion of the Court, taking
into account the circumstances and the facts of the particular case (Rodulfa vs. Alfonso, 76 Phil,, 225, 42 Off. Gaz., 2439),
We find no abuse of discretion when the trial Court treated the complaint as one for injunction and declaratory relief and
executed the judgment pursuant to the provisions of section 4 of Rule 39 of the Rules of Court.

On the other hand, it shall be remembered that the party defendants in Civil Case No. 24867 of the Court of First Instance
of Manila are Salvador Araneta, as Secretary of Agriculture and Natural Resources, and, Deogracias Villadolid, as Director
of Fisheries, and were sued in such capacities because they were the officers charged with duty of carrying out the
statutes, orders and regulations on fishing and fisheries. In its order of February 19, 1955, the trial court denied
defendants' motion to set aside judgment and they were required to file a bond for P30,000 to answer for damages that
plaintiffs were allegedly suffering at that time, as otherwise the injunction prayed for by the latter would be issued.

Because of these facts, We agree with the Solicitor General when he says that the action, being one against herein
petitioners as such Government officials, is essentially one against the Government, and to require these officials to file a
bond would be indirectly a requirement against the Government for as regards bonds or damages that may be proved, if
any, the real party in interest would be the Republic of the Philippines (L. S. Moon and Co. vs. Harrison, 43 Phi., 39;
Salgado vs. Ramos, 64 Phil., 724-727, and others). The reason for this pronouncement is understandable; the State
undoubtedly is always solvent (Tolentino vs. Carlos 66 Phil., 140; Government of the P. I. vs. Judge of the Court of First
Instance of Iloilo, 34 Phil., 167, cited in Joaquin Gutierrez et al. vs. Camus et al. * G.R. No. L-6725, promulgated October
30, 1954). However, as the records show that herein petitioners failed to put up the bond required by the lower court,
allegedly due to difficulties encountered with the Auditor General's Office (giving the impression that they were willing to
put up said bond but failed to do so for reasons beyond their control), and that the orders subjects of the prohibition
and certiorari proceedings in G.R. No. L-8895, were enforced, if at all,2 in accordance with section 4 of Rule 39, which We
hold to be applicable to the case at bar, the issue as to the regularity or adequacy of requiring herein petitioners to post
a bond, becomes moot and academic.

34
II. Passing upon the question involved in the second proposition, the trial judge extending the controversy to the
determination of which between the Legislative, and Executive Departments of the Government had "the power to close
any definite area of the Philippine waters" instead of limiting the same to the real issue raised by the enactment of
Executive Orders No. 22, 26 and 80, especially the first and the last "absolutely prohibiting fishing by means trawls in all
the waters comprised within the San Miguel Bay", ruled in favor of Congress had not intended to abdicate its power to
legislate on the matter, he maintained as stated before, that "until the trawler is outlawed by legislative enactment, it
cannot be banned from San Miguel Bay by executive proclamation", and that "the remedy for respondents and population
of the coastal towns of Camarines Sur is to go to Legislature," and thus declared said Executive Orders Nos. 22, 66 and 80
invalid".

The Solicitor General, on the contrary, asserts that the President is empowered by law to issue the executive enactment's
in question.

Sections 6, 13 and 75 of Act No. 4003, known as the Fisheries Law, the latter two sections as amended by section 1 of
Commonwealth Act No. 471, read as follows:

SEC. 6. WORDS AND PHRASES DEFINED. —Words and terms used in this Act shall be construed as follows:

xxx xxx xxx

TAKE or TAKING includes pursuing, shooting, killing, capturing, trapping, snaring, and netting fish and other
aquatic animals, and all lesser acts, such as disturbing, wounding, stupefying; or placing, setting, drawing, or using
any net or other device commonly used to take or collect fish and other aquatic animals, whether they result in
taking or not, and includes every attempt to take and every act of assistance to every other person in taking or
attempting to take or collect fish and other aquatic animals: PROVIDED, That whenever taking is allowed by law,
reference is had to taking by lawful means and in lawful manner.

xxx xxx xxx

SEC. 13. PROTECTION OF FRY OR FISH EGGS. — Except for scientific or educational purpose or for propagation, it
shall be unlawful to take or catch fry or fish eggs and the small fish, not more than three (3) centimeters long,
known as siliniasi, in the territorial waters of the Philippines. Towards this end, the Secretary of Agriculture and
Commerce shall be authorized to provide by regulations such restrictions as may be deemed necessary to be
imposed on THE USE OF ANY FISHING NET OR FISHING DEVICE FOR THE PROTECTION OF FRY OR FISH EGGS;
Provided, however, That the Secretary of Agriculture and Commerce shall permit the taking of young of certain
species of fish known as hipon under such restrictions as may be deemed necessary.

SEC. 75. FISH REFUGEES AND SANCTUARIES. — Upon the recommendation of the officer or chief of the bureau,
office or service concerned, the Secretary of Agriculture and Commerce may set aside and establish fishery
reservation or fish refuges and sanctuaries to be administered in the manner to be prescribed by him. All streams,
ponds and waters within the game refuge, birds, sanctuaries, national parks, botanical gardens, communal forest
and communal pastures are hereby declared fishing refuges and sanctuaries. It shall be unlawful for any person,
to take, destroy or kill in any of the places aforementioned, or in any manner disturb or drive away or take
therefrom, any fish fry or fish eggs.

Act No. 4003 further provides as follows:

SEC. 83. OTHER VIOLATIONS. — Any other violation of the provisions of this Act or any rules and regulations
promulgated thereunder shall subject the offender to a fine of not more than two hundred pesos, or
imprisonment for not more than six months, or both, in the discretion of the Court.

As may be seen from the just quoted provisions, the law declares unlawful and fixes the penalty for the taking (except for
scientific or educational purposes or for propagation), destroying or killing of any fish fry or fish eggs, and the Secretary of
Agriculture and Commerce (now the Secretary of Agriculture and Natural Resources) is authorized to promulgate
regulations restricting the use of any fish net or fishing device (which includes the net used by trawl fishermen) for the
protection of fry or fish eggs, as well as to set aside and establish fishery reservations or fish refuges and sanctuaries to
be administered in the manner prescribed by him, from which no person could lawfully take, destroy or kill in any of the
places aforementioned, or in any manner disturb or drive away or take therefrom any small or immature fish, fry or fish
eggs. It is true that said section 75 mentions certain streams, ponds and waters within the game refuges, . . . communal
forest, etc., which the law itself declares fish refuges and sanctuaries, but this enumeration of places does not curtail the
general and unlimited power of the Secretary of Agriculture and Natural Resources in the first part of section 75, to set

35
aside and establish fishery reservations or fish refuges and sanctuaries, which naturally include seas or bays, like the San
Miguel Bay in Camarines.

From the resolution passed at the Conference of Municipal Mayors held at Tinambac, Camarines Sur, on December 18,
1953 (Exh. F), the following manifestation is made:

WHEREAS, the continuous operation of said trawls even during the close season as specified in said Executive
Order No. 20 caused the wanton destruction of the mother shrimps laying their eggs and the millions of eggs laid
and the inevitable extermination of the shrimps specie; in order to save the shrimps specie from eventual
extermination and in order to conserve the shrimps specie for posterity;

In the brief submitted by the NAMFREL and addressed to the President of the Philippines (Exh. 2), in support of the petition
of San Miguel Bay fishermen (allegedly 6, 175 in number), praying that trawlers be banned from operating in San Miguel
Bay, it is stated that:

The trawls ram and destroy the fish corrals. The heavy trawl nets dig deep into the ocean bed. They destroy the
fish foods which lies below the ocean floor. Their daytime catches net millions of shrimps scooped up from the
mud. In their nets they bring up the life of the sea: algea, shell fish and star fish . . .

The absence of some species or the apparent decline in the catch of some fishermen operating in the bay may be
due to several factors, namely: the indiscriminate catching of fry and immature sizes of fishes, the wide-spread
use of explosives inside as well as at the mouth and approaches of the bay, and the extensive operation of the
trawls. (p.9, Report of Santos B. Rasalan, Exh. A)

Extensive Operation of Trawls: — The strenuous effect of the operations of the 17 TRAWLS of the demersal
fisheries of San Miguel Bay is better appreciated when we consider the fact that out of its about 850 square
kilometers area, only about 350 square kilometers of 5 fathoms up could be trawled. With their continuous
operation, is greatly strained. This is shown by the fact that in view of the non-observance of the close season
from May to October, each year, majority of their catch are immature. If their operation would continue
unrestricted, the supply would be greatly depleted. (p. 11), Report of Santos B. Rasalan, Exh. A)

San Miguel Bay — can sustain 3 to 4 small trawlers (Otter Trawl Explorations in Philippine Waters, Research Report
25 of the Fish and Wildlife Service, United States Department of the Interior, p. 9 Exhibit B).

According to Annex A of the complaint filed in the lower court in Civil Case No. 24867 — G.R. No. L-9191 (Exh. D, p. 53 of
the folder of Exhibits), the 18 plaintiffs-appellees operate 29 trawling boats, and their operation must be in a big scale
considering the investments plaintiffs have made therefore, amounting to P387,000 (Record on Appeal, p. 16-17).

In virtue of the aforementioned provisions of law and the manifestation just copied, We are of the opinion that with or
without said Executive Orders, the restriction and banning of trawl fishing from all Philippine waters come, under the law,
within the powers of the Secretary of Agriculture and Natural Resources, who in compliance with his duties may even
cause the criminal prosecution of those who in violation of his instructions, regulations or orders are caught fishing with
trawls in the Philippine waters.

Now, if under the law the Secretary of Agriculture and Natural Resources has authority to regulate or ban the fishing by
trawl which, it is claimed, obnoxious for it carries away fish eggs and fry's which should be preserved, can the President of
the Philippines exercise that same power and authority? Section 10(1), Article VII of the Constitution of the Philippines
prescribes:

SEC. 10 (1). The President shall have control of all the executive departments, bureaus or offices, exercises general
supervision over all local governments as may be provided by law, and take care that the laws be faithfully
executed.

Section 63 of the Revised Administrative Code reads as follows:

SEC. 63. EXECUTIVE ORDERS AND EXECUTIVE PROCLAMATION. — Administrative acts and commands of the
President of the Philippines touching the organization or mode of operation of the Government or rearranging or
readjusting any of the district, divisions, parts or ports of the Philippines, and all acts and commands governing
the general performance of duties by public employees or disposing of issues of general concern shall be made in
executive orders.

36
 xxx xxx xxx

Regarding department organization Section 74 of the Revised Administrative Code also provides that:

All executive functions of the government of the Republic of the Philippines shall be directly under the Executive
Departments subject to the supervision and control of the President of the Philippines in matters of general policy.
The Departments are established for the proper distribution of the work of the Executive, for the performance of
the functions expressly assigned to them by law, and in order that each branch of the administration may have a
chief responsible for its direction and policy. Each Department Secretary shall assume the burden of, and
responsibility for, all activities of the Government under his control and supervision.

For administrative purposes the President of the Philippines shall be considered the Department Head of the
Executive Office.

One of the executive departments is that of Agriculture and Natural Resources which by law is placed under the direction
and control of the Secretary, who exercises its functions subject to the general supervision and control of the President of
the Philippines (Sec. 75, R. A. C.). Moreover, "executive orders, regulations, decrees and proclamations relative to matters
under the supervision or jurisdiction of a Department, the promulgation whereof is expressly assigned by law to the
President of the Philippines, shall as a general rule, be issued upon proposition and recommendation of the respective
Department" (Sec. 79-A, R.A.C.), and there can be no doubt that the promulgation of the questioned Executive Orders was
upon the proposition and recommendation of the Secretary of Agriculture and Natural Resources and that is why said
Secretary, who was and is called upon to enforce said executive Orders, was made a party defendant in one of the cases
at bar (G.R. No. L-9191).

For the foregoing reasons We do hesitate to declare that Executive Orders Nos. 22, 66 and 80, series of 1954, of the
President, are valid and issued by authority of law.

III. But does the exercise of such authority by the President constitute and undue delegation of the powers of Congress?

As already held by this Court, the true distinction between delegation of the power to legislate and the conferring of
authority or discretion as to the execution of law consists in that the former necessary involves a discretion as to what the
law shall be, wile in the latter the authority or discretion as to its execution has to be exercised under and in pursuance of
the law. The first cannot be done; to the latter no valid objection can be made (Cruz vs. Youngberg, 56 Phil., 234, 239. See
also Rubi, et al. vs. The Provincial Board of Mindoro, 39 Phil., 660).

In the case of U. S. vs. Ang Tang Ho, 43 Phil. 1, We also held:

THE POWER TO DELEGATE. — The Legislature cannot delegate legislative power to enact any law. If Act No. 2868
is a law unto itself, and it does nothing more than to authorize the Governor-General to make rules and regulations
to carry it into effect, then the Legislature created the law. There is no delegation of power and it is valid. On the
other hand, if the act within itself does not define a crime and is not complete, and some legislative act remains
to be done to make it a law or a crime, the doing of which is vested in the Governor-General, the act is delegation
of legislative power, is unconstitutional and void.

From the provisions of Act No. 4003 of the Legislature, as amended by Commonwealth Act No. 471, which have been
aforequoted, We find that Congress (a) declared it unlawful "to take or catch fry or fish eggs in the territorial waters of
the Philippines; (b) towards this end, it authorized the Secretary of Agriculture and Natural Resources to provide by the
regulations such restrictions as may be deemed necessary to be imposed on the use of any fishing net or fishing device for
the protection of fish fry or fish eggs (Sec. 13); (c) it authorized the Secretary of Agriculture and Natural Resources to set
aside and establish fishery reservations or fish refuges and sanctuaries to be administered in the manner to be prescribed
by him and declared it unlawful for any person to take, destroy or kill in any of said places, or, in any manner disturb or
drive away or take therefrom, any fish fry or fish eggs (See. 75); and (d) it penalizes the execution of such acts declared
unlawful and in violation of this Act (No. 4003) or of any rules and regulations promulgated thereunder, making the
offender subject to a fine of not more than P200, or imprisonment for not more than 6 months, or both, in the discretion
of the court (Sec. 83).

From the foregoing it may be seen that in so far as the protection of fish fry or fish egg is concerned, the Fisheries Act is
complete in itself, leaving to the Secretary of Agriculture and Natural Resources the promulgation of rules and regulations
to carry into effect the legislative intent. It also appears from the exhibits on record in these cases that fishing with trawls
causes "a wanton destruction of the mother shrimps laying their eggs and the millions of eggs laid and the inevitable
extermination of the shrimps specie" (Exh. F), and that, "the trawls ram and destroy the fish corrals. The heavy trawl nets

37
dig deep into the ocean bed. They destroy the fish food which lies below the ocean floor. Their daytime catches net millions
of shrimps scooped up from the mud. In their nets they bring up the life of the sea" (Exh- 2).

In the light of these facts it is clear to Our mind that for the protection of fry or fish eggs and small and immature fishes,
Congress intended with the promulgation of Act No. 4003, to prohibit the use of any fish net or fishing device like trawl
nets that could endanger and deplete our supply of sea food, and to that end authorized the Secretary of Agriculture and
Natural Resources to provide by regulations such restrictions as he deemed necessary in order to preserve the aquatic
resources of the land. Consequently, when the President, in response to the clamor of the people and authorities of
Camarines Sur issued Executive Order No. 80 absolutely prohibiting fishing by means of trawls in all waters comprised
within the San Miguel Bay, he did nothing but show an anxious regard for the welfare of the inhabitants of said coastal
province and dispose of issues of general concern (Sec. 63, R.A.C.) which were in consonance and strict conformity with
the law.

Wherefore, and on the strength of the foregoing considerations We render judgement, as follows:

(a) Declaring that the issues involved in case G.R. No. L-8895 have become moot, as no writ of preliminary injunction has
been issued by this Court the respondent Judge of the Court of First Instance of Manila Branch XIV, from enforcing his
order of March 3, 1955; and

(b) Reversing the decision appealed from in case G. R. No. L-9191; dissolving the writ of injunction prayed for in the lower
court by plaintiffs, if any has been actually issued by the court a quo; and declaring Executive Orders Nos. 22, 66 and 80,
series of 1954, valid for having been issued by authority of the Constitution, the Revised Administrative Code and the
Fisheries Act.

Without pronouncement as to costs. It is so ordered.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.

G.R. No. L-32096 October 24, 1970

ROMEO F. EDU, in his capacity as Land Transportation Commissioner, petitioner,

vs.
HON. VICENTE G. ERICTA in his capacity as Judge of the Court of First Instance of Rizal, Br. XVIII, Quezon City, and TEDDY
C. GALO respondents.

Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General Hector C. Fule and Solicitor Vicente A.
Torres for petitioner.

Teddy C. Galo in his own behalf.

Judge Vicente Ericta in his own behalf.

FERNANDO, J.:.

Petitioner Romeo F. Edu, the Land Transportation Commissioner, would have us rule squarely on the constitutionality of
the Reflector Law1 in this proceeding for certiorari and prohibition against respondent Judge, the Honorable Vicente G.
Ericta of the Court of First Instance of Rizal, Quezon City Branch, to annul and set aside his order for the issuance of a writ
of preliminary injunction directed against Administrative Order No. 2 of petitioner for the enforcement of the aforesaid
statute, in a pending suit in his court for certiorari and prohibition, filed by the other respondent Teddy C. Galo assailing;
the validity of such enactment as well as such administrative order. Respondent Judge, in his answer, would join such a
plea asking that the constitutional and legal questions raised be decided "once and for all." Respondent Teddy C. Galo
who was quite categorical in his assertion that both the challenged legislation and the administrative order transgress the
constitutional requirements of due process and non-delegation, is not averse either to such a definitive ruling. Considering
the great public interest involved and the reliance by respondent Galo and the allegation that the repugnancy to the
fundamental law could be discerned on the face of the statute as enacted and the executive order as promulgated, this
Court, sees no obstacle to the determination in this proceeding of the constitutional questions raised. For reasons to be
hereafter stated, we sustain the validity of the Reflector Law and Administrative Order No. 2 issued in the implementation
thereof, the imputation of constitutional infirmity being at best flimsy and insubstantial.

38
As noted in the answer of respondent Judge, respondent Galo on his behalf and that of other motorist filed on May 20,
1970 a suit for certiorari and prohibition with preliminary injunction assailing the validity of the challenged Act as an invalid
exercise of the police power, for being violative of the due process clause. This he followed on May 28, 1970 with a
manifestation wherein he sought as an alternative remedy that, in the event that respondent Judge would hold said
statute constitutional, Administrative Order No. 2 of the Land Transportation Commissioner, now petitioner,
implementing such legislation be nullified as an undue exercise of legislative power. There was a hearing on the plea for
the issuance of a writ of preliminary injunction held on May 27. 1970 where both parties were duly represented, but no
evidence was presented. The next day, on May 28, 1970, respondent Judge ordered the issuance of a preliminary
injunction directed against the enforcement of such administrative order. There was the day after, a motion for its
reconsideration filed by the Solicitor General representing petitioner. In the meanwhile, the clerk of court of respondent
Judge issued, on June 1, 1970 the writ of preliminary injunction upon the filing of the required bond. The answer before
the lower court was filed by petitioner Edu on June 4, 1970. Thereafter, on June 9, 1970, respondent Judge denied the
motion for reconsideration of the order of injunction. Hence this petition for certiorari and prohibition filed with this court
on June 18, 1970.

In a resolution of June 22, 1970, this Court required respondents to file an answer to the petition for certiorari and
prohibition. Respondent Judge, the Honorable Vicente G. Ericta, did file his answer on June 30, 1970 explaining why he
restrained the enforcement of Administrative Order No. 2 and, as noted at the outset, joining the Solicitor General in
seeking that the legal questions raised namely the constitutionality of the Reflector Law and secondly the validity of
Administrative Order No. 2 alleged to be in excess of the authority conferred on petitioner and therefore violative of the
principle of non-delegation of legislative power be definitely decided. It was on until July 6, 1970 that respondent Galo
filed his answer seeking the dismissal of this petition concentrating on what he considered to be the patent invalidity of
Administrative Order No. 2 as it went beyond the authority granted by the Reflector Law, even assuming that it is
constitutional. In the meanwhile, on July 2, 1970, the petition was called for hearing with Solicitor Vicente Torres appearing
for petitioner and respondent Galo for himself. It was made clear during the course of such argumentation that the matter
of the constitutionality of the Reflector Law was likewise under consideration by this Court. The case is thus ripe for
decision.

We repeat that we find for petitioner and sustain the Constitutionality of the Reflector Law as well as the validity of
Administrative Order No. 2.

1. The threshold question is whether on the basis of the petition, the answers, and the oral argument, it would be proper
for this Court to resolve the issue of the constitutionality of the Reflector Law. Our answer, as indicated, is in the
affirmative. It is to be noted that the main thrust of the petition before us is to demonstrate in a rather convincing fashion
that the challenged legislation does not suffer from the alleged constitutional infirmity imputed to it by the respondent
Galo. Since the special civil action for certiorari and prohibition filed before him before respondent Judge would seek a
declaration of nullity of such enactment by the attribution of the violation the face thereof of the due process guarantee
in the deprivation of property rights, it would follow that there is sufficient basis for us to determine which view should
prevail. Moreover, any further hearing by respondent Judge would likewise to limited to a discussion of the constitutional
issues raised, no allegations of facts having made. This is one case then where the question of validity is ripe for
determination. If we do so, further effort need not be wasted and time is saved moreover, the officials concerned as well
as the public, both vitally concerned with a final resolution of questions of validity, could know the definitive answer and
could act accordingly. There is a great public interest, as was mentioned, to be served by the final disposition of such
crucial issue, petitioner praying that respondent Galo be declared having no cause of action with respondent Judge being
accordingly directed to dismiss his suit.

There is another reinforcement to this avenue of approach. We have done so before in a suit, Climaco v.
Macadaeg,2 involving the legality of a presidential directive. That was a petition for the review and reversal of a writ of
preliminary injunction issued by the then Judge Macadaeg. We there announced that we "have decided to pass upon the
question of the validity of the presidential directive ourselves, believing that by doing so we would be putting an end to a
dispute, a delay in the disposition of which has caused considerable damage and injury to the Government and to the
tobacco planters themselves."

There is no principle of constitutional adjudication that bars this Court from similarly passing upon the question of the
validity of a legislative enactment in a proceeding before it to test the propriety of the issuance of a preliminary injunction.
The same felt need for resolving once and for all the vexing question as to the constitutionality of a challenged enactment
and thus serve public interest exists. What we have done in the case of an order proceeding from one of the coordinate
branches, the executive, we can very well do in the matter before us involving the alleged nullity of a legislative act.
Accordingly, there is nothing to preclude the grant of the writs prayed for, the burden of showing the constitutionality of
the act having proved to be as will now be shown too much for respondent Galo.

39
2. The Reflector Law reads in full: "(g) Lights and reflector when parked or disabled. — Appropriate parking lights or flares
visible one hundred meters away shall be displayed at a corner of the vehicle whenever such vehicle is parked on highways
or in places that are not well-lighted or is placed in such manner as to endanger passing traffic. Furthermore, every motor
vehicle shall be provided at all times with built-in reflectors or other similar warning devices either pasted, painted or
attached to its front and back which shall likewise be visible at light at least one hundred meters away. No vehicle not
provided with any of the requirements mentioned in this subsection shall be registered."3 It is thus obvious that the
challenged statute is a legislation enacted under the police power to promote public safety.

Justice Laurel, in the first leading decision after the Constitution came to force, Calalang v. Williams,4 identified police
power with state authority to enact legislation that may interfere with personal liberty or property in order to promote
the general welfare. Persons and property could thus "be subjected to all kinds of restraints and burdens in order to secure
the general comfort, health and prosperity of the state." Shortly after independence in 1948, Primicias v.
Fugoso,5 reiterated the doctrine, such a competence being referred to as "the power to prescribe regulations to promote
the health, morals, peace, education, good order or safety, and general welfare of the people." The concept was set forth
in negative terms by Justice Malcolm in a pre-Commonwealth decision as "that inherent and plenary power in the State
which enables it to prohibit all things hurtful to the comfort, safety and welfare of society."6 In that sense it could be hardly
distinguishable as noted by this Court in Morfe v. Mutuc7 with the totality of legislative power.

It is in the above sense the greatest and most powerful attribute of government. It is to quote Justice Malcolm anew "the
most essential, insistent, and at least illimitable of powers," 8 extending as Justice Holmes aptly pointed out "to all the
great public needs." 9 Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where
it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus
assuring the greatest benefits. In the language of Justice Cardozo: "Needs that were narrow or parochial in the past may
be interwoven in the present with the well-being of the nation. What is critical or urgent changes with the
time." 10 The police power is thus a dynamic agency, suitably vague and far from precisely defined, rooted in the
conception that men in organizing the state and imposing upon its government limitations to safeguard constitutional
rights did not intend thereby to enable an individual citizen or a group of citizens to obstruct unreasonably the enactment
of such salutary measures calculated to insure communal peace, safety, good order, and welfare.

It would then be to overturn a host of decisions impressive for their number and unanimity were this Court to sustain
respondent Galo. 11 That we are not disposed to do, especially so as the attack on the challenged statute ostensibly for
disregarding the due process safeguard is angularly unpersuasive. It would be to close one's eyes to the hazards of traffic
in the evening to condemn a statute of this character. Such an attitude betrays lack of concern for public safety. How can
it plausibly alleged then that there was no observance of due process equated as it has always been with that is
reasonable? The statute assailed is not infected with arbitrariness. It is not the product of whim or caprice. It is far from
oppressive. It is a legitimate response to a felt public need. It can stand the test of the most unsymphatetic appraisal.

Respondent Galo is of a different mind, having been unable to resist the teaching of many American State Court decisions
referred to in the secondary source, American Jurisprudence principally relied upon by him. He ought to have been
cautioned against an indiscriminate acceptance of such doctrines predicated on what was once a fundamental postulate
in American public law, laissez faire.

It is to be admitted that there was a period when such a concept did influence American court decisions on constitutional
law. As was explicitly stated by Justice Cardozo speaking of that era: "Laissez-faire was not only a counsel of caution which
would do well to heed. It was a categorical imperative which statesmen as well as judges must obey." 12 For a long time
legislation tending to reduce economic inequality foundered on the rock that was the due process clause, enshrining as it
did the liberty of contract, based on such a basic assumption.

The New Deal administration of President Roosevelt more responsive to the social and economic forces at work changed
matters greatly. By 1937, there was a greater receptivity by the American Supreme Court to an approach not too
reverential of property rights. Even earlier, in 1935, Professor Coker of Yale, speaking as a historian, could already discern
a contrary drift. He did note the expending range of governmental activity in the United States. 13What is undeniable is
that by 1943, laissez-faire was no longer the dominant theory. In the language of Justice Jackson in the leading case
of West Virginia State Board of Education v. Barnette: 14 "We must, transplant these rights to a soil in which the laissez-
faire concept or non-interference has withered at least as to economic affairs, and social advancements are increasingly
sought through closer integration of society and through expanded and strengthened governmental controls."

While authoritative precedents from the United States federal and state jurisdictions were deferred to when the
Philippines was still under American rule, it cannot be said that the laissez-faire principle was invariably adhered to by us
even then As early as 1919, in the leading case of Rubi v. Provincial Board of Mindoro, 15 Justice Malcolm already had
occasion to affirm: "The doctrines of laissez-faire and of unrestricted freedom of the individual, as axioms of economic
and political theory, are of the past. The modern period has shown a widespread belief in the amplest possible
40
demonstration of government activity. The Courts unfortunately have sometimes seemed to trail after the other two
branches of the Government in this progressive march." People v. Pomar, 16 a 1924 decision which held invalid under the
due process clause a provision providing for maternity leave with pay thirty days before and thirty days after confinement
could be cited to show that such a principle did have its day. It is to be remembered though that our Supreme Court had
no other choice as the Philippines was then under the United States, and only recently the year before, the American
Supreme Court in Adkins v. Children's Hospital, 17 in line with the laissez-faire theory, did hold that a statute providing for
minimum wages was constitutionally infirm.

What is more, to erase any doubts, the Constitutional Convention saw to it that the concept of laissez-faire was rejected.
It entrusted to our government the responsibility of coping with social and economic problems with the commensurate
power of control over economic affairs. Thereby it could live up to its commitment to promote the general welfare through
state action. No constitutional objection to regulatory measures adversely affecting property rights, especially so when
public safety is the aim, is likely to be heeded, unless of course on the clearest and most satisfactory proof of invasion of
rights guaranteed by the Constitution. On such a showing, there may be a declaration of nullity, but not because
the laissez-faire principle was disregarded but because the due process, equal protection, or non-impairment guarantees
would call for vindication.

To repeat, our Constitution which took effect in 1935 erased whatever doubts there might be on that score. Its philosophy
is a repudiation of laissez-faire. One of the leading members of the Constitutional Convention, Manuel A. Roxas, later the
first President of the Republic, made it clear when he disposed of the objection of Delegate Jose Reyes of Sorsogon, who
noted the "vast extensions in the sphere of governmental functions" and the "almost unlimited power to interfere in the
affairs of industry and agriculture as well as to compete with existing business" as "reflections of the fascination exerted
by [the then] current tendencies" in other jurisdictions. 18 He spoke thus: "My answer is that this constitution has definite
and well defined philosophy not only political but social and economic. ... If in this Constitution the gentlemen will find
declarations of economic policy they are there because they are necessary to safeguard the interests and welfare of the
Filipino people because we believe that the days have come when in self-defense, a nation may provide in its constitution
those safeguards, the patrimony, the freedom to grow, the freedom to develop national aspirations and national interests,
not to be hampered by the artificial boundaries which a constitutional provision automatically imposes. 19

It was not expected then when in a concurring opinion, Justice Laurel, who likewise sat in the Constitutional Convention
and was one of its leading lights, explicitly affirmed in a concurring opinion, later quoted with approval in the leading case
of Antamok Goldfields Mining Co. v. Court of Industrial Relations, 20 that the Constitution did away with the laissez-
faire doctrine. In the course of such concurring opinion and after noting the changes that have taken place calling for a
more affirmative role by the government and its undeniable power to curtail property rights, he categorically declared the
doctrine in People v. Pomar no longer retains "its virtuality as a living principle." 21

It is in the light of such rejection of the laissez-faire principle that during the Commonwealth era, no constitutional
infirmity was found to have attached to legislation covering such subjects as collective bargaining, 22 security of
tenure, 23minimum wages, 24 compulsory arbitration, 25 the regulation of tenancy 26 as well as the issuance of
securities, 27 and control of public services. 28 So it is likewise under the Republic this Court having given the seal of
approval to more favorable tenancy laws, 29nationalization of the retail trade, 30 limitation of the hours of
labor, 31 imposition of price control, 32 requirement of separation pay for one month, 33 and social security scheme. 34

Respondent Galo thus could have profited by a little more diligence in the scrutiny of Philippine decisions rendered with
not unexpected regularity, during all the while our Constitution has been in force attesting to the demise of such a
shibboleth as laissez-faire. It was one of those fighting faiths that time and circumstances had upset, to paraphrase
Holmes. Yet respondent Galo would seek to vivify and resurrect it. That, it would appear, is a vain quest, a futile
undertaking. The Reflector Law is thus immune from the attack so recklessly hurled against it. It can survive, and quite
easily too, the constitutional test.

3. The same lack of success marks the effort of respondent Galo to impugn the validity of Administrative Order No. 2
issued by petitioner in his official capacity, duly approved by the Secretary of Public Works and Communications, for being
contrary to the principle of non-delegation of legislative power. Such administrative order, which took effect on April 17,
1970, has a provision on reflectors in effect reproducing what was set forth in the Act. Thus: "No motor vehicles of
whatever style, kind, make, class or denomination shall be registered if not equipped with reflectors. Such reflectors shall
either be factory built-in-reflector commercial glass reflectors, reflection tape or luminous paint. The luminosity shall have
an intensity to be maintained visible and clean at all times such that if struck by a beam of light shall be visible 100 meters
away at night." 35 Then came a section on dimensions, placement and color. As to dimensions the following is provided
for: "Glass reflectors — Not less than 3 inches in diameter or not less than 3 inches square; Reflectorized Tape — At least
3 inches wide and 12 inches long. The painted or taped area may be bigger at the discretion of the vehicle
owner." 36 Provision is then made as to how such reflectors are to be "placed, installed, pasted or painted." 37 There is the
further requirement that in addition to such reflectors there shall be installed, pasted or painted four reflectors on each
41
side of the motor vehicle parallel to those installed, pasted or painted in front and those in the rear end of the body
thereof. 38 The color required of each reflectors, whether built-in, commercial glass, reflectorized tape or reflectorized
paint placed in the front part of any motor vehicle shall be amber or yellow and those placed on the sides and in the rear
shall all be red. 39

Penalties resulting from a violation thereof could be imposed. Thus: "Non-compliance with the requirements contained
in this Order shall be sufficient cause to refuse registration of the motor vehicle affected and if already registered, its
registration maybe suspended in pursuance of the provisions of Section 16 of RA 4136; [Provided], However, that in the
case of the violation of Section 1(a) and (b) and paragraph (8) Section 3 hereof, a fine of not less than ten nor more than
fifty pesos shall be imposed. 40 It is not to be lost sight of that under Republic Act No. 4136, of which the Reflector Law is
an amendment, petitioner, as the Land Transportation Commissioner, may, with the approval of the Secretary of Public
Works and Communications, issue rules and regulations for its implementation as long as they do not conflict with its
provisions. 41 It is likewise an express provision of the above statute that for a violation of any of its provisions or
regulations promulgated pursuant thereto a fine of not less than P10 nor not less than P50 could be imposed. 42

It is a fundamental principle flowing from the doctrine of separation of powers that Congress may not delegate its
legislative power to the two other branches of the government, subject to the exception that local governments may over
local affairs participate in its exercise. What cannot be delegated is the authority under the Constitution to make laws and
to alter and repeal them; the test is the completeness of the statute in all its term and provisions when it leaves the hands
of the legislature. To determine whether or not there is an undue delegation of legislative power the inquiry must be
directed to the scope and definiteness of the measure enacted. The legislature does not abdicate its functions when it
describes what job must be done, who is to do it, and what is the scope of his authority. For a complex economy, that may
indeed be the only way in which the legislative process can go forward. A distinction has rightfully been made between
delegation of power to make the laws which necessarily involves a discretion as to what it shall be, which constitutionally
may not be done, and delegation of authority or discretion as to its execution to exercised under and in pursuance of the
law, to which no valid objection call be made. The Constitution is thus not to be regarded as denying the legislature the
necessary resources of flexibility and practicability.

To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that the legislature
itself determines matters of principle and lay down fundamental policy. Otherwise, the charge of complete abdication
may be hard to repel. A standard thus defines legislative policy, marks its limits, its maps out its boundaries and specifies
the public agency to apply it. It indicates the circumstances under which the legislative command is to be effected. It is
the criterion by which legislative purpose may be carried out. Thereafter, the executive or administrative office designated
may in pursuance of the above guidelines promulgate supplemental rules and regulations.

The standard may be either express or implied. If the former, the non-delegation objection is easily met. The standard
though does not have to be spelled out specifically. It could be implied from the policy and purpose of the act considered
as a whole. In the Reflector Law, clearly the legislative objective is public safety. That is sought to be attained as in Calalang
v. Williams is "safe transit upon the roads." 43

This is to adhere to the recognition given expression by Justice Laurel in a decision announced not long after the
Constitution came into force and effect that the principle of non-delegation "has been made to adapt itself the
complexities of modern governments, giving rise to the adoption, within certain limits, of the principle of "subordinate
legislation" not only in the United States and England but in practically all modern governments." 44 He continued:
"Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental regulation,
and the increased difficulty of administering the laws, there is a constantly growing tendency toward the delegation of
greater powers by the legislature and toward the approval of the practice by the courts." 45 Consistency with the
conceptual approach requires the reminder that what is delegated is authority non-legislative in character, the
completeness of the statute when it leaves the hands of Congress being assumed.

Our later decisions speak to the same effect. Thus from, Justice J. B. L. Reyes in People vs. Exconde: 46 "It is well establish
in this jurisdiction that, while the making of laws is a non-delegable activity that corresponds exclusively to Congress,
nevertheless the latter may constitutionally delegate authority to promulgate rules and regulations to implement a given
legislation and effectuate its policies, for the reason that the legislature often finds it impracticable (if not impossible) to
anticipate and proved for the multifarious and complex situations that may be met in carrying the law in effect. All that is
required is that the regulation should germane to the objects and purposes of the law; that the regulation be not in
contradiction with it; but conform to the standards that the law prescribes ... " 47

An even more explicit formulation of the controlling principle comes from the pen of the then Justice, now Chief Justice,
Concepcion: "Lastly, the legality of Circular No. 21 is assailed upon the ground that the grant of authority to issue the same
constitutes an undue delegation of legislative power. It is true that, under our system of government, said power may not
be delegated except to local governments. However, one thing is to delegate the power to determine what the law shall
42
be, and another thing to delegate the authority to fix the details in the execution of enforcement of a policy set out in the
law itself. Briefly stated, the rule is that the delegated powers fall under the second category, if the law authorizing the,
delegation furnishes a reasonable standard which "sufficiently marks the field within which the Administrator is to act so
that it may be known whether he has kept within it in compliance with the legislative will." (Yakus vs. United States, 88 L.
ed.
848) ... It should be noted, furthermore, that these powers must be construed and exercised in relation to the objectives
of the law creating the Central Bank, which are, among others, "to maintain monetary stability in the Philippines," and "to
promote a rising level of production, employment and real income in the Philippines." (Section 2, Rep. Act No. 265). These
standards are sufficiently concrete and definite to vest in the delegated authority, the character of administrative details
in the enforcement of the law and to place the grant said authority beyond the category of a delegation
of legislative powers ... " 48

It bears repeating that the Reflector Law construed together with the Land Transportation Code. Republic Act No. 4136,
of which it is an amendment, leaves no doubt as to the stress and emphasis on public safety which is the prime
consideration in statutes of this character. There is likewise a categorical affirmation Of the power of petitioner as Land
Transportation Commissioner to promulgate rules and regulations to give life to and translate into actuality such
fundamental purpose. His power is clear. There has been no abuse. His Administrative Order No. 2 can easily survive the
attack, far-from-formidable, launched against it by respondent Galo.

WHEREFORE, the writs of certiorari and prohibition prayed for are granted, the orders of May 28, 1970 of respondent
Judge for the issuance of a writ of preliminary injunction, the writ of preliminary injunction of June 1, 1970 and his order
of June 9, 1970 denying reconsideration are annulled and set aside. Respondent Judge is likewise directed to dismiss the
petition for certiorari and prohibition filed by respondent Teddy C. Galo, there being no cause of action as the Reflector
Law and Administrative Order No. 2 of petitioner have not been shown to be tainted by invalidity. Without
pronouncement as to costs.

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo and Makasiar, JJ., concur.

Concepcion, C.J. and Villamor, J., took no part.

G.R. No. 166715 August 14, 2008

ABAKADA GURO PARTY LIST (formerly AASJS)1 OFFICERS/MEMBERS SAMSON S. ALCANTARA, ED VINCENT S. ALBANO,
ROMEO R. ROBISO, RENE B. GOROSPE and EDWIN R. SANDOVAL, petitioners,
vs.
HON. CESAR V. PURISIMA, in his capacity as Secretary of Finance, HON. GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal Revenue, and HON. ALBERTO D. LINA, in his Capacity as Commissioner of Bureau
of Customs, respondents.

DECISION

CORONA, J.:

This petition for prohibition1 seeks to prevent respondents from implementing and enforcing Republic Act (RA)
93352 (Attrition Act of 2005).

RA 9335 was enacted to optimize the revenue-generation capability and collection of the Bureau of Internal Revenue (BIR)
and the Bureau of Customs (BOC). The law intends to encourage BIR and BOC officials and employees to exceed their
revenue targets by providing a system of rewards and sanctions through the creation of a Rewards and Incentives Fund
(Fund) and a Revenue Performance Evaluation Board (Board).3 It covers all officials and employees of the BIR and the BOC
with at least six months of service, regardless of employment status.4

The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year, as
determined by the Development Budget and Coordinating Committee (DBCC). Any incentive or reward is taken from the
fund and allocated to the BIR and the BOC in proportion to their contribution in the excess collection of the targeted
amount of tax revenue.5

The Boards in the BIR and the BOC are composed of the Secretary of the Department of Finance (DOF) or his/her
Undersecretary, the Secretary of the Department of Budget and Management (DBM) or his/her Undersecretary, the
Director General of the National Economic Development Authority (NEDA) or his/her Deputy Director General, the

43
Commissioners of the BIR and the BOC or their Deputy Commissioners, two representatives from the rank-and-file
employees and a representative from the officials nominated by their recognized organization.6

Each Board has the duty to (1) prescribe the rules and guidelines for the allocation, distribution and release of the Fund;
(2) set criteria and procedures for removing from the service officials and employees whose revenue collection falls short
of the target; (3) terminate personnel in accordance with the criteria adopted by the Board; (4) prescribe a system for
performance evaluation; (5) perform other functions, including the issuance of rules and regulations and (6) submit an
annual report to Congress.7

The DOF, DBM, NEDA, BIR, BOC and the Civil Service Commission (CSC) were tasked to promulgate and issue the
implementing rules and regulations of RA 9335,8 to be approved by a Joint Congressional Oversight Committee created
for such purpose.9

Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of RA 9335, a tax reform
legislation. They contend that, by establishing a system of rewards and incentives, the law "transform[s] the officials and
employees of the BIR and the BOC into mercenaries and bounty hunters" as they will do their best only in consideration
of such rewards. Thus, the system of rewards and incentives invites corruption and undermines the constitutionally
mandated duty of these officials and employees to serve the people with utmost responsibility, integrity, loyalty and
efficiency.

Petitioners also claim that limiting the scope of the system of rewards and incentives only to officials and employees of
the BIR and the BOC violates the constitutional guarantee of equal protection. There is no valid basis for classification or
distinction as to why such a system should not apply to officials and employees of all other government agencies.

In addition, petitioners assert that the law unduly delegates the power to fix revenue targets to the President as it lacks a
sufficient standard on that matter. While Section 7(b) and (c) of RA 9335 provides that BIR and BOC officials may be
dismissed from the service if their revenue collections fall short of the target by at least 7.5%, the law does not, however,
fix the revenue targets to be achieved. Instead, the fixing of revenue targets has been delegated to the President without
sufficient standards. It will therefore be easy for the President to fix an unrealistic and unattainable target in order to
dismiss BIR or BOC personnel.

Finally, petitioners assail the creation of a congressional oversight committee on the ground that it violates the doctrine
of separation of powers. While the legislative function is deemed accomplished and completed upon the enactment and
approval of the law, the creation of the congressional oversight committee permits legislative participation in the
implementation and enforcement of the law.

In their comment, respondents, through the Office of the Solicitor General, question the petition for being premature as
there is no actual case or controversy yet. Petitioners have not asserted any right or claim that will necessitate the exercise
of this Court’s jurisdiction. Nevertheless, respondents acknowledge that public policy requires the resolution of the
constitutional issues involved in this case. They assert that the allegation that the reward system will breed mercenaries
is mere speculation and does not suffice to invalidate the law. Seen in conjunction with the declared objective of RA 9335,
the law validly classifies the BIR and the BOC because the functions they perform are distinct from those of the other
government agencies and instrumentalities. Moreover, the law provides a sufficient standard that will guide the executive
in the implementation of its provisions. Lastly, the creation of the congressional oversight committee under the law
enhances, rather than violates, separation of powers. It ensures the fulfillment of the legislative policy and serves as a
check to any over-accumulation of power on the part of the executive and the implementing agencies.

After a careful consideration of the conflicting contentions of the parties, the Court finds that petitioners have failed to
overcome the presumption of constitutionality in favor of RA 9335, except as shall hereafter be discussed.

Actual Case And Ripeness

An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial
adjudication.10 A closely related requirement is ripeness, that is, the question must be ripe for adjudication. And a
constitutional question is ripe for adjudication when the governmental act being challenged has a direct adverse effect on
the individual challenging it.11Thus, to be ripe for judicial adjudication, the petitioner must show a personal stake in the
outcome of the case or an injury to himself that can be redressed by a favorable decision of the Court.12

In this case, aside from the general claim that the dispute has ripened into a judicial controversy by the mere enactment
of the law even without any further overt act,13 petitioners fail either to assert any specific and concrete legal claim or to

44
demonstrate any direct adverse effect of the law on them. They are unable to show a personal stake in the outcome of
this case or an injury to themselves. On this account, their petition is procedurally infirm.

This notwithstanding, public interest requires the resolution of the constitutional issues raised by petitioners. The grave
nature of their allegations tends to cast a cloud on the presumption of constitutionality in favor of the law. And where an
action of the legislative branch is alleged to have infringed the Constitution, it becomes not only the right but in fact the
duty of the judiciary to settle the dispute.14

Accountability of
Public Officers

Section 1, Article 11 of the Constitution states:

Sec. 1. Public office is a public trust. Public officers and employees must at all times be accountable to the people,
serve them with utmost responsibility, integrity, loyalty, and efficiency, act with patriotism, and justice, and lead
modest lives.

Public office is a public trust. It must be discharged by its holder not for his own personal gain but for the benefit of the
public for whom he holds it in trust. By demanding accountability and service with responsibility, integrity, loyalty,
efficiency, patriotism and justice, all government officials and employees have the duty to be responsive to the needs of
the people they are called upon to serve.

Public officers enjoy the presumption of regularity in the performance of their duties. This presumption necessarily obtains
in favor of BIR and BOC officials and employees. RA 9335 operates on the basis thereof and reinforces it by providing a
system of rewards and sanctions for the purpose of encouraging the officials and employees of the BIR and the BOC to
exceed their revenue targets and optimize their revenue-generation capability and collection.15

The presumption is disputable but proof to the contrary is required to rebut it. It cannot be overturned by mere conjecture
or denied in advance (as petitioners would have the Court do) specially in this case where it is an underlying principle to
advance a declared public policy.

Petitioners’ claim that the implementation of RA 9335 will turn BIR and BOC officials and employees into "bounty hunters
and mercenaries" is not only without any factual and legal basis; it is also purely speculative.

A law enacted by Congress enjoys the strong presumption of constitutionality. To justify its nullification, there must be a
clear and unequivocal breach of the Constitution, not a doubtful and equivocal one.16 To invalidate RA 9335 based on
petitioners’ baseless supposition is an affront to the wisdom not only of the legislature that passed it but also of the
executive which approved it.

Public service is its own reward. Nevertheless, public officers may by law be rewarded for exemplary and exceptional
performance. A system of incentives for exceeding the set expectations of a public office is not anathema to the concept
of public accountability. In fact, it recognizes and reinforces dedication to duty, industry, efficiency and loyalty to public
service of deserving government personnel.

In United States v. Matthews,17 the U.S. Supreme Court validated a law which awards to officers of the customs as well as
other parties an amount not exceeding one-half of the net proceeds of forfeitures in violation of the laws against
smuggling. Citing Dorsheimer v. United States,18 the U.S. Supreme Court said:

The offer of a portion of such penalties to the collectors is to stimulate and reward their zeal and industry in
detecting fraudulent attempts to evade payment of duties and taxes.

In the same vein, employees of the BIR and the BOC may by law be entitled to a reward when, as a consequence of their
zeal in the enforcement of tax and customs laws, they exceed their revenue targets. In addition, RA 9335 establishes
safeguards to ensure that the reward will not be claimed if it will be either the fruit of "bounty hunting or mercenary
activity" or the product of the irregular performance of official duties. One of these precautionary measures is embodied
in Section 8 of the law:

SEC. 8. Liability of Officials, Examiners and Employees of the BIR and the BOC. – The officials, examiners, and
employees of the [BIR] and the [BOC] who violate this Act or who are guilty of negligence, abuses or acts of
malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of their duties shall be

45
 held liable for any loss or injury suffered by any business establishment or taxpayer as a result of such violation,
negligence, abuse, malfeasance, misfeasance or failure to exercise extraordinary diligence.

Equal Protection

Equality guaranteed under the equal protection clause is equality under the same conditions and among persons similarly
situated; it is equality among equals, not similarity of treatment of persons who are classified based on substantial
differences in relation to the object to be accomplished.19When things or persons are different in fact or circumstance,
they may be treated in law differently. In Victoriano v. Elizalde Rope Workers’ Union,20 this Court declared:

The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon all
citizens of the [S]tate. It is not, therefore, a requirement, in order to avoid the constitutional prohibition against
inequality, that every man, woman and child should be affected alike by a statute. Equality of operation of statutes
does not mean indiscriminate operation on persons merely as such, but on persons according to the circumstances
surrounding them. It guarantees equality, not identity of rights. The Constitution does not require that things
which are different in fact be treated in law as though they were the same. The equal protection clause does
not forbid discrimination as to things that are different. It does not prohibit legislation which is limited either
in the object to which it is directed or by the territory within which it is to operate.

The equal protection of the laws clause of the Constitution allows classification. Classification in law, as in the
other departments of knowledge or practice, is the grouping of things in speculation or practice because they
agree with one another in certain particulars. A law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that the mere fact of inequality in no manner
determines the matter of constitutionality. All that is required of a valid classification is that it be reasonable,
which means that the classification should be based on substantial distinctions which make for real differences,
that it must be germane to the purpose of the law; that it must not be limited to existing conditions only; and
that it must apply equally to each member of the class. This Court has held that the standard is satisfied if the
classification or distinction is based on a reasonable foundation or rational basis and is not palpably arbitrary.

In the exercise of its power to make classifications for the purpose of enacting laws over matters within its
jurisdiction, the state is recognized as enjoying a wide range of discretion. It is not necessary that the classification
be based on scientific or marked differences of things or in their relation. Neither is it necessary that the
classification be made with mathematical nicety. Hence, legislative classification may in many cases properly rest
on narrow distinctions, for the equal protection guaranty does not preclude the legislature from recognizing
degrees of evil or harm, and legislation is addressed to evils as they may appear.21 (emphasis supplied)

The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable foundation or
rational basis and not arbitrary.22 With respect to RA 9335, its expressed public policy is the optimization of the revenue-
generation capability and collection of the BIR and the BOC.23 Since the subject of the law is the revenue- generation
capability and collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically
pertain to the said agencies. Moreover, the law concerns only the BIR and the BOC because they have the common distinct
primary function of generating revenues for the national government through the collection of taxes, customs duties, fees
and charges.

The BIR performs the following functions:

Sec. 18. The Bureau of Internal Revenue. – The Bureau of Internal Revenue, which shall be headed by and subject
to the supervision and control of the Commissioner of Internal Revenue, who shall be appointed by the President
upon the recommendation of the Secretary [of the DOF], shall have the following functions:

(1) Assess and collect all taxes, fees and charges and account for all revenues collected;

(2) Exercise duly delegated police powers for the proper performance of its functions and duties;

(3) Prevent and prosecute tax evasions and all other illegal economic activities;

(4) Exercise supervision and control over its constituent and subordinate units; and

(5) Perform such other functions as may be provided by law.24

xxx xxx xxx (emphasis supplied)

46
On the other hand, the BOC has the following functions:

Sec. 23. The Bureau of Customs. – The Bureau of Customs which shall be headed and subject to the management
and control of the Commissioner of Customs, who shall be appointed by the President upon the recommendation
of the Secretary[of the DOF] and hereinafter referred to as Commissioner, shall have the following functions:

(1) Collect custom duties, taxes and the corresponding fees, charges and penalties;

(2) Account for all customs revenues collected;

(3) Exercise police authority for the enforcement of tariff and customs laws;

(4) Prevent and suppress smuggling, pilferage and all other economic frauds within all ports of entry;

(5) Supervise and control exports, imports, foreign mails and the clearance of vessels and aircrafts in all ports of
entry;

(6) Administer all legal requirements that are appropriate;

(7) Prevent and prosecute smuggling and other illegal activities in all ports under its jurisdiction;

(8) Exercise supervision and control over its constituent units;

(9) Perform such other functions as may be provided by law.25

xxx xxx xxx (emphasis supplied)

Both the BIR and the BOC are bureaus under the DOF. They principally perform the special function of being the
instrumentalities through which the State exercises one of its great inherent functions – taxation. Indubitably, such
substantial distinction is germane and intimately related to the purpose of the law. Hence, the classification and treatment
accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection.

Undue Delegation

Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2) the sufficient
standard test. A law is complete when it sets forth therein the policy to be executed, carried out or implemented by the
delegate.26 It lays down a sufficient standard when it provides adequate guidelines or limitations in the law to map out
the boundaries of the delegate’s authority and prevent the delegation from running riot.27 To be sufficient, the standard
must specify the limits of the delegate’s authority, announce the legislative policy and identify the conditions under which
it is to be implemented.28

RA 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the implementing
agencies in carrying out the provisions of the law. Section 2 spells out the policy of the law:

SEC. 2. Declaration of Policy. – It is the policy of the State to optimize the revenue-generation capability and
collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) by providing for a system of
rewards and sanctions through the creation of a Rewards and Incentives Fund and a Revenue Performance
Evaluation Board in the above agencies for the purpose of encouraging their officials and employees to exceed
their revenue targets.

Section 4 "canalized within banks that keep it from overflowing"29 the delegated power to the President to fix revenue
targets:

SEC. 4. Rewards and Incentives Fund. – A Rewards and Incentives Fund, hereinafter referred to as the Fund, is
hereby created, to be sourced from the collection of the BIR and the BOC in excess of their respective revenue
targets of the year, as determined by the Development Budget and Coordinating Committee (DBCC), in the
following percentages:

Excess of Collection of the Excess Percent (%) of the Excess Collection to Accrue
the Revenue Targets to the Fund
30% or below – 15%
47
 More than 30% – 15% of the first 30% plus 20% of the
remaining excess

The Fund shall be deemed automatically appropriated the year immediately following the year when the revenue
collection target was exceeded and shall be released on the same fiscal year.

Revenue targets shall refer to the original estimated revenue collection expected of the BIR and the BOC for a
given fiscal year as stated in the Budget of Expenditures and Sources of Financing (BESF) submitted by the
President to Congress. The BIR and the BOC shall submit to the DBCC the distribution of the agencies’ revenue
targets as allocated among its revenue districts in the case of the BIR, and the collection districts in the case of the
BOC.

xxx xxx xxx (emphasis supplied)

Revenue targets are based on the original estimated revenue collection expected respectively of the BIR and the BOC for
a given fiscal year as approved by the DBCC and stated in the BESF submitted by the President to Congress.30 Thus, the
determination of revenue targets does not rest solely on the President as it also undergoes the scrutiny of the DBCC.

On the other hand, Section 7 specifies the limits of the Board’s authority and identifies the conditions under which officials
and employees whose revenue collection falls short of the target by at least 7.5% may be removed from the service:

SEC. 7. Powers and Functions of the Board. – The Board in the agency shall have the following powers and
functions:

xxx xxx xxx

(b) To set the criteria and procedures for removing from service officials and employees whose revenue
collection falls short of the target by at least seven and a half percent (7.5%), with due consideration of all
relevant factors affecting the level of collection as provided in the rules and regulations promulgated under this
Act, subject to civil service laws, rules and regulations and compliance with substantive and procedural due
process: Provided, That the following exemptions shall apply:

1. Where the district or area of responsibility is newly-created, not exceeding two years in operation, as
has no historical record of collection performance that can be used as basis for evaluation; and

2. Where the revenue or customs official or employee is a recent transferee in the middle of the period
under consideration unless the transfer was due to nonperformance of revenue targets or potential
nonperformance of revenue targets: Provided, however, That when the district or area of responsibility
covered by revenue or customs officials or employees has suffered from economic difficulties brought
about by natural calamities or force majeure or economic causes as may be determined by the Board,
termination shall be considered only after careful and proper review by the Board.

(c) To terminate personnel in accordance with the criteria adopted in the preceding paragraph: Provided, That
such decision shall be immediately executory: Provided, further, That the application of the criteria for the
separation of an official or employee from service under this Act shall be without prejudice to the application
of other relevant laws on accountability of public officers and employees, such as the Code of Conduct and
Ethical Standards of Public Officers and Employees and the Anti-Graft and Corrupt Practices Act;

xxx xxx xxx (emphasis supplied)

Clearly, RA 9335 in no way violates the security of tenure of officials and employees of the BIR and the BOC. The guarantee
of security of tenure only means that an employee cannot be dismissed from the service for causes other than those
provided by law and only after due process is accorded the employee.31 In the case of RA 9335, it lays down a reasonable
yardstick for removal (when the revenue collection falls short of the target by at least 7.5%) with due consideration of all
relevant factors affecting the level of collection. This standard is analogous to inefficiency and incompetence in the
performance of official duties, a ground for disciplinary action under civil service laws.32 The action for removal is also
subject to civil service laws, rules and regulations and compliance with substantive and procedural due process.

At any rate, this Court has recognized the following as sufficient standards: "public interest," "justice and equity," "public
convenience and welfare" and "simplicity, economy and welfare."33 In this case, the declared policy of optimization of the
revenue-generation capability and collection of the BIR and the BOC is infused with public interest.
48
Separation Of Powers

Section 12 of RA 9335 provides:

SEC. 12. Joint Congressional Oversight Committee. – There is hereby created a Joint Congressional Oversight
Committee composed of seven Members from the Senate and seven Members from the House of
Representatives. The Members from the Senate shall be appointed by the Senate President, with at least two
senators representing the minority. The Members from the House of Representatives shall be appointed by the
Speaker with at least two members representing the minority. After the Oversight Committee will have approved
the implementing rules and regulations (IRR) it shall thereafter become functus officio and therefore cease to
exist.

The Joint Congressional Oversight Committee in RA 9335 was created for the purpose of approving the implementing rules
and regulations (IRR) formulated by the DOF, DBM, NEDA, BIR, BOC and CSC. On May 22, 2006, it approved the said IRR.
From then on, it became functus officio and ceased to exist. Hence, the issue of its alleged encroachment on the executive
function of implementing and enforcing the law may be considered moot and academic.

This notwithstanding, this might be as good a time as any for the Court to confront the issue of the constitutionality of the
Joint Congressional Oversight Committee created under RA 9335 (or other similar laws for that matter).

The scholarly discourse of Mr. Justice (now Chief Justice) Puno on the concept of congressional oversight in Macalintal v.
Commission on Elections34 is illuminating:

Concept and bases of congressional oversight

Broadly defined, the power of oversight embraces all activities undertaken by Congress to enhance its
understanding of and influence over the implementation of legislation it has enacted. Clearly, oversight
concerns post-enactment measures undertaken by Congress: (a) to monitor bureaucratic compliance with
program objectives, (b) to determine whether agencies are properly administered, (c) to eliminate executive
waste and dishonesty, (d) to prevent executive usurpation of legislative authority, and (d) to assess executive
conformity with the congressional perception of public interest.

The power of oversight has been held to be intrinsic in the grant of legislative power itself and integral to the
checks and balances inherent in a democratic system of government. x x x x x x x x x

Over the years, Congress has invoked its oversight power with increased frequency to check the perceived
"exponential accumulation of power" by the executive branch. By the beginning of the 20th century, Congress has
delegated an enormous amount of legislative authority to the executive branch and the administrative agencies.
Congress, thus, uses its oversight power to make sure that the administrative agencies perform their functions
within the authority delegated to them. x x x x x x x x x

Categories of congressional oversight functions

The acts done by Congress purportedly in the exercise of its oversight powers may be divided
into three categories, namely: scrutiny, investigation and supervision.

a. Scrutiny

Congressional scrutiny implies a lesser intensity and continuity of attention to administrative operations.
Its primary purpose is to determine economy and efficiency of the operation of government activities. In
the exercise of legislative scrutiny, Congress may request information and report from the other branches
of government. It can give recommendations or pass resolutions for consideration of the agency involved.

xxx xxx xxx

b. Congressional investigation

While congressional scrutiny is regarded as a passive process of looking at the facts that are readily
available, congressional investigation involves a more intense digging of facts. The power of Congress to
conduct investigation is recognized by the 1987 Constitution under section 21, Article VI, xxx xxx xxx

49
 c. Legislative supervision

The third and most encompassing form by which Congress exercises its oversight power is thru legislative
supervision. "Supervision" connotes a continuing and informed awareness on the part of a congressional
committee regarding executive operations in a given administrative area. While both congressional scrutiny and
investigation involve inquiry into past executive branch actions in order to influence future executive branch
performance, congressional supervision allows Congress to scrutinize the exercise of delegated law-making
authority, and permits Congress to retain part of that delegated authority.

Congress exercises supervision over the executive agencies through its veto power. It typically utilizes veto
provisions when granting the President or an executive agency the power to promulgate regulations with the force
of law. These provisions require the President or an agency to present the proposed regulations to Congress, which
retains a "right" to approve or disapprove any regulation before it takes effect. Such legislative veto provisions
usually provide that a proposed regulation will become a law after the expiration of a certain period of time, only
if Congress does not affirmatively disapprove of the regulation in the meantime. Less frequently, the statute
provides that a proposed regulation will become law if Congress affirmatively approves it.

Supporters of legislative veto stress that it is necessary to maintain the balance of power between the legislative
and the executive branches of government as it offers lawmakers a way to delegate vast power to the executive
branch or to independent agencies while retaining the option to cancel particular exercise of such power without
having to pass new legislation or to repeal existing law. They contend that this arrangement promotes democratic
accountability as it provides legislative check on the activities of unelected administrative agencies. One
proponent thus explains:

It is too late to debate the merits of this delegation policy: the policy is too deeply embedded in our law
and practice. It suffices to say that the complexities of modern government have often led Congress-
whether by actual or perceived necessity- to legislate by declaring broad policy goals and general statutory
standards, leaving the choice of policy options to the discretion of an executive officer. Congress
articulates legislative aims, but leaves their implementation to the judgment of parties who may or may
not have participated in or agreed with the development of those aims. Consequently, absent safeguards,
in many instances the reverse of our constitutional scheme could be effected: Congress proposes, the
Executive disposes. One safeguard, of course, is the legislative power to enact new legislation or to change
existing law. But without some means of overseeing post enactment activities of the executive branch,
Congress would be unable to determine whether its policies have been implemented in accordance with
legislative intent and thus whether legislative intervention is appropriate.

Its opponents, however, criticize the legislative veto as undue encroachment upon the executive prerogatives.
They urge that any post-enactment measures undertaken by the legislative branch should be limited to scrutiny
and investigation; any measure beyond that would undermine the separation of powers guaranteed by the
Constitution. They contend that legislative veto constitutes an impermissible evasion of the President’s veto
authority and intrusion into the powers vested in the executive or judicial branches of government. Proponents
counter that legislative veto enhances separation of powers as it prevents the executive branch and independent
agencies from accumulating too much power. They submit that reporting requirements and congressional
committee investigations allow Congress to scrutinize only the exercise of delegated law-making authority. They
do not allow Congress to review executive proposals before they take effect and they do not afford the
opportunity for ongoing and binding expressions of congressional intent. In contrast, legislative veto permits
Congress to participate prospectively in the approval or disapproval of "subordinate law" or those enacted by the
executive branch pursuant to a delegation of authority by Congress. They further argue that legislative veto "is a
necessary response by Congress to the accretion of policy control by forces outside its chambers." In an era of
delegated authority, they point out that legislative veto "is the most efficient means Congress has yet devised to
retain control over the evolution and implementation of its policy as declared by statute."

In Immigration and Naturalization Service v. Chadha, the U.S. Supreme Court resolved the validity of legislative
veto provisions. The case arose from the order of the immigration judge suspending the deportation of Chadha
pursuant to § 244(c)(1) of the Immigration and Nationality Act. The United States House of Representatives passed
a resolution vetoing the suspension pursuant to § 244(c)(2) authorizing either House of Congress, by resolution,
to invalidate the decision of the executive branch to allow a particular deportable alien to remain in the United
States. The immigration judge reopened the deportation proceedings to implement the House order and the alien
was ordered deported. The Board of Immigration Appeals dismissed the alien’s appeal, holding that it had no
power to declare unconstitutional an act of Congress. The United States Court of Appeals for Ninth Circuit held
that the House was without constitutional authority to order the alien’s deportation and that § 244(c)(2) violated
the constitutional doctrine on separation of powers.
50
 On appeal, the U.S. Supreme Court declared § 244(c)(2) unconstitutional. But the Court shied away from the issue
of separation of powers and instead held that the provision violates the presentment clause and bicameralism. It
held that the one-house veto was essentially legislative in purpose and effect. As such, it is subject to the
procedures set out in Article I of the Constitution requiring the passage by a majority of both Houses and
presentment to the President. x x x x x x x x x

Two weeks after the Chadha decision, the Court upheld, in memorandum decision, two lower court decisions
invalidating the legislative veto provisions in the Natural Gas Policy Act of 1978 and the Federal Trade Commission
Improvement Act of 1980. Following this precedence, lower courts invalidated statutes containing legislative veto
provisions although some of these provisions required the approval of both Houses of Congress and thus met the
bicameralism requirement of Article I. Indeed, some of these veto provisions were not even exercised.35(emphasis
supplied)

In Macalintal, given the concept and configuration of the power of congressional oversight and considering the nature
and powers of a constitutional body like the Commission on Elections, the Court struck down the provision in RA 9189
(The Overseas Absentee Voting Act of 2003) creating a Joint Congressional Committee. The committee was tasked not
only to monitor and evaluate the implementation of the said law but also to review, revise, amend and approve the IRR
promulgated by the Commission on Elections. The Court held that these functions infringed on the constitutional
independence of the Commission on Elections.36

With this backdrop, it is clear that congressional oversight is not unconstitutional per se, meaning, it neither necessarily
constitutes an encroachment on the executive power to implement laws nor undermines the constitutional separation of
powers. Rather, it is integral to the checks and balances inherent in a democratic system of government. It may in fact
even enhance the separation of powers as it prevents the over-accumulation of power in the executive branch.

However, to forestall the danger of congressional encroachment "beyond the legislative sphere," the Constitution imposes
two basic and related constraints on Congress.37 It may not vest itself, any of its committees or its members with either
executive or judicial power.38 And, when it exercises its legislative power, it must follow the "single, finely wrought and
exhaustively considered, procedures" specified under the Constitution,39 including the procedure for enactment of laws
and presentment.

Thus, any post-enactment congressional measure such as this should be limited to scrutiny and investigation. In particular,
congressional oversight must be confined to the following:

(1) scrutiny based primarily on Congress’ power of appropriation and the budget hearings conducted in
connection with it, its power to ask heads of departments to appear before and be heard by either of its Houses
on any matter pertaining to their departments and its power of confirmation40 and

(2) investigation and monitoring41 of the implementation of laws pursuant to the power of Congress to conduct
inquiries in aid of legislation.42

Any action or step beyond that will undermine the separation of powers guaranteed by the Constitution. Legislative vetoes
fall in this class.

Legislative veto is a statutory provision requiring the President or an administrative agency to present the proposed
implementing rules and regulations of a law to Congress which, by itself or through a committee formed by it, retains a
"right" or "power" to approve or disapprove such regulations before they take effect. As such, a legislative veto in the
form of a congressional oversight committee is in the form of an inward-turning delegation designed to attach a
congressional leash (other than through scrutiny and investigation) to an agency to which Congress has by law initially
delegated broad powers.43 It radically changes the design or structure of the Constitution’s diagram of power as it entrusts
to Congress a direct role in enforcing, applying or implementing its own laws.44

Congress has two options when enacting legislation to define national policy within the broad horizons of its legislative
competence.45 It can itself formulate the details or it can assign to the executive branch the responsibility for making
necessary managerial decisions in conformity with those standards.46 In the latter case, the law must be complete in all
its essential terms and conditions when it leaves the hands of the legislature.47 Thus, what is left for the executive branch
or the concerned administrative agency when it formulates rules and regulations implementing the law is to fill up details
(supplementary rule-making) or ascertain facts necessary to bring the law into actual operation (contingent rule-making).48

Administrative regulations enacted by administrative agencies to implement and interpret the law which they are
entrusted to enforce have the force of law and are entitled to respect.49 Such rules and regulations partake of the nature

51
of a statute50 and are just as binding as if they have been written in the statute itself. As such, they have the force and
effect of law and enjoy the presumption of constitutionality and legality until they are set aside with finality in an
appropriate case by a competent court.51 Congress, in the guise of assuming the role of an overseer, may not pass upon
their legality by subjecting them to its stamp of approval without disturbing the calculated balance of powers established
by the Constitution. In exercising discretion to approve or disapprove the IRR based on a determination of whether or not
they conformed with the provisions of RA 9335, Congress arrogated judicial power unto itself, a power exclusively vested
in this Court by the Constitution.

Considered Opinion of
Mr. Justice Dante O. Tinga

Moreover, the requirement that the implementing rules of a law be subjected to approval by Congress as a condition for
their effectivity violates the cardinal constitutional principles of bicameralism and the rule on presentment.52

Section 1, Article VI of the Constitution states:

Section 1. The legislative power shall be vested in the Congress of the Philippines which shall consist of a Senate
and a House of Representatives, except to the extent reserved to the people by the provision on initiative and
referendum. (emphasis supplied)

Legislative power (or the power to propose, enact, amend and repeal laws)53 is vested in Congress which consists of two
chambers, the Senate and the House of Representatives. A valid exercise of legislative power requires the act of both
chambers. Corrollarily, it can be exercised neither solely by one of the two chambers nor by a committee of either or both
chambers. Thus, assuming the validity of a legislative veto, both a single-chamber legislative veto and a congressional
committee legislative veto are invalid.

Additionally, Section 27(1), Article VI of the Constitution provides:

Section 27. (1) Every bill passed by the Congress shall, before it becomes a law, be presented to the President.
If he approves the same, he shall sign it, otherwise, he shall veto it and return the same with his objections to the
House where it originated, which shall enter the objections at large in its Journal and proceed to reconsider it. If,
after such reconsideration, two-thirds of all the Members of such House shall agree to pass the bill, it shall be
sent, together with the objections, to the other House by which it shall likewise be reconsidered, and if approved
by two-thirds of all the Members of that House, it shall become a law. In all such cases, the votes of each House
shall be determined by yeas or nays, and the names of the members voting for or against shall be entered in its
Journal. The President shall communicate his veto of any bill to the House where it originated within thirty days
after the date of receipt thereof; otherwise, it shall become a law as if he had signed it. (emphasis supplied)

Every bill passed by Congress must be presented to the President for approval or veto. In the absence of presentment to
the President, no bill passed by Congress can become a law. In this sense, law-making under the Constitution is a joint act
of the Legislature and of the Executive. Assuming that legislative veto is a valid legislative act with the force of law, it
cannot take effect without such presentment even if approved by both chambers of Congress.

In sum, two steps are required before a bill becomes a law. First, it must be approved by both Houses of
Congress.54 Second, it must be presented to and approved by the President.55 As summarized by Justice Isagani Cruz56 and
Fr. Joaquin G. Bernas, S.J.57, the following is the procedure for the approval of bills:

A bill is introduced by any member of the House of Representatives or the Senate except for some measures that
must originate only in the former chamber.

The first reading involves only a reading of the number and title of the measure and its referral by the Senate
President or the Speaker to the proper committee for study.

The bill may be "killed" in the committee or it may be recommended for approval, with or without amendments,
sometimes after public hearings are first held thereon. If there are other bills of the same nature or purpose, they
may all be consolidated into one bill under common authorship or as a committee bill.

Once reported out, the bill shall be calendared for second reading. It is at this stage that the bill is read in its
entirety, scrutinized, debated upon and amended when desired. The second reading is the most important stage
in the passage of a bill.

52
 The bill as approved on second reading is printed in its final form and copies thereof are distributed at least three
days before the third reading. On the third reading, the members merely register their votes and explain them if
they are allowed by the rules. No further debate is allowed.

Once the bill passes third reading, it is sent to the other chamber, where it will also undergo the three readings. If
there are differences between the versions approved by the two chambers, a conference
committee58 representing both Houses will draft a compromise measure that if ratified by the Senate and the
House of Representatives will then be submitted to the President for his consideration.

The bill is enrolled when printed as finally approved by the Congress, thereafter authenticated with the signatures
of the Senate President, the Speaker, and the Secretaries of their respective chambers…59

The President’s role in law-making.

The final step is submission to the President for approval. Once approved, it takes effect as law after the required
publication.60

Where Congress delegates the formulation of rules to implement the law it has enacted pursuant to sufficient standards
established in the said law, the law must be complete in all its essential terms and conditions when it leaves the hands of
the legislature. And it may be deemed to have left the hands of the legislature when it becomes effective because it is
only upon effectivity of the statute that legal rights and obligations become available to those entitled by the language of
the statute. Subject to the indispensable requisite of publication under the due process clause,61 the determination as to
when a law takes effect is wholly the prerogative of Congress.62 As such, it is only upon its effectivity that a law may be
executed and the executive branch acquires the duties and powers to execute the said law. Before that point, the role of
the executive branch, particularly of the President, is limited to approving or vetoing the law.63

From the moment the law becomes effective, any provision of law that empowers Congress or any of its members to play
any role in the implementation or enforcement of the law violates the principle of separation of powers and is thus
unconstitutional. Under this principle, a provision that requires Congress or its members to approve the implementing
rules of a law after it has already taken effect shall be unconstitutional, as is a provision that allows Congress or its
members to overturn any directive or ruling made by the members of the executive branch charged with the
implementation of the law.

Following this rationale, Section 12 of RA 9335 should be struck down as unconstitutional. While there may be similar
provisions of other laws that may be invalidated for failure to pass this standard, the Court refrains from invalidating them
wholesale but will do so at the proper time when an appropriate case assailing those provisions is brought before us.64

The next question to be resolved is: what is the effect of the unconstitutionality of Section 12 of RA 9335 on the other
provisions of the law? Will it render the entire law unconstitutional? No.

Section 13 of RA 9335 provides:

SEC. 13. Separability Clause. – If any provision of this Act is declared invalid by a competent court, the remainder
of this Act or any provision not affected by such declaration of invalidity shall remain in force and effect.

In Tatad v. Secretary of the Department of Energy,65 the Court laid down the following rules:

The general rule is that where part of a statute is void as repugnant to the Constitution, while another part is valid,
the valid portion, if separable from the invalid, may stand and be enforced. The presence of a separability clause
in a statute creates the presumption that the legislature intended separability, rather than complete nullity of the
statute. To justify this result, the valid portion must be so far independent of the invalid portion that it is fair to
presume that the legislature would have enacted it by itself if it had supposed that it could not constitutionally
enact the other. Enough must remain to make a complete, intelligible and valid statute, which carries out the
legislative intent. x x x

The exception to the general rule is that when the parts of a statute are so mutually dependent and connected, as
conditions, considerations, inducements, or compensations for each other, as to warrant a belief that the
legislature intended them as a whole, the nullity of one part will vitiate the rest. In making the parts of the statute
dependent, conditional, or connected with one another, the legislature intended the statute to be carried out as
a whole and would not have enacted it if one part is void, in which case if some parts are unconstitutional, all the
other provisions thus dependent, conditional, or connected must fall with them.

53
The separability clause of RA 9335 reveals the intention of the legislature to isolate and detach any invalid provision from
the other provisions so that the latter may continue in force and effect. The valid portions can stand independently of the
invalid section. Without Section 12, the remaining provisions still constitute a complete, intelligible and valid law which
carries out the legislative intent to optimize the revenue-generation capability and collection of the BIR and the BOC by
providing for a system of rewards and sanctions through the Rewards and Incentives Fund and a Revenue Performance
Evaluation Board.

To be effective, administrative rules and regulations must be published in full if their purpose is to enforce or implement
existing law pursuant to a valid delegation. The IRR of RA 9335 were published on May 30, 2006 in two newspapers of
general circulation66 and became effective 15 days thereafter.67 Until and unless the contrary is shown, the IRR are
presumed valid and effective even without the approval of the Joint Congressional Oversight Committee.

WHEREFORE, the petition is hereby PARTIALLY GRANTED. Section 12 of RA 9335 creating a Joint Congressional Oversight
Committee to approve the implementing rules and regulations of the law is declared UNCONSTITUTIONAL and
therefore NULL and VOID. The constitutionality of the remaining provisions of RA 9335 is UPHELD. Pursuant to Section 13
of RA 9335, the rest of the provisions remain in force and effect.

SO ORDERED.

Puno, C.J., Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez, Corona, Carpio-Morales, Azcuna, Tinga, Chico-Nazario,
Velasco, Jr., Nachura, Reyes, Leonardo-de-Castro, Brion, JJ., concur.

VICTORIA C. GUTIERREZ, G.R. No. 153266

JOEL R. PEREZ, ARACELI L. YAMBOT, CORAZON F. SORIANO, LORNA P.
TAMOR, ROMEO S. CONSIGNADO, DIVINA R. SULIT, ESTRELITA F.
IRESARE, ROSALINDA L. ALPAY, AUREA L. ILAGAN AND ALL THE OTHER
CONCERNED EMPLOYEES OF THE OFFICE OF THE SOLICITOR GENERAL,
Petitioners, Present:
Puno, C.J.,
Carpio,
Corona,
Carpio Morales,
Velasco, Jr.,
Nachura,
- versus - Leonardo-De Castro,
Brion,
Peralta,
Bersamin,
Del Castillo,
Abad,
Villarama, Jr.,
Perez, and
Mendoza, JJ.
DEPARTMENT OF BUDGET AND MANAGEMENT, HONORABLE SECRETARY
EMILIA T. BONCODIN AND DIRECTOR LUZ M. CANTOR,
Respondents,

UNIVERSITY OF THE PHILIPPINES,

AMADO EUROPA, MERCEDITA REYES, CONCHITA ABARCAR, LUCIO ABERIN,

BIENVENIDO BIONG, SOLOMON CELIZ, WILFREDO CORNEL, TOMAS FORIO, ROGELIO
JUNTERIAL, JAIME PERALTA, PILAR RILLAS, WILFREDO SAGUN, JESUS SUGUITAN,
LUIS TORRES, JOSE VERSOZA AND ALL THE OTHER CONCERNED INCUMBENT AND
RETIRED EMPLOYEES OF THE SOCIAL SECURITY SYSTEM v. SOCIAL SECURITY
SYSTEM***

CONSUELO A. TAGARO, REYNALDO S. CALLANO, AIDA A. MARTINEZ, PRISCILLA P.

COSTES, RICELI C. MENDOZA, ARISTON CALVO, SAMSON L. MOLAO, MANUEL
54
SABUTAN, VILMA GONZALES, RUTH C. MAPANAO, NELSON M. BELGIRA, JESUS
ANTONIO G. DERIJE v. UNIVERSITY OF SOUTHERN MINDANAO***

CONFEDERATION OF INDEPENDENT UNIONS IN THE PUBLIC SECTOR (CIU)

ESTHER I. ABADIANO AND OTHER FORTY ONE THOUSAND INDIVIDUAL TEACHERS

INTERVENORS

ELPIDIO F. FERRER, MARIKINA CITY FEDERATION OF PUBLIC SCHOOL TEACHERS,

INC., REPRESENTED BY ITS PRESIDENT ELPIDIO F. FERRER, AND ALL OTHER
INDIVIDUAL PUBLIC SCHOOL TEACHERS IN CENTRAL LUZON, NORTHERN LUZON,
SOUTHERN TAGALOG, NATIONAL CENTRAL REGION, CARR AND MINDANAO
REPRESENTED BY THEIR RESPECTIVE ATTORNEYS-IN-FACT, ATTORNEYS DANTE
ILAYA AND VIRGINIA SUAREZ-PINLAC AND ACTION AND SOLIDARITY FOR THE
EMPOWERMENT OF TEACHERS (ASSERT), REPRESENTED BY ITS PRESIDENT AMABLE
TUIBEIO, ET AL.

HARRIS M. SINOLINDING, KALANTONGAN P. AKIL, DAUNDI B. BAKONG, TERESITA C.

DE GUZMAN, QUEENIE A. HABIBUN, JOSE T. MAUN, VIVIENLE P. MARAGGUN,
SAAVEDRA M. MANTIKAYAN, GIJIT C. PARON, IRWIN R. QUINAIN, DATUMANONG O.
TAGITICAN AND HYDIE P. WONG, AND ALL OTHER CONCERNED EMPLOYEES OF THE
COTABATO FOUNDATION COLLEGE OF SCIENCE AND TECHNOLOGY (CFCST) v.
COTABATO FOUNDATION COLLEGE OF SCIENCE AND TECHNOLOGY AND
DEPARTMENT OF BUDGET AND MANAGEMENT***

FRANCISCA C. CASTRO, DARIO C. VARGAS, MA. DEBBIE M. RESMA, RAMON P. CASIL,

TERESITA C. BUSADRE, CRISTINA V. MANALO, SAUL SAN RAMON, ALEXIS R.
REBURIANO, ROSALITO D. ROSA, DR. FERNANDO C. JAVIER, DR. ROSEMARIE M.
YAGUIE, DR. GIL T. MAGBANUA, AND ALL OTHER CONCERNED PUBLIC SCHOOL
TEACHERS OF QUEZON CITY v. DEPARTMENT OF BUDGET AND MANAGEMENT***

WILMA Q. NOBLEZA, ELEANOR M. CASTRO, JOSE B. BUSTILLO, JR., ABELARDO E. DE

GUZMAN, EDWIN F. FABRIQUIER, ET AL. v. DBM SECRETARY ROMULO NERI AND
DEPARTMENT OF BUDGET AND MANAGEMENT***

EVA VALDEZ FERIA, WILHELMINA BALDO, ROSE MARIE L. YCASA, GLORIA G. IGNACIO
AND HJI. AKMAD A. ALSAD AND OTHER TWELVE THOUSAND FIVE HUNDRED
INDIVIDUAL TEACHERS

BUREAU OF PLANT INDUSTRY EMPLOYEES ASSOCIATION, MARY ANN GUERRERO, ET

AL.
Intervenors.

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

ESTRELLITA C. AMPONIN, JUDITH G.R. No. 159007

A. CUDAL, ROMEO A. PAGALAN, MARISSA F. PARIAS, AND RAYMOND F.
FLORES, ET AL.,
Petitioners,

- versus -

COMMISSION ON AUDIT, GUILERMO N. CARAGUE, IN HIS CAPACITY AS

CHAIRMAN, RAUL C. FLORES, IN HIS CAPACITY AS COMMISSIONER,

55
COMMISSION ON AUDIT, AND EMMANUEL M. DALMAN, IN HIS CAPACITY
AS COMMISSIONER, COMMISSION ON AUDIT,
Respondents.

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

AUGUSTO R. NIEVES, BONIFACIO G.R. No. 159029

H. ATIVO, TARCELA P. DETERA, NILDA G. CIELO, ANTHONY M. BRAVO,
MARIA LOURDES G. BARROZO, ANTONIO E. FUENTES, ALFREDO D. DONOR,
RICO B. NAVA, SR., DOLORES C. HUIDEM AND ALL THE OTHER CONCERNED
EMPLOYEES OF THE SORSOGON STATE COLLEGE,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND MANAGEMENT AND HONORABLE

SECRETARY EMILIA T. BONCODIN,
Respondents.

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

KAPISANAN NG MGA MANGGAGAWA G.R. No. 170084

SA BUREAU OF AGRICULTURAL STATISTICS (KMB), EVELYN C. TIDON, RIPOL
O. ABALOS, BEATRIZ L. HUBILLA, MA. CHERYL J. TAJONERA, LOLITA DE
HERNANDEZ, FLORA M. MABAMBA, DELILAH G. BASSIG AND ALL
CONCERNED INCUMBENT AND RETIRED EMPLOYEES OF THE BUREAU OF
AGRICULTURAL STATISTICS, DEPARTMENT OF AGRICULTURE,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND MANAGEMENT AND HONORABLE

SECRETARY ROMULO NERI***,
Respondents.

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

NATIONAL HOUSING AUTHORITY, G.R. No. 172713

Petitioner,

- versus -
EPIFANIO P. RECANA, MERCEDES AMURAO, ERASMO APOSTOL,
FLORENDO ASUNCION, FIORELLO JOSEFINA BALTAZAR, ET AL.,
Respondents.

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

INSURANCE COMMISSION OFFICERS G.R. No. 173119

AND EMPLOYEES, REPRESENTED BY INSURANCE COMMISSION EMPLOYEES
WELFARE ASSOCIATION (ICEWA), ET AL.,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND MANAGEMENT AND/OR HONORABLE

SECRETARY ROLANDO G. ANDAYA, JR.,
Respondents.

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

56
FIBER INDUSTRY DEVELOPMENT G.R. No. 176477
AUTHORITY EMPLOYEES ASSOCIATION (FIDAEA), REMEDIOS V.J. ABGONA,
CELERINA T. HILARIO, QUIRINO U. SANTOS, GRACE AURORA F. PASTORES,
RHISA V. PEGENIA, ET AL.,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND MANAGEMENT AND/OR HONORABLE

SECRETARY ROLANDO G. ANDAYA, JR.***,
Respondents.

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

BUREAU OF ANIMAL INDUSTRY G.R. No. 177990

EMPLOYEES ASSOCIATION (BAIEA), LORY C. BANGALISAN, EDGARDO
VINCULADO, LORENZO J. ABARCA, ROLANDO M. VASQUEZ, ALFREDO B.
DUCUSIN, ET AL.,
Petitioners,

- versus -

DEPARTMENT OF BUDGET AND MANAGEMENT AND/OR HONORABLE

SECRETARY ROLANDO G. ANDAYA, JR.***,
Respondents.

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

RE: REQUEST OF SANDIGANBAYAN A.M. No. 06-4-02-SB

FOR AUTHORITY TO USE THEIR SAVINGS TO PAY THEIR COLA DIFFERENTIAL
FROM JULY 1, 1989 TO MARCH 16, 1999,
Promulgated:

March 18, 2010

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

DECISION

ABAD, J.:

These consolidated cases question the inclusion of certain allowances and fringe benefits into the standardized
salary rates for offices in the national government, state universities and colleges, and local government units as required
by the Compensation and Position Classification Act of 1989 and implemented through the challenged National
Compensation Circular 59 (NCC 59).

The Facts and the Case

Congress enacted in 1989 Republic Act (R.A.) 6758, called the Compensation and Position Classification Act of
1989 to rationalize the compensation of government employees. Its Section 12 directed the consolidation of allowances
and additional compensation already being enjoyed by employees into their standardized salary rates. But it exempted
certain additional compensations that the employees may be receiving from such consolidation. Thus:

Section 12. Consolidation of Allowances and Compensation. -- All allowances, except for
representation and transportation allowances; clothing and laundry allowances; subsistence allowance

57
 of marine officers and crew on board government vessels and hospital personnel; hazard pay;
allowances of foreign service personnel stationed abroad; and such other additional compensation not
otherwise specified herein as may be determined by the DBM, shall be deemed included in the
standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in
kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary
rates shall continue to be authorized.

Pursuant to the above, the Department of Budget and Management (DBM) issued NCC 59 dated September 30,
[1]
1989, covering the offices of the national government, state universities and colleges, and local government units. NCC
59 enumerated the specific allowances and additional compensations which were deemed integrated in the basic salaries
and these included the Cost of Living Allowance (COLA) and Inflation Connected Allowance (ICA). The DBM re-issued and
published NCC 59 on May 3, 2004.[2]

The DBM also issued Corporate Compensation Circular (CCC) 10 dated October 2, 1989,[3] covering all government-
owned or controlled corporations and government financial institutions. The DBM re-issued this circular on February 15,
1999[4] and published it on March 16, 1999. Accordingly, the Commission on Audit (COA) disallowed the payments of
honoraria and other allowances which were deemed integrated into the standardized salary rates. Employees of
government-owned or controlled corporations questioned the validity of CCC 10 due to its non-publication. In De Jesus v.
Commission on Audit,[5] this Court declared CCC 10 ineffective because of such non-publication. Until then, it ordered the
COA to pass on audit the employees honoraria which they were receiving prior to the effectivity of R.A. 6758.

Meanwhile, the DBM also issued Budget Circular 2001-03 dated November 12, 2001,[6] clarifying that only the
exempt allowances under Section 12 of R.A. 6758 may continue to be granted the employees; all others were deemed
integrated in the standardized salary rates. Thus, the payment of allowances and compensation such as COLA,
amelioration allowance, and ICA, among others, which were already deemed integrated in the basic salary were
unauthorized. The Courts ruling in subsequent cases involving government-owned or controlled corporations followed
the De Jesus ruling.

On May 16, 2002 employees of the Office of the Solicitor General filed a petition for certiorari and mandamus in
G.R. 153266, questioning the propriety of integrating their COLA into their standardized salary rates. Employees of other
offices of the national government followed suit. In addition, petitioners in G.R. 159007 questioned the disallowance of
the allowances and fringe benefits that the COA auditing personnel assigned to the Government Service Insurance System
(GSIS) used to get. Petitioners in G.R. 173119 questioned the disallowance of the ICA that used to be paid to the officials
and employees of the Insurance Commission.

The Court caused the consolidation of the petitions and treated them as a class suit for all government employees,
excluding the employees of government-owned or controlled corporations and government financial institutions.[7]

On October 26, 2005 the DBM issued National Budget Circular 2005-502[8] which provided that all Supreme Court
rulings on the integration of allowances, including COLA, of government employees under R.A. 6758 applied only to
specific government-owned or controlled corporations since the consolidated cases covering the national government
employees are still pending with this Court. Consequently, the payment of allowances and other benefits to them, such
as COLA and ICA, remained prohibited until otherwise provided by law or ruled by this Court. The circular further said that
all agency heads and other responsible officials and employees found to have authorized the grant of COLA and other
allowances and benefits already integrated in the basic salary shall be personally held liable for such payment.

The Issues Presented

The common issues presented in these consolidated cases are:

1. Whether or not the COLA should be deemed integrated into the standardized salary rates of the concerned
government employees by virtue of Section 12 of R.A. 6758;

2. Whether or not the ICA may still be paid to officials and employees of the Insurance Commission;

58
 3. Whether or not the GSIS may still pay the allowances and fringe benefits to COA auditing personnel assigned to
it;

4. Whether or not the non-publication of NCC 59 dated September 30, 1989 in the Official Gazette or newspaper
of general circulation nullifies the integration of the COLA into the standardized salary rates; and

5. Whether or not the grant of COLA to military and police personnel to the exclusion of other government
employees violates the equal protection clause.

The Courts Ruling

One. Petitioners espouse the common theory that the DBM needs to promulgate rules and regulations before the
COLA that they were getting prior to the passage of R.A. 6758 can be deemed integrated in their standardized salary
rates. Respondent DBM counters that R.A. 6758 already specified the allowances and benefits that were not to be
integrated in the new salary rates. All other allowances, DBM adds, such as COLA, are deemed integrated into those salary
rates.

At the heart of the present controversy is Section 12 of R.A. 6758 which is quoted anew for clarity:

Section 12. Consolidation of Allowances and Compensation. -- All allowances, except for
representation and transportation allowances; clothing and laundry allowances; subsistence allowance
of marine officers and crew on board government vessels and hospital personnel; hazard pay;
allowances of foreign service personnel stationed abroad; and such other additional compensation not
otherwise specified herein as may be determined by the DBM, shall be deemed included in the
standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in
kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary
rates shall continue to be authorized.

As will be noted from the first sentence above, all allowances were deemed integrated into the standardized
salary rates except the following:

(1) representation and transportation allowances;

(2) clothing and laundry allowances;
(3) subsistence allowances of marine officers and crew on board government vessels;
(4) subsistence allowances of hospital personnel;
(5) hazard pay;
(6) allowances of foreign service personnel stationed abroad; and
(7) such other additional compensation not otherwise specified in Section 12 as may be determined by the DBM.

But, while the provision enumerated certain exclusions, it also authorized the DBM to identify such other
additional compensation that may be granted over and above the standardized salary rates. In Philippine Ports Authority
Employees Hired After July 1, 1989 v. Commission on Audit,[9] the Court has ruled that while Section 12 could be considered
self-executing in regard to items (1) to (6), it was not so in regard to item (7). The DBM still needed to amplify item (7)
since one cannot simply assume what other allowances were excluded from the standardized salary rates. It was only
upon the issuance and effectivity of the corresponding implementing rules and regulations that item (7) could be deemed
legally completed.

Delegated rule-making is a practical necessity in modern governance because of the increasing complexity and
variety of public functions. Congress has endowed administrative agencies like respondent DBM with the power to make
rules and regulations to implement a given legislation and effectuate its policies.[10] Such power is, however, necessarily
limited to what the law provides. Implementing rules and regulations cannot extend the law or expand its coverage, as
the power to amend or repeal a statute belongs to the legislature. Administrative agencies implement the broad policies
laid down in a law by filling in only its details. The regulations must be germane to the objectives and purposes of the law
and must conform to the standards prescribed by law.[11]

In this case, the DBM promulgated NCC 59 [and CCC 10]. But, instead of identifying some of the additional exclusions that
Section 12 of R.A. 6758 permits it to make, the DBM made a list of what allowances and benefits are deemed integrated
59
into the standardized salary rates. More specifically, NCC 59 identified the following allowances/additional compensation
that are deemed integrated:

(1) Cost of Living Allowance (COLA);

(2) Inflation connected allowance;
(3) Living Allowance;
(4) Emergency Allowance;
(5) Additional Compensation of Public Health Nurses assigned to public health nursing;
(6) Additional Compensation of Rural Health Physicians;
(7) Additional Compensation of Nurses in Malacaang Clinic;
(8) Nurses Allowance in the Air Transportation Office;
(9) Assignment Allowance of School Superintendents;
(10) Post allowance of Postal Service Office employees;
(11) Honoraria/allowances which are regularly given except the following:
a. those for teaching overload;
b. in lieu of overtime pay;
c. for employees on detail with task forces/special projects;
d. researchers, experts and specialists who are acknowledged authorities in their field
of specialization;
e. lecturers and resource persons;
f. Municipal Treasurers deputized by the Bureau of Internal Revenue to collect and
remit internal revenue collections; and
g. Executive positions in State Universities and Colleges filled by designation from
among their faculty members.
(12) Subsistence Allowance of employees except those authorized under EO [Executive Order] 346
and uniformed personnel of the Armed Forces of the Philippines and Integrated National Police;
(13) Laundry Allowance of employees except those hospital/sanitaria personnel who attend
directly to patients and who by the nature of their duties are required to wear uniforms, prison
guards and uniformed personnel of the Armed Forces of the Philippines and Integrated National
Police; and
(14) Incentive allowance/fee/pay except those authorized under the General Appropriations Act
and Section 33 of P.D. 807.

The drawing up of the above list is consistent with Section 12 above. R.A. 6758 did not prohibit the DBM from
identifying for the purpose of implementation what fell into the class of all allowances. With respect to what employees
benefits fell outside the term apart from those that the law specified, the DBM, said this Court in a case,[12]needed to
promulgate rules and regulations identifying those excluded benefits. This leads to the inevitable conclusion that until and
unless the DBM issues such rules and regulations, the enumerated exclusions in items (1) to (6) remain exclusive. Thus so,
not being an enumerated exclusion, COLA is deemed already incorporated in the standardized salary rates of government
employees under the general rule of integration.

In any event, the Court finds the inclusion of COLA in the standardized salary rates proper. In National Tobacco
Administration v. Commission on Audit,[13] the Court ruled that the enumerated fringe benefits in items (1) to (6) have one
thing in commonthey belong to one category of privilege called allowances which are usually granted to officials and
employees of the government to defray or reimburse the expenses incurred in the performance of their official
functions. Consequently, if these allowances are consolidated with the standardized salary rates, then the government
official or employee will be compelled to spend his personal funds in attending to his duties. On the other hand, item (7)
is a catch-all proviso for benefits in the nature of allowances similar to those enumerated.[14]

Clearly, COLA is not in the nature of an allowance intended to reimburse expenses incurred by officials and employees of
the government in the performance of their official functions. It is not payment in consideration of the fulfillment of official
duty.[15] As defined, cost of living refers to the level of prices relating to a range of everyday items [16]or the cost of
purchasing those goods and services which are included in an accepted standard level of consumption.[17] Based on this
premise, COLA is a benefit intended to cover increases in the cost of living. Thus, it is and should be integrated into the
standardized salary rates.

60
 Two. Petitioning officials and employees of the Insurance Commission question the disallowance of their ICA on
the ground that it is a benefit similar to the educational assistance granted by the Court in National Tobacco
Administration[18] based on the second sentence of Section 12 of R.A. 6758 that reads:

Such other additional compensation, whether in cash or in kind, being received by incumbents only as
of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized.

In National Tobacco Administration, the Court interpreted this provision as referring to benefits in the nature of
financial assistance, or a bonus or other payment made to employees in addition to guaranteed hourly wages, as
contradistinguished from the allowance in the first sentence, which cannot, strictly speaking, be treated as a bonus or
additional income. In financial assistance, reimbursement is not necessary, while in the case of allowance, reimbursement
is required.[19]

To be entitled to the financial assistance under this provision, the following requisites must concur: (1) the
recipients were incumbents when R.A. 6758 took effect on July 1, 1989; (2) they were in fact, receiving the same, at the
time; and (3) such additional compensation is distinct and separate from the excepted allowances under CCC 10, as it is
not integrated into the standardized salary rates.[20]

In this case, ICA, like COLA, falls under the general rule of integration. The DBM specifically identified it as
an allowance or additional compensation integrated into the standardized salary rates. By its very nature, ICA is granted
due to inflation and upon determination that the current salary of officials and employees of the Insurance Commission
is insufficient to address the problem. The DBM determines whether a need for ICA exists and the fund from which it will
be taken. The Insurance Commission cannot, on its own, determine what allowances are necessary and then grant them
to its officials and employees without the approval of the DBM.

Moreover, ICA does not qualify under the second sentence of Section 12 of R.A. 6758 since the employees failed
to show that they were actually receiving it as of June 30, 1989 or immediately prior to the implementation of R.A.
6758. The Commissioner of the Insurance Commission requested for authority to grant ICA from the DBM for the years
1981[21] and 1984[22] only. There is no evidence that the ICA were paid in subsequent years. In the absence of a subsequent
authorization granting or restoring ICA to the officials and employees of the Insurance Commission, there can be no valid
legal basis for its continued grant from July 1, 1986.

Three. Petitioners COA auditing personnel assigned to the GSIS question the disallowance of their allowances and
fringe benefits based on the allowances given to GSIS personnel, namely:

5.6. Payment of other allowances/fringe benefits and all other forms of compensation granted
on top of basic salary, whether in cash or in kind, x x x shall be discontinued effective November 1, 1989.
Payment made for such allowances/fringe benefits after said date shall be considered as illegal
disbursement of public funds.

They alleged that since CCC 10 was declared ineffective, the disallowance should be lifted until the issuance was published
on March 16, 1999.

But, although petitioners alleged that the subject benefits were withheld from them on the basis of CCC 10, it is
clear that the benefits were actually withheld from them on the basis of Section 18 of R.A. 6758, which reads:

Section 18. Additional Compensation of Commission on Audit Personnel and of Other Agencies. -
In order to preserve the independence and integrity of the Commission on Audit (COA), its officials and
employees are prohibited from receiving salaries, honoraria, bonuses, allowances or other emoluments
from any government entity, local government unit, and government-owned and controlled
corporations, and government financial institution, except those compensation paid directly by the COA
out of its appropriations and contributions.

Government entities, including government-owned or controlled corporations including

financial institutions and local government units are hereby prohibited from assessing or billing other
government entities, government-owned or controlled corporations including financial institutions or

61
 local government units for services rendered by its officials and employees as part of their regular
functions for purposes of paying additional compensation to said officials and employees.

As aptly pointed out by the COA, Section 18 of R.A. 6758 was complete in itself and was operative without the aid
of any supplementary or enabling legislation.[23] The implementing rules and regulations were necessary only for those
provisions, such as item (7) of Section 12, which requires further clarification and interpretation. Thus, notwithstanding
the initial non-publication of CCC 10, the disallowance of petitioners allowances and fringe benefits as COA auditing
personnel assigned to the GSIS was valid upon the effectivity of R.A. 6758.

In Tejada v. Domingo,[24] this Court explained that COA personnel assigned to auditing units of government-owned
or controlled corporations or government financial institutions can receive only such salaries, allowances or fringe benefits
paid directly by the COA out of its appropriations and contributions. The contributions referred to are the cost of audit
services which did not include the extra emoluments or benefits, such as bank equity pay, longevity pay, amelioration
allowance, and meal allowance, which petitioners claim. The COA is further barred from assessing or billing government-
owned or controlled corporations and government financial institutions for services rendered by its personnel as part of
their regular audit functions for purposes of paying additional compensation to such personnel.

In upholding the disallowance, the Court ruled in Villarea v. Commission on Audit[25] that valid reasons exist to
treat COA officials differently from other national government officials. The primary function of an auditor is to prevent
irregular, unnecessary, excessive or extravagant expenditures of government funds. To be able to properly perform their
constitutional mandate, COA officials need to be insulated from unwarranted influences, so that they can act with
independence and integrity.

Rightly so, the disallowance in this case is valid.

Four. Petitioners argue that since CCC 10 dated October 2, 1989 covering all government-owned or controlled
corporations and government financial institutions was ineffective until its re-issuance and publication on March 16, 1999,
its counterpart, NCC 59 dated September 30, 1989 covering the offices of the national government, state universities and
colleges, and local government units should also be regarded as ineffective until its re-issuance and publication on May 3,
2004. Thus, the COLA should not be deemed integrated into the standardized salary rates from 1989 to 2004. Respondents
counter that the fact that NCC 59 was not published should not be considered as an obstacle to the integration of COLA
into the standardized salary rates. Accordingly, Budget Circular 2001-03, insofar as it reiterates NCC 59, should not be
treated as ineffective since it merely reaffirms the fact of consolidation of COLA into the employees salary as mandated
by Section 12 of R.A. 6758.

It is a settled rule that publication is required as a condition precedent to the effectivity of a law to inform the
public of its contents before their rights and interests are affected by the same.[26] Administrative rules and regulations
must also be published if their purpose is to enforce or implement existing law pursuant also to a valid delegation.[27]

Nonetheless, as previously discussed, the integration of COLA into the standardized salary rates is not dependent
on the publication of CCC 10 and NCC 59. This benefit is deemed included in the standardized salary rates of government
employees since it falls under the general rule of integrationall allowances.

More importantly, the integration was not by mere legal fiction since it was factually integrated into the
employees salaries. Records show that the government employees were informed by their respective offices of their new
position titles and their corresponding salary grades when they were furnished with the Notices of Position Allocation and
Salary Adjustment (NPASA). The NPASA provided the breakdown of the employees gross monthly salary as of June 30,
1989 and the composition of his standardized pay under R.A. 6758.[28] Notably, the COLA was considered part of the
employees monthly income.

In truth, petitioners never really suffered any diminution in pay as a consequence of the consolidation of COLA
into their standardized salary rates. There is thus nothing in these cases which can be the subject of a back pay since the
amount corresponding to COLA was never withheld from petitioners in the first place.[29]

Consequently, the non-publication of CCC 10 and NCC 59 in the Official Gazette or newspaper of general
circulation does not nullify the integration of COLA into the standardized salary rates upon the effectivity of R.A. 6758. As
62
the Court has said in Philippine International Trading Corporation v. Commission on Audit,[30] the validity of R.A. 6758
should not be made to depend on the validity of its implementing rules.

Five. Petitioners contend that the continued grant of COLA to military and police personnel under CCC 10 and NCC
59 to the exclusion of other government employees violates the equal protection clause of the Constitution.

But as respondents pointed out, while it may appear that petitioners are questioning the constitutionality of these
issuances, they are in fact attacking the very constitutionality of Section 11 of R.A. 6758. It is actually this provision which
allows the uniformed personnel to continue receiving their COLA over and above their basic pay, thus:

Section 11. Military and Police Personnel. - The base pay of uniformed personnel of the Armed
Forces of the Philippines and the Integrated National Police shall be as prescribed in the salary schedule
for these personnel in R.A. 6638 and R.A. 6648. The longevity pay of these personnel shall be as
prescribed under R.A. 6638, and R.A. 1134 as amended by R.A. 3725 and R.A. 6648: Provided, however,
That the longevity pay of uniformed personnel of the Integrated National Police shall include those
services rendered as uniformed members of the police, jail and fire departments of the local
government units prior to the police integration.
All existing types of allowances authorized for uniformed personnel of the Armed Forces of the
Philippines and Integrated National Police such as cost of living allowance, longevity pay, quarters
allowance, subsistence allowance, clothing allowance, hazard pay and other allowances shall continue
to be authorized.

Nothing is more settled than that the constitutionality of a statute cannot be attacked collaterally because
constitutionality issues must be pleaded directly and not collaterally.[31]

In any event, the Court is not persuaded that the continued grant of COLA to the uniformed personnel to the
exclusion of other national government officials run afoul the equal protection clause of the Constitution. The
fundamental right of equal protection of the laws is not absolute, but is subject to reasonable classification. If the
groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated
differently from another. The classification must also be germane to the purpose of the law and must apply to all those
belonging to the same class.[32]

To be valid and reasonable, the classification must satisfy the following requirements: (1) it must rest on
substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited to existing conditions
only; and (4) it must apply equally to all members of the same class.[33]

It is clear from the first paragraph of Section 11 that Congress intended the uniformed personnel to be continually
governed by their respective compensation laws. Thus, the military is governed by R.A. 6638,[34] as amended by R.A.
9166[35] while the police is governed by R.A. 6648,[36] as amended by R.A. 6975.[37]

Certainly, there are valid reasons to treat the uniformed personnel differently from other national government
officials. Being in charged of the actual defense of the State and the maintenance of internal peace and order, they are
expected to be stationed virtually anywhere in the country. They are likely to be assigned to a variety of low, moderate,
and high-cost areas. Since their basic pay does not vary based on location, the continued grant of COLA is intended to help
them offset the effects of living in higher cost areas.[38]

WHEREFORE, the Court GRANTS the petition in G.R. No. 172713 and DENIES the petitions in G.R. 153266, 159007,
159029, 170084, 173119, 176477, 177990 and A.M. 06-4-02-SB.

SO ORDERED.

[G.R. No. 127624. November 18, 2003]

63
BPI LEASING CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS, COURT OF TAX APPEAL AND
COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION
AZCUNA, J.:

The present petition for review on certiorari assails the decision[1] of the Court of Appeals in CA-G.R. SP No. 38223
and its subsequent resolution[2] denying the motion for reconsideration. The assailed decision and resolution affirmed the
decision of the Court of Tax Appeals (CTA) which denied petitioner BPI Leasing Corporations (BLC) claim for tax refund in
CTA Case No. 4252.
The facts are not disputed.
BLC is a corporation engaged in the business of leasing properties.[3] For the calendar year 1986, BLC paid the
Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4% contractors percentage tax then
imposed by Section 205 of the National Internal Revenue Code (NIRC), based on its gross rentals from equipment leasing
for the said year amounting to P27,783,725.42.[4]
On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereof provided that finance and
leasing companies registered under Republic Act 5980 shall be subject to gross receipt tax of 5%-3%-1% on actual income
earned. This means that companies registered under Republic Act 5980, such as BLC, are not liable for contractors
percentage tax under Section 205 but are, instead, subject to gross receipts tax under Section 260 (now Section 122) of
the NIRC. Since BLC had earlier paid the aforementioned contractors percentage tax, it re-computed its tax liabilities under
the gross receipts tax and arrived at the amount of P361,924.44.
On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount of P777,117.05, representing the
difference between the P1,139,041.49 it had paid as contractors percentage tax and P361,924.44 it should have paid for
gross receipts tax.[5] Four days later, to stop the running of the prescriptive period for refunds, petitioner filed a petition
for review with the CTA.[6]
In a decision dated May 13, 1994,[7] the CTA dismissed the petition and denied BLCs claim of refund. The CTA held
that Revenue Regulation 19-86, as amended, may only be applied prospectively such that it only covers all leases written
on or after January 1, 1987, as stated under Section 7 of said revenue regulation:

Section 7. Effectivity These regulations shall take effect on January 1, 1987 and shall be applicable to all leases written on
or after the said date.

The CTA ruled that, since BLCs rental income was all received prior to 1986, it follows that this was derived from lease
transactions prior to January 1, 1987, and hence, not covered by the revenue regulation.
A motion for reconsideration of the CTAs decision was filed, but was denied in a resolution dated July 26, 1995.[8] BLC
then appealed the case to the Court of Appeals, which issued the aforementioned assailed decision and
resolution.[9] Hence, the present petition.
In seeking to reverse the denial of its claim for tax refund, BLC submits that the Court of Appeals and the CTA erred
in not ruling that Revenue Regulation 19-86 may be applied retroactively so as to allow BLCs claim for a refund
of P777,117.05.
Respondents, on the other hand, maintain that the provision on the date of effectivity of Revenue Regulation 19-86
is clear and unequivocal, leaving no room for interpretation on its prospective application. In addition, respondents argue
that the petition should be dismissed on the ground that the Verification/Certification of Non-Forum Shopping was signed
by the counsel of record and not by BLC, through a duly authorized representative, in violation of Supreme Court Circular
28-91.
In a resolution dated March 29, 2000,[10] the petition was given due course and the Court required the parties to file
their respective Memoranda. Upon submission of the Memoranda, the issues in this case were delineated, as follows:[11]

WHETHER THE INSTANT PETITION FOR REVIEW ON CERTIORARI SUBSTANTIALLY COMPLIES WITH SUPREME COURT
CIRCULAR 28-91.

WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS LEGISLATIVE OR INTERPRETATIVE IN NATURE.

WHETHER REVENUE REGULATION 19-86, AS AMENDED, IS PROSPECTIVE OR RETROACTIVE IN ITS APPLICATION.

64
WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, FAILED TO MEET THE QUANTUM OF EVIDENCE REQUIRED
IN REFUND CASES.

WHETHER PETITIONER, AS FOUND BY THE COURT OF APPEALS, IS ESTOPPED FROM CLAIMING ITS PRESENT REFUND.

As to the first issue, the Court agrees with respondents contention that the petition should be dismissed outright for
failure to comply with Supreme Court Circular 28-91, now incorporated as Section 2 of Rule 42 of the Rules of Court. The
records plainly show, and this has not been denied by BLC, that the certification was executed by counsel who has not
been shown to have specific authority to sign the same for BLC.
In BA Savings Bank v. Sia,[12] it was held that the certificate of non-forum shopping may be signed, for and on behalf
of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in
such document. This ruling, however, does not mean that any lawyer, acting on behalf of the corporation he is
representing, may routinely sign a certification of non-forum shopping. The Court emphasizes that the lawyer must be
specifically authorized in order validly to sign the certification.
Corporations have no powers except those expressly conferred upon them by the Corporation Code and those that
are implied by or are incidental to its existence. These powers are exercised through their board of directors and/or duly
authorized officers and agents. Hence, physical acts, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or by specific act of the board of directors.[13]
The records are bereft of the authority of BLCs counsel to institute the present petition and to sign the certification
of non-forum shopping. While said counsel may be the counsel of record for BLC, the representation does not vest upon
him the authority to execute the certification on behalf of his client. There must be a resolution issued by the board of
directors that specifically authorizes him to institute the petition and execute the certification, for it is only then that his
actions can be legally binding upon BLC.
BLC however insists that there was substantial compliance with SC Circular No. 28-91 because the
verification/certification was issued by a counsel who had full personal knowledge that no other petition or action has
been filed or is pending before any other tribunal. According to BLC, said counsels law firm has handled this case from the
very beginning and could very well attest and/or certify to the absence of an instituted or pending case involving the same
or similar issues.
The argument of substantial compliance deserves no merit, given the Courts ruling in Mendigorin v. Cabantog:[14]

The CA held that there was substantial compliance with the Rules of Court, citing Dimagiba vs. Montalvo, Jr. [202 SCRA
641] to the effect that a lawyer who assumes responsibility for a client's cause has the duty to know the entire history of
the case, especially if any litigation is commenced. This view, however, no longer holds authoritative value in the light of
Digital Microwave Corporation vs. CA [328 SCRA 286], where it was held that the reason the certification against forum
shopping is required to be accomplished by petitioner himself is that only the petitioner himself has actual knowledge of
whether or not he has initiated similar actions or proceedings in other courts or tribunals. Even counsel of record may be
unaware of such fact. To our mind, this view is more in accord with the intent and purpose of Revised Circular No. 28-91.

Clearly, therefore, the present petition lacks the proper certification as strictly required by jurisprudence and the
Rules of Court.
Even if the Court were to ignore the aforesaid procedural infirmity, a perusal of the arguments raised in the petition
indicates that a resolution on the merits would nevertheless yield the same outcome.
BLC attempts to convince the Court that Revenue Regulation 19-86 is legislative rather than interpretative in
character and hence, should retroact to the date of effectivity of the law it seeks to interpret.
Administrative issuances may be distinguished according to their nature and substance: legislative and interpretative.
A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the
details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.[15]
The Court finds the questioned revenue regulation to be legislative in nature. Section 1 of Revenue Regulation 19-86
plainly states that it was promulgated pursuant to Section 277 of the NIRC. Section 277 (now Section 244) is an express
grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement
of the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. Court of Appeals,[16] the Court recognized
that the application of Section 277 calls for none other than the exercise of quasi-legislative or rule-making
authority. Verily, it cannot be disputed that Revenue Regulation 19-86 was issued pursuant to the rule-making power of
the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC.

65
 BLC further posits that, assuming the revenue regulation is legislative in nature, it is invalid for want of due process
as no prior notice, publication and public hearing attended the issuance thereof. To support its view, BLC cited CIR v.
Fortune Tobacco, et al.,[17] wherein the Court nullified a revenue memorandum circular which reclassified certain
cigarettes and subjected them to a higher tax rate, holding it invalid for lack of notice, publication and public hearing.
The doctrine enunciated in Fortune Tobacco, and reiterated in CIR v. Michel J. Lhuillier Pawnshop, Inc.,[18] is 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 Lhuillier and Fortune Tobacco, the Court invalidated the revenue memoranda concerned
because the same increased the tax liabilities of the affected taxpayers without affording them due process. In this case,
Revenue Regulation 19-86 would be beneficial to the taxpayers as they are subjected to lesser taxes. Petitioner, in fact, is
invoking Revenue Regulation 19-86 as the very basis of its claim for refund. If it were invalid, then petitioner all the more
has no right to a refund.
After upholding the validity of Revenue Regulation 19-86, the Court now resolves whether its application should be
prospective or retroactive.
The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively
only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication.[19] In the present
case, there is no indication that the revenue regulation may operate retroactively. Furthermore, there is an express
provision stating that it shall take effect on January 1, 1987, and that it shall be applicable to all leases written on or after
the said date. Being clear on its prospective application, it must be given its literal meaning and applied without further
interpretation.[20] Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals it
received prior to January 1, 1987.
It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation
of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. The burden of
proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under
Constitutional or statutory law, and he cannot be permitted to rely upon vague implications.[21] Nothing that BLC has raised
justifies a tax refund.
It is not necessary to rule on the remaining issues.
WHEREFORE, the petition for review is hereby DENIED, and the assailed decision and resolution of the Court of
Appeals are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Carpio
THE BOARD OF TRUSTEES G.R. No. 170463

OF THE GOVERNMENT SERVICE INSURANCE

SYSTEM and
Present:
WINSTON F. GARCIA, in his capacity

as GSIS President and General Manager,

CARPIO, J., Chairperson,
Petitioners,
NACHURA,

PERALTA,
- versus -
ABAD, and

MENDOZA, JJ.

ALBERT M. VELASCO and MARIO I. MOLINA,

Respondents.
Promulgated:

66
 February 2, 2011

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

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 24 September 2004 Decision2 and the 7 October 2005 Order3 of the Regional Trial Court
of Manila, Branch 19 (trial court), in Civil Case No. 03-108389. In its 24 September 2004 Decision, the trial court granted
respondents Albert M. Velasco4 and Mario I. Molinas5 (respondents) petition for prohibition. In its 7 October 2005 Order,
the trial court denied petitioners Board of Trustees of the Government Service Insurance System (GSIS) and Winston F.
Garcias (petitioners) motion for reconsideration.

The Facts

On 23 May 2002, petitioners charged respondents administratively with grave misconduct and placed them under
preventive suspension for 90 days.6 Respondents were charged for their alleged participation in the demonstration held
by some GSIS employees denouncing the alleged corruption in the GSIS and calling for the ouster of its president and
general manager, petitioner Winston F. Garcia.7

In a letter dated 4 April 2003, respondent Mario I. Molina (respondent Molina) requested GSIS Senior Vice President
Concepcion L. Madarang (SVP Madarang) for the implementation of his step increment.8 On 22 April 2003,
SVP Madarang denied the request citing GSIS Board Resolution No. 372 (Resolution No. 372)9 issued by petitioner Board
of Trustees of the GSIS (petitioner GSIS Board) which approved the new GSIS salary structure, its implementing rules and
regulations, and the adoption of the supplemental guidelines on step increment and promotion.10 The pertinent provision
of Resolution No. 372 provides:

A. Step Increment

xxxx

III. Specific Rules:

x x xx

3. The step increment adjustment of an employee who is on preventive suspension shall be withheld until such
time that a decision on the case has been rendered. x x x x

67
Respondents also asked that they be allowed to avail of the employee privileges under GSIS Board Resolution No. 306
(Resolution No. 306) approving Christmas raffle benefits for all GSIS officials and employees effective year
2002.11 Respondents request was again denied because of their pending administrative case.

On 27 August 2003, petitioner GSIS Board issued Board Resolution No. 197 (Resolution No. 197) approving the following
policy recommendations:

B. On the disqualification from promotion of an employee with a pending administrative case

To adopt the policy that an employee with pending administrative case shall be disqualified from the following
during the pendency of the case:

a) Promotion;

b) Step Increment;

c) Performance-Based Bonus; and

d) Other benefits and privileges.

On 14 November 2003, respondents filed before the trial court a petition for prohibition with prayer for a writ of
preliminary injunction.12 Respondents claimed that they were denied the benefits which GSIS employees were entitled
under Resolution No. 306. Respondents also sought to restrain and prohibit petitioners from implementing Resolution
Nos. 197 and 372. Respondents claimed that the denial of the employee benefits due them on the ground of their pending
administrative cases violates their right to be presumed innocent and that they are being punished without hearing.
Respondent Molina also added that he had already earned his right to the step increment before Resolution No. 372 was
enacted. Respondents also argued that the three resolutions were ineffective because they were not registered with the
University of the Philippines (UP) Law Center pursuant to the Revised Administrative Code of 1987.13

On 24 November 2003, petitioners filed their comment with motion to dismiss and opposition.14 On 2 December 2003,
respondents filed their opposition to the motion to dismiss.15On 5 December 2003, petitioners filed their reply.16

On 16 January 2004, the trial court denied petitioners motion to dismiss and granted respondents prayer for a writ of
preliminary injunction.17

Petitioners filed a motion for reconsideration.18 In its 26 February 2004 Order, the trial court denied petitioners motion.19

In its 24 September 2004 Decision, the trial court granted respondents petition for prohibition. The dispositive portion of
the 24 September 2004 Decision provides:

WHEREFORE, the petition is GRANTED and respondents Board Resolution No. 197 of August 27, 2003 and No. 372
of November 21, 2000 are hereby declared null and void. The writ of preliminary injunction issued by this Court is
hereby made permanent.

SO ORDERED.20
68
Petitioners filed a motion for reconsideration. In its 7 October 2005 Order, the trial court denied petitioners motion.

Hence, this petition.

The Ruling of the Trial Court

On the issue of jurisdiction, the trial court said it can take cognizance of the petition because the territorial area referred
to in Section 4, Rule 65 of the Rules of Court does not necessarily delimit to a particular locality but rather to the judicial
region where the office or agency is situated so that the prohibitive writ can be enforced.

On the merits of the case, the trial court ruled that respondents were entitled to all employee benefits as provided under
the law by reason of their employment. According to the trial court, to deny respondents these employee benefits for the
reason alone that they have pending administrative cases is unjustified since it would deprive them of what is legally due
them without due process of law, inflict punishment on them without hearing, and violate their right to be presumed
innocent.

The trial court also found that the assailed resolutions were not registered with the UP Law Center, per certification of the
Office of the National Administrative Register (ONAR).21Since they were not registered, the trial court declared that the
assailed resolutions have not become effective citing Sections 3 and 4, Chapter 2, Book 7 of the Revised Administrative
Code of 1987.22

The Issues

Petitioners raise the following issues:

Whether the jurisdiction over the subject matter of Civil Case No. 03-108389 (Velasco, et al. vs. The Board of
Trustees of GSIS, et al., RTC-Manila, Branch 19) lies with the Civil Service Commission (CSC) and not with the
Regional Trial Court of Manila, Branch 19.

II

Whether a Special Civil Action for Prohibition against the GSIS Board or its President and General Manager
exercising quasi-legislative and administrative functions in Pasay City is outside the territorial jurisdiction of RTC-
Manila, Branch 19.

69
 III

Whether internal rules and regulations need not require publication with the Office of the National
[Administrative] Register for their effectivity, contrary to the conclusion of the RTC-Manila, Branch 19.

IV

Whether a regulation, which disqualifies government employees who have pending administrative cases from the
grant of step increment and Christmas raffle benefits is unconstitutional.

Whether the nullification of GSIS Board Resolutions is beyond an action for prohibition, and a writ of preliminary
injunction cannot be made permanent without a decision ordering the issuance of a writ of prohibition.23

The Ruling of the Court

The petition is partly meritorious.

Petitioners argue that the Civil Service Commission (CSC), not the trial court, has jurisdiction over Civil Case No. 03-108389
because it involves claims of employee benefits. Petitioners point out that the trial court should have dismissed the case
for lack of jurisdiction.

Sections 2 and 4, Rule 65 of the Rules of Court provide:

Sec. 2. Petition for Prohibition. - When the proceedings of any tribunal, corporation, board, officer or person,
whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other
plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding
the respondent to desist from further proceedings in the action or matter specified therein, or otherwise
granting such incidental reliefs as law and justice may require.

Sec. 4. Where petition filed. - The petition may be filed not later than sixty (60) days from notice of the judgment,
order or resolution sought to be assailed in the Supreme Court or, if it related to acts or omissions of a lower
court or of a corporation, board, officer or person in the Regional Trial Court exercising jurisdiction over the
territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the
same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the
acts or omissions of a quasi-judicial agency, and unless otherwise provided by law or these Rules, the petition shall
be filed in and cognizable only by the Court of Appeals. (Emphasis supplied)

70
Civil Case No. 03-108389 is a petition for prohibition with prayer for the issuance of a writ of preliminary injunction.
Respondents prayed that the trial court declare all acts emanating from Resolution Nos. 372, 197, and 306 void and to
prohibit petitioners from further enforcing the said resolutions.24 Therefore, the trial court, not the CSC, has jurisdiction
over respondents petition for prohibition.

Petitioners also claim that the petition for prohibition was filed in the wrong territorial jurisdiction because the acts sought
to be prohibited are the acts of petitioners who hold their principal office in Pasay City, while the petition for prohibition
was filed in Manila.

Section 18 of Batas Pambansa Blg. 129 (BP 129)25 provides:

SEC. 18. Authority to define territory appurtenant to each branch. - The Supreme Court shall define the territory
over which a branch of the Regional Trial Court shall exercise its authority. The territory thus defined shall be
deemed to be the territorial area of the branch concerned for purposes of determining the venue of all suits,
proceedings or actions, whether civil or criminal, as well as determining the Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial Courts over which the said branch may exercise appellate jurisdiction. The
power herein granted shall be exercised with a view to making the courts readily accessible to the people of the
different parts of the region and making attendance of litigants and witnesses as inexpensive as possible.
(Emphasis supplied)

In line with this, the Supreme Court issued Administrative Order No. 326 defining the territorial jurisdiction of the regional
trial courts in the National Capital Judicial Region, as follows:

a. Branches I to LXXXII, inclusive, with seats at Manila over the City of Manila only.

b. Branches LXXXIII to CVII, inclusive, with seats at Quezon City over Quezon City only.

c. Branches CVIII to CXIX, inclusive, with seats at Pasay City over Pasay City only.

xxxx

The petition for prohibition filed by respondents is a special civil action which may be filed in the Supreme Court, the Court
of Appeals, the Sandiganbayan or the regional trial court, as the case may be.27 It is also a personal action because it does
71
not affect the title to, or possession of real property, or interest therein. Thus, it may be commenced and tried where the
plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, at the
election of the plaintiff.28 Since respondent Velasco, plaintiff before the trial court, is a resident of the City of Manila,29 the
petition could properly be filed in the City of Manila.30 The choice of venue is sanctioned by Section 2, Rule 4 of the Rules
of Court.

Moreover, Section 21(1) of BP 129 provides:

Sec. 21. Original jurisdiction in other cases. - Regional Trial Courts shall exercise original jurisdiction:

(1) In the issuance of writs of certiorari, prohibition, mandamus, quo warranto, habeas
corpus and injunction, which may be enforced in any part of their respective regions; x x x (Emphasis supplied)

Since the National Capital Judicial Region is comprised of the cities of Manila, Quezon, Pasay,
Caloocan, Malabon, Mandaluyong, Makati, Pasig, Marikina, Paraaque, Las Pias, Muntinlupa, and Valenzuela and the
municipalities of Navotas, San Juan, Pateros, and Taguig, a writ of prohibition issued by the regional trial court sitting in
the City of Manila, is enforceable in Pasay City. Clearly, the RTC did not err when it took cognizance of respondents petition
for prohibition because it had jurisdiction over the action and the venue was properly laid before it.

Petitioners also argue that Resolution Nos. 372, 197, and 306 need not be filed with the UP Law Center ONAR since they
are, at most, regulations which are merely internal in nature regulating only the personnel of the GSIS and not the public.

Not all rules and regulations adopted by every government agency are to be filed with the UP Law Center. Only those of
general or of permanent character are to be filed. According to the UP Law Centers guidelines for receiving and publication
of rules and regulations, interpretative regulations and those merely internal in nature, that is, regulating only the
personnel of the Administrative agency and not the public, need not be filed with the UP Law Center.

Resolution No. 372 was about the new GSIS salary structure, Resolution No. 306 was about the authority to pay the 2002
Christmas Package, and Resolution No. 197 was about the GSIS merit selection and promotion plan. Clearly, the assailed
resolutions pertained only to internal rules meant to regulate the personnel of the GSIS. There was no need for the
publication or filing of these resolutions with the UP Law Center.

Petitioners insist that petitioner GSIS Board has the power to issue the assailed resolutions. According to petitioners, it
was within the power of petitioner GSIS Board to disqualify respondents for step increment and from receiving GSIS
benefits from the time formal administrative charges were filed against them until the cases are resolved.

The Court notes that the trial court only declared Resolution Nos. 197 and 372 void. The trial court made no ruling on
Resolution No. 306 and respondents did not appeal this matter. Therefore, we will limit our discussion to Resolution Nos.
197 and 372, particularly to the effects of preventive suspension on the grant of step increment because this was what
respondents raised before the trial court.

First, entitlement to step increment depends on the rules relative to the grant of such benefit. In point are Section 1(b),
Rule II and Section 2, Rule III of Joint Circular No. 1, series of 1990, which provide:
72
 Rule II. Selection Criteria

Section 1. Step increments shall be granted to all deserving officials and employees x x x

(b) Length of Service For those who have rendered continuous satisfactory service in a particular position for at
least three (3) years.

Rule III. Step Increments

xxxx

Section 2. Length of Service A one (1) step increment shall be granted officials and employees for every three (3)
years of continuous satisfactory service in the position. Years of service in the position shall include the following:

(a) Those rendered before the position was reclassified to a position title with a lower or the same salary grade
allocation; and

(b) Those rendered before the incumbent was transferred to another position within the same agency or to
another agency without a change in position title and salary grade allocation.

In the initial implementation of step increments in 1990, an incumbent shall be granted step increments
equivalent to one (1) step for every three (3) years of continuous satisfactory service in a given position occupied
as of January 1, 1990.

A grant of step increment on the basis of length of service requires that an employee must have rendered at least three
years of continuous and satisfactory service in the same position to which he is an incumbent.31 To determine whether
service is continuous, it is necessary to define what actual service is.32 Actual service refers to the period of continuous
service since the appointment of the official or employee concerned, including the period or periods covered by any
previously approved leave with pay.33

Second, while there are no specific rules on the effects of preventive suspension on step increment, we can refer to the
CSC rules and rulings on the effects of the penalty of suspension and approved vacation leaves without pay on the grant
of step increment for guidance.

Section 56(d), Rule IV of the Uniform Rules on Administrative Cases in the Civil Service provides:

Section 56. Duration and effect of administrative penalties. - The following rules shall govern in the imposition of
administrative penalties: x x x

(d) The penalty of suspension shall result in the temporary cessation of work for a period not exceeding one (1)
year.

73
 Suspension of one day or more shall be considered a gap in the continuity of service. During the period of
suspension, respondent shall not be entitled to all money benefits including leave credits.

If an employee is suspended as a penalty, it effectively interrupts the continuity of his government service at the
commencement of the service of the said suspension. This is because a person under penalty of suspension is not
rendering actual service. The suspension will undoubtedly be considered a gap in the continuity of the service for purposes
of the computation of the three year period in the grant of step increment.34 However, this does not mean that the
employee will only be entitled to the step increment after completing another three years of continuous satisfactory
service reckoned from the time the employee has fully served the penalty of suspension.35 The CSC has taken this to mean
that the computation of the three year period requirement will only be extended by the number of days that the employee
was under suspension.36 In other words, the grant of step increment will only be delayed by the same number of days that
the employee was under suspension.

This is akin to the status of an employee who incurred vacation leave without pay for purposes of the grant of step
increment.37 Employees who were on approved vacation leave without pay enjoy the liberal application of the rule on the
grant of step increment under Section 60 of CSC Memorandum Circular No. 41, series of 1998, which provides:

Section 60. Effect of vacation leave without pay on the grant of length of service step increment. - For purposes
of computing the length of service for the grant of step increment, approved vacation leave without pay for an
aggregate of fifteen (15) days shall not interrupt the continuity of the three-year service requirement for the grant
of step increment. However, if the total number of authorized vacation leave without pay included within the
three-year period exceeds fifteen (15) days, the grant of one-step increment will only be delayed for the same
number of days that an official or employee was absent without pay. (Emphasis supplied)

Third, on preventive suspension, Sections 51 and 52, Chapter 7, Subtitle A, Title I, Book V of the Revised Administrative
Code of 1987 provide:

SEC. 51. Preventive Suspension. - The proper disciplining authority may preventively suspend any subordinate officer or
employee under his authority pending an investigation, if the charge against such officer or employee involves dishonesty,
oppression or grave misconduct, or neglect in the performance of duty, or if there are reasons to believe that the
respondent is guilty of charges which would warrant his removal from the service.

SEC. 52. Lifting of Preventive Suspension. Pending Administrative Investigation. - When the administrative case
against the officer or employee under preventive suspension is not finally decided by the disciplining authority
within the period of ninety (90) days after the date of suspension of the respondent who is not a presidential
appointee, the respondent shall be automatically reinstated in the service: Provided, That when the delay in the
disposition of the case is due to the fault, negligence or petition of the respondent, the period of delay shall not
be counted in computing the period of suspension herein provided. (Emphasis supplied)

Preventive suspension pending investigation is not a penalty.38 It is a measure intended to enable the disciplining authority
to investigate charges against respondent by preventing the latter from intimidating or in any way influencing witnesses
against him.39 If the investigation is not finished and a decision is not rendered within that period, the suspension will be
lifted and the respondent will automatically be reinstated.

Therefore, on the matter of step increment, if an employee who was suspended as a penalty will be treated like an
employee on approved vacation leave without pay,40 then it is only fair and reasonable to apply the same rules to an
employee who was preventively suspended, more so considering that preventive suspension is not a penalty. If an

74
employee is preventively suspended, the employee is not rendering actual service and this will also effectively interrupt
the continuity of his government service. Consequently, an employee who was preventively suspended will still be entitled
to step increment after serving the time of his preventive suspension even if the pending administrative case against him
has not yet been resolved or dismissed. The grant of step increment will only be delayed for the same number of days,
which must not exceed 90 days, that an official or employee was serving the preventive suspension.

Fourth, the trial court was correct in declaring that respondents had the right to be presumed innocent until proven guilty.
This means that an employee who has a pending administrative case filed against him is given the benefit of the doubt
and is considered innocent until the contrary is proven.41

In this case, respondents were placed under preventive suspension for 90 days beginning on 23 May 2002. Their
preventive suspension ended on 21 August 2002. Therefore, after serving the period of their preventive suspension and
without the administrative case being finally resolved, respondents should have been reinstated and, after serving the
same number of days of their suspension, entitled to the grant of step increment.

On a final note, social legislation like the circular on the grant of step increment, being remedial in character, should be
liberally construed and administered in favor of the persons to be benefited. The liberal approach aims to achieve
humanitarian purposes of the law in order that the efficiency, security and well-being of government employees may be
enhanced.42

WHEREFORE, we DENY the petition. We AFFIRM with MODIFICATION the 24 September 2004 Decision and the 7 October
2005 Order of the Regional Trial Court of Manila, Branch 19 in Civil Case No. 03-108389. We DECLARE the assailed
provisions on step increment in GSIS Board Resolution Nos. 197 and 372 VOID. We MODIFY the 24 September 2004
Decision of the Regional Trial Court of Manila, Branch 19 and rule that GSIS Board Resolution Nos. 197, 306 and 372 need
not be filed with the University of the Philippines Law Center.

SO ORDERED.

WILLIAM C. DAGAN, CARLOS G.R. No. 175220

H. REYES, NARCISO MORALES,
BONIFACIO MANTILLA, Present:
CESAR AZURIN, WEITONG LIM,
MA. TERESA TRINIDAD, MA. PUNO, C.J.,
CARMELITA FLORENTINO, QUISUMBING,
Petitioners, YNARES-SANTIAGO,
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
- versus - CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
VELASCO, JR.,
PHILIPPINE RACING COMMISSION, NACHURA,
MANILA JOCKEY CLUB, INC., and LEONARDO DE CASTRO,
PHILIPPINE RACING CLUB, INC., BRION, and
Respondents PERALTA, JJ.

Promulgated:

February 12, 2009

75
x ----------------------------------------------------------------------------------- x

DECISION

TINGA, J.:

The subject of this petition for certiorari is the decision[1] of the Court of Appeals in CA-G.R. SP No. 95212,
affirming in toto the judgment[2] of the Regional Trial Court of Makati in Civil Case No. 04-1228.

The controversy stemmed from the 11 August 2004 directive[3] issued by the Philippine Racing Commission
(Philracom) directing the Manila Jockey Club, Inc. (MJCI) and Philippine Racing Club, Inc. (PRCI) to immediately come up
with their respective Clubs House Rule to address Equine Infectious Anemia (EIA)[4] problem and to rid their facilities of
horses infected with EIA. Said directive was issued pursuant to Administrative Order No. 5[5] dated 28 March 1994 by the
Department of Agriculture declaring it unlawful for any person, firm or corporation to ship, drive, or transport horses from
any locality or place except when accompanied by a certificate issued by the authority of the Director of the Bureau of
Animal Industry (BAI).[6]

In compliance with the directive, MJCI and PRCI ordered the owners of racehorses stable in their establishments
to submit the horses to blood sampling and administration of the Coggins Test to determine whether they are afflicted
with the EIA virus. Subsequently, on 17 September 2004, Philracom issued copies of the guidelines for the monitoring and
eradication of EIA.[7]

Petitioners and racehorse owners William Dagan (Dagan), Carlos Reyes, Narciso Morales, Bonifacio Montilla, Cezar
Azurin, Weitong Lim, Ma. Teresa Trinidad and Ma. Carmelita Florentino refused to comply with the directive. First, they
alleged that there had been no prior consultation with horse owners. Second, they claimed that neither official guidelines
nor regulations had been issued relative to the taking of blood samples. And third, they asserted that no documented case
of EIA had been presented to justify the undertaking.[8]

Despite resistance from petitioners, the blood testing proceeded. The horses, whose owners refused to comply
were banned from the races, were removed from the actual day of race, prohibited from renewing their licenses or evicted
from their stables.

When their complaint went unheeded, the racehorse owners lodged a complaint before the Office of the President (OP)
which in turn issued a directive instructing Philracom to investigate the matter.
For failure of Philracom to act upon the directive of the OP, petitioners filed a petition for injunction with application for
the issuance of a temporary restraining order (TRO). In an order[9] dated 11 November 2004, the trial court issued a TRO.

Dagan refused to comply with the directives because, according to him, the same are unfair as there are no implementing
rules on the banning of sick horses from races.Consequently, his horses were evicted from the stables and transferred to
an isolation area. He also admitted that three of his horses had been found positive for EIA.[10]

76
Confronted with two issues, namely: whether there were valid grounds for the issuance of a writ of injunction and whether
respondents had acted with whim and caprice in the implementation of the contested guideline, the trial court resolved
both queries in the negative.

The trial court found that most racehorse owners, except for Dagan, had already subjected their racehorses to EIA
testing. Their act constituted demonstrated compliance with the contested guidelines, according to the trial court. Hence,
the acts sought to be enjoined had been rendered moot and academic.

With respect to the subject guidelines, the trial court upheld their validity as an exercise of police power, thus:
The Petitioners submission that the subject guidelines are oppressive and hence confiscatory of
proprietary rights is likewise viewed by this Court to be barren of factual and legal support. The
horseracing industry, needless to state, is imbued with public interest deserving of utmost concern if not
constant vigilance. The Petitioners do not dispute this. It is because of this basic fact that respondents are
expected to police the concerned individuals and adopt measures that will promote and protect the
interests of all the stakeholders starting from the moneyed horse-owners, gawking bettors down to the
lowly maintainers of the stables. This is a clear and valid exercise of police power with the respondents
acting for the State. Participation in the business of horseracing is but a privilege; it is not a right. And no
clear acquiescence to this postulation can there be than the Petitioners' own undertaking to abide by the
rules and conditions issued and imposed by the respondents as specifically shown by their contracts of
lease with MCJI.[11]

Petitioners appealed to the Court of Appeals. In its Decision dated 27 October 2006, the appellate court
affirmed in toto the decision of the trial court.

The appellate court upheld the authority of Philracom to formulate guidelines since it is vested with exclusive
jurisdiction over and control of the horse-racing industry per Section 8 of Presidential Decree (P.D.) No. 8. The appellate
court further pointed out that P.D. No. 420 also endows Philracom with the power to prescribe additional rules and
regulations not otherwise inconsistent with the said presidential decree[12] and to perform such duties and exercise all
powers incidental or necessary to the accomplishment of its aims and objectives.[13] It similarly concluded that the petition
for prohibition should be dismissed on the ground of mootness in light of evidence indicating that petitioners had already
reconsidered their refusal to have their horses tested and had, in fact, subsequently requested the administration of the
test to the horses.[14]

Aggrieved by the appellate courts decision, petitioners filed the instant certiorari petition[15] imputing grave abuse
of discretion on the part of respondents in compelling petitioners to subject their racehorses to blood testing.
In their amended petition,[16] petitioners allege that Philracoms unsigned and undated implementing guidelines
suffer from several infirmities. They maintain that the assailed guidelines do not comply with due process
requirements. Petitioners insist that racehorses already in the MJCI stables were allowed to be so quartered because the
individual horse owners had already complied with the Philracom regulation that horses should not bear any disease.
There was neither a directive nor a rule that racehorses already lodged in the stables of the racing clubs should again be
subjected to the collection of blood samples preparatory to the conduct of the EIA tests,[17] petitioners note.Thus, it came
as a surprise to horse owners when told about the administration of a new Coggins Tests on old horses since the matter
had not been taken up with them.[18] No investigation or at least a summary proceeding was conducted affording
petitioners an opportunity to be heard.[19] Petitioners also aver that the assailed guidelines are ultra vires in that the

77
sanctions imposed for refusing to submit to medical examination are summary eviction from the stables or arbitrary
banning of participation in the races, notwithstanding the penalties prescribed in the contract of lease.[20]

In its Comment,[21] the PRCI emphasizes that it merely obeyed the terms of its franchise and abided by the rules
enacted by Philracom.[22] For its part, Philracom, through the Office of the Solicitor-General (OSG), stresses that the case
has become moot and academic since most of petitioners had complied with the guidelines by subjecting their race horses
to EIA testing. The horses found unafflicted with the disease were eventually allowed to join the races.[23] Philracom also
justified its right under the law to regulate horse racing.[24] MJCI adds that Philracom need
not delegate its rule-making power to the former since MJCIs right to formulate its internal rules is subsumed under the
franchise granted to it by Congress.[25]

In their Reply,[26] petitioners raise for the first time the issue that Philracom had unconstitutionally delegated its rule-
making power to PRCI and MJCI in issuing the directive for them to come up with club rules. In response to the claim that
respondents had merely complied with their duties under their franchises, petitioners counter that the power granted to
PRCI and MJCI under their respective franchises is limited to: (1) the construction, operation and maintenance of
racetracks; (2) the establishment of branches for booking purposes; and (3) the conduct of horse races.

It appears on record that only Dagan had refused to comply with the orders of respondents. Therefore, the case
subsists as regards Dagan.

Petitioners essentially assail two issuances of Philracom; namely: the Philracom directive[27] and the subsequent
guidelines addressed to MJCI and PRCI.

The validity of an administrative issuance, such as the assailed guidelines, hinges on compliance with the following
requisites:

1. Its promulgation must be authorized by the legislature;

2. It must be promulgated in accordance with the prescribed procedure;
3. It must be within the scope of the authority given by the legislature;
4. It must be reasonable.[28]

All the prescribed requisites are met as regards the questioned issuances. Philracoms authority is drawn from P.D.
No. 420. The delegation made in the presidential decree is valid. Philracom did not exceed its authority. And the issuances
are fair and reasonable.

The rule is that what has been delegated cannot be delegated, or as expressed in the Latin maxim: potestas
delegate non delegare potest. This rule is based upon the ethical principle that such delegated power constitutes not only
a right but a duty to be performed by the delegate by the instrumentality of his own judgment acting immediately upon
the matter of legislation and not through the intervening mind of another.[29] This rule however admits of recognized
exceptions[30] such as the grant of rule-making power to administrative agencies. They have been granted by Congress
with the authority to issue rules to regulate the implementation of a law entrusted to them. Delegated rule-making has
become a practical necessity in modern governance due to the increasing complexity and variety of public functions.[31]

78
 However, in every case of permissible delegation, there must be a showing that the delegation itself is valid. It is
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented
by the delegate; and (b) fixes a standardthe limits of which are sufficiently determinate and determinableto which the
delegate must conform in the performance of his functions. A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under
which the legislative command is to be effected.[32]

P.D. No. 420 hurdles the tests of completeness and standards sufficiency.

Philracom was created for the purpose of carrying out the declared policy in Section 1 which is to promote and
direct the accelerated development and continued growth of horse racing not only in pursuance of the sports
development program but also in order to insure the full exploitation of the sport as a source of revenue and employment.
Furthermore, Philracom was granted exclusive jurisdiction and control over every aspect of the conduct of horse racing,
including the framing and scheduling of races, the construction and safety of race tracks, and the security of racing. P.D.
No. 420 is already complete in itself.

Section 9 of the law fixes the standards and limitations to which Philracom must conform in the performance of
its functions, to wit:

Section 9. Specific Powers. Specifically, the Commission shall have the power:

a. To enforce all laws, decrees and executive orders relating to horse-racing that are not
expressly or implied repealed or modified by this Decree, including all such existing rules and
regulations until otherwise modified or amended by the Commission;
b. To prescribe additional rules and regulations not otherwise inconsistent with this Decree;
c. To register race horses, horse owners or associations or federations thereof, and to regulate
the construction of race tracks and to grant permit for the holding of races;
d. To issue, suspend or revoke permits and licenses and to impose or collect fees for the issuance
of such licenses and permits to persons required to obtain the same;
e. To review, modify, approve or disapprove the rules and regulations issued by any person or
entity concerning the conduct of horse races held by them;
f. To supervise all such race meeting to assure integrity at all times. It can order the suspension
of any racing event in case of violation of any law, ordinance or rules and regulations;
g. To prohibit the use of improper devices, drugs, stimulants or other means to enhance or
diminish the speed of horse or materially harm their condition;
h. To approve the annual budget of the omission and such supplemental budgets as may be
necessary;
i. To appoint all personnel, including an Executive Director of the Commission, as it may be deem
necessary in the exercise and performance of its powers and duties; and
j. To enter into contracts involving obligations chargeable to or against the funds of the
Commission. (Emphasis supplied)

Clearly, there is a proper legislative delegation of rule-making power to Philracom. Clearly too, for its part
Philracom has exercised its rule-making power in a proper and reasonable manner. More specifically, its discretion to rid
the facilities of MJCI and PRCI of horses afflicted with EIA is aimed at preserving the security and integrity of horse races.

Petitioners also question the supposed delegation by Philracom of its rule-making powers to MJCI and PRCI.

There is no delegation of power to speak of between Philracom, as the delegator and MJCI and PRCI as
delegates. The Philracom directive is merely instructive in character. Philracom had instructed PRCI and MJCI to
immediately come up with Clubs House Rule to address the problem and rid their facilities of horses infected with EIA.PRCI
79
and MJCI followed-up when they ordered the racehorse owners to submit blood samples and subject their race horses to
blood testing. Compliance with the Philracoms directive is part of the mandate of PRCI and MJCI under Sections 1[33] of
R.A. No. 7953[34] and Sections 1[35] and 2[36] of 8407.[37]

As correctly proferred by MJCI, its duty is not derived from the delegated authority of Philracom but arises from
the franchise granted to them by Congress allowing MJCI to do and carry out all such acts, deeds and things as may be
necessary to give effect to the foregoing.[38] As justified by PRCI, obeying the terms of the franchise and abiding by
whatever rules enacted by Philracom is its duty.[39]

More on the second, third and fourth requisites.

As to the second requisite, petitioners raise some infirmities relating to Philracoms guidelines. They question the
supposed belated issuance of the guidelines, that is, only after the collection of blood samples for the Coggins Test was
ordered. While it is conceded that the guidelines were issued a month after Philracoms directive, this circumstance does
not render the directive nor the guidelines void. The directives validity and effectivity are not dependent on any
supplemental guidelines. Philracom has every right to issue directives to MJCI and PRCI with respect to the conduct of
horse racing, with or without implementing guidelines.

Petitioners also argue that Philracoms guidelines have no force and effect for lack of publication and failure to file
copies with the University of the Philippines (UP) LawCenter as required by law.

As a rule, the issuance of rules and regulations in the exercise of an administrative agency of its quasi-legislative
power does not require notice 7and hearing.[40] In Abella, Jr. v. Civil Service Commission,[41] this Court had the occasion to
rule that prior notice and hearing are not essential to the validity of rules or regulations issued in the exercise of quasi-
legislative powers since there is no determination of past events or facts that have to be established or ascertained.[42]

The third requisite for the validity of an administrative issuance is that it must be within the limits of the powers
granted to it. The administrative body 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.[43]

The assailed guidelines prescribe the procedure for monitoring and eradicating EIA. These guidelines are in accord
with Philracoms mandate under the law to regulate the conduct of horse racing in the country.

Anent the fourth requisite, the assailed guidelines do not appear to be unreasonable or discriminatory. In fact, all
horses stabled at the MJCI and PRCIs premises underwent the same procedure. The guidelines implemented were
undoubtedly reasonable as they bear a reasonable relation to the purpose sought to be accomplished, i.e., the complete
riddance of horses infected with EIA.

It also appears from the records that MJCI properly notified the racehorse owners before the test was
conducted.[44] Those who failed to comply were repeatedly warned of certain consequences and sanctions.

Furthermore, extant from the records are circumstances which allow respondents to determine from time to time
the eligibility of horses as race entries. The lease contract executed between petitioner and MJC contains a proviso
reserving the right of the lessor, MJCI in this case, the right to determine whether a particular horse is a qualified horse.In

80
addition, Philracoms rules and regulations on horse racing provide that horses must be free from any contagious disease
or illness in order to be eligible as race entries.

All told, we find no grave abuse of discretion on the part of Philracom in issuing the contested guidelines and on
the part MJCI and PRCI in complying with Philracoms directive.

WHEREFORE, the petition is DISMISSED. Costs against petitioner William Dagan.

SO ORDERED.

[G.R. No. 151908. August 12, 2003]

SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE CORPORATION (PILTEL), petitioners, vs. NATIONAL
TELECOMMUNICATIONS COMMISSION (NTC), respondent.

[G.R. No. 152063. August 12, 2003]

GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC. (ISLACOM), petitioners, vs. COURT OF APPEALS
(The Former 6th Division) and the NATIONAL TELECOMMUNICATIONS COMMISSION, respondents.

DECISION
YNARES-SANTIAGO, J.:

Pursuant to its rule-making and regulatory powers, the National Telecommunications Commission (NTC) issued on
June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and regulations on the billing of
telecommunications services. Among its pertinent provisions are the following:

(1) The billing statements shall be received by the subscriber of the telephone service not later than 30 days from the end
of each billing cycle. In case the statement is received beyond this period, the subscriber shall have a specified grace period
within which to pay the bill and the public telecommunications entity (PTEs) shall not be allowed to disconnect the service
within the grace period.

(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt, recorded message or similar
facility excluding the customers own equipment.

(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards. Prepaid call cards and SIM cards
shall be valid for at least 2 years from the date of first use. Holders of prepaid SIM cards shall be given 45 days from the
date the prepaid SIM card is fully consumed but not beyond 2 years and 45 days from date of first use to replenish the
SIM card, otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card, however, shall be installed
upon request of the customer at no additional charge except the presentation of a valid prepaid call card.

(4) Subscribers shall be updated of the remaining value of their cards before the start of every call using the cards.

(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid shall be reduced from 1 minute
per pulse to 6 seconds per pulse. The authorized rates per minute shall thus be divided by 10.[1]

The Memorandum Circular provided that it shall take effect 15 days after its publication in a newspaper of general
circulation and three certified true copies thereof furnished the UP Law Center. It was published in the newspaper, The
Philippine Star, on June 22, 2000.[2] Meanwhile, the provisions of the Memorandum Circular pertaining to the sale and use

81
of prepaid cards and the unit of billing for cellular mobile telephone service took effect 90 days from the effectivity of the
Memorandum Circular.
On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service (CMTS) operators which
contained measures to minimize if not totally eliminate the incidence of stealing of cellular phone units. The
Memorandum directed CMTS operators to:
a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and verification of the identity
and addresses of prepaid SIM card customers;
b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC 13-6-2000;
c. deny acceptance to your respective networks prepaid and/or postpaid customers using stolen cellphone units
or cellphone units registered to somebody other than the applicant when properly informed of all
information relative to the stolen cellphone units;
d. share all necessary information of stolen cellphone units to all other CMTS operators in order to prevent the
use of stolen cellphone units; and
e. require all your existing prepaid SIM card customers to register and present valid identification cards.[3]
This was followed by another Memorandum dated October 6, 2000 addressed to all public telecommunications
entities, which reads:

This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and beyond shall be valid for at
least two (2) years from date of first use pursuant to MC 13-6-2000.

In addition, all CMTS operators are reminded that all SIM packs used by subscribers of prepaid cards sold on 07
October 2000 and beyond shall be valid for at least two (2) years from date of first use.Also, the billing unit shall be
on a six (6) seconds pulse effective 07 October 2000.

For strict compliance.[4]

On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone Corporation filed against the
National Telecommunications Commission, Commissioner Joseph A. Santiago, Deputy Commissioner Aurelio M. Umali and
Deputy Commissioner Nestor C. Dacanay, an action for declaration of nullity of NTC Memorandum Circular No. 13-6-2000
(the Billing Circular) and the NTC Memorandum dated October 6, 2000, with prayer for the issuance of a writ of preliminary
injunction and temporary restraining order. The complaint was docketed as Civil Case No. Q-00-42221 at the Regional Trial
Court of Quezon City, Branch 77.[5]
Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the sale of consumer
goods such as the prepaid call cards since such jurisdiction belongs to the Department of Trade and Industry under the
Consumer Act of the Philippines; that the Billing Circular is oppressive, confiscatory and violative of the constitutional
prohibition against deprivation of property without due process of law; that the Circular will result in the impairment of
the viability of the prepaid cellular service by unduly prolonging the validity and expiration of the prepaid SIM and call
cards; and that the requirements of identification of prepaid card buyers and call balance announcement are
unreasonable. Hence, they prayed that the Billing Circular be declared null and void ab initio.
Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint Motion for Leave to
Intervene and to Admit Complaint-in-Intervention.[6] This was granted by the trial court.
On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from implementing
Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6, 2000.[7]
In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on the ground of
petitioners failure to exhaust administrative remedies.
Subsequently, after hearing petitioners application for preliminary injunction as well as respondents motion to
dismiss, the trial court issued on November 20, 2000 an Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the defendants motion to dismiss is hereby denied for lack of merit. The plaintiffs
application for the issuance of a writ of preliminary injunction is hereby granted.Accordingly, the defendants are hereby
enjoined from implementing NTC Memorandum Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000,
pending the issuance and finality of the decision in this case. The plaintiffs and intervenors are, however, required to file
a bond in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.

SO ORDERED.[8]

82
 Defendants filed a motion for reconsideration, which was denied in an Order dated February 1, 2001.[9]
Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of Appeals, which was
docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was rendered, the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition for certiorari and prohibition is GRANTED, in that, the order of the
court a quo denying the petitioners motion to dismiss as well as the order of the court a quo granting the private
respondents prayer for a writ of preliminary injunction, and the writ of preliminary injunction issued thereby, are hereby
ANNULLED and SET ASIDE. The private respondents complaint and complaint-in-intervention below are hereby
DISMISSED, without prejudice to the referral of the private respondents grievances and disputes on the assailed issuances
of the NTC with the said agency.

SO ORDERED.[10]

Petitioners motions for reconsideration were denied in a Resolution dated January 10, 2002 for lack of merit.[11]
Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No. 151908, anchored on
the following grounds:
A.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE NATIONAL TELECOMMUNICATIONS
COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS JURISDICTION OVER THE CASE.
B.
THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS
FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.
C.
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING CIRCULAR ISSUED BY THE
RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY TO LAW AND PUBLIC POLICY.
D.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO SHOW
THEIR CLEAR POSITIVE RIGHT TO WARRANT THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.[12]
Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning the following errors:
1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINES OF PRIMARY
JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLY SINCE THE INSTANT CASE IS
FOR LEGAL NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF A PURELY
ADMINISTRATIVE REGULATION PROMULGATED BY AN AGENCY IN THE EXERCISE OF ITS RULE MAKING
POWERS AND INVOLVES ONLY QUESTIONS OF LAW.
2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE ON EXHAUSTION OF
ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE QUESTIONS RAISED ARE PURELY LEGAL
QUESTIONS.
3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE OF EXHAUSTION OF
ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE ADMINISTRATIVE ACTION IS COMPLETE AND
EFFECTIVE, WHEN THERE IS NO OTHER REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE AND
IRREPARABLE INJURY.
4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE PETITIONERS IN FACT EXHAUSTED ALL
ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.
5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS QUESTIONED RULINGS IN THIS CASE
BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT TO AN INJUNCTION.[13]
The two petitions were consolidated in a Resolution dated February 17, 2003.[14]
On March 24, 2003, the petitions were given due course and the parties were required to submit their respective
memoranda.[15]
We find merit in the petitions.
Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or administrative
adjudicatory powers. Quasi-legislative or rule-making power is the power to make rules and regulations which results in
83
delegated legislation that is within the confines of the granting statute and the doctrine of non-delegability and
separability of powers.[16]
The rules and regulations that administrative agencies promulgate, which are the product of a delegated legislative
power to create new and additional legal provisions that have the effect of law, should be within the scope of the statutory
authority granted by the legislature to the administrative agency. It is required that the regulation be germane to the
objects and purposes of the law, and be not in contradiction to, but in conformity with, the standards prescribed by
law.[17] They must conform to and be consistent with the provisions of the enabling statute in order for such rule or
regulation to be valid. Constitutional and statutory provisions control with respect to what rules and regulations may be
promulgated by an administrative 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 case of
conflict between a statute and an administrative order, the former must prevail.[18]
Not to be confused with the quasi-legislative or rule-making power of an administrative agency is its quasi-judicial or
administrative adjudicatory power. This is the power to hear and determine questions of fact to which the legislative policy
is to apply and to decide in accordance with the standards laid down by the law itself in enforcing and administering the
same law.The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is
essentially of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably
necessary for the performance of the executive or administrative duty entrusted to it. In carrying out their quasi-judicial
functions, the administrative officers or bodies are required to investigate facts or ascertain the existence of facts, hold
hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a
judicial nature.[19]
In questioning the validity or constitutionality of a rule or regulation issued by an administrative agency, a party need
not exhaust administrative remedies before going to court. This principle applies only where the act of the administrative
agency concerned was performed pursuant to its quasi-judicial function, and not when the assailed act pertained to its
rule-making or quasi-legislative power. In Association of Philippine Coconut Dessicators v. Philippine Coconut
Authority,[20] it was held:

The rule of requiring exhaustion of administrative remedies before a party may seek judicial review, so strenuously urged
by the Solicitor General on behalf of respondent, has obviously no application here.The resolution in question was issued
by the PCA in the exercise of its rule- making or legislative power. However, only judicial review of decisions of
administrative agencies made in the exercise of their quasi-judicial function is subject to the exhaustion doctrine.

Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this case, the records
reveal that petitioners sufficiently complied with this requirement.Even during the drafting and deliberation stages leading
to the issuance of Memorandum Circular No. 13-6-2000, petitioners were able to register their protests to the proposed
billing guidelines. They submitted their respective position papers setting forth their objections and submitting proposed
schemes for the billing circular.[21] After the same was issued, petitioners wrote successive letters dated July 3, 2000[22] and
July 5, 2000,[23] asking for the suspension and reconsideration of the so-called Billing Circular. These letters were not acted
upon until October 6, 2000, when respondent NTC issued the second assailed Memorandum implementing certain
provisions of the Billing Circular. This was taken by petitioners as a clear denial of the requests contained in their previous
letters, thus prompting them to seek judicial relief.
In like manner, the doctrine of primary jurisdiction applies only where the administrative agency exercises its quasi-
judicial or adjudicatory function. Thus, in cases involving specialized disputes, the practice has been to refer the same to
an administrative agency of special competence pursuant to the doctrine of primary jurisdiction. The courts will not
determine a controversy involving a question which is within the jurisdiction of the administrative tribunal prior to the
resolution of that question by the administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience and services of the administrative tribunal to
determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the premises of
the regulatory statute administered. The objective of the doctrine of primary jurisdiction is to guide a court in determining
whether it should refrain from exercising its jurisdiction until after an administrative agency has determined some
question or some aspect of some question arising in the proceeding before the court. It applies where the claim is originally
cognizable in the courts and comes into play whenever enforcement of the claim requires the resolution of issues which,
under a regulatory scheme, has been placed within the special competence of an administrative body; in such case, the
judicial process is suspended pending referral of such issues to the administrative body for its view.[24]
However, where what is assailed is the validity or constitutionality of a rule or regulation issued by the administrative
agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or
the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction,
84
ordinance, or regulation in the courts, including the regional trial courts.[25] This is within the scope of judicial power, which
includes the authority of the courts to determine in an appropriate action the validity of the acts of the political
departments.[26] Judicial power includes the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.[27]
In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its Memorandum dated
October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As such, petitioners were justified in invoking
the judicial power of the Regional Trial Court to assail the constitutionality and validity of the said issuances. In Drilon v.
Lim,[28] it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority
being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the
criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over
all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal
action has the right to question in his defense the constitutionality of a law he is charged with violating and of the
proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the
Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases
in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.[29]

In their complaint before the Regional Trial Court, petitioners averred that the Circular contravened Civil Code
provisions on sales and violated the constitutional prohibition against the deprivation of property without due process of
law. These are within the competence of the trial judge. Contrary to the finding of the Court of Appeals, the issues raised
in the complaint do not entail highly technical matters. Rather, what is required of the judge who will resolve this issue is
a basic familiarity with the workings of the cellular telephone service, including prepaid SIM and call cards and this is
judicially known to be within the knowledge of a good percentage of our population and expertise in fundamental
principles of civil law and the Constitution.
Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-42221. The Court of Appeals
erred in setting aside the orders of the trial court and in dismissing the case.
WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The decision of the Court of Appeals
in CA-G.R. SP No. 64274 dated October 9, 2001 and its Resolution dated January 10, 2002 are REVERSED and SET
ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of Quezon City, Branch 77, in Civil Case No. Q-00-
42221 is REINSTATED. This case is REMANDED to the court a quo for continuation of the proceedings.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Carpio, JJ., concur.
Azcuna, J., took no part.

[G.R. No. 116422. November 4, 1996]

AVELINA B. CONTE and LETICIA BOISER-PALMA, petitioners, vs. COMMISSION ON AUDIT (COA), respondent.

DECISION
PANGANIBAN, J.:

Are the benefits provided for under Social Security System Resolution No. 56 to be considered simply as financial
assistance for retiring employees, or does such scheme constitute a supplementary retirement plan proscribed by Republic
Act No. 4968?
The foregoing question is addressed by this Court in resolving the instant petition for certiorari which seeks to reverse
and set aside Decision No. 94-126[1]dated March 15, 1994 of respondent Commission on Audit, which denied petitioners
request for reconsideration of its adverse ruling disapproving claims for financial assistance under SSS Resolution No. 56.

The Facts

85
 Petitioners Avelina B. Conte and Leticia Boiser-Palma were former employees of the Social Security System (SSS) who
retired from government service on May 9, 1990 and September 13, 1992, respectively. They availed of compulsory
retirement benefits under Republic Act No. 660.[2]
In addition to retirement benefits provided under R.A. 660, petitioners also claimed SSS financial assistance benefits
granted under SSS Resolution No. 56, series of 1971.
A brief historical backgrounder is in order. SSS Resolution No. 56,[3] approved on January 21, 1971, provides financial
incentive and inducement to SSS employees qualified to retire to avail of retirement benefits under RA 660 as amended,
rather than the retirement benefits under RA 1616 as amended, by giving them financial assistance equivalent in amount
to the difference between what a retiree would have received under RA 1616, less what he was entitled to under RA 660.
The said SSS Resolution No. 56 states:

RESOLUTION NO. 56

WHEREAS, the retirement benefits of SSS employees are provided for under Republic Acts 660 and 1616 as amended;

WHEREAS, SSS employees who are qualified for compulsory retirement at age 65 or for optional retirement at a lower age
are entitled to either the life annuity under R.A. 660, as amended, or the gratuity under R.A. 1616, as amended;

WHEREAS, a retirement benefit to be effective must be a periodic income as close as possible to the monthly income that
would have been due to the retiree during the remaining years of his life were he still employed;

WHEREAS, the life annuity under R.A. 660, as amended, being closer to the monthly income that was lost on account of
old age than the gratuity under R.A. 1616, as amended, would best serve the interest of the retiree;

WHEREAS, it is the policy of the Social Security Commission to promote and to protect the interest of all SSS employees,
with a view to providing for their well-being during both their working and retirement years;

WHEREAS, the availment of life annuities built up by premiums paid on behalf of SSS employees during their working years
would mean more savings to the SSS;

WHEREAS, it is a duty of the Social Security Commission to effect savings in every possible way for economical and efficient
operations;

WHEREAS, it is the right of every SSS employee to choose freely and voluntarily the benefit he is entitled to solely for his
own benefit and for the benefit of his family;

NOW, THEREFORE, BE IT RESOLVED, That all the SSS employees who are simultaneously qualified for compulsory
retirement at age 65 or for optional retirement at a lower age be encouraged to avail for themselves the life annuity under
R.A. 660, as amended;

RESOLVED, FURTHER, That SSS employees who availed themselves of the said life annuity, in appreciation and recognition
of their long and faithful service, be granted financial assistance equivalent to the gratuity plus return of contributions
under R.A. 1616, as amended, less the five year guaranteed annuity under R.A. 660, as amended;

RESOLVED, FINALLY, That the Administrator be authorized to act on all applications for retirement submitted by SSS
employees and subject to availability of funds, pay the corresponding benefits in addition to the money value of all
accumulated leaves. (underscoring supplied)

Long after the promulgation of SSS Resolution No. 56, respondent Commission on Audit (COA) issued a ruling,
captioned as 3rd Indorsement dated July 10, 1989,[4] disallowing in audit all such claims for financial assistance under SSS
Resolution No. 56, for the reason that: --

x x x the scheme of financial assistance authorized by the SSS is similar to those separate retirement plan or
incentive/separation pay plans adopted by other government corporate agencies which results in the increase of benefits
beyond what is allowed under existing retirement laws. In this regard, attention x x x is invited to the view expressed by
the Secretary of Budget and Management dated February 17, 1988 to the COA General Counsel against the proliferation
of retirement plans which, in COA Decision No. 591 dated August 31, 1988, was concurred in by this Commission. x x x.

Accordingly, all such claims for financial assistance under SSS Resolution No. 56 dated January 21, 1971 should be
disallowed in audit. (underscoring supplied)
86
 Despite the aforequoted ruling of respondent COA, then SSS Administrator Jose L. Cuisia, Jr. nevertheless wrote[5] on
February 12, 1990 then Executive Secretary Catalino Macaraig, Jr., seeking presidential authority for SSS to continue
implementing its Resolution No. 56 dated January 21, 1971 granting financial assistance to its qualified retiring employees.
However, in a letter-reply dated May 28, 1990,[6] then Executive Secretary Macaraig advised Administrator Cuisia that
the Office of the President is not inclined to favorably act on the herein request, let alone overrule the disallowance by
COA of such claims, because, aside from the fact that decisions, order or actions of the COA in the exercise of its audit
functions are appealable to the Supreme Court[7] pursuant to Sec. 50 of PD 1445, the benefits under said Res. 56, though
referred to as financial assistance, constituted additional retirement benefits, and the scheme partook of the nature of a
supplementary pension/retirement plan proscribed by law.
The law referred to above is RA 4968 (The Teves Retirement Law), which took effect June 17, 1967 and amended CA
186 (otherwise known as the Government Service Insurance Act, or the GSIS Charter), making Sec. 28 (b) of the latter act
read as follows:

(b) Hereafter, no insurance or retirement plan for officers or employees shall be created by employer. All supplementary
retirement or pension plans heretofore in force in any government office, agency or instrumentality or corporation owned
or controlled by the government, are hereby declared inoperative or abolished; Provided, That the rights of those who are
already eligible to retire thereunder shall not be affected. (underscoring supplied)

On January 12, 1993, herein petitioners filed with respondent COA their letter-appeal/protest[8] seeking
reconsideration of COAs ruling of July 10, 1989 disallowing claims for financial assistance under Res. 56.
On November 15, 1993, petitioner Conte sought payment from SSS of the benefits under Res. 56. On December 9,
1993, SSS Administrator Renato C. Valencia denied[9] the request in consonance with the previous disallowance by
respondent COA, but assured petitioner that should the COA change its position, the SSS will resume the grant of benefits
under said Res. 56.
On March 15, 1994, respondent COA rendered its COA Decision No. 94-126 denying petitioners request for
reconsideration.
Thus this petition for certiorari under Rule 65 of the Rules of Court.

The Issues

The issues[10] submitted by petitioners may be simplified and re-stated thus: Did public respondent abuse its
discretion when it disallowed in audit petitioners claims for benefits under SSS Res. 56?
Petitioners argue that the financial assistance under Res. 56 is not a retirement plan prohibited by RA 4968, and that
Res. 56 provides benefits different from and aside from what a retiring SSS employee would be entitled to under RA
660. Petitioners contend that it is a social amelioration and economic upliftment measure undertaken not only for the
benefit of the SSS but more so for the welfare of its qualified retiring employees. As such, it should be interpreted in a
manner that would give the x x x most advantage to the recipient -- the retiring employees whose dedicated, loyal, lengthy
and faithful service to the agency of government is recognized and amply rewarded -- the rationale for the financial
assistance plan. Petitioners reiterate the argument in their letter dated January 12, 1993 to COA that:

Motivation can be in the form of financial assistance, during their stay in the service or upon retirement, as in the SSS
Financial Assistance Plan. This is so, because Government has to have some attractive remuneration programs to
encourage well-qualified personnel to pursue a career in the government service, rather than in the private sector or in
foreign countries ...

A more developmental view of the financial institutions grant of certain forms of financial assistance to its personnel, we
believe, would enable government administrators to see these financial forms of remuneration as contributory to the
national developmental efforts for effective and efficient administration of the personnel programs in different
institutions.[11]

The Courts Ruling

Petitioners contentions are not supported by law. We hold that Res. 56 constitutes a supplementary retirement plan.

87
 A cursory examination of the preambular clauses and provisions of Res. 56 provides a number of clear indications
that its financial assistance plan constitutes a supplemental retirement/pension benefits plan. In particular, the fifth
preambular clause which provides that it is the policy of the Social Security Commission to promote and to protect the
interest of all SSS employees, with a view to providing for their well-being during both their working and retirement years,
and the wording of the resolution itself which states Resolved, further, that SSS employees who availed themselves of the
said life annuity (under RA 660), in appreciation and recognition of their long and faithful service, be granted financial
assistance x x x can only be interpreted to mean that the benefit being granted is none other than a kind of amelioration
to enable the retiring employee to enjoy (or survive) his retirement years and a reward for his loyalty and
service. Moreover, it is plain to see that the grant of said financial assistance is inextricably linked with and inseparable
from the application for and approval of retirement benefits under RA 660, i.e., that availment of said financial assistance
under Res. 56 may not be done independently of but only in conjunction with the availment of retirement benefits under
RA 660, and that the former is in augmentation or supplementation of the latter benefits.
Likewise, then SSS Administrator Cuisias historical overview of the origins and purpose of Res. 56 is very instructive
and sheds much light on the controversy:[12]

Resolution No. 56, x x x, applies where a retiring SSS employee is qualified to claim under either RA 660 (pension benefit,
that is, 5 year lump sum pension and after 5 years, life time pension), or RA 1616 (gratuity benefit plus return of
contribution), at his option. The benefits under RA 660 are entirely payable by GSIS while those under RA 1616 are entirely
shouldered by SSS except the return of contribution by GSIS.

Resolution No. 56 came about upon observation that qualified SSS employees have invariably opted to retire under RA
1616 instead of RA 660 because the total benefit under the former is much greater than the 5-year lump sum under the
latter. As a consequence, the SSS usually ended up virtually paying the entire retirement benefit, instead of GSIS which is
the main insurance carrier for government employees. Hence, the situation has become so expensive for SSS that a study
of the problem became inevitable.

As a result of the study and upon the recommendation of its Actuary, the SSS Management recommended to the Social
Security Commission that retiring employees who are qualified to claim under either RA 660 or 1616 should be encouraged
to avail for themselves the life annuity under RA 660, as amended, with the SSS providing a financial assistance equivalent
to the difference between the benefit under RA 1616 (gratuity plus return of contribution) and the 5-year lump sum
pension under RA 660.

The Social Security Commission, as the policy-making body of the SSS approved the recommendation in line with its
mandate to insure the efficient, honest and economical administration of the provisions and purposes of this Act. (Section
3 (c) of the Social Security Law).

Necessarily, the situation was reversed with qualified SSS employees opting to retire under RA No. 660 or RA 1146 instead
of RA 1616, resulting in substantial savings for the SSS despite its having to pay financial assistance.

Until Resolution No. 56 was questioned by COA. (underscoring part of original text; italics ours)

Although such financial assistance package may have been instituted for noble, altruistic purposes as well as from
self-interest and a desire to cut costs on the part of the SSS, nevertheless, it is beyond any dispute that such package
effectively constitutes a supplementary retirement plan. The fact that it was designed to equalize the benefits receivable
from RA 1616 with those payable under RA 660 and make the latter program more attractive, merely confirms the
foregoing finding.
That the Res. 56 package is labelled financial assistance does not change its essential nature. Retirement benefits are,
after all, a form of reward for an employees loyalty and service to the employer, and are intended to help the employee
enjoy the remaining years of his life, lessening the burden of worrying about his financial support or upkeep.[13] On the
other hand, a pension partakes of the nature of retained wages of the retiree for a dual purpose: to entice competent
people to enter the government service, and to permit them to retire from the service with relative security, not only for
those who have retained their vigor, but more so for those who have been incapacitated by illness or accident.[14]
Is SSS Resolution No. 56 then within the ambit of and thus proscribed by Sec. 28 (b) of CA 186 as amended by RA
4968?
We answer in the affirmative. Said Sec. 28 (b) as amended by RA 4968 in no uncertain terms bars the creation of any
insurance or retirement plan -- other than the GSIS -- for government officers and employees, in order to prevent the
undue and inequitous proliferation of such plans. It is beyond cavil that Res. 56 contravenes the said provision of law and
is therefore invalid, void and of no effect. To ignore this and rule otherwise would be tantamount to permitting every

88
other government office or agency to put up its own supplementary retirement benefit plan under the guise of such
financial assistance.
We are not unmindful of the laudable purposes for promulgating Res. 56, and the positive results it must have had,
not only in reducing costs and expenses on the part of the SSS in connection with the pay-out of retirement benefits and
gratuities, but also in improving the quality of life for scores of retirees. But it is simply beyond dispute that the SSS had
no authority to maintain and implement such retirement plan, particularly in the face of the statutory prohibition. The SSS
cannot, in the guise of rule-making, legislate or amend laws or worse, render them nugatory.
It is doctrinal that in case of conflict between a statute and an administrative order, the former must prevail.[15] A rule
or regulation must conform to and be consistent with the provisions of the enabling statute in order for such rule or
regulation to be valid.[16] 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 the Congress or the Constitution or to enlarge its power beyond
the scope intended. Constitutional and statutory provisions control with respect to 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.[17] Though well-settled
is the rule that retirement laws are liberally interpreted in favor of the retiree,[18] nevertheless, there is really nothing to
interpret in either RA 4968 or Res. 56, and correspondingly, the absence of any doubt as to the ultra-vires nature and
illegality of the disputed resolution constrains us to rule against petitioners.
As a necessary consequence of the invalidity of Res. 56, we can hardly impute abuse of discretion of any sort to
respondent Commission for denying petitioners request for reconsideration of the 3rd Indorsement of July 10, 1989. On
the contrary, we hold that public respondent in its assailed Decision acted with circumspection in denying petitioners
claim. It reasoned thus:

After a careful evaluation of the facts herein obtaining, this Commission finds the instant request to be devoid of merit. It
bears stress that the financial assistance contemplated under SSS Resolution No. 56 is granted to SSS employees who opt
to retire under R.A. No. 660. In fact, by the aggrieved parties own admission (page 2 of the request for reconsideration
dated January 12, 1993), it is a financial assistance granted by the SSS management to its employees, in addition to the
retirement benefits under Republic Act No. 660. (underscoring supplied for emphasis) There is therefore no question, that
the said financial assistance partakes of the nature of a retirement benefit that has the effect of modifying existing
retirement laws particularly R.A. No. 660.

Petitioners also asseverate that the scheme of financial assistance under Res. 56 may be likened to the monetary
benefits of government officials and employees who are paid, over and above their salaries and allowances as provided
by statute, an additional honorarium in varying amounts. We find this comparison baseless and misplaced. As clarified by
the Solicitor General:[19]

Petitioners comparison of SSS Resolution No. 56 with the honoraria given to government officials and employees of the
National Prosecution Service of the Department of Justice, Office of the Government Corporate Counsel and even in the
Office of the Solicitor General is devoid of any basis. The monetary benefits or honoraria given to these officials or
employees are categorized as travelling and/or representation expenses which are incurred by them in the course of
handling cases, attending court/administrative hearings, or performing other field work. These monetary benefits are
given upon rendition of service while the financial benefits under SSS Resolution No. 56 are given upon retirement from
service.

In a last-ditch attempt to convince this Court that their position is tenable, petitioners invoke equity. They believe
that they are deserving of justice and equity in their quest for financial assistance under SSS Resolution No. 56, not so
much because the SSS is one of the very few stable agencies of government where no doubt this recognition and
reputation is earned x x x but more so due to the miserable scale of compensation granted to employees in various
agencies to include those obtaining in the SSS.[20]
We must admit we sympathize with petitioners in their financial predicament as a result of their misplaced decision
to avail of retirement benefits under RA 660, with the false expectation that financial assistance under the disputed Res.
56 will also materialize. Nevertheless, this Court has always held that equity, which has been aptly described as justice
outside legality, is applied only in the absence of, and never against, statutory law or judicial rules of procedure.[21] In this
case, equity cannot be applied to give validity and effect to Res. 56, which directly contravenes the clear mandate of the
provisions of RA 4968.
Likewise, we cannot but be aware that the clear imbalance between the benefits available under RA 660 and those
under RA 1616 has created an unfair situation for it has shifted the burden of paying such benefits from the GSIS (the main
insurance carrier of government employees) to the SSS. Without the corrective effects of Res. 56, all retiring SSS
employees without exception will be impelled to avail of benefits under RA 1616. The cumulative effect of such availments
89
on the financial standing and stability of the SSS is better left to actuarians.But the solution or remedy for such situation
can be provided only by Congress. Judicial hands cannot, on the pretext of showing concern for the welfare of government
employees, bestow equity contrary to the clear provisions of law.
Nevertheless, insofar as herein petitioners are concerned, this Court cannot just sit back and watch as these two
erstwhile government employees, who after spending the best parts of their lives in public service have retired hoping to
enjoy their remaining years, face a financially dismal if not distressed future, deprived of what should have been due them
by way of additional retirement benefits, on account of a bureaucratic boo-boo improvidently hatched by their higher-
ups. It is clear to our mind that petitioners applied for benefits under RA 660 only because of the incentives offered by
Res. 56, and that absent such incentives, they would have without fail availed of RA 1616 instead. We likewise have no
doubt that petitioners are simply innocent bystanders in this whole bureaucratic rule-making/financial scheme-making
drama, and that therefore, to the extent possible, petitioners ought not be penalized or made to suffer as a result of the
subsequently determined invalidity of Res. 56, the promulgation and implementation of which they had nothing to do
with.
And here is where equity may properly be invoked: since SSS employees who are qualified for compulsory retirement
at age 65 or for optional retirement at a lower age are entitled to either the life annuity under R.A. 660, as amended, or
the gratuity under R.A. 1616, as amended,[22] it appears that petitioners, being qualified to avail of benefits under RA 660,
may also readily qualify under RA 1616. It would therefore not be misplaced to enjoin the SSS to render all possible
assistance to petitioners for the prompt processing and approval of their applications under RA 1616, and in the meantime,
unless barred by existing regulations, to advance to petitioners the difference between the amounts due under RA 1616,
and the amounts they already obtained, if any, under RA 660.
WHEREFORE, the petition is hereby DISMISSED for lack of merit, there having been no grave abuse of discretion on
the part of respondent Commission. The assailed Decision of public respondent is AFFIRMED, and SSS Resolution No. 56
is hereby declared ILLEGAL, VOID AND OF NO EFFECT. The SSS is hereby urged to assist petitioners and facilitate their
applications under RA 1616, and to advance to them, unless barred by existing regulations, the corresponding amounts
representing the difference between the two benefits programs. No costs.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Francisco,
Hermosisima, Jr., and Torres, Jr., JJ., concur.

G.R. No. L-44291 August 15, 1936

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
AUGUSTO A. SANTOS, defendant-appellee.

Office of the Solicitor-General Hilado for appellant.

Arsenio Santos for appellee.

VILLA-REAL, J.:

This case is before us by virtue of an appeal taken by the prosecuting attorney from the order of the Court of First Instance
of Cavite which reads as follows:

ORDER

When this case was called for trial for the arraignment, counsel for the accused appeared stating that in view of
the ruling laid down by this court in criminal case No. 6785 of this court, holding that the penalty applicable is
under section 83 of Act No. 4003 which falls within the original jurisdiction of the justice of the peace court he
requests that the case be remanded to the justice of the peace court of Cavite which conducted the preliminary
investigation, so that the latter may try it, being within its original jurisdiction.

We agree that it falls within the jurisdiction of the corresponding justice of the peace court, but it being alleged in
the information that the infraction was committed within the waters of the Island of Corregidor, the competent
justice of the peace court is that of Corregidor, not Cavite.

Wherefore, we decree the dismissal of this case, cancelling the bond filed by the accused, with costs de oficio,
without prejudice to the filing by the prosecuting attorney of a new information in the justice of the peace court
of Corregidor, if he so deems convenient. It is so ordered.

90
In support of his appeal the appellant assigns as the sole alleged error committed by the court a quo its having dismissed
the case on the ground that it does not fall within its original jurisdiction.

On June 18, 1930, the provincial fiscal of Cavite filed against the accused -appellee Augusta A. Santos an information which
reads as follows:

The undersigned Provincial Fiscal accuses Augusta A. Santos of violation of section 28 of Fish and Game
Administrative Order No. 2 and penalized by section 29 thereof committed as follows:

That on or about April 29, 1935, within 1,500 yards north of Cavalry Point, Corregidor Island, Province of Cavite,
P.I., the said accused Augusta A. Santos, the registered owner of two fishing motor boats Malabon IIand Malabon
III, did then and there willfully, unlawfully and criminally have his said boats, manned and operated by his
fishermen, fish, loiter and anchor without permission from the Secretary of Agriculture and Commerce within
three (3) kilometers from the shore line of the Island of Corregidor over which the naval and military authorities
of the United States exercise jurisdiction.

Contrary to law.

Cavite, Cavite, June 18, 1935.

Section 28 of Administrative Order No. 2 relative to fish and game, issued by the Secretary of Agriculture and Commerce,
provides as follows:

28. Prohibited fishing areas. — No boats licensed in accordance with the provisions of Act No. 4003 and this order
to catch, collect, gather, take, or remove fish and other sea products from Philippine waters shall be allowed to
fish, loiter, or anchor within 3 kilometers of the shore line of islands and reservations over which jurisdiction is
exercised by naval or military authorities of the United States, particularly Corregidor, Pulo Caballo, La Monja, El
Fraile, and Carabao, and all other islands and detached rocks lying between Mariveles Reservation on the north
side of the entrance to Manila Bay and Calumpan Point Reservation on the south side of said
entrance: Provided, That boats not subject to license under Act No. 4003 and this order may fish within the areas
mentioned above only upon receiving written permission therefor, which permission may be granted by the
Secretary of Agriculture and Commerce upon recommendation of the military or naval authorities concerned.

A violation of this paragraph may be proceeded against under section 45 of the Federal Penal Code.

The above quoted provisions of Administrative, Order No. 2 were issued by the then Secretary of Agriculture and Natural
Resources, now Secretary of Agriculture and Commerce, by virtue of the authority vested in him by section 4 of Act No.
4003 which reads as follows:

SEC. 4. Instructions, orders, rules and regulations. — The Secretary of Agriculture and Natural Resources shall from
time to time issue such instructions, orders, rules and regulations consistent with this Act, as may be necessary
and proper to carry into effect the provisions thereof and for the conduct of proceedings arising under such
provisions.

The herein accused and appellee Augusto A. Santos is charged with having ordered his fishermen to manage and operate
the motor launches Malabon II and Malabon Ill registered in his name and to fish, loiter and anchor within three kilometers
of the shore line of the Island of Corregidor over which jurisdiction is exercised by naval and military authorities of the
United States, without permission from the Secretary of Agriculture and Commerce.

These acts constitute a violation of the conditional clause of section 28 above quoted, which reads as follows:

Provided, That boats not subject to license under Act No. 4003 and this order may fish within the areas mentioned
above (within 3 kilometers of the shore line of islands and reservations over which jurisdiction is exercised by
naval and military authorities of the United States, particularly Corregidor) only upon receiving written permission
therefor, which permission may be granted by the Secretary of Agriculture and Commerce upon recommendation
of the military and naval authorities of concerned. (Emphasis supplied.)

Act No. 4003 contains no similar provision prohibiting boats not subject to license from fishing within three kilometers of
the shore line of islands and reservations over which jurisdiction is exercised by naval and military authorities of the United
States, without permission from the Secretary of Agriculture and Commerce upon recommendation of the military and
naval authorities concerned. Inasmuch as the only authority granted to the Secretary of Agriculture and Commerce, by

91
section 4 of Act No. 4003, is to issue from time to time such instructions, orders, rules, and regulations consistent with
said Act, as may be necessary and proper to carry into effect the provisions thereof and for the conduct of proceedings
arising under such provisions; and inasmuch as said Act No. 4003, as stated, contains no provisions similar to those
contained in the above quoted conditional clause of section 28 of Administrative Order No. 2, the conditional clause in
question supplies a defect of the law, extending it. This is equivalent to legislating on the matter, a power which has not
been and cannot be delegated to him, it being exclusively reserved to the then Philippine Legislature by the Jones Law,
and now to the National Assembly by the Constitution of the Philippines. Such act constitutes not only an excess of the
regulatory power conferred upon the Secretary of Agriculture and Commerce, but also an exercise of a legislative power
which he does not have, and therefore said conditional clause is null and void and without effect (12 Corpus Juris, 845;
Rubi vs. Provincial Board of Mindoro, 39 Phil., 660; U.S. vs. Ang Tang Ho, 43 Phil., 1; U.S. vs. Barrias, 11 Phil., 327).

For the foregoing considerations, we are of the opinion and so hold that the conditional clause of section 28 of
Administrative Order No. 2. issued by the Secretary of Agriculture and Commerce, is null and void and without effect, as
constituting an excess of the regulatory power conferred upon him by section 4 of Act No. 4003 and an exercise of a
legislative power which has not been and cannot be delegated to him.

Wherefore, inasmuch as the facts with the commission of which Augusto A. Santos is charged do not constitute a crime
or a violation of some criminal law within the jurisdiction of the civil courts, the information filed against him is dismissed,
with the costs de oficio. So ordered.

Avanceña, C. J., Abad Santos, Imperial, Diaz, Recto, and Laurel, JJ., concur.

G.R. No. L-6791 March 29, 1954

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
QUE PO LAY, defendant-appellant.

Prudencio de Guzman for appellant.

First Assistant Solicitor General Ruperto Kapunan, Jr., and Solicitor Lauro G. Marquez for appellee.

MONTEMAYOR, J.:

Que Po Lay is appealing from the decision of the Court of First Instance of Manila, finding him guilty of violating Central
Bank Circular No. 20 in connection with section 34 of Republic Act No. 265, and sentencing him to suffer six months
imprisonment, to pay a fine of P1,000 with subsidiary imprisonment in case of insolvency, and to pay the costs.

The charge was that the appellant who was in possession of foreign exchange consisting of U.S. dollars, U.S. checks and
U.S. money orders amounting to about $7,000 failed to sell the same to the Central Bank through its agents within one
day following the receipt of such foreign exchange as required by Circular No. 20. the appeal is based on the claim that
said circular No. 20 was not published in the Official Gazette prior to the act or omission imputed to the appellant, and
that consequently, said circular had no force and effect. It is contended that Commonwealth Act. No., 638 and Act 2930
both require said circular to be published in the Official Gazette, it being an order or notice of general applicability. The
Solicitor General answering this contention says that Commonwealth Act. No. 638 and 2930 do not require the publication
in the Official Gazette of said circular issued for the implementation of a law in order to have force and effect.

We agree with the Solicitor General that the laws in question do not require the publication of the circulars, regulations
and notices therein mentioned in order to become binding and effective. All that said two laws provide is that laws,
resolutions, decisions of the Supreme Court and Court of Appeals, notices and documents required by law to be of no
force and effect. In other words, said two Acts merely enumerate and make a list of what should be published in the
Official Gazette, presumably, for the guidance of the different branches of the Government issuing same, and of the
Bureau of Printing.

However, section 11 of the Revised Administrative Code provides that statutes passed by Congress shall, in the absence
of special provision, take effect at the beginning of the fifteenth day after the completion of the publication of the statute
in the Official Gazette. Article 2 of the new Civil Code (Republic Act No. 386) equally provides that laws shall take effect
after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. It is
true that Circular No. 20 of the Central Bank is not a statute or law but being issued for the implementation of the law
authorizing its issuance, it has the force and effect of law according to settled jurisprudence. (See U.S. vs. Tupasi Molina,
29 Phil., 119 and authorities cited therein.) Moreover, as a rule, circulars and regulations especially like the Circular No.
20 of the Central Bank in question which prescribes a penalty for its violation should be published before becoming

92
effective, this, on the general principle and theory that before the public is bound by its contents, especially its penal
provisions, a law, regulation or circular must first be published and the people officially and specifically informed of said
contents and its penalties.

Our Old Civil code, ( Spanish Civil Code of 1889) has a similar provision about the effectivity of laws, (Article 1 thereof),
namely, that laws shall be binding twenty days after their promulgation, and that their promulgation shall be understood
as made on the day of the termination of the publication of the laws in the Gazette. Manresa, commenting on this article
is of the opinion that the word "laws" include regulations and circulars issued in accordance with the same. He says:

El Tribunal Supremo, ha interpretado el articulo 1. del codigo Civil en Sentencia de 22 de Junio de 1910, en el
sentido de que bajo la denominacion generica de leyes, se comprenden tambien los Reglamentos, Reales
decretos, Instrucciones, Circulares y Reales ordenes dictadas de conformidad con las mismas por el Gobierno en
uso de su potestad. Tambien el poder ejecutivo lo ha venido entendiendo asi, como lo prueba el hecho de que
muchas de sus disposiciones contienen la advertencia de que empiezan a regir el mismo dia de su publicacion en
la Gaceta, advertencia que seria perfectamente inutil si no fuera de aplicacion al caso el articulo 1.o del Codigo
Civil. (Manresa, Codigo Civil Español, Vol. I. p. 52).

In the present case, although circular No. 20 of the Central Bank was issued in the year 1949, it was not published until
November 1951, that is, about 3 months after appellant's conviction of its violation. It is clear that said circular, particularly
its penal provision, did not have any legal effect and bound no one until its publication in the Official Gazzette or after
November 1951. In other words, appellant could not be held liable for its violation, for it was not binding at the time he
was found to have failed to sell the foreign exchange in his possession thereof.

But the Solicitor General also contends that this question of non-publication of the Circular is being raised for the first
time on appeal in this Court, which cannot be done by appellant. Ordinarily, one may raise on appeal any question of law
or fact that has been raised in the court below and which is within the issues made by the parties in their pleadings.
(Section 19, Rule 48 of the Rules of Court). But the question of non-publication is fundamental and decisive. If as a matter
of fact Circular No. 20 had not been published as required by law before its violation, then in the eyes of the law there
was no such circular to be violated and consequently appellant committed no violation of the circular or committed any
offense, and the trial court may be said to have had no jurisdiction. This question may be raised at any stage of the
proceeding whether or not raised in the court below.

In view of the foregoing, we reverse the decision appealed from and acquit the appellant, with costs de oficio.

Paras, C.J., Bengzon, Padilla, Reyes, Bautista Angelo, Labrador, Concepcion and Diokno, JJ., concur.

G.R. No. L-32166 October 18, 1977

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO REYES, BENJAMIN REYES,
NAZARIO AQUINO and CARLO DEL ROSARIO, accused-appellees.

Office of the Solicitor General for appellant.

Rustics F. de los Reyes, Jr. for appellees.

AQUINO, J.:têñ.£îhqwâ£

This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water fisheries, promulgated by
the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries under the old Fisheries Law and the
law creating the Fisheries Commission.

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and Carlito del Rosario were
charged by a Constabulary investigator in the municipal court of Sta. Cruz, Laguna with having violated Fisheries
Administrative Order No. 84-1.

It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to electro fishing in the
waters of Barrio San Pablo Norte, Sta. Cruz by "using their own motor banca, equipped with motor; with a generator

93
colored green with attached dynamo colored gray or somewhat white; and electrocuting device locally known as sensored
with a somewhat webbed copper wire on the tip or other end of a bamboo pole with electric wire attachment which was
attached to the dynamo direct and with the use of these devices or equipments catches fish thru electric current, which
destroy any aquatic animals within its cuffed reach, to the detriment and prejudice of the populace" (Criminal Case No.
5429).

Upon motion of the accused, the municipal court quashed the complaint. The prosecution appealed. The Court of First
Instance of Laguna affirmed the order of dismissal (Civil Case No. SC-36). The case is now before this Court on appeal by
the prosecution under Republic Act No. 5440.

The lower court held that electro fishing cannot be penalize because electric current is not an obnoxious or poisonous
substance as contemplated in section I I of the Fisheries Law and that it is not a substance at all but a form of energy
conducted or transmitted by substances. The lower court further held that, since the law does not clearly prohibit electro
fishing, the executive and judicial departments cannot consider it unlawful.

As legal background, it should be stated that section 11 of the Fisheries Law prohibits "the use of any obnoxious or
poisonous substance" in fishing.

Section 76 of the same law punishes any person who uses an obnoxious or poisonous substance in fishing with a fine of
not more than five hundred pesos nor more than five thousand, and by imprisonment for not less than six months nor
more than five years.

It is noteworthy that the Fisheries Law does not expressly punish .electro fishing." Notwithstanding the silence of the law,
the Secretary of Agriculture and Natural Resources, upon the recommendation of the Commissioner of Fisheries,
promulgated Fisheries Administrative Order No. 84 (62 O.G. 1224), prohibiting electro fishing in all Philippine waters. The
order is quoted below: ñé+.£ªwph!1

SUBJECT: PROHIBITING ELECTRO FISHING IN ALL WATERS ñé+.£ªwph!1

OF THE PHILIPPINES.

Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512, the following rules and regulations
regarding the prohibition of electro fishing in all waters of the Philippines are promulgated for the information and
guidance of all concerned.ñé+.£ªwph!1

SECTION 1. — Definition. — Words and terms used in this Order 11 construed as follows:

(a) Philippine waters or territorial waters of the Philippines' includes all waters of the Philippine
Archipelago, as defined in the t between the United States and Spain, dated respectively the tenth of
December, eighteen hundred ninety eight and the seventh of November, nineteen hundred. For the
purpose of this order, rivers, lakes and other bodies of fresh waters are included.

(b) Electro Fishing. — Electro fishing is the catching of fish with the use of electric current. The equipment
used are of many electrical devices which may be battery or generator-operated and from and available
source of electric current.

(c) 'Persons' includes firm, corporation, association, agent or employee.

(d) 'Fish' includes other aquatic products.

SEC. 2. — Prohibition. — It shall be unlawful for any person to engage in electro fishing or to catch fish by
the use of electric current in any portion of the Philippine waters except for research, educational and
scientific purposes which must be covered by a permit issued by the Secretary of Agriculture and Natural
Resources which shall be carried at all times.

SEC. 3. — Penalty. — Any violation of the provisions of this Administrative Order shall subject the offender
to a fine of not exceeding five hundred pesos (P500.00) or imprisonment of not extending six (6) months
or both at the discretion of the Court.

SEC. 4. — Repealing Provisions. — All administrative orders or parts thereof inconsistent with the
provisions of this Administrative Order are hereby revoked.

94
 SEC. 5. — Effectivity. — This Administrative Order shall take effect six (60) days after its publication in the
Office Gazette.

On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the recommendation of the Fisheries
Commission, issued Fisheries Administrative Order No. 84-1, amending section 2 of Administrative Order No. 84, by
restricting the ban against electro fishing to fresh water fisheries (63 O.G. 9963).

Thus, the phrase "in any portion of the Philippine waters" found in section 2, was changed by the amendatory order to
read as follows: "in fresh water fisheries in the Philippines, such as rivers, lakes, swamps, dams, irrigation canals and other
bodies of fresh water."

The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro fishing is punishable under section 83
of the Fisheries Law (not under section 76 thereof), which provides that any other violation of that law "or of any rules
and regulations promulgated thereunder shall subject the offender to a fine of not more than two hundred pesos (P200),
or in t for not more than six months, or both, in the discretion of the court."

That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84 imposes a fm of not exceeding
P500 on a person engaged in electro fishing, which amount the 83. It seems that the Department of Fisheries prescribed
their own penalty for swift fishing which penalty is less than the severe penalty imposed in section 76 and which is not
Identified to the at penalty imposed in section 83.

Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then the crime of electro fishing would
be within the exclusive original jurisdiction of the inferior court (Sec. 44 [f], Judiciary Law; People vs. Ragasi, L-28663,
September 22,

We have discussed this pre point, not raised in the briefs, because it is obvious that the crime of electro fishing which is
punishable with a sum up to P500, falls within the concurrent original jurisdiction of the inferior courts and the Court of
First instance (People vs. Nazareno, L-40037, April 30, 1976, 70 SCRA 531 and the cases cited therein).

And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a provincial capital, the order of d rendered
by that municipal court was directly appealable to the Court, not to the Court of First Instance of Laguna (Sec. 45 and last
par. of section 87 of the Judiciary Law; Esperat vs. Avila, L-25992, June 30, 1967, 20 SCRA 596).

It results that the Court of First Instance of Laguna had no appellate jurisdiction over the case. Its order affirming the
municipal court's order of dismissal is void for lack of motion. This appeal shall be treated as a direct appeal from the
municipal court to this Court. (See People vs. Del Rosario, 97 Phil. 67).

In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1 were not issued under section 11 of
the Fisheries Law which, as indicated above, punishes fishing by means of an obnoxious or poisonous substance. This
contention is not well-taken because, as already stated, the Penal provision of Administrative Order No. 84 implies that
electro fishing is penalized as a form of fishing by means of an obnoxious or poisonous substance under section 11.

The prosecution cites as the legal sanctions for the prohibition against electro fishing in fresh water fisheries (1) the rule-
making power of the Department Secretary under section 4 of the Fisheries Law; (2) the function of the Commissioner of
Fisheries to enforce the provisions of the Fisheries Law and the regulations Promulgated thereunder and to execute the
rules and regulations consistent with the purpose for the creation of the Fisheries Commission and for the development
of fisheries (Sec. 4[c] and [h] Republic Act No. 3512; (3) the declared national policy to encourage, Promote and conserve
our fishing resources (Sec. 1, Republic Act No. 3512), and (4) section 83 of the Fisheries Law which provides that "any
other violation of" the Fisheries Law or of any rules and regulations promulgated thereunder "shall subject the offender
to a fine of not more than two hundred pesos, or imprisonment for not more than six months, or both, in the discretion
of the court."

As already pointed out above, the prosecution's reference to section 83 is out of place because the penalty for electro
fishing under Administrative order No. 84 is not the same as the penalty fixed in section 83.

We are of the opinion that the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries exceeded
their authority in issuing Fisheries Administrative Orders Nos. 84 and 84-1 and that those orders are not warranted under
the Fisheries Commission, Republic Act No. 3512.

95
The reason is that the Fisheries Law does not expressly prohibit electro fishing. As electro fishing is not banned under that
law, the Secretary of Agriculture and Natural Resources and the Commissioner of Fisheries are powerless to penalize it. In
other words, Administrative Orders Nos. 84 and 84-1, in penalizing electro fishing, are devoid of any legal basis.

Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could have been easily
embodied in the old Fisheries Law.

That law punishes (1) the use of obnoxious or poisonous substance, or explosive in fishing; (2) unlawful fishing in deepsea
fisheries; (3) unlawful taking of marine molusca, (4) illegal taking of sponges; (5) failure of licensed fishermen to report
the kind and quantity of fish caught, and (6) other violations.

Nowhere in that law is electro fishing specifically punished. Administrative Order No. 84, in punishing electro fishing, does
not contemplate that such an offense fails within the category of "other violations" because, as already shown, the penalty
for electro fishing is the penalty next lower to the penalty for fishing with the use of obnoxious or poisonous substances,
fixed in section 76, and is not the same as the penalty for "other violations" of the law and regulations fixed in section 83
of the Fisheries Law.

The lawmaking body cannot delegate to an executive official the power to declare what acts should constitute an offense.
It can authorize the issuance of regulations and the imposition of the penalty provided for in the law itself. (People vs.
Exconde 101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11 32).

Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the ban against electro fishing was
confined to fresh water fisheries. The amendment created the impression that electro fishing is not condemnable per se.
It could be tolerated in marine waters. That circumstances strengthens the view that the old law does not eschew all forms
of electro fishing.

However, at present, there is no more doubt that electro fishing is punishable under the Fisheries Law and that it cannot
be penalized merely by executive revolution because Presidential Decree No. 704, which is a revision and consolidation of
all laws and decrees affecting fishing and fisheries and which was promulgated on May 16, 1975 (71 O.G. 4269), expressly
punishes electro fishing in fresh water and salt water areas.

That decree provides: ñé+.£ªwph!1

SEC. 33. — Illegal fishing, dealing in illegally caught fish or fishery/aquatic products. — It shall he unlawful
for any person to catch, take or gather or cause to be caught, taken or gathered fish or fishery/aquatic
products in Philippine waters with the use of explosives, obnoxious or poisonous substance, or by the use
of electricity as defined in paragraphs (1), (m) and (d), respectively, of Section 3 hereof: ...

The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586, Presidential Decrees Nos. 43, 534
and 553, and all , Acts, Executive Orders, rules and regulations or parts thereof inconsistent with it (Sec. 49, P. D. No. 704).

The inclusion in that decree of provisions defining and penalizing electro fishing is a clear recognition of the deficiency or
silence on that point of the old Fisheries Law. It is an admission that a mere executive regulation is not legally adequate
to penalize electro fishing.

Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries Administrative Order No. 84 and
which is not provided for the old Fisheries Law, is now found in section 3(d) of the decree. Note further that the decree
penalty electro fishing by "imprisonment from two (2) to four (4) years", a punishment which is more severe than the
penalty of a time of not excluding P500 or imprisonment of not more than six months or both fixed in section 3 of Fisheries
Administrative Order No. 84.

An examination of the rule-making power of executive officials and administrative agencies and, in particular, of the
Secretary of Agriculture and Natural Resources (now Secretary of Natural Resources) under the Fisheries Law sustains the
view that he ex his authority in penalizing electro fishing by means of an administrative order.

Administrative agent are clothed with rule-making powers because the lawmaking body finds it impracticable, if not
impossible, to anticipate and provide for the multifarious and complex situations that may be encountered in enforcing
the law. All that is required is that the regulation should be germane to the defects and purposes of the law and that it
should conform to the standards that the law prescribes (People vs. Exconde 101 Phil. 1125; Director of Forestry vs.
Muñ;oz, L-24796, June 28, 1968, 23 SCRA 1183, 1198; Geukeko vs. Araneta, 102 Phil. 706, 712).

96
The lawmaking body cannot possibly provide for all the details in the enforcement of a particular statute (U.S. vs. Tupasi
Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S. 506; Interprovincial Autobus Co., Inc. vs. Coll. of Internal
Revenue, 98 Phil. 290, 295-6).

The grant of the rule-making power to administrative agencies is a relaxation of the principle of separation of powers and
is an exception to the nondeleption of legislative, powers. Administrative regulations or "subordinate legislation calculated
to promote the public interest are necessary because of "the growing complexity of modem life, the multiplication of the
subjects of governmental regulations, and the increased difficulty of administering the law" Calalang vs. Williams, 70 Phil.
726; People vs. Rosenthal and Osmeñ;a, 68 Phil. 328).

Administrative regulations adopted under legislative authority by a particular department must be in harmony with the
provisions of the law, and should be for the sole purpose of carrying into effect its general provisions. By such regulations,
of course, the law itself cannot be extended. (U.S. vs. Tupasi Molina, supra). An administrative agency cannot amend an
act of Congress (Santos vs. Estenzo, 109 Phil. 419, 422; Teoxon vs. Members of the d of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao vs. Casteel, L-
21906, August 29, 1969, 29 SCRA 350).

The rule-making power must be confined to details for regulating the mode or proceeding to carry into effect the law as
it his been enacted. The power cannot be extended to amending or expanding the statutory requirements or to embrace
matters not covered by the statute. Rules that subvert the statute cannot be sanctioned. (University of Santo Tomas vs.
Board of Tax A 93 Phil. 376, 382, citing 12 C.J. 845-46. As to invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil.
319, Wise & Co. vs. Meer, 78 Phil. 655, 676; Del March vs. Phil. Veterans Administrative, L-27299, June 27, 1973, 51 SCRA
340, 349).

There is no question that the Secretary of Agriculture and Natural Resources has rule-making powers. Section 4 of the
Fisheries law provides that the Secretary "shall from time to time issue instructions, orders, and regulations consistent"
with that law, "as may be and proper to carry into effect the provisions thereof." That power is now vested in the Secretary
of Natural Resources by on 7 of the Revised Fisheries law, Presidential December No. 704.

Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and execute upon the approval of the
Secretary of Agriculture and Natural Resources, forms instructions, rules and regulations consistent with the purpose" of
that enactment "and for the development of fisheries."

Section 79(B) of the Revised Administrative Code provides that "the Department Head shall have the power to promulgate,
whenever he may see fit do so, all rules, regulates, orders, memorandums, and other instructions, not contrary to law, to
regulate the proper working and harmonious and efficient administration of each and all of the offices and dependencies
of his Department, and for the strict enforcement and proper execution of the laws relative to matters under the
jurisdiction of said Department; but none of said rules or orders shall prescribe penalties for the violation thereof, except
as expressly authorized by law."

Administrative regulations issued by a Department Head in conformity with law have the force of law (Valerie vs. Secretary
of culture and Natural Resources, 117 Phil. 729, 733; Antique Sawmills, Inc. vs. Zayco, L- 20051, May 30, 1966, 17 SCRA
316). As he exercises the rule-making power by delegation of the lawmaking body, it is a requisite that he should not
transcend the bound demarcated by the statute for the exercise of that power; otherwise, he would be improperly
exercising legislative power in his own right and not as a surrogate of the lawmaking body.

Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders and regulations shall
be valid only when they are not contrary to the laws or the Constitution."

As noted by Justice Fernando, "except for constitutional officials who can trace their competence to act to the
fundamental law itself, a public office must be in the statute relied upon a grant of power before he can exercise it."
"department zeal may not be permitted to outrun the authority conferred by statute." (Radio Communications of the
Philippines, Inc. vs. Santiago, L-29236, August 21, 1974, 58 SCRA 493, 496-8).

"Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative
agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided
in the law. This is so because statutes are usually couched in general terms, after expressing the policy, purposes,
objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are
oftentimes left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and
regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law."
The rule or regulation should be within the scope of the statutory authority granted by the legislature to the administrative

97
agency. (Davis, Administrative Law, p. 194, 197, cited in Victories Milling Co., Inc. vs. Social Security Commission, 114 Phil.
555, 558).

In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails
because said rule or regulation cannot go beyond the terms and provisions of the basic law (People vs. Lim, 108 Phil. 1091).

This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called the attention of technical men in the
executive departments, who draft rules and regulations, to the importance and necessity of closely following the legal
provisions which they intend to implement so as to avoid any possible misunderstanding or confusion.

The rule is that the violation of a regulation prescribed by an executive officer of the government in conformity with and
based upon a statute authorizing such regulation constitutes an offense and renders the offender liable to punishment in
accordance with the provisions of the law (U.S. vs. Tupasi Molina, 29 Phil. 119, 124).

In other words, a violation or infringement of a rule or regulation validly issued can constitute a crime punishable as
provided in the authorizing statute and by virtue of the latter (People vs. Exconde 101 Phil. 1125, 1132).

It has been held that "to declare what shall constitute a crime and how it shall be punished is a power vested exclusively
in the legislature, and it may not be delegated to any other body or agency" (1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. vs.
Montgomery, 73 F. Supp. 527).

In the instant case the regulation penalizing electro fishing is not strictly in accordance with the Fisheries Law, under which
the regulation was issued, because the law itself does not expressly punish electro fishing.

The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case involves section 28 of Fish and Game
Administrative Order No. 2 issued by the Secretary of Agriculture and Natural Resources pursuant to the aforementioned
section 4 of the Fisheries Law.

Section 28 contains the proviso that a fishing boat not licensed under the Fisheries Law and under the said administrative
order may fish within three kilometers of the shoreline of islands and reservations over which jurisdiction is exercised by
naval and military reservations authorities of the United States only upon receiving written permission therefor, which
permission may be granted by the Secretary upon recommendation of the military or naval authorities concerned. A
violation of the proviso may be proceeded against under section 45 of the Federal Penal Code.

Augusto A. Santos was prosecuted under that provision in the Court of First Instance of Cavite for having caused his two
fishing boats to fish, loiter and anchor without permission from the Secretary within three kilometers from the shoreline
of Corrigidor Island.

This Court held that the Fisheries Law does not prohibit boats not subject to license from fishing within three kilometers
of the shoreline of islands and reservations over which jurisdiction is exercised by naval and military authorities of the
United States, without permission from the Secretary of Agriculture and Natural Resources upon recommendation of the
military and naval authorities concerned.

As the said law does not penalize the act mentioned in section 28 of the administrative order, the promulgation of that
provision by the Secretary "is equivalent to legislating on the matter, a power which has not been and cannot be delegated
to him, it being expressly reserved" to the lawmaking body. "Such an act constitutes not only an excess of the regulatory
power conferred upon the Secretary but also an exercise of a legislative power which he does not have, and therefore"
the said provision "is null and void and without effect". Hence, the charge against Santos was dismiss.

A penal statute is strictly construed. While an administrative agency has the right to make ranks and regulations to carry
into effect a law already enacted, that power should not be confused with the power to enact a criminal statute. An
administrative agency can have only the administrative or policing powers expressly or by necessary implication conferred
upon it. (Glustrom vs. State, 206 Ga. 734, 58 Second 2d 534; See 2 Am. Jr. 2nd 129-130).

Where the legislature has delegated to executive or administrative officers and boards authority to promulgate rules to
carry out an express legislative purpose, the rules of administrative officers and boards, which have the effect of extending,
or which conflict with the authority granting statute, do not represent a valid precise of the rule-making power but
constitute an attempt by an administrative body to legislate (State vs. Miles, Wash. 2nd 322, 105 Pac. 2nd 51).

98
In a prosecution for a violation of an administrative order, it must clearly appear that the order is one which falls within
the scope of the authority conferred upon the administrative body, and the order will be scrutinized with special care.
(State vs. Miles supra).

The Miles case involved a statute which authorized the State Game Commission "to adopt, promulgate, amend and/or
repeal, and enforce reasonable rules and regulations governing and/or prohibiting the taking of the various classes of
game.

Under that statute, the Game Commission promulgated a rule that "it shall be unlawful to offer, pay or receive any reward,
prize or compensation for the hunting, pursuing, taking, killing or displaying of any game animal, game bird or game fish
or any part thereof."

Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash prize to the person displaying the
largest deer in his store during the open for hunting such game animals. For that act, he was charged with a violation of
the rule Promulgated by the State Game Commission.

It was held that there was no statute penalizing the display of game. What the statute penalized was the taking of game.
If the lawmaking body desired to prohibit the display of game, it could have readily said so. It was not lawful for the
administrative board to extend or modify the statute. Hence, the indictment against Miles was quashed. The Miles case is
similar to this case.

WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of appellate jurisdiction and the order of
dismissal rendered by the municipal court of Sta. Cruz, Laguna in Criminal Case No. 5429 is affirmed. Costs de oficio.

SO ORDERED.

Barredo, Concepcion, Jr., Santos and Guerrero

G.R. No. 95832 August 10, 1992

MAYNARD R. PERALTA, petitioner,

vs.
CIVIL SERVICE COMMISSION, respondent.

Tranquilino F. Meris Law Office for petitioner.

PADILLA, J.:

Petitioner was appointed Trade-Specialist II on 25 September 1989 in the Department of Trade and Industry (DTI). His
appointment was classified as "Reinstatement/Permanent". Before said appointment, he was working at the Philippine
Cotton Corporation, a government-owned and controlled corporation under the Department of Agriculture.

On 8 December 1989, petitioner received his initial salary, covering the period from 25 September to 31 October 1989.
Since he had no accumulated leave credits, DTI deducted from his salary the amount corresponding to his absences during
the covered period, namely, 29 September 1989 and 20 October 1989, inclusive of Saturdays and Sundays. More
specifically, the dates of said absences for which salary deductions were made, are as follows:

1. 29 September 1989 — Friday

2. 30 September 1989 — Saturday

3. 01 October 1989 — Sunday

4. 20 October 1989 — Friday

5. 21 October 1989 — Saturday

6. 22 October 1989 — Sunday

99
Petitioner sent a memorandum to Amando T. Alvis (Chief, General Administrative Service) on 15 December 1989 inquiring
as to the law on salary deductions, if the employee has no leave credits.

Amando T. Alvis answered petitioner's query in a memorandum dated 30 January 1990 citing Chapter 5.49 of the
Handbook of Information on the Philippine Civil Service which states that "when an employee is on leave without pay on
a day before or on a day immediately preceding a Saturday, Sunday or Holiday, such Saturday, Sunday, or Holiday shall
also be without pay (CSC, 2nd Ind., February 12, 1965)."

Petitioner then sent a latter dated 20 February 1990 addressed to Civil Service Commission (CSC) Chairman Patricia A. Sto.
Tomas raising the following question:

Is an employee who was on leave of absence without pay on a day before or on a day time immediately
preceding a Saturday, Sunday or Holiday, also considered on leave of absence without pay on such
Saturday, Sunday or Holiday?1

Petitioner in his said letter to the CSC Chairman argued that a reading of the General Leave Law as contained in the Revised
Administrative Code, as well as the old Civil Service Law (Republic Act No. 2260), the Civil Service Decree (Presidential
Decree No. 807), and the Civil Service Rules and Regulation fails to disclose a specific provision which supports the CSC
rule at issue. That being the case, the petitioner contented that he cannot be deprived of his pay or salary corresponding
to the intervening Saturdays, Sundays or Holidays (in the factual situation posed), and that the withholding (or deduction)
of the same is tantamount to a deprivation of property without due process of law.

On 25 May 1990, respondent Commission promulgated Resolution No. 90-497, ruling that the action of the DTI in
deducting from the salary of petitioner, a part thereof corresponding to six (6) days (September 29, 30, October 1, 20, 21,
22, 1989) is in order. 2 The CSC stated that:

In a 2nd Indorsement dated February 12, 1965 of this Commission, which embodies the policy on leave of
absence without pay incurred on a Friday and Monday, reads:

Mrs. Rosalinda Gonzales is not entitled to payment of salary corresponding to January 23

and 24, 1965, Saturday and Sunday, respectively, it appearing that she was present on
Friday, January 22, 1965 but was on leave without pay beginning January 25, the
succeeding Monday. It is the view of this Office that an employee who has no more leave
credit in his favor is not entitled to the payment of salary on Saturdays, Sundays or holidays
unless such non-working days occur within the period of service actually rendered.
(Emphasis supplied)

The rationale for the above ruling which applies only to those employees who are being paid on monthly
basis, rests on the assumption that having been absent on either Monday or Friday, one who has no leave
credits, could not be favorably credited with intervening days had the same been working days. Hence,
the above policy that for an employee on leave without pay to be entitled to salary on Saturdays, Sundays
or holidays, the same must occur between the dates where the said employee actually renders service.
To rule otherwise would allow an employee who is on leave of absent (sic) without pay for a long period
of time to be entitled to payment of his salary corresponding to Saturdays, Sundays or holidays. It also
discourages the employees who have exhausted their leave credits from absenting themselves on a Friday
or Monday in order to have a prolonged weekend, resulting in the prejudice of the government and the
public in general. 3

Petitioner filed a motion for reconsideration and in Resolution No. 90-797, the respondent Commission denied said motion
for lack of merit. The respondent Commission in explaining its action held:

The Primer on the Civil Service dated February 21, 1978, embodies the Civil Service Commission rulings to
be observed whenever an employee of the government who has no more leave credits, is absent on a
Friday and/or a Monday is enough basis for the deduction of his salaries corresponding to the intervening
Saturdays and Sundays. What the Commission perceived to be without basis is the demand of Peralta for
the payment of his salaries corresponding to Saturdays and Sundays when he was in fact on leave of
absence without pay on a Friday prior to the said days. A reading of Republic Act No. 2260 (sic) does not
show that a government employee who is on leave of absence without pay on a day before or immediately
preceding Saturdays, Sunday or legal holiday is entitled to payment of his salary for said days. Further, a
reading of Senate Journal No. 67 dated May 4, 1960 of House Bill No. 41 (Republic Act No. 2625) reveals
that while the law excludes Saturdays, Sundays and holidays in the computation of leave credits, it does

100
 not, however, include a case where the leave of absence is without pay. Hence, applying the principle
of inclusio unius est exclusio alterius, the claim of Peralta has no merit. Moreover, to take a different
posture would be in effect giving more premium to employees who are frequently on leave of absence
without pay, instead of discouraging them from incurring further absence without
pay. 4

Petitioner's motion for reconsideration having been denied, petitioner filed the present petition.

What is primarily questioned by the petitioner is the validity of the respondent Commission's policy mandating salary
deductions corresponding to the intervening Saturdays, Sundays or Holidays where an employee without leave credits
was absent on the immediately preceding working day.

During the pendency of this petition, the respondent Commission promulgated Resolution No. 91-540 dated 23 April 1991
amending the questioned policy, considering that employees paid on a monthly basis are not required to work on
Saturdays, Sunday or Holidays. In said amendatory Resolution, the respondent Commission resolved "to adopt the policy
that when an employee, regardless of whether he has leave credits or not, is absent without pay on day immediately
preceding or succeeding Saturday, Sunday or holiday, he shall not be considered absent on those days." Memorandum
Circular No. 16 Series of 1991 dated 26 April 1991, was also issued by CSC Chairman Sto. Tomas adopting and promulgating
the new policy and directing the Heads of Departments, Bureaus and Agencies in the national and local governments,
including government-owned or controlled corporations with original charters, to oversee the strict implementation of
the circular.

Because of these developments, it would seem at first blush that this petition has become moot and academic since the
very CSC policy being questioned has already been amended and, in effect, Resolutions No. 90-497 and 90-797, subject of
this petition for certiorari, have already been set aside and superseded. But the issue of whether or not the policy that had
been adopted and in force since 1965 is valid or not, remains unresolved. Thus, for reasons of public interest and public
policy, it is the duty of the Court to make a formal ruling on the validity or invalidity of such questioned policy.

The Civil Service Act of 1959 (R.A. No. 2260) conferred upon the Commissioner of Civil Service the following powers and
duties:

Sec. 16 (e) with the approval by the President to prescribe, amend and enforce suitable rules and
regulations for carrying into effect the provisions of this Civil Service Law, and the rules prescribed
pursuant to the provisions of this law shall become effective thirty days after publication in the Official
Gazette;

xxx xxx xxx

(k) To perform other functions that properly belong to a central personnel agency. 5

Pursuant to the foregoing provisions, the Commission promulgated the herein challenged policy. Said policy was
embodied in a 2nd Indorsement dated 12 February 1965 of the respondent Commission involving the case of a Mrs.
Rosalinda Gonzales. The respondent Commission ruled that an employee who has no leave credits in his favor is not
entitled to the payment of salary on Saturdays, Sundays or Holidays unless such non-working days occur within the period
of service actually rendered. The same policy is reiterated in the Handbook of Information on the Philippine Civil
Service. 6 Chapter Five on leave of absence provides that:

5.51. When intervening Saturday, Sunday or holiday considered as leave without pay — when an
employee is on leave without pay on a day before or on a day immediately preceding a Saturday, Sunday
or holiday, such Saturday, Sunday or holiday shall also be without pay. (CSC, 2nd Ind., Feb. 12, 1965).

It is likewise illustrated in the Primer on the Civil Service 7 in the section referring to Questions and Answers on Leave of
Absences, which states the following:

27. How is leave of an employee who has no more leave credits computed if:

(1) he is absent on a Friday and the following Monday?

(2) if he is absent on Friday but reports to work the

following Monday?

101
 (3) if he is absent on a Monday but present the preceding
Friday?

- (1) He is considered on leave without pay for 4 days

covering Friday to Monday;

- (2) He is considered on leave without pay for 3 days

from Friday to Sunday;

- (3) He is considered on leave without pay for 3 days

from Saturday to Monday.

When an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-
existing law; and the administrative interpretation of the law is at best advisory, for it is the courts that finally determine
what the law means. 8 It has also been held that interpretative regulations need not be published. 9

In promulgating as early as 12 February 1965 the questioned policy, the Civil Service Commission interpreted the
provisions of Republic Act No. 2625 (which took effect on 17 June 1960) amending the Revised Administrative Code, and
which stated as follows:

Sec. 1. Sections two hundred eighty-four and two hundred eighty-five-A of the Administrative Code, as
amended, are further amended to read as follows:

Sec. 284. After at least six months' continues (sic) faithful, and satisfactory service, the
President or proper head of department, or the chief of office in the case of municipal
employees may, in his discretion, grant to an employee or laborer, whether permanent
or temporary, of the national government, the provincial government, the government
of a chartered city, of a municipality, of a municipal district or of government-owned or
controlled corporations other than those mentioned in Section two hundred sixty-eight,
two hundred seventy-one and two hundred seventy-four hereof, fifteen days vacation
leave of absence with full pay, exclusive of Saturdays, Sundays and holidays, for each
calendar year of service.

Sec. 285-A. In addition to the vacation leave provided in the two preceding sections each
employee or laborer, whether permanent or temporary, of the national government, the
provincial government, the government of a chartered city, of a municipality or municipal
district in any regularly and specially organized province, other than those mentioned in
Section two hundred sixty-eight, two hundred seventy-one and two hundred seventy-four
hereof, shall be entitled to fifteen days of sick leave for each year of service with full pay,
exclusive of Saturdays, Sundays and holidays: Provided, That such sick leave will be
granted by the President, Head of Department or independent office concerned, or the
chief of office in case of municipal employees, only on account of sickness on the part of
the employee or laborer concerned or of any member of his immediate family.

The Civil Service Commission in its here questioned Resolution No. 90-797 construed R.A. 2625 as referring only to
government employees who have earned leave credits against which their absences may be charged with pay, as its letters
speak only of leaves of absence with full pay. The respondent Commission ruled that a reading of R.A. 2625 does not show
that a government employee who is on leave of absence without pay on a day before or immediately preceding a Saturday,
Sunday or legal holiday is entitled to payment of his salary for said days.

Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an administrative
agency may be disturbed or set aside by the judicial department if there is an error of law, or abuse of power or lack of
jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the spirit of a legislative enactment. 10

We find this petition to be impressed with merit.

As held in Hidalgo vs. Hidalgo: 11

. . . . where the true intent of the law is clear that calls for the application of the cardinal rule of statutory
construction that such intent or spirit must prevail over the letter thereof, for whatever is within the spirit

102
 of a statute is within the statute, since adherence to the letter would result in absurdity, injustice and
contradictions and would defeat the plain and vital purpose of the statute.

The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others, the sponsorship speech
of Senator Arturo M. Tolentino during the second reading of House Bill No. 41 (which became R.A. 2625). He said:

The law actually provides for sick leave and vacation leave of 15 days each year of service to be with full
pay. But under the present law, in computing these periods of leaves, Saturday, Sunday and holidays are
included in the computation so that if an employee should become sick and absent himself on a Friday
and then he reports for work on a Tuesday, in the computation of the leave the Saturday and Sunday will
be included, so that he will be considered as having had a leave of Friday, Saturday, Sunday and Monday,
or four days.

The purpose of the present bill is to exclude from the computation of the leave those days, Saturdays and
Sundays, as well as holidays, because actually the employee is entitled not to go to office during those
days. And it is unfair and unjust to him that those days should be counted in the computation of leaves. 12

With this in mind, the construction by the respondent Commission of R.A. 2625 is not in accordance with the legislative
intent. R.A. 2625 specifically provides that government employees are entitled to fifteen (15) days vacation leave of
absence with full pay and fifteen (15) days sick leave with full pay, exclusive of Saturdays, Sundays and Holidays in both
cases. Thus, the law speaks of the granting of a right and the law does not provide for a distinction between those who
have accumulated leave credits and those who have exhausted their leave credits in order to enjoy such right. Ubi lex non
distinguit nec nos distinguere debemus. The fact remains that government employees, whether or not they have
accumulated leave credits, are not required by law to work on Saturdays, Sundays and Holidays and thus they can not be
declared absent on such non-working days. They cannot be or are not considered absent on non-working days; they cannot
and should not be deprived of their salary corresponding to said non-working days just because they were absent without
pay on the day immediately prior to, or after said non-working days. A different rule would constitute a deprivation of
property without due process.

Furthermore, before their amendment by R.A. 2625, Sections 284 and 285-A of the Revised Administrative Code applied
to all government employee without any distinction. It follows that the effect of the amendment similarly applies to all
employees enumerated in Sections 284 and 285-A, whether or not they have accumulated leave credits.

As the questioned CSC policy is here declared invalid, we are next confronted with the question of what effect such
invalidity will have. Will all government employees on a monthly salary basis, deprived of their salaries corresponding to
Saturdays, Sundays or legal holidays (as herein petitioner was so deprived) since 12 February 1965, be entitled to recover
the amounts corresponding to such non-working days?

The general rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it imposes no duties;
it affords no protection; it creates no office; it is in legal contemplation as inoperative as though it had never been
passed. 13

But, as held in Chicot County Drainage District vs. Baxter State

Bank:14

. . . . It is quite clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such
determination 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 effect of the subsequent ruling as to invalidity
may have to be considered in various aspects — with respect to particular relations, individual and
corporate; and particular conduct, private and official.

To allow all the affected government employees, similarly situated as petitioner herein, to claim their deducted salaries
resulting from the past enforcement of the herein invalidated CSC policy, would cause quite a heavy financial burden on
the national and local governments considering the length of time that such policy has been effective. Also, administrative
and practical considerations must be taken into account if this ruling will have a strict restrospective application. The
Court, in this connection, calls upon the respondent Commission and the Congress of the Philippines, if necessary, to
handle this problem with justice and equity to all affected government employees.

103
It must be pointed out, however, that after CSC Memorandum Circular No. 16 Series of 1991 — amending the herein
invalidated policy — was promulgated on 26 April 1991, deductions from salaries made after said date in contravention
of the new CSC policy must be restored to the government employees concerned.

WHEREFORE, the petition is GRANTED, CSC Resolutions No. 90-497 and 90-797 are declared NULL and VOID. The
respondent Commission is directed to take the appropriate action so that petitioner shall be paid the amounts previously
but unlawfully deducted from his monthly salary as above indicated. No costs.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr., Romero, Nocon and
Bellosillo, JJ., concur.

G.R. No. 102549 August 10, 1992

EDWIN B. JAVELLANA, petitioner,

vs.
DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT AND LUIS T. SANTOS, SECRETARY, respondents.

Reyes, Lozada and Sabado for petitioner.

GRIÑO-AQUINO, J.:

This petition for review on certiorari involves the right of a public official to engage in the practice of his profession while
employed in the Government.

Attorney Erwin B. Javellana was an elected City Councilor of Bago City, Negros Occidental. On October 5, 1989, City
Engineer Ernesto C. Divinagracia filed Administrative Case No. C-10-90 against Javellana for: (1) violation of Department
of Local Government (DLG) Memorandum Circular No. 80-38 dated June 10, 1980 in relation to DLG Memorandum Circular
No. 74-58 and of Section 7, paragraph b, No. 2 of Republic Act No. 6713, otherwise known as the "Code of Conduct and
Ethical Standards for Public Officials and Employees," and (2) for oppression, misconduct and abuse of authority.

Divinagracia's complaint alleged that Javellana, an incumbent member of the City Council or Sanggunian Panglungsod of
Bago City, and a lawyer by profession, has continuously engaged in the practice of law without securing authority for that
purpose from the Regional Director, Department of Local Government, as required by DLG Memorandum Circular No. 80-
38 in relation to DLG Memorandum Circular No. 74-58 of the same department; that on July 8, 1989, Javellana, as counsel
for Antonio Javiero and Rolando Catapang, filed a case against City Engineer Ernesto C. Divinagracia of Bago City for "Illegal
Dismissal and Reinstatement with Damages" putting him in public ridicule; that Javellana also appeared as counsel in
several criminal and civil cases in the city, without prior authority of the DLG Regional Director, in violation of DLG
Memorandum Circular No. 80-38 which provides:

MEMORANDUM CIRCULAR NO. 80-38

TO ALL: PROVINCIAL GOVERNORS, CITY AND MUNICIPALITY MAYORS, KLGCD REGIONAL

DIRECTORS AND ALL CONCERNED

SUBJECT: AMENDING MEMORANDUM CIRCULAR NO. 80-18 ON SANGGUNIAN SESSIONS, PER

DIEMS, ALLOWANCES, STAFFING AND OTHER RELATED MATTERS

In view of the issuance or Circular No. 5-A by the Joint Commission on Local Government Personnel
Administration which affects certain provisions of MC 80-18, there is a need to amend said Memorandum
Circular to substantially conform to the pertinent provisions of Circular No. 9-A.

xxx xxx xxx

C. Practice of Profession

The Secretary (now Minister) of Justice in an Opinion No. 46 Series of 1973 stated inter alia that "members
of local legislative bodies, other than the provincial governors or the mayors, do not keep regular office
104
 hours." "They merely attend meetings or sessions of the provincial board or the city or municipal council"
and that provincial board members are not even required "to have an office in the provincial building."
Consequently, they are not therefore to required to report daily as other regular government employees
do, except when they are delegated to perform certain administrative functions in the interest of public
service by the Governor or Mayor as the case may be. For this reason, they may, therefore, be allowed to
practice their professions provided that in so doing an authority . . . first be secured from the Regional
Directors pursuant to Memorandum Circular No. 74-58, provided, however, that no government
personnel, property, equipment or supplies shall be utilized in the practice of their professions. While
being authorized to practice their professions, they should as much as possible attend regularly any and
all sessions, which are not very often, of their Sanggunians for which they were elected as members by
their constituents except in very extreme cases, e.g., doctors who are called upon to save a life. For this
purpose it is desired that they always keep a calendar of the dates of the sessions, regular or special of
their Sanggunians so that conflicts of attending court cases in the case of lawyers and Sanggunian sessions
can be avoided.

As to members of the bar the authority given for them to practice their profession shall always be subject
to the restrictions provided for in Section 6 of Republic Act 5185. In all cases, the practice of any profession
should be favorably recommended by the Sanggunian concerned as a body and by the provincial
governors, city or municipal mayors, as the case may be. (Emphasis ours, pp. 28-30, Rollo.)

On August 13, 1990, a formal hearing of the complaint was held in Iloilo City in which the complainant, Engineer
Divinagracia, and the respondent, Councilor Javellana, presented their respective evidence.

Meanwhile, on September 10, 1990, Javellana requested the DLG for a permit to continue his practice of law for the
reasons stated in his letter-request. On the same date, Secretary Santos replied as follows:

1st Indorsement
September 10, 1990

Respectfully returned to Councilor Erwin B. Javellana, Bago City, his within letter dated September 10,
1990, requesting for a permit to continue his practice of law for reasons therein stated, with this
information that, as represented and consistent with law, we interpose no objection thereto, provided
that such practice will not conflict or tend to conflict with his official functions.

LUIS T.
SANTO
S
Secreta
ry.

(p. 60, Rollo.)

On September 21, 1991, Secretary Luis T. Santos issued Memorandum Circular No. 90-81 setting forth guidelines for the
practice of professions by local elective officials as follows:

TO: All Provincial Governors, City and Municipal Mayors, Regional Directors and All
Concerned.

SUBJECT: Practice of Profession and Private Employment of Local Elective Officials

Section 7 of Republic Act No. 6713 (Code of Conduct and Ethical Standards for Public Officials and
Employees), states, in part, that "In addition to acts and omission of public officials . . . now prescribed in
the Constitution and existing laws, the following shall constitute prohibited acts and transactions of any
public officials . . . and are hereby declared to be unlawful: . . . (b) Public Officials . . . during their
incumbency shall not: (1) . . . accept employment as officer, employee, consultant, counsel, broker, agent,
trustee or nominee in any private enterprise regulated, supervised or licensed by their office unless
expressly allowed by law; (2) Engage in the private practice of their profession unless authorized by the
Constitution or law, provided that such practice will not conflict or tend to conflict with their official
functions: . . .

xxx xxx xxx

105
 Under Memorandum Circular No. 17 of the Office of the President dated September 4, 1986, the authority
to grant any permission, to accept private employment in any capacity and to exercise profession, to any
government official shall be granted by the head of the Ministry (Department) or agency in accordance
with Section 12, Rule XVIII of the Revised Civil Service Rules, which provides, in part, that:

No officer shall engage directly in any . . . vocation or profession . . . without a written

permission from the head of the Department: Provided, that this prohibition will be
absolute in the case of those officers . . . whose duties and responsibilities require that
their entire time be at the disposal of the Government: Provided, further, That if an
employee is granted permission to engage in outside activities, the time so devoted
outside of office should be fixed by the Chief of the agency to the end that it will not
impair in anyway the efficiency of the officer or employee . . . subject to any additional
conditions which the head of the office deems necessary in each particular case in the
interest of the service, as expressed in the various issuances of the Civil Service
Commission.

Conformably with the foregoing, the following guidelines are to be observed in the grant of permission to
the practice of profession and to the acceptance of private employment of local elective officials, to wit:

1) The permission shall be granted by the Secretary of Local Government;

2) Provincial Governors, City and Municipal Mayors whose duties and responsibilities
require that their entire time be at the disposal of the government in conformity with
Sections 141, 171 and 203 of the Local Government Code (BP 337), are prohibited to
engage in the practice of their profession and to accept private employment during their
incumbency:

3) Other local elective officials may be allowed to practice their profession or engage in
private employment on a limited basis at the discretion of the Secretary of Local
Government, subject to existing laws and to the following conditions:

a) That the time so devoted outside of office hours should be fixed by the
local chief executive concerned to the end that it will not impair in any
way the efficiency of the officials concerned;

b) That no government time, personnel, funds or supplies shall be utilized

in the pursuit of one's profession or private employment;

c) That no conflict of interests between the practice of profession or

engagement in private employment and the official duties of the
concerned official shall arise thereby;

d) Such other conditions that the Secretary deems necessary to impose

on each particular case, in the interest of public service. (Emphasis
supplied, pp. 31-32, Rollo.)

On March 25, 1991, Javellana filed a Motion to Dismiss the administrative case against him on the ground mainly that DLG
Memorandum Circulars Nos. 80-38 and 90-81 are unconstitutional because the Supreme Court has the sole and exclusive
authority to regulate the practice of law.

In an order dated May 2, 1991, Javellana's motion to dismiss was denied by the public respondents. His motion for
reconsideration was likewise denied on June 20, 1991.

Five months later or on October 10, 1991, the Local Government Code of 1991 (RA 7160) was signed into law, Section 90
of which provides:

Sec. 90. Practice of Profession. — (a) All governors, city and municipal mayors are prohibited from
practicing their profession or engaging in any occupation other than the exercise of their functions as local
chief executives.

106
 (b) Sanggunian members may practice their professions, engage in any occupation, or teach in schools
except during session hours: Provided, That sanggunian members who are members of the Bar shall not:

(1) Appear as counsel before any court in any civil case wherein a local government unit
or any office, agency, or instrumentality of the government is the adverse party;

(2) Appear as counsel in any criminal case wherein an officer or employee of the national
or local government is accused of an offense committed in relation to his office;

(3) Collect any fee for their appearance in administrative proceedings involving the local
government unit of which he is an official; and

(4) Use property and personnel of the Government except when the sanggunian member
concerned is defending the interest of the Government.

(c) Doctors of medicine may practice their profession even during official hours of work only on occasions
of emergency: Provided, That the officials concerned do not derive monetary compensation therefrom.
(Emphasis ours.)

Administrative Case No. C-10-90 was again set for hearing on November 26, 1991. Javellana thereupon filed this petition
for certiorari praying that DLG Memorandum Circulars Nos. 80-38 and 90-81 and Section 90 of the new Local Government
Code (RA 7160) be declared unconstitutional and null void because:

(1) they violate Article VIII, Section 5 of the 1987 Constitution, which provides:

Sec. 5. The Supreme Court shall have the following powers:

xxx xxx xxx

(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading,
practice, and procedure in all courts, the admission to the practice of law, the Integrated Bar, and legal
assistance to the underprivileged. Such rules shall provide a simplified and inexpensive procedure for the
speedy disposition of cases, shall be uniform for all courts of the same grade, and shall not diminish,
increase, or modify substantive rights. Rules of procedure of special courts and quasi-judicial bodies shall
remain effective unless disapproved by the Supreme Court.

(2) They constitute class legislation, being discriminatory against the legal and medical professions for only sanggunian
members who are lawyers and doctors are restricted in the exercise of their profession while dentists, engineers,
architects, teachers, opticians, morticians and others are not so restricted (RA 7160, Sec. 90 [b-1]).

In due time, the Solicitor General filed his Comment on the petition and the petitioner submitted a Reply. After
deliberating on the pleadings of the parties, the Court resolved to dismiss the petition for lack of merit.

As a matter of policy, this Court accords great respect to the decisions and/or actions of administrative authorities not
only because of the doctrine of separation of powers but also for their presumed knowledgeability and expertise in the
enforcement of laws and regulations entrusted to their jurisdiction (Santiago vs. Deputy Executive Secretary, 192 SCRA
199, citing Cuerdo vs. COA, 166 SCRA 657). With respect to the present case, we find no grave abuse of discretion on the
part of the respondent, Department of Interior and Local Government (DILG), in issuing the questioned DLG Circulars Nos.
80-30 and 90-81 and in denying petitioner's motion to dismiss the administrative charge against him.

In the first place, complaints against public officers and employees relating or incidental to the performance of their duties
are necessarily impressed with public interest for by express constitutional mandate, a public office is a public trust. The
complaint for illegal dismissal filed by Javiero and Catapang against City Engineer Divinagracia is in effect a complaint
against the City Government of Bago City, their real employer, of which petitioner Javellana is a councilman. Hence,
judgment against City Engineer Divinagracia would actually be a judgment against the City Government. By serving as
counsel for the complaining employees and assisting them to prosecute their claims against City Engineer Divinagracia,
the petitioner violated Memorandum Circular No. 74-58 (in relation to Section 7[b-2] of RA 6713) prohibiting a government
official from engaging in the private practice of his profession, if such practice would represent interests adverse to the
government.

107
Petitioner's contention that Section 90 of the Local Government Code of 1991 and DLG Memorandum Circular No. 90-81
violate Article VIII, Section 5 of the Constitution is completely off tangent. Neither the statute nor the circular trenches
upon the Supreme Court's power and authority to prescribe rules on the practice of law. The Local Government Code and
DLG Memorandum Circular No. 90-81 simply prescribe rules of conduct for public officials to avoid conflicts of interest
between the discharge of their public duties and the private practice of their profession, in those instances where the law
allows it.

Section 90 of the Local Government Code does not discriminate against lawyers and doctors. It applies to all provincial
and municipal officials in the professions or engaged in any occupation. Section 90 explicitly provides that sanggunian
members "may practice their professions, engage in any occupation, or teach in schools expect during session hours." If
there are some prohibitions that apply particularly to lawyers, it is because of all the professions, the practice of law is
more likely than others to relate to, or affect, the area of public service.

WHEREFORE, the petition is DENIED for lack of merit. Costs against the petitioner.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Medialdea, Regalado, Davide, Jr., Romero, Nocon and Bellosillo,
JJ., concur.

[G.R. No. 119761. August 29, 1996]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION, respondents.

DECISION
VITUG, J.:

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of
Appeals[1] affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax
Appeals[2] ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her
capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration
over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal
Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good Government,
"the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were
listed in the World Tobacco Directory as belonging to foreign companies.However, Fortune Tobacco changed the names
of 'Hope' to Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand
category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune
Tobacco Corporation register and therefore a local brand."[3] Ad Valorem taxes were imposed on these brands,[4] at the
following rates:

"BRAND AD VALOREM TAX RATE

E.O. 22
06-23-86
07-01-86 and E.O. 273
07-25-87
01-01-88 RA 6956
06-18-90

108
 07-05-90

Hope Luxury M. 100's

Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20%"[5]
A bill, which later became Republic Act ("RA") No. 7654, [6] was enacted, on 10 June 1993, by the legislature and signed
into law, on 14 June 1993, by the President of the Philippines.The new law became effective on 03 July 1993. It amended
Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows:

"SEC. 142. Cigars and Cigarettes. -

"x x x x x x x x x.

"(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax
at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's
wholesale price, whichever is higher:

"(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the
exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not
be less than Five Pesos (P5.00) per pack.

"(2). On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less
than Three Pesos (P3.00) per pack.

"x x x x x x x x x.

"When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of
existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not
exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%)."[7] (Italics supplied.)

About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum
Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed:

"REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1, 1993

109
REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT : Reclassification of Cigarettes Subject to Excise Tax

TO : All Internal Revenue Officers and Others Concerned.

"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION' cigarettes which are locally manufactured are
appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review
the previous rulings on the matter.

"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:

"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply
regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands
manufactured in foreign countries appearing in the current World Tobacco Directory shall govern."

"Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured
cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or
producer. If ownership of the cigarette brand is, however, not definitely determinable, 'x x x the listing of brands
manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. x x x'

"'HOPE' is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune
Tobacco, Philippines. 'MORE' is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b)
Rothmans, Australia; (c) RJR-Macdonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds,
Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds,
Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. 'Champion' is registered in the said
directory as being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d)
Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

"Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the
real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August
24, 1988, 'in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made.'

"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and 'CHAMPION' being manufactured by
Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to
the 55% ad valorem tax on cigarettes.

"Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY VINZONS-CHATO

Commissioner"
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a copy of
RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received,
by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco, requested for a review,
reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993,
the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. [8]
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:

"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: `HOPE,' `MORE' and
`CHAMPION' being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign
brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when
R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55%

110
pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other
locally manufactured cigarettes and taxed at 45% or 20% as the case may be.

"Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount
of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis.

"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made
and issued on petitioner in relation to the implementation of RMC No. 37-93.

"SO ORDERED." [9]

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994
decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed
in all respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That -

"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS
OF THE TAX CODE.

"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH
THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY.

"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY
SITUATED AS 'HOPE,' 'MORE' AND 'CHAMPION' CIGARETTES.

"V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING HOPE, MORE AND CHAMPION CIGARETTES BEFORE
THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR
ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT." [10]

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective
without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would
apply under similar circumstances to all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective
implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the
Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal
requirements or applicable principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances - a legislative rule and an interpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, [11] the Court expressed:

"x x x a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing
the details thereof. In the same way that laws must have the benefit of public hearing, it is generally required that before
a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:

"Public Participation. - If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices
of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.

"(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a
newspaper of general circulation at least two (2) weeks before the first hearing thereon.

"(3) In case of opposition, the rules on contested cases shall be observed.

111
"In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the
law which the administrative agency is in charge of enforcing." [12]

It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance for it gives no real consequence more than what the law itself has already
prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can
facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of
those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter
to be duly informed, before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that
the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past
Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law
would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were
not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium
More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate
consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and
"Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now
disputed RMC 37-93 had to be issued. In so doing, the BIR not simply interpreted the law; verily, it legislated under its
quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not
have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

"RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

"It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and
regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance
therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from
legal infirmity in the light of the constitutional provision on `due process of law' and the essence of the Civil Code provision
concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil
Code).

"In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due
process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said
Revenue Tax Issuances:

"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue
Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations.

"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be
operative until after due notice thereof may be fairly presumed.

"Due notice of the said issuances may be fairly presumed only after the following procedures have been taken:

"xxx xxx xxx

"(5). Strict compliance with the foregoing procedures is enjoined." [13]

Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the
above requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and
equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on
equal footing both in privileges and liabilities.[14] Thus, all taxable articles or kinds of property of the same class must be

112
taxed at the same rate[15] and the tax must operate with the same force and effect in every place where the subject may
be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," Premium More" and "Champion" cigarettes and, unless
petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my
esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and
thus violative of due process following the Ang Tibay[16] doctrine, the measure suffers from lack of uniformity of
taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly
included within the scope of the circular, such as -

"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea (Exhibit `R')

"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan (Exhibit `S')

(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit `T')

"3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit `U')

(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit `V-1')

"4. Locally manufactured by MIGHTY CORPORATION

(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit 'U-1')

"5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson, USA (Exhibit 'U-3')

(b) WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh; Nanyang, Hongkong; Joo Lan, Malaysia;
Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit 'U-4')." [17]

The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways
and Means of the House of Representatives; viz:

"THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on
other tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured
bearing foreign brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory
x x x. Why were these brands not reclassified at 55 if your want to give a level playing field to foreign manufacturers?

"MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to
come after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign
brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time,
when we had to come up with this, we were forced to study the brands of Hope, More and Champion because we were
given documents that would indicate the that these brands were actually being claimed or patented in other countries
because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about
but we couldn't find the rationale there. And we really found based on our own interpretation that the only test that is
given by that existing law would be registration in the World Tobacco Directory. So we came out with this proposed
revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time, we went
by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally manufactured cigarettes
which are currently classified and taxed at 55 percent. So we were saying that when this law took effect in July 3 and if we
are going to come up with this revenue circular thereafter, then I think our action would really be subject to questionbut
we feel that . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact, it was
really because of the study, the short time that we were given to study the matter that we could not include all the rest of
the other brands that would have been really classified as foreign brand if we went by the law itself. I am sure that by the
reading of the law, you would without that ruling by Commissioner Tan they would really have been included in the

113
definition or in the classification of foregoing brands. These brands that you referred to or just read to us and in fact just
for your information, we really came out with a proposed revenue memorandum circular for those brands. (Italics supplied)

"Exhibit 'FF-2-C', pp. V-5 TO V-6, VI-1 to VI-3).

"x x x x x x x x x.

"MS. CHATO. x x x But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up
with a more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those
similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not
have been possible to really come up with the reclassification or the proper classification of all brands that are listed there.
x x x' (italics supplied) (Exhibit 'FF-2d', page IX-1)

"x x x x x x x x x.

"HON. DIAZ. But did you not consider that there are similarly situated?

"MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the
other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just
recently appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter,
we were really caught by the July 3 deadline.But in fact, We have already prepared a revenue memorandum circular
clarifying with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand
for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman. (Italics
supplied) (Exhibit 'FF-2-d,' par. IX-4)."18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective
administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.
Kapunan, J., concurs.
Padilla, J., joins Justice Hermosisima, Jr., in his dissenting opinion.
Bellosillo, J., see separate opinion.
Hermosisima, Jr., J., see dissenting opinion.

G.R. No. L-16704 March 17, 1962

VICTORIAS MILLING COMPANY, INC., petitioner-appellant,

vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.

Ross, Selph and Carrascoso for petitioner-appellant.

Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.

BARRERA, J.:

On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following tenor: .

Effective November 1, 1958, all Employers in computing the premiums due the System, will take into consideration
and include in the Employee's remuneration all bonuses and overtime pay, as well as the cash value of other
media of remuneration. All these will comprise the Employee's remuneration or earnings, upon which the 3-1/2%
and 2-1/2% contributions will be based, up to a maximum of P500 for any one month.

Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote the Social Security
Commission in effect protesting against the circular as contradictory to a previous Circular No. 7, dated October 7, 1957
expressly excluding overtime pay and bonus in the computation of the employers' and employees' respective monthly
premium contributions, and submitting, "In order to assist your System in arriving at a proper interpretationof the term
'compensation' for the purposes of" such computation, their observations on Republic Act 1161 and its amendment and
on the general interpretation of the words "compensation", "remuneration" and "wages". Counsel further questioned the
validity of the circular for lack of authority on the part of the Social Security Commission to promulgate it without the
approval of the President and for lack of publication in the Official Gazette.
114
Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a rule or regulation that
needed the approval of the President and publication in the Official Gazette to be effective, but a mere administrative
interpretation of the statute, a mere statement of general policy or opinion as to how the law should be construed.

Not satisfied with this ruling, petitioner comes to this Court on appeal.

The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation, as contemplated in Section
4(a) of Republic Act 1161 empowering the Social Security Commission "to adopt, amend and repeal subject to the approval
of the President such rules and regulations as may be necessary to carry out the provisions and purposes of this Act."

There can be no doubt that there is a distinction between an administrative rule or regulation and an administrative
interpretation of a law whose enforcement is entrusted to an administrative body. When an administrative agency
promulgates rules and regulations, it "makes" a new law with the force and effect of a valid law, while when it renders an
opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis,
Administrative Law, p. 194). Rules and regulations when promulgated in pursuance of the procedure or authority
conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be
enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after
expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the
manner of carrying out the law are often times left to the administrative agency entrusted with its enforcement. In this
sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal
provisions that have the effect of law. (Davis, op. cit., p. 194.) .

A rule is binding on the courts so long as the procedure fixed for its promulgation is followed and its scope is within the
statutory authority granted by the legislature, even if the courts are not in agreement with the policy stated therein or its
innate wisdom (Davis, op. cit., 195-197). On the other hand, administrative interpretation of the law is at best merely
advisory, for it is the courts that finally determine what the law means.

Circular No. 22 in question was issued by the Social Security Commission, in view of the amendment of the provisions of
the Social Security Law defining the term "compensation" contained in Section 8 (f) of Republic Act No. 1161 which, before
its amendment, reads as follows: .

(f) Compensation — All remuneration for employment include the cash value of any remuneration paid in any
medium other than cash except (1) that part of the remuneration in excess of P500 received during the month;
(2) bonuses, allowances or overtime pay; and (3) dismissal and all other payments which the employer may make,
although not legally required to do so.

Republic Act No. 1792 changed the definition of "compensation" to:

(f) Compensation — All remuneration for employment include the cash value of any remuneration paid in any
medium other than cash except that part of the remuneration in excess of P500.00 received during the month.

It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime pay given in addition to the
regular or base pay were expressly excluded, or exempted from the definition of the term "compensation", such
exemption or exclusion was deleted by the amendatory law. It thus became necessary for the Social Security Commission
to interpret the effect of such deletion or elimination. Circular No. 22 was, therefore, issued to apprise those concerned
of the interpretation or understanding of the Commission, of the law as amended, which it was its duty to enforce. It did
not add any duty or detail that was not already in the law as amended. It merely stated and circularized the opinion of the
Commission as to how the law should be construed. 1äwphï1.ñët

The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959) cited by appellant, does not support its
contention that the circular in question is a rule or regulation. What was there said was merely that a regulation may be
incorporated in the form of a circular. Such statement simply meant that the substance and not the form of a regulation
is decisive in determining its nature. It does not lay down a general proposition of law that any circular, regardless of its
substance and even if it is only interpretative, constitutes a rule or regulation which must be published in the Official
Gazette before it could take effect.

The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the present case, because the
penalty that may be incurred by employers and employees if they refuse to pay the corresponding premiums on bonus,
overtime pay, etc. which the employer pays to his employees, is not by reason of non-compliance with Circular No. 22,
but for violation of the specific legal provisions contained in Section 27(c) and (f) of Republic Act No. 1161.

115
We find, therefore, that Circular No. 22 purports merely to advise employers-members of the System of what, in the light
of the amendment of the law, they should include in determining the monthly compensation of their employees upon
which the social security contributions should be based, and that such circular did not require presidential approval and
publication in the Official Gazette for its effectivity.

It hardly need be said that the Commission's interpretation of the amendment embodied in its Circular No. 22, is correct.
The express elimination among the exemptions excluded in the old law, of all bonuses, allowances and overtime pay in
the determination of the "compensation" paid to employees makes it imperative that such bonuses and overtime pay
must now be included in the employee's remuneration in pursuance of the amendatory law. It is true that in previous
cases, this Court has held that bonus is not demandable because it is not part of the wage, salary, or compensation of the
employee. But the question in the instant case is not whether bonus is demandable or not as part of compensation, but
whether, after the employer does, in fact, give or pay bonus to his employees, such bonuses shall be considered
compensation under the Social Security Act after they have been received by the employees. While it is true that terms
or words are to be interpreted in accordance with their well-accepted meaning in law, nevertheless, when such term or
word is specifically defined in a particular law, such interpretation must be adopted in enforcing that particular law, for it
can not be gainsaid that a particular phrase or term may have one meaning for one purpose and another meaning for
some other purpose. Such is the case that is now before us. Republic Act 1161 specifically defined what "compensation"
should mean "For the purposes of this Act". Republic Act 1792 amended such definition by deleting same exemptions
authorized in the original Act. By virtue of this express substantial change in the phraseology of the law, whatever prior
executive or judicial construction may have been given to the phrase in question should give way to the clear mandate of
the new law.

IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs against appellant. So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon and De Leon, JJ., concur.

[G.R. No. 163448. March 08, 2005]

NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his capacity as Regional Director, NFA Regional Office
No. 1, San Juan, La Union, petitioners, vs. MASADA SECURITY AGENCY, INC., represented by its Acting President
& General Manager, COL. EDWIN S. ESPEJO (RET.), respondents.

DECISION
YNARES-SANTIAGO, J.:

Assailed in this petition for review under Rule 45 of the Rules of Court is the February 12, 2004 decision[1] of the Court
of Appeals in CA-G.R. CV No. 76677, which dismissed the appeal filed by petitioner National Food Authority (NFA) and its
April 30, 2004 resolution denying petitioners motion for reconsideration.
The antecedent facts show that on September 17, 1996, respondent MASADA Security Agency, Inc., entered into a
one year[2] contract[3] to provide security services to the various offices, warehouses and installations of NFA within the
scope of the NFA Region I, comprised of the provinces of Pangasinan, La Union, Abra, Ilocos Sur and Ilocos Norte. Upon
the expiration of said contract, the parties extended the effectivity thereof on a monthly basis under same terms and
condition.[4]
Meanwhile, the Regional Tripartite Wages and Productivity Board issued several wage orders mandating increases in
the daily wage rate. Accordingly, respondent requested NFA for a corresponding upward adjustment in the monthly
contract rate consisting of the increases in the daily minimum wage of the security guards as well as the corresponding
raise in their overtime pay, holiday pay, 13th month pay, holiday and rest day pay. It also claimed increases in Social
Security System (SSS) and Pag-ibig premiums as well as in the administrative costs and margin. NFA, however, granted the
request only with respect to the increase in the daily wage by multiplying the amount of the mandated increase by 30
days and denied the same with respect to the adjustments in the other benefits and remunerations computed on the
basis of the daily wage.
Respondent sought the intervention of the Office of the Regional Director, Regional Office No. I, La Union, as
Chairman of the Regional Tripartite Wages and Productivity Board and the DOLE Secretary through the Executive Director
of the National Wages and Productivity Commission. Despite the advisory[5] of said offices sustaining the claim of
respondent that the increase mandated by Republic Act No. 6727 (RA 6727) and the wage orders issued by the RTWPB is

116
not limited to the daily pay, NFA maintained its stance that it is not liable to pay the corresponding adjustments in the
wage related benefits of respondents security guards.
On May 4, 2001, respondent filed with the Regional Trial Court of Quezon, City, Branch 83, a case for recovery of sum
of money against NFA. Docketed as Civil Case No. Q-01-43988, the complaint[6] sought reimbursement of the following
amounts allegedly paid by respondent to the security guards, to wit: P2,949,302.84, for unpaid wage related benefits
brought about by the effectivity of Wage Order Nos. RB 1-05 and RB CAR-04;[7] RB 1-06 and RB CAR-05;[8] RB 1-07 and RB
CAR-06;[9] and P975,493.04 for additional cost and margin, plus interest. It also prayed for damages and litigation
expenses.[10]
In its answer with counterclaim,[11] NFA denied that respondent paid the security guards their wage related benefits
and that it shouldered the additional costs and margin arising from the implementation of the wage orders. It admitted,
however, that it heeded respondents request for adjustment only with respect to increase in the minimum wage and not
with respect to the other wage related benefits. NFA argued that respondent cannot demand an adjustment on said salary
related benefits because it is bound by their contract expressly limiting NFAs obligation to pay only the increment in the
daily wage.
At the pre-trial, the only issue raised was whether or not respondent is entitled to recover from NFA the wage related
benefits of the security guards.[12]
On September 19, 2002, the trial court rendered a decision[13] in favor of respondent holding that NFA is liable to pay
the security guards wage related benefits pursuant to RA 6727, because the basis of the computation of said benefits, like
overtime pay, holiday pay, SSS and Pag-ibig premium, is the increased minimum wage. It also found NFA liable for the
consequential adjustments in administrative costs and margin. The trial court absolved defendant Juanito M. David having
been impleaded in his official capacity as Regional Director of NFA Regional Office No. 1, San Juan, La Union. The dispositive
portion thereof, reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security Agency, Inc., and against defendant
National Food Authority ordering said defendant to make the corresponding adjustment in the contract price in
accordance with the increment mandated under the various wage orders, particularly Wage Order Nos. RBI-05, RBCAR-
04, RBI-06, RBCAR-05, RBI-07 and RBCAR-06 and to pay plaintiff the amounts representing the adjustments in the wage-
related benefits of the security guards and consequential increase in its administrative cost and margin upon presentment
by plaintiff of the corresponding voucher claims.

Plaintiffs claims for damages and attorneys fees and defendants counterclaim for damages are hereby DENIED.

Defendant Juanito M. David is hereby absolved from any liability.

SO ORDERED.[14]

NFA appealed to the Court of Appeals but the same was dismissed on February 12, 2004. The appellate court held
that the proper recourse of NFA is to file a petition for review under Rule 45 with this Court, considering that the appeal
raised a pure question of law. Nevertheless, it proceeded to discuss the merits of the case for purposes of academic
discussion and eventually sustained the ruling of the trial court that NFA is under obligation to pay the administrative costs
and margin and the wage related benefits of the respondents security guards.[15]
On April 30, 2004, the Court of Appeals denied NFAs motion for reconsideration.[16] Hence, the instant petition.
The issue for resolution is whether or not the liability of principals in service contracts under Section 6 of RA 6727
and the wage orders issued by the Regional Tripartite Wages and Productivity Board is limited only to the increment in
the minimum wage.
At the outset, it should be noted that the proper remedy of NFA from the adverse decision of the trial court is a
petition for review under Rule 45 directly with this Court because the issue involved a question of law. However, in the
interest of justice we deem it wise to overlook the procedural technicalities if only to demonstrate that despite the
procedural infirmity, the instant petition is impressed with merit.[17]
RA 6727[18] (Wage Rationalization Act), which took effect on July 1, 1989,[19] declared it a policy of the State to
rationalize the fixing of minimum wages and to promote productivity-improvement and gain-sharing measures to ensure
a decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits
of production; to enhance employment generation in the countryside through industrial dispersal; and to allow business
and industry reasonable returns on investment, expansion and growth.[20]
In line with its declared policy, RA 6727, created the National Wages and Productivity Commission
(NWPC),[21] vested, inter alia, with the power to prescribe rules and guidelines for the determination of appropriate
minimum wage and productivity measures at the regional, provincial or industry levels;[22] and the Regional Tripartite
117
Wages and Productivity Boards (RTWPB) which, among others, determine and fix the minimum wage rates applicable in
their respective region, provinces, or industries therein and issue the corresponding wage orders, subject to the guidelines
issued by the NWPC.[23] Pursuant to its wage fixing authority, the RTWPB issue wage orders which set the daily minimum
wage rates.[24]
Payment of the increases in the wage rate of workers is ordinarily shouldered by the employer. Section 6 of RA 6727,
however, expressly lodged said obligation to the principals or indirect employers in construction projects and
establishments providing security, janitorial and similar services. Substantially the same provision is incorporated in the
wage orders issued by the RTWPB.[25] Section 6 of RA 6727, provides:

SEC. 6. In the case of contracts for construction projects and for security, janitorial and similar services, the
prescribed increases in the wage rates of the workers shall be borne by the principals or clients of the construction/service
contractors and the contract shall be deemed amended accordingly. In the event, however, that the principal or client
fails to pay the prescribed wage rates, the construction/service contractor shall be jointly and severally liable with his
principal or client. (Emphasis supplied)

NFA claims that its additional liability under the aforecited provision is limited only to the payment of the increment
in the statutory minimum wage rate, i.e., the rate for a regular eight (8) hour work day.
The contention is meritorious.
In construing the word wage in Section 6 of RA 6727, reference must be had to Section 4 (a) of the same Act. It states:

SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all workers and employees in the private
sector, whether agricultural or non-agricultural, shall be increased by twenty-five pesos (P25) per day (Emphasis
supplied)

The term wage as used in Section 6 of RA 6727 pertains to no other than the statutory minimum wage which is
defined under the Rules Implementing RA 6727 as the lowest wage rate fixed by law that an employer can pay his
worker.[26] The basis thereof under Section 7 of the same Rules is the normal working hours, which shall not exceed eight
hours a day. Hence, the prescribed increases or the additional liability to be borne by the principal under Section 6 of RA
6727 is the increment or amount added to the remuneration of an employee for an 8-hour work.
Expresio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to certain matters, it may not,
by interpretation or construction, be extended to others.[27] Since the increase in wage referred to in Section 6 pertains to
the statutory minimum wage as defined herein, principals in service contracts cannot be made to pay the corresponding
wage increase in the overtime pay, night shift differential, holiday and rest day pay, premium pay and other benefits
granted to workers. While basis of said remuneration and benefits is the statutory minimum wage, the law cannot be
unduly expanded as to include those not stated in the subject provision.
The settled rule in statutory construction is that if the statute is clear, plain and free from ambiguity, it must be given
its literal meaning and applied without interpretation. This plain meaning rule or verba legis derived from the maxim index
animi sermo est (speech is the index of intention) rests on the valid presumption that the words employed by the
legislature in a statute correctly express its intention or will and preclude the court from construing it differently. The
legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent
by use of such words as are found in the statute. Verba legis non est recedendum, or from the words of a statute there
should be no departure.[28]
The presumption therefore is that lawmakers are well aware that the word wage as used in Section 6 means the
statutory minimum wage. If their intention was to extend the obligation of principals in service contracts to the payment
of the increment in the other benefits and remuneration of workers, it would have so expressly specified. In not so doing,
the only logical conclusion is that the legislature intended to limit the additional obligation imposed on principals in service
contracts to the payment of the increment in the statutory minimum wage.
The general rule is that construction of a statute by an administrative agency charged with the task of interpreting or
applying the same is entitled to great weight and respect. The Court, however, is not bound to apply said rule where such
executive interpretation, is clearly erroneous, or when there is no ambiguity in the law interpreted, or when the language
of the words used is clear and plain, as in the case at bar. Besides, administrative interpretations are at best advisory for
it is the Court that finally determines what the law means.[29] Hence, the interpretation given by the labor agencies in the
instant case which went as far as supplementing what is otherwise not stated in the law cannot bind this Court.
It is not within the province of this Court to inquire into the wisdom of the law for indeed, we are bound by the words
of the statute.[30] The law is applied as it is. At any rate, the interest of the employees will not be adversely affected if the
obligation of principals under the subject provision will be limited to the increase in the statutory minimum wage. This is
so because all remuneration and benefits other than the increased statutory minimum wage would be shouldered and

118
paid by the employer or service contractor to the workers concerned. Thus, in the end, all allowances and benefits as
computed under the increased rate mandated by RA 6727 and the wage orders will be received by the workers.
Moreover, the law secures the welfare of the workers by imposing a solidary liability on principals and the service
contractors. Under the second sentence of Section 6 of RA 6727, in the event that the principal or client fails to pay the
prescribed wage rates, the service contractor shall be held solidarily liable with the former. Likewise, Articles 106, 107 and
109 of the Labor Code provides:

ART. 106. Contractor or Subcontractor. Whenever an employer enters into contract with another person for the
performance of the formers work, the employees of the contractor and of the latters subcontractor, if any, shall be paid
in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wage of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the
work performed under the contract, in the same manner and extent that he is liable to employees directly employed by
him.

ART. 107. Indirect Employer. The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for the
performance of any work, task, job or project.

ART. 109. Solidary Liability. The provisions of existing laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

Based on the foregoing interpretation of Section 6 of RA 6727, the parties may enter into stipulations increasing the
liability of the principal. So long as the minimum obligation of the principal, i.e., payment of the increased statutory
minimum wage is complied with, the Wage Rationalization Act is not violated.
In the instant case, Article IV.4 of the service contract provides:

IV.4. In the event of a legislated increase in the minimum wage of security guards and/or in the PADPAO rate, the AGENCY
may negotiate for an adjustment in the contract price. Any adjustment shall be applicable only to the increment, based
on published and circulated rates and not on mere certification.[31]

In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:

3. For purposes of wage adjustments, consider only the rate based on the wage Order issued by the Regional
Tripartite Wage Productivity Board (RTWPB). Unless otherwise provided in the Wage Order issued by the
RTWPB, the wage adjustment shall be limited to the increment in the legislated minimum wage;[32]
The parties therefore acknowledged the application to their contract of the wage orders issued by the RTWPB
pursuant to RA 6727. There being no assumption by NFA of a greater liability than that mandated by Section 6 of the Act,
its obligation is limited to the payment of the increased statutory minimum wage rates which, as admitted by respondent,
had already been satisfied by NFA.[33] Under Article 1231 of the Civil Code, one of the modes of extinguishing an obligation
is by payment. Having discharged its obligation to respondent, NFA no longer have a duty that will give rise to a correlative
legal right of respondent. The latters complaint for collection of remuneration and benefits other than the increased
minimum wage rate, should therefore be dismissed for lack of cause of action.
The same goes for respondents claim for administrative cost and margin. Considering that respondent failed to
establish a clear obligation on the part of NFA to pay the same as well as to substantiate the amount thereof with
documentary evidence, the claim should be denied.
WHEREFORE, the petition is GRANTED. The February 12, 2004 decision and the April 30, 2004 resolution of the Court
of Appeals which dismissed petitioner National Food Authoritys appeal and motion for reconsideration, respectively, in
CA-G.R. CV No. 76677, are REVERSED and SET ASIDE. The complaint filed by respondent MASADA Security Agency, Inc.,
docketed as Civil Case No. Q-01-43988, before the Regional Trial Court of Quezon, City, Branch 83, is ordered DISMISSED.
SO ORDERED.
Davide Jr., C.J., (Chairman), Quisumbing, Carpio

SECOND DIVISION

[G.R. No. 126999. August 30, 2000]

119
 SGMC REALTY CORPORATION, petitioner, vs. OFFICE OF THE PRESIDENT (OP), RIDGEVIEW REALTY
CORPORATION, SM INVESTMENTS CORPORATION, MULTI-REALTY DEVELOPMENT CORP., HENRY SY SR., HENRY
SY JR., HANS T. SY, MARY UY TY and VICTOR LIM, respondents.

RESOLUTION

QUISUMBING, J.:

In this special civil action for certiorari, petitioner seeks to set aside the decision[1] of public respondent rendered
on June 18, 1996, in OP Case No. 95-L-6333, and its order[2] dated October 1, 1996, denying the motion for
reconsideration.

The records disclose that on March 29, 1994, petitioner filed before the Housing and Land Use Regulatory Board
(HLURB) a complaint for breach of contract, violation of property rights and damages against private respondents.
After the parties filed their pleadings and supporting documents, the arbiter rendered a decision dismissing
petitioners complaint as well as private respondents counterclaim.

Petitioner then filed a petition for review with the Board of Commissioners of the HLURB which, however,
dismissed said petition. On October 23, 1995, petitioner received a copy of said decision of the Board of
Commissioners. On November 20, 1995, petitioner filed an appeal with public respondent. After the parties filed
their memorandum, they filed their respective draft decisions as ordered by public respondent.

On June 18, 1996, public respondent, without delving into the merits of the case, rendered the assailed decision
which reads:

"IN VIEW OF THE FOREGOING, the appeal is hereby DISMISSED for being filed out of time.

"SO ORDERED."[3]

Petitioner seasonably filed a motion for reconsideration which was denied. Undaunted, petitioner filed the instant
petition, alleging that public respondent committed grave abuse of discretion amounting to lack or excess of
jurisdiction:

[I]

IN HOLDING THAT THE PERIOD TO APPEAL FROM THE HOUSING AND LAND USE REGULATORY BOARD TO
THE OFFICE OF THE PRESIDENT IS FIFTEEN (15) DAYS AND NOT THIRTY (30) DAYS AS MANDATED IN THE
1994 RULES OF PROCEDURE ADOPTED BY THE HOUSING AND LAND USE REGULATORY BOARD, AN
ADMINISTRATIVE AGENCY UNDER THE SUPERVISION AND CONTROL OF PUBLIC RESPONDENT OFFICE OF
THE PRESIDENT.

[II]

IN DISREGARDING THE 1994 RULES OF PROCEDURE OF THE HOUSING AND LAND USE REGULATORY
BOARD WITHOUT DECLARING THE SAME ILLEGAL AND/OR INVALID, AND IN DISREGARDING THE WELL-
ESTABLISHED DOCTRINE OF LIBERAL CONSTRUCTION OF THE ADMINISTRATIVE RULES OF PROCEDURE IN
ORDER TO PROMOTE THEIR OBJECT AND TO ASSIST THE PARTIES IN CLAIMING JUST, SPEEDY AND
INEXPENSIVE DETERMINATION OF THEIR RESPECTIVE CLAIMS AND DEFENSES.[4]

The fundamental issue for resolution is whether or not public respondent committed grave abuse of discretion in
ruling that the reglementary period within which to appeal the decision of HLURB to public respondent is fifteen
days.

Petitioner contends that the period of appeal from the HLURB to the Office of the President is thirty (30) days
from receipt by the aggrieved party of the decision appealed from in accordance with Section 27 of the 1994 Rules
of Procedure of HLURB and Section 1 of Administrative Order No. 18, series of 1987, of the Office of the President.

However, we find petitioners contention bereft of merit, because of its reliance on a literal reading of cited rules
without correlating them to current laws as well as presidential decrees on the matter.

Section 27 of the 1994 HLURB Rules of Procedure provides as follows:

120
 "Section 27. Appeal to the Office of the President. --- Any party may, upon notice to the Board and the
other party, appeal the decision of the Board of Commissioners or its division to the Office of the President
within thirty (30) days from receipt thereof pursuant to and in accordance with Administrative Order No.
18, of the Office of the President dated February 12, 1987. Decision of the President shall be final subject
only to review by the Supreme Court on certiorari or on questions of law."[5]

On the other hand, Administrative Order No. 18, series of 1987, issued by public respondent reads:

"Section 1. Unless otherwise governed by special laws, an appeal to the Office of the President shall be
taken within thirty (30) days from receipt by the aggrieved party of the decision/resolution/order
complained of or appealed from."[6]

As pointed out by public respondent, the aforecited administrative order allows aggrieved party to file its appeal
with the Office of the President within thirty (30) days from receipt of the decision complained of. Nonetheless,
such thirty-day period is subject to the qualification that there are no other statutory periods of appeal applicable.
If there are special laws governing particular cases which provide for a shorter or longer reglementary period, the
same shall prevail over the thirty-day period provided for in the administrative order. This is in line with the rule
in statutory construction that an administrative rule or regulation, in order to be valid, must not contradict but
conform to the provisions of the enabling law.[7]

We note that indeed there are special laws that mandate a shorter period of fifteen (15) days within which to
appeal a case to public respondent. First, Section 15 of Presidential Decree No. 957 provides that the decisions of
the National Housing Authority (NHA) shall become final and executory after the lapse of fifteen (15) days from
the date of receipt of the decision. Second, Section 2 of Presidential Decree No. 1344 states that decisions of the
National Housing Authority shall become final and executory after the lapse of fifteen (15) days from the date of
its receipt. The latter decree provides that the decisions of NHA is appealable only to the Office of the President.
Further, we note that the regulatory functions of NHA relating to housing and land development has been
transferred to Human Settlements Regulatory Commission, now known as HLURB.[8] Thus, said presidential
issuances providing for a reglementary period of appeal of fifteen days apply in this case. Accordingly, the period
of appeal of thirty (30) days set forth in Section 27 of HLURB 1994 Rules of Procedure no longer holds true for
being in conflict with the provisions of aforesaid presidential decrees. For it is axiomatic that administrative rules
derive their validity from the statute that they are intended to implement. Any rule which is not consistent with
statute itself is null and void.[9]

In this case, petitioner received a copy of the decision of HLURB on October 23, 1995. Considering that the
reglementary period to appeal is fifteen days, petitioner has only until November 7, 1995, to file its appeal.
Unfortunately, petitioner filed its appeal with public respondent only on November 20, 1995 or twenty-eight days
from receipt of the appealed decision, which is obviously filed out of time.

As the appeal filed by petitioner was not taken within the reglementary period, the prescriptive period for
perfecting an appeal continues to run. Consequently, the decision of the HLURB became final and executory upon
the lapse of fifteen days from receipt of the decision. Hence, the decision became immutable; it can no longer be
amended nor altered by public respondent. Accordingly, inasmuch as the timely perfection of an appeal is a
jurisdictional requisite, public respondent has no more authority to entertain the petitioners appeal. Otherwise,
any amendment or alteration made which substantially affects the final and executory judgment would be null
and void for lack of jurisdiction.[10]

Thus, in this case public respondent cannot be faulted of grave abuse of discretion in ruling that the period of
appeal is fifteen days and in forthrightly dismissing petitioners appeal as the same was clearly filed out of time.

Worth mentioning, just days prior to the promulgation of the assailed decision of public respondent, the HLURB
adopted on June 10, 1996, its 1996 Rules of Procedure. Significantly, Section 2, Rule XVIII of said rules provides
that any party may, upon notice to the HLURB and the other party, appeal a decision rendered by the Board of
Commissioners en bancor by one of its divisions to the Office of the President within fifteen (15) calendar
days from receipt thereof in accordance with P.D. 1344 and A.O. 18, series of 1987.[11] Apparently, the amendment
was made pursuant to the pronouncements of public respondent in earlier cases[12] it decided that appeals to the
Office of the President from the decision of HLURB should be filed within fifteen (15) days from receipt thereof.
At present therefore, decisions rendered by HLURB is appealable to the Office of the President within fifteen (15)
calendar days from receipt thereof.

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 Finally, we find that the instant petition ought not to have been directly filed with this Court. For while we have
concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue writs of certiorari, this
concurrence is not to be taken as an unrestrained freedom of choice concerning the court to which application
for the writ will be directed. There is after all a hierarchy of courts. That hierarchy is determinative of the venue
of appeals, and should also serve as a general determinant of the appropriate forum for petitions for the
extraordinary writs.[13] A direct invocation of the Supreme Courts original jurisdiction to issue these extraordinary
writs is allowed only when there are special and important reasons therefor, clearly and specifically set out in the
petition.[14]

WHEREFORE, the instant petition is DISMISSED for utter lack of merit. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

G.R. No. 159694 January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.

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

G.R. No. 163581 January 27, 2006

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PANGANIBAN, CJ.:

Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed in
writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid,
the assessment cannot in turn be used as a basis for the perfection of a tax compromise.

The Case

Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court, assailing the August 8,
2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the assailed Decision reads
as follows:

"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET ASIDE
without prejudice to the action of the National Evaluation Board on the proposed compromise settlement of the Maria C.
Tancinco estate’s tax liability."4

The Facts

The CA narrated the facts as follows:

"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter residential lot and an old house
thereon (or ‘subject property’) located at 4931 Pasay Road, Dasmariñas Village, Makati City.

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or ‘Abad’),
Revenue District Office No. 50 (South Makati) conducted an investigation on the decedent’s estate (or ‘estate’).
Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it
issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’),
one of the decedent’s heirs, received the Letter of Authority on March 14, 1997.

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"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or ‘BIR’), issued a preliminary
assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or
‘heirs’) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount
of P14,912,205.47, inclusive of surcharge and interest.

"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n behalf of the heirs on the
ground that the subject property had already been sold by the decedent sometime in 1990.

"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a preliminary collection letter to [Reyes],
followed by a Final Notice Before Seizure dated December 4, 1998.

"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by
Notices of Levy on Real Property and Tax Lien against it.

"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise
settlement of P1,000,000.00.

"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs’ inability
to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyes’s] offer, pointing out that since the estate tax is
a charge on the estate and not on the heirs, the latter’s financial incapacity is immaterial as, in fact, the gross value of the
estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded payment
of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property would
be published.

"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount
of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division,
BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000.

"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted
that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She
offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest.

"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with
the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of
Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.

"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which
was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety bond in the amount of P27,000,000.00, the CTA
issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale
of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order is issued.

"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the
case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of
time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIR’s] motion.

"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or ‘RR’)
No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No. 42-2000 offering certain taxpayers with delinquent accounts
and disputed assessments an opportunity to compromise their tax liability.

"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or ‘compromise’) of the
assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No.
42-2000.

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on
January 9, 2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing was
reset to February 6, 2001.

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"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground
that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National
Evaluation Board (or ‘NEB’). The CTA granted the motion and reset the hearing to February 27, 2001.

"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a
Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of
procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the compromise is
signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said documents does not
vitiate the perfected compromise.

"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyes’s] application for
compromise with the BIR cannot be considered a perfected or consummated compromise.

"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for Reconsideration Ad Cautelam. In
a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the suggestion that[,] for an
orderly presentation of her case and to prevent piecemeal resolutions of different issues, [Reyes] should file a
[S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was already a perfected
compromise.

"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its
Amplificatory Arguments (for the Supplemental Petition for Review), raising the following issues:

‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of a tax liability
pending in court, that was accepted and paid by the taxpayer, is a perfected and consummated compromise.

‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires approval by
the BIR [NEB].’

"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability under RR No.
6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the NEB or the Regional Evaluation Board (or
‘REB’), as the case may be.

"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11, 2001. After
submission of memoranda, the case was submitted for [D]ecision.

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:

‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes] is
hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty Four Thousand
Nine Hundred Nine and 78/100 (P19,524,909.78), computed as follows:

xxxxxxxxx

‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due of P17,934,382.13 from January
11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax Code, as amended.’

"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated compromise of the
estate’s tax liability[,] if the NEB has approved [Reyes’s] application for compromise in accordance with RR No. 6-2000, as
implemented by RMO No. 42-2000.

"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that ‘at the time the
questioned assessment notice and letter of demand were issued, the heirs knew very well the law and the facts on which
the same were based.’ It also observed that the petition was not filed within the 30-day reglementary period provided
under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code."5

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal
in their requirement. The assessment notice and the demand letter should have stated the facts and the law on which
they were based; otherwise, they were deemed void.6 The appellate court held that while administrative agencies, like
the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive

124
due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of --
and could effectively protest -- the basis of tax assessments against them.7Since the assessment and the demand were
void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain
finality.

The appellate court added, however, that it was premature to declare as perfected and consummated the compromise of
the estate’s tax liability. It explained that, where the basic tax assessed exceeded P1 million, or where the settlement offer
was less than the prescribed minimum rates, the National Evaluation Board’s (NEB) prior evaluation and approval were
the conditio sine qua non to the perfection and consummation of any compromise.8Besides, the CA pointed out, Section
204(A) of the Tax Code applied to all compromises, whether government-initiated or not.9 Where the law did not
distinguish, courts too should not distinguish.

Hence, this Petition.10

The Issues

In GR No. 159694, petitioner raises the following issues for the Court’s consideration:

"I.

Whether petitioner’s assessment against the estate is valid.

"II.

Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on which
the assessment in question is based, after she had opted to propose several compromises on the estate tax due, and even
prematurely acting on such proposal by paying 20% of the basic estate tax due."11

The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second,
whether the compromise entered into is also valid.

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as follows:

"Sec. 228. Protesting of Assessment. --

xxxxxxxxx

"The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the
assessment shall be void."

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes
had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former
Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of
merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but
also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the
final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in
effect. The notice required under the old law was no longer sufficient under the new law.

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To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of
the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act
cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not
at all conform to the compulsory requirement under Section 228. Moreover, the Letter of Authority received by
respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under
the law.

The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with
remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes.

The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take
away vested rights, do not fall under the general rule against the retroactive operation of statutes.14 Clearly, Section 228
provides for the procedure in case an assessment is protested. The provision does not create new or take away vested
rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by
necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending
proceedings would impair vested rights.

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely
implements the law.

A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.15 While it is desirable
for the government authority or administrative agency to have one immediately issued after a law is passed, the absence
of the regulation does not automatically mean that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed
of both the law and facts on which the assessment was based. Thus, the CIR should have required the assessment officers
of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the
issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination,
though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law
and the facts on which an assessment was based. That requirement is neither difficult to make nor its desired results hard
to achieve.

Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of the statute.17 RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to
retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter.

Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended.
Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former
necessarily prevails.18 Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter
cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existing
tax regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent to
the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form.

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was
the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that
taxpayers should be able to present their case and adduce supporting evidence.19 In the instant case, respondent has not
been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing
the taxpayer of the government’s claim, there can be no deprivation of property, because no effective protest can be
made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are
expected to be known by the taxpayer, is utter chicanery.

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Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for
-- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and
the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or
capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself."21

Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or
omission of its agents, the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a mere
act of the CIR .

Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions of law are void, except
when the law itself authorizes the validity of those acts.23 Failure to comply with Section 228 does not only render the
assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising
tax officials, as they are expected to be vigilant and law-abiding.

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and
consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been
settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the
settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB
composed of the petitioner and four deputy commissioners.

Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated
or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.

SO ORDERED.

ARTEMIO V. PANGANIBAN

G.R. No. 175451 April 13, 2007

ROSARIO L. DADULO, Petitioner,

vs.
THE HON. COURT OF APPEALS, OFFICE OF THE OMBUDSMAN, HON. FELICIANO BELMONTE, JR., in his capacity as City
Mayor of Quezon City and GLORIA PATANGUI, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition is the July 20, 2006 Decision1 of the Court of Appeals in CA-G.R. SP No. 89909, affirming the March
4, 2003 Decision2 of the Office of the Ombudsman in OMB-C-A-02-0470-J, which found petitioner Rosario Dadulo guilty of
conduct prejudicial to the best interest of the service and imposed upon her the penalty of six months suspension.

On September 26, 2002, private respondent Gloria Patangui (Patangui) filed before the Office of the Ombudsman an
administrative complaint against petitioner Rosario Dadulo, Barangay Chairperson of Barangay Payatas A, Quezon City;
and against Barangay Security Development Officers (BSDOs) Edgar Saraga and Rogelio Dumadigo; and Deputy BSDO Efren
Pagabao. Patangui declared in her Salaysay ng Pagrereklamo3 that at around 4:30 in the afternoon of September 22, 2002,
while she was out of their house, petitioner and the said BSDOs stole several galvanized iron sheets, lumber, and rolled
plain iron sheets from her backyard. The incident was purportedly witnessed by Patangui’s two daughters who saw two
men cart away the items upon the orders of a woman who was standing nearby. A BSDO on duty told Patangui that it was
petitioner who ordered the seizure of the subject construction materials. The same information was relayed to her by a
certain Elsie Castillejos. The following day, Patangui found out that some of the galvanized iron sheets taken from her
backyard were utilized in building the new barangay outpost. She recognized said items because she is familiar with the
campaign stickers still posted on the galvanized iron sheets.

127
In her Sinumpaang Salaysay,4 Jessica, 9 year old daughter of Patangui, stated that while she was playing in their yard, two
men seized their construction materials upon the orders of a woman. The following day, she pointed to a BSDO wearing
a black jacket as one of those who took the construction materials. Upon inquiry, said man was identified as Edgar Saraga.
Jessica later learned from their neighbors and from her mother that the woman who was standing near their house and
giving orders to the BSDOs, was petitioner Rosario Dadulo.

Deputy BSDO Efren Pagabao stated in his counter-affidavit that they were directed by petitioner to inspect the house of
Patangui to verify whether she has the necessary permit in connection with the ongoing construction in the site. He
stressed that they acted with courtesy during the said inspection.5 BSDOs Edgar Saraga and Rogelio Dumadigo added that
the complaint filed against them was fabricated and aimed to conceal that Patangui was illegally building a structure on a
land owned by the government.6

In her counter-affidavit, petitioner denied the charge against her and declared that on September 11, 2002, a certain Elsie
Castillejos applied for a permit to construct a house extension but was denied because the structure was intended to be
built on the land owned by the National Waterworks and Sewerage Authority (NAWASA). Nevertheless, the construction
proceeded. Petitioner inspected the site and found out that the structure is owned by Patangui and not by Elsie Castillejos.7

Based on the affidavit of the parties, the Office of the Ombudsman rendered the assailed Decision finding petitioner and
BSDO Edgar Saraga guilty of conduct prejudicial to the best interest of the service and imposed upon them the penalty of
six months suspension. The charges against BSDO Rogelio Dumadigo and Deputy BSDO Efren Pagabao were dismissed for
not having been identified as among those who took the construction materials of petitioner. The dispositive portion of
the decision of the Office of the Ombudsman, reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered finding respondents ROSARIO DADULO and EDGAR
SARAGA Guilty of Conduct Prejudicial to the Best Interest of the Service, for which the penalty of Suspension for Six (6)
Months Without Pay is hereby recommended, pursuant to the provisions of Section 10, Rule III of Administrative Order
No. 07, in relation to Section 25 of Republic Act No. 6770.

The Honorable, the Mayor, Quezon City, is hereby furnished a copy of this Decision for its implementation in accordance
with law, with the directive to inform this Office of the action taken thereon.

SO RESOLVED.8

Only petitioner elevated the case to the Court of Appeals which affirmed the assailed decision of the Office of the
Ombudsman on July 20, 2006.9 It held that there is substantial evidence to prove that petitioner ordered the seizure of
the construction materials of Patangui. The dispositive portion thereof, provides:

WHEREFORE, premises considered, the appealed decision of the Office of the Ombudsman in OMB-C-A-02-0470-J is
hereby AFFIRMED and the petition is DENIED.

SO ORDERED.101a\^/phi1.net

On October 26, 2006, public respondent Feliciano Belmonte, Jr. issued an Order implementing the suspension of
petitioner.11 Hence, the instant recourse with prayer for the issuance of a temporary restraining order. On December 13,
2006, the Court issued a Resolution enjoining the implementation of petitioner’s suspension.12

The issue for resolution is whether there is substantial evidence to show that petitioner ordered the seizure of Patangui’s
construction materials.

Administrative proceedings are governed by the "substantial evidence rule." Otherwise stated, a finding of guilt in an
administrative case would have to be sustained for as long as it is supported by substantial evidence that the respondent
has committed acts stated in the complaint.13 Substantial evidence is more than a mere scintilla of evidence. It means
such relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds equally
reasonable might conceivably opine otherwise.14

A review of the records of the case shows that the factual findings of the Ombudsman upon which its decision on
petitioner’s administrative liability was based are supported by the evidence on record. Petitioner and BSDO Edgar Saraga
were identified as the persons who took the construction materials. Respondent’s claim was corroborated by the
testimony of her daughter who saw the actual taking of the construction materials. Moreover, respondent testified that
the materials taken from her premises were used in the construction of the new barangay outpost.15

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On the other hand, the defense proffered by petitioner failed to rebut the charges against her. She cannot rely on the
sweeping general denial of the charges in the face of a positive and categorical assertion made by respondent and her
witness.16 Petitioner was afforded the opportunity to disprove the charges against her but still failed to offer any plausible
explanation as to why the construction materials were in their possession, some of which were even used in the barangay
outpost. Instead, she accused private respondent of illegally constructing a structure. However, even if the construction
materials were to be used in constructing an illegal structure, their summary seizure would still make the public officers
ordering or affecting the seizure administratively liable.

Findings of fact of the Office of the Ombudsman are conclusive when supported by substantial evidence and are accorded
due respect and weight especially when they are affirmed by the Court of Appeals. It is only when there is grave abuse of
discretion by the Ombudsman that a review of factual findings may aptly be made.17 In reviewing administrative decisions,
it is beyond the province of this Court to weigh the conflicting evidence, determine the credibility of witnesses, or
otherwise substitute its judgment for that of the administrative agency with respect to the sufficiency of evidence.18 It is
not the function of this Court to analyze and weigh the parties’ evidence all over again except when there is serious ground
to believe that a possible miscarriage of justice would thereby result. Our task in an appeal by petition for review on
certiorari is limited, as a jurisdictional matter, to reviewing errors of law that might have been committed by the Court of
Appeals.191awphi1.nét

WHEREFORE, the petition is DENIED.1awphi1.nét The Decision of the Court of Appeals in CA-G.R. SP. No. 89909, affirming
the March 4, 2003 Decision of the Office of the Ombudsman in OMB-C-A-0470-J which found petitioner Rosario Dadulo
guilty of conduct prejudicial to the best interest of the service and imposed upon her the penalty of suspension for six
months is AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

G.R. No. 147096. January 15, 2002]

REPUBLIC OF THE PHILIPPINES, represented by NATIONAL TELECOMMUNICATIONS COMMISSION, petitioner,

vs. EXPRESS TELECOMMUNICATION CO., INC. and BAYAN TELECOMMUNICATIONS CO., INC., respondents.

[G.R. No. 147210. January 15, 2002]

BAYAN TELECOMMUNICATIONS (Bayantel), INC., petitioner, vs. EXPRESS TELECOMMUNICATION CO., INC.
(Extelcom), respondent.

DECISION
YNARES-SANTIAGO, J.:

On December 29, 1992, International Communications Corporation (now Bayan Telecommunications, Inc.
or Bayantel) filed an application with the National Telecommunications Commission (NTC) for a Certificate of Public
Convenience or Necessity (CPCN) to install, operate and maintain a digital Cellular Mobile Telephone System/Service
(CMTS) with prayer for a Provisional Authority (PA). The application was docketed as NTC Case No. 92-486.[1]
Shortly thereafter, or on January 22, 1993, the NTC issued Memorandum Circular No. 4-1-93 directing all interested
applicants for nationwide or regional CMTS to file their respective applications before the Commission on or before
February 15, 1993, and deferring the acceptance of any application filed after said date until further orders.[2]
On May 6, 1993, and prior to the issuance of any notice of hearing by the NTC with respect to Bayantels original
application, Bayantel filed an urgent ex-parte motion to admit an amended application.[3] On May 17, 1993, the notice of
hearing issued by the NTC with respect to this amended application was published in the Manila Chronicle. Copies of the

129
application as well as the notice of hearing were mailed to all affected parties. Subsequently, hearings were conducted on
the amended application. But before Bayantel could complete the presentation of its evidence, the NTC issued an Order
dated December 19, 1993 stating:

In view of the recent grant of two (2) separate Provisional Authorities in favor of ISLACOM and GMCR, Inc., which resulted
in the closing out of all available frequencies for the service being applied for by herein applicant, and in order that this
case may not remain pending for an indefinite period of time, AS PRAYED FOR, let this case be, as it is, hereby ordered
ARCHIVED without prejudice to its reinstatement if and when the requisite frequency becomes available.

SO ORDERED.[4]

On June 18, 1998, the NTC issued Memorandum Circular No. 5-6-98 re-allocating five (5) megahertz (MHz) of the
radio frequency spectrum for the expansion of CMTS networks. The re-allocated 5 MHz were taken from the following
bands: 1730-1732.5 / 1825-1827.5 MHz and 1732.5-1735 / 1827.5-1830 MHz.[5]
Likewise, on March 23, 1999, Memorandum Circular No. 3-3-99 was issued by the NTC re-allocating an additional five
(5) MHz frequencies for CMTS service, namely: 1735-1737.5 / 1830-1832.5 MHz; 1737.5-1740 / 1832.5-1835 MHz; 1740-
1742.5 / 1835-1837.5 MHz; and 1742.5-1745 / 1837.5-1840 MHz.[6]
On May 17, 1999, Bayantel filed an Ex-Parte Motion to Revive Case,[7] citing the availability of new frequency bands
for CMTS operators, as provided for under Memorandum Circular No. 3-3-99.
On February 1, 2000, the NTC granted BayanTels motion to revive the latters application and set the case for hearings
on February 9, 10, 15, 17 and 22, 2000.[8] The NTC noted that the application was ordered archived without prejudice to
its reinstatement if and when the requisite frequency shall become available.
Respondent Express Telecommunication Co., Inc. (Extelcom) filed in NTC Case No. 92-486 an Opposition (With Motion
to Dismiss) praying for the dismissal of Bayantels application.[9]Extelcom argued that Bayantels motion sought the revival
of an archived application filed almost eight (8) years ago. Thus, the documentary evidence and the allegations of
respondent Bayantel in this application are all outdated and should no longer be used as basis of the necessity for the
proposed CMTS service. Moreover, Extelcom alleged that there was no public need for the service applied for
by Bayantel as the present five CMTS operators --- Extelcom, Globe Telecom, Inc., Smart Communication, Inc., Pilipino
Telephone Corporation, and IslaCommunication Corporation, Inc. --- more than adequately addressed the market
demand, and all are in the process of enhancing and expanding their respective networks based on recent technological
developments.
Extelcom likewise contended that there were no available radio frequencies that could accommodate a new CMTS
operator as the frequency bands allocated in NTC Memorandum Circular No. 3-3-99 were intended for and had in fact
been applied for by the existing CMTS operators. The NTC, in its Memorandum Circular No. 4-1-93, declared it its policy
to defer the acceptance of any application for CMTS. All the frequency bands allocated for CMTS use under
the NTCs Memorandum Circular No. 5-11-88 and Memorandum Circular No. 2-12-92 had already been allocated to the
existing CMTS operators. Finally, Extelcom pointed out that Bayantel is its substantial stockholder to the extent of about
46% of its outstanding capital stock, and Bayantels application undermines the very operations of Extelcom.
On March 13, 2000, Bayantel filed a Consolidated Reply/Comment,[10] stating that the opposition was actually a
motion seeking a reconsideration of the NTC Order reviving the instant application, and thus cannot dwell on the material
allegations or the merits of the case. Furthermore, Extelcom cannot claim that frequencies were not available inasmuch
as the allocation and assignment thereof rest solely on the discretion of the NTC.
In the meantime, the NTC issued on March 9, 2000 Memorandum Circular No. 9-3-2000, re-allocating the following
radio frequency bands for assignment to existing CMTS operators and to public telecommunication entities which shall be
authorized to install, operate and maintain CMTS networks, namely: 1745-1750MHz / 1840-1845MHz; 1750-1775MHz /
1845-1850MHz; 1765-1770MHz / 1860-1865MHz; and 1770-1775MHz / 1865-1870MHz.[11]
On May 3, 2000, the NTC issued an Order granting in favor of Bayantel a provisional authority to operate CMTS
service.[12] The Order stated in pertinent part:

On the issue of legal capacity on the part of Bayantel, this Commission has already taken notice of the change in name of
International Communications Corporation to Bayan Telecommunications, Inc.Thus, in the Decision entered in NTC Case
No. 93-284/94-200 dated 19 July 1999, it was recognized that Bayan Telecommunications, Inc., was formerly named
International Communications Corp. Bayantel and ICC Telecoms, Inc. are one and the same entity, and it necessarily
follows that what legal capacity ICC Telecoms has or has acquired is also the legal capacity that Bayantel possesses.

On the allegation that the Commission has committed an error in allowing the revival of the instant application, it appears
that the Order dated 14 December 1993 archiving the same was anchored on the non-availability of frequencies for

130
CMTS. In the same Order, it was expressly stated that the archival hereof, shall be without prejudice to its reinstatement
if and when the requisite frequency becomes available. Inherent in the said Order is the prerogative of the Commission in
reviving the same, subject to prevailing conditions. The Order of 1 February 2001, cited the availability of frequencies for
CMTS, and based thereon, the Commission, exercising its prerogative, revived and reinstated the instant application. The
fact that the motion for revival hereof was made ex-parte by the applicant is of no moment, so long as the oppositors are
given the opportunity to be later heard and present the merits of their respective oppositions in the proceedings.

On the allegation that the instant application is already obsolete and overtaken by developments, the issue is whether
applicant has the legal, financial and technical capacity to undertake the proposed project.The determination of such
capacity lies solely within the discretion of the Commission, through its applicable rules and regulations. At any rate,
the oppositors are not precluded from showing evidence disputing such capacity in the proceedings at hand. On the
alleged non-availability of frequencies for the proposed service in view of the pending applications for the same, the
Commission takes note that it has issued Memorandum Circular 9-3-2000, allocating additional frequencies for CMTS. The
eligibility of existing operators who applied for additional frequencies shall be treated and resolved in their respective
applications, and are not in issue in the case at hand.

Accordingly, the Motions for Reconsideration filed by SMARTCOM and GLOBE TELECOMS/ISLACOM and the Motion to
Dismiss filed by EXTELCOM are hereby DENIED for lack of merit.[13]

The grant of the provisional authority was anchored on the following findings:

COMMENTS:

1. Due to the operational mergers between Smart Communications, Inc. and Pilipino Telephone Corporation
(Piltel) and between Globe Telecom, Inc. (Globe) and Isla Communications, Inc. (Islacom), free and effective
competition in the CMTS market is threatened. The fifth operator, Extelcom, cannot provide good
competition in as much as it provides service using the analog AMPS. The GSM system dominates the market.
2. There are at present two applicants for the assignment of the frequencies in the 1.7 Ghz and 1.8 Ghz allocated
to CMTS, namely Globe and Extelcom. Based on the number of subscribers Extelcom has, there appears to
be no congestion in its network - a condition that is necessary for an applicant to be assigned additional
frequencies. Globe has yet to prove that there is congestion in its network considering its operational merger
with Islacom.
3. Based on the reports submitted to the Commission, 48% of the total number of cities and municipalities are
still without telephone service despite the more than 3 million installed lines waiting to be subscribed.

CONCLUSIONS:

1. To ensure effective competition in the CMTS market considering the operational merger of some of the CMTS
operators, new CMTS operators must be allowed to provide the service.
2. The re-allocated frequencies for CMTS of 3 blocks of 5 Mhz x 2 is sufficient for the number of applicants should
the applicants be qualified.
3. There is a need to provide service to some or all of the remaining cities and municipalities without telephone
service.
4. The submitted documents are sufficient to determine compliance to the technical requirements. The
applicant can be directed to submit details such as channeling plans, exact locations of cell sites, etc. as the
project implementation progresses, actual area coverage ascertained and traffic data are made
available. Applicant appears to be technically qualified to undertake the proposed project and offer the
proposed service.

IN VIEW OF THE FOREGOING and considering that there is prima facie evidence to show that Applicant is legally,
technically and financially qualified and that the proposed service is technically feasible and economically viable, in the
interest of public service, and in order to facilitate the development of telecommunications services in all areas of the
country, as well as to ensure healthy competition among authorized CMTS providers, let a PROVISIONAL AUTHORITY
(P.A.) be issued to Applicant BAYAN TELECOMMUNICATIONS, INC. authorizing it to construct, install, operate and
maintain a Nationwide Cellular Mobile Telephone Systems (CMTS), subject to the following terms and conditions without
prejudice to a final decision after completion of the hearing which shall be called within thirty (30) days from grant of
authority, in accordance with Section 3, Rule 15, Part IV of the Commissions Rules of Practice and Procedure. xxx.[14]

131
 Extelcom filed with the Court of Appeals a petition for certiorari and prohibition,[15] docketed as CA-G.R. SP No.
58893, seeking the annulment of the Order reviving the application of Bayantel, the Order granting Bayantel a provisional
authority to construct, install, operate and maintain a nationwide CMTS, and Memorandum Circular No. 9-3-2000
allocating frequency bands to new public telecommunication entities which are authorized to install, operate and maintain
CMTS.
On September 13, 2000, the Court of Appeals rendered the assailed Decision,[16] the dispositive portion of which
reads:

WHEREFORE, the writs of certiorari and prohibition prayed for are GRANTED. The Orders of public respondent
dated February 1, 2000 and May 3, 2000 in NTC Case No. 92-486 are hereby ANNULLED and SET ASIDE and the Amended
Application of respondent Bayantel is DISMISSED without prejudice to the filing of a new CMTS application. The writ of
preliminary injunction issued under our Resolution dated August 15, 2000, restraining and enjoining the respondents from
enforcing the Orders dated February 1, 2000 and May 3, 2000 in the said NTC case is hereby made permanent.The Motion
for Reconsideration of respondent Bayantel dated August 28, 2000 is denied for lack of merit.

SO ORDERED.[17]

Bayantel filed a motion for reconsideration of the above decision.[18] The NTC, represented by the Office of the
Solicitor General (OSG), also filed its own motion for reconsideration.[19]On the other hand, Extelcom filed a Motion for
Partial Reconsideration, praying that NTC Memorandum Circular No. 9-3-2000 be also declared null and void.[20]
On February 9, 2001, the Court of Appeals issued the assailed Resolution denying all of the motions for
reconsideration of the parties for lack of merit.[21]
Hence, the NTC filed the instant petition for review on certiorari, docketed as G.R. No. 147096, raising the following
issues for resolution of this Court:

A. Whether or not the Order dated February 1, 2000 of the petitioner which revived the application of
respondent Bayantel in NTC Case No. 92-486 violated respondent Extelcoms right to procedural due process of law;

B. Whether or not the Order dated May 3, 2000 of the petitioner granting respondent Bayantel a provisional authority to
operate a CMTS is in substantial compliance with NTC Rules of Practice and Procedure and Memorandum Circular No. 9-
14-90 dated September 4, 1990.[22]

Subsequently, Bayantel also filed its petition for review, docketed as G.R. No. 147210, assigning the following errors:
I. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION OF THE PRINCIPLE OF EXHAUSTION OF
ADMINISTRATIVE REMEDIES WHEN IT FAILED TO DISMISS HEREIN RESPONDENTS PETITION FOR CERTIORARI
DESPITE ITS FAILURE TO FILE A MOTION FOR RECONSIDERATION.
II. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE REVIVAL OF NTC CASE NO. 92-486
ANCHORED ON A EX-PARTE MOTION TO REVIVE CASE WAS TANTAMOUNT TO GRAVE ABUSE OF DISCRETION
ON THE PART OF THE NTC.
III. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT DENIED THE MANDATE OF THE NTC AS THE AGENCY OF
GOVERNMENT WITH THE SOLE DISCRETION REGARDING ALLOCATION OF FREQUENCY BAND TO
TELECOMMUNICATIONS ENTITIES.
IV. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION OF THE LEGAL PRINCIPLE THAT
JURISDICTION ONCE ACQUIRED CANNOT BE LOST WHEN IT DECLARED THAT THE ARCHIVED APPLICATION
SHOULD BE DEEMED AS A NEW APPLICATION IN VIEW OF THE SUBSTANTIAL CHANGE IN THE
CIRCUMSTANCES ALLEGED IN ITS AMENDMENT APPLICATION.
V. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE ARCHIVING OF THE BAYANTEL APPLICATION
WAS A VALID ACT ON THE PART OF THE NTC EVEN IN THE ABSENCE OF A SPECIFIC RULE ON ARCHIVING OF
CASES SINCE RULES OF PROCEDURE ARE, AS A MATTER OF COURSE, LIBERALLY CONSTRUED IN PROCEEDINGS
BEFORE ADMINISTRATIVE BODIES AND SHOULD GIVE WAY TO THE GREATER HIERARCHY OF PUBLIC WELFARE
AND PUBLIC INTEREST.
VI. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE ARCHIVING OF BAYANTELS APPLICATION WAS
NOT VIOLATIVE OF THE SUMMARY NATURE OF THE PROCEEDINGS IN THE NTC UNDER SEC. 3, RULE 1 OF
THE NTC REVISED RULES OF PROCEDURE.
VII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE ARCHIVING OF BAYANTELS
APPLICATION WAS VIOLATIVE OF THE ALLEGED DECLARED POLICY OF THE GOVERNMENT ON THE

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 TRANSPARENCY AND FAIRNESS OF ADMINISTRATIVE PROCESS IN THE NTC AS LAID DOWN IN SEC 4(1) OF
R.A. NO. 7925.
VIII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING THAT THE NTC VIOLATED THE PROVISIONS OF
THE CONSTITUTION PERTAINING TO DUE PROCESS OF LAW.
IX. THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING THAT THE MAY 3, 2000 ORDER GRANTING
BAYANTEL A PROVISIONAL AUTHORITY SHOULD BE SET ASIDE AND REVERSED.
i. Contrary to the finding of the Court of Appeals, there was no violation of the NTC Rule that the legal, technical,
financial and economic documentations in support of the prayer for provisional authority should first be
submitted.
ii. Contrary to the finding of the Court of Appeals, there was no violation of Sec. 3, Rule 15 of the NTC Rules of
Practice and Procedure that a motion must first be filed before a provisional authority could be issued.
iii. Contrary to the finding of the Court of Appeals that a plea for provisional authority necessitates a notice and
hearing, the very rule cited by the petitioner (Section 5, Rule 4 of the NTC Rules of Practice and Procedure)
provides otherwise.
iv. Contrary to the finding of the Court of Appeals, urgent public need is not the only basis for the grant of a
provisional authority to an applicant;
v. Contrary to the finding of the Court of Appeals, there was no violation of the constitutional provision on the
right of the public to information when the Common Carrier Authorization Department (CCAD) prepared its
evaluation report.[23]
Considering the identity of the matters involved, this Court resolved to consolidate the two petitions.[24]
At the outset, it is well to discuss the nature and functions of the NTC, and analyze its powers and authority as well
as the laws, rules and regulations that govern its existence and operations.
The NTC was created pursuant to Executive Order No. 546, promulgated on July 23, 1979. It assumed the functions
formerly assigned to the Board of Communications and the Telecommunications Control Bureau, which were both
abolished under the said Executive Order. Previously, the NTCs functions were merely those of the defunct Public Service
Commission (PSC), created under Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act,
considering that the Board of Communications was the successor-in-interest of the PSC. Under Executive Order No. 125-
A, issued in April 1987, the NTC became an attached agency of the Department of Transportation and Communications.
In the regulatory telecommunications industry, the NTC has the sole authority to issue Certificates of Public
Convenience and Necessity (CPCN) for the installation, operation, and maintenance of communications facilities and
services, radio communications systems, telephone and telegraph systems. Such power includes the authority to
determine the areas of operations of applicants for telecommunications services. Specifically, Section 16 of the Public
Service Act authorizes the then PSC, upon notice and hearing, to issue Certificates of Public Convenience for the operation
of public services within the Philippines whenever the Commission finds that the operation of the public service proposed
and the authorization to do business will promote the public interests in a proper and suitable manner.[25] The procedure
governing the issuance of such authorizations is set forth in Section 29 of the said Act, the pertinent portion of which
states:

All hearings and investigations before the Commission shall be governed by rules adopted by the Commission, and in the
conduct thereof, the Commission shall not be bound by the technical rules of legal evidence. xxx.

In granting Bayantel the provisional authority to operate a CMTS, the NTC applied Rule 15, Section 3 of its 1978 Rules
of Practice and Procedure, which provides:

Sec. 3. Provisional Relief. --- Upon the filing of an application, complaint or petition or at any stage thereafter, the Board
may grant on motion of the pleader or on its own initiative, the relief prayed for, based on the pleading, together with the
affidavits and supporting documents attached thereto, without prejudice to a final decision after completion of the
hearing which shall be called within thirty (30) days from grant of authority asked for. (underscoring ours)

Respondent Extelcom, however, contends that the NTC should have applied the Revised Rules which were filed with
the Office of the National Administrative Register on February 3, 1993. These Revised Rules deleted the phrase on its own
initiative; accordingly, a provisional authority may be issued only upon filing of the proper motion before the Commission.
In answer to this argument, the NTC, through the Secretary of the Commission, issued a certification to the effect
that inasmuch as the 1993 Revised Rules have not been published in a newspaper of general circulation, the NTC has been
applying the 1978 Rules.

133
 The absence of publication, coupled with the certification by the Commissioner of the NTC stating that the NTC was
still governed by the 1978 Rules, clearly indicate that the 1993 Revised Rules have not taken effect at the time of the grant
of the provisional authority to Bayantel. The fact that the 1993 Revised Rules were filed with the
UP Law Center on February 3, 1993 is of no moment. There is nothing in the Administrative Code of 1987 which implies
that the filing of the rules with the UP Law Center is the operative act that gives the rules force and effect. Book VII,
Chapter 2, Section 3 thereof merely states:

Filing. --- (1) Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule
adopted by it. Rules in force on the date of effectivity of this Code which are not filed within three (3) months from the
date shall not thereafter be the basis of any sanction against any party or persons.

(2) The records officer of the agency, or his equivalent functionary, shall carry out the requirements of this section under
pain or disciplinary action.

(3) A permanent register of all rules shall be kept by the issuing agency and shall be open to public inspection.

The National Administrative Register is merely a bulletin of codified rules and it is furnished only to the Office of the
President, Congress, all appellate courts, the National Library, other public offices or agencies as the Congress may select,
and to other persons at a price sufficient to cover publication and mailing or distribution costs. [26] In a similar case, we
held:

This does not imply however, that the subject Administrative Order is a valid exercise of such quasi-legislative power. The
original Administrative Order issued on August 30, 1989, under which the respondents filed their applications for
importations, was not published in the Official Gazette or in a newspaper of general circulation. The questioned
Administrative Order, legally, until it is published, is invalid within the context of Article 2 of Civil Code, which reads:

Article 2. Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette (or
in a newspaper of general circulation in the Philippines), unless it is otherwise provided. x x x

The fact that the amendments to Administrative Order No. SOCPEC 89-08-01 were filed with, and published by the
UP Law Center in the National Administrative Register, does not cure the defect related to the effectivity of the
Administrative Order.

This Court, in Taada vs. Tuvera (G.R. No. L-63915, December 29, 1986, 146 SCRA 446) stated, thus:

We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition
for their effectivity, which shall begin fifteen days after publication unless a different effectivity is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of
legislative power or, at present, directly conferred by the Constitution. Administrative Rules and Regulations must also be
published if their purpose is to enforce or implement existing law pursuant also to a valid delegation.

Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the administrative
agency and not the public, need not be published. Neither is publication required of the so-called letters of instructions
issued by administrative superiors concerning the rules or guidelines to be followed by their subordinates in the
performance of their duties.

xxx

We agree that the publication must be in full or it is no publication at all since its purpose is to inform the public of the
contents of the laws.

The Administrative Order under consideration is one of those issuances which should be published for its effectivity, since
its purpose is to enforce and implement an existing law pursuant to a valid delegation, i.e., P.D. 1071, in relation to LOI
444 and EO 133.[27]

Thus, publication in the Official Gazette or a newspaper of general circulation is a condition sine qua non before
statutes, rules or regulations can take effect. This is explicit from Executive Order No. 200, which repealed Article 2 of the
Civil Code, and which states that:

134
Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a
newspaper of general circulation in the Philippines, unless it is otherwise provided.[28]

The Rules of Practice and Procedure of the NTC, which implements Section 29 of the Public Service Act (C.A. 146, as
amended), fall squarely within the scope of these laws, as explicitly mentioned in the case Taada v. Tuvera.[29]

Our pronouncement in Taada vs. Tuvera is clear and categorical. Administrative rules and regulations must be published
if their purpose is to enforce or implement existing law pursuant to a valid delegation.The only exceptions are
interpretative regulations, those merely internal in nature, or those so-called letters of instructions issued by
administrative superiors concerning the rules and guidelines to be followed by their subordinates in the performance of
their duties.[30]

Hence, the 1993 Revised Rules should be published in the Official Gazette or in a newspaper of general circulation
before it can take effect. Even the 1993 Revised Rules itself mandates that said Rules shall take effect only after their
publication in a newspaper of general circulation.[31] In the absence of such publication, therefore, it is the 1978 Rules that
governs.
In any event, regardless of whether the 1978 Rules or the 1993 Revised Rules should apply, the records show that
the amended application filed by Bayantel in fact included a motion for the issuance of a provisional authority. Hence, it
cannot be said that the NTC granted the provisional authority motu proprio. The Court of Appeals, therefore, erred when
it found that the NTC issued its Order of May 3, 2000 on its own initiative. This much is acknowledged in the Decision of
the Court of Appeals:

As prayer, ICC asked for the immediate grant of provisional authority to construct, install, maintain and operate the subject
service and to charge the proposed rates and after due notice and hearing, approve the instant application and grant the
corresponding certificate of public convenience and necessity.[32]

The Court of Appeals also erred when it declared that the NTCs Order archiving Bayantels application was null and
void. The archiving of cases is a widely accepted measure designed to shelve cases in which no immediate action is
expected but where no grounds exist for their outright dismissal, albeit without prejudice. It saves the petitioner or
applicant from the added trouble and expense of re-filing a dismissed case. Under this scheme, an inactive case is kept
alive but held in abeyance until the situation obtains wherein action thereon can be taken.
In the case at bar, the said application was ordered archived because of lack of available frequencies at the time, and
made subject to reinstatement upon availability of the requisite frequency. To be sure, there was nothing irregular in the
revival of the application after the condition therefor was fulfilled.
While, as held by the Court of Appeals, there are no clear provisions in the Rules of the NTC which expressly allow
the archiving of any application, this recourse may be justified under Rule 1, Section 2 of the 1978 Rules, which states:

Sec. 2. Scope.--- These rules govern pleadings, practice and procedure before the Board of Communications (now NTC) in
all matters of hearing, investigation and proceedings within the jurisdiction of the Board. However, in the broader interest
of justice and in order to best serve the public interest, the Board may, in any particular matter, except it from these rules
and apply such suitable procedure to improve the service in the transaction of the public business. (underscoring ours)

The Court of Appeals ruled that the NTC committed grave abuse of discretion when it revived Bayantels application
based on an ex-parte motion. In this regard, the pertinent provisions of the NTC Rules:

Sec. 5. Ex-parte Motions. --- Except for motions for provisional authorization of proposed services and increase of
rates, ex-parte motions shall be acted upon by the Board only upon showing of urgent necessity therefor and the right of
the opposing party is not substantially impaired.[33]

Thus, in cases which do not involve either an application for rate increase or an application for a provisional authority,
the NTC may entertain ex-parte motions only where there is an urgent necessity to do so and no rights of the opposing
parties are impaired.
The Court of Appeals ruled that there was a violation of the fundamental right of Extelcom to due process when it
was not afforded the opportunity to question the motion for the revival of the application. However, it must be noted
that said Order referred to a simple revival of the archived application of Bayantel in NTC Case No. 92-426. At this stage,
it cannot be said that Extelcoms right to procedural due process was prejudiced. It will still have the opportunity to be
heard during the full-blown adversarial hearings that will follow. In fact, the records show that the NTC has scheduled
several hearing dates for this purpose, at which all interested parties shall be allowed to register their opposition. We have
ruled that there is no denial of due process where full-blown adversarial proceedings are conducted before an

135
administrative body.[34] With Extelcom having fully participated in the proceedings, and indeed, given the opportunity to
file its opposition to the application, there was clearly no denial of its right to due process.

In Zaldivar vs. Sandiganbayan (166 SCRA 316 [1988]), we held that the right to be heard does not only refer to the right
to present verbal arguments in court. A party may also be heard through his pleadings. where opportunity to be heard is
accorded either through oral arguments or pleadings, there is no denial of procedural due process. As reiterated
in National Semiconductor (HK) Distribution, Ltd. vs. NLRC (G.R. No. 123520, June 26, 1998), the essence of due process is
simply an opportunity to be heard, or as applied to administrative proceedings, an opportunity to explain one's
side. Hence, in Navarro III vs. Damaso (246 SCRA 260 [1995]), we held that a formal or trial-type hearing is not at all times
and not in all instances essential. Plainly, petitioner was not denied due process.[35]

Extelcom had already entered its appearance as a party and filed its opposition to the application. It was neither
precluded nor barred from participating in the hearings thereon.Indeed, nothing, not even the Order reviving the
application, bars or prevents Extelcom and the other oppositors from participating in the hearings and adducing evidence
in support of their respective oppositions. The motion to revive could not have possibly caused prejudice to Extelcom since
the motion only sought the revival of the application. It was merely a preliminary step towards the resumption of the
hearings on the application of Bayantel. The latter will still have to prove its capability to undertake the proposed
CMTS. Indeed, in its Order dated February 1, 2000, the NTC set several hearing dates precisely intended for the
presentation of evidence on Bayantels capability and qualification. Notice of these hearings were sent to all parties
concerned, including Extelcom.
As regards the changes in the personal circumstances of Bayantel, the same may be ventilated at the hearings
during Bayantels presentation of evidence. In fact, Extelcom was able to raise its arguments on this matter in the
Opposition (With Motion to Dismiss) anent the re-opening and re-instatement of the application
of Bayantel. Extelcom was thus heard on this particular point.
Likewise, the requirements of notice and publication of the application is no longer necessary inasmuch as the
application is a mere revival of an application which has already been published earlier. At any rate, the records show that
all of the five (5) CMTS operators in the country were duly notified and were allowed to raise their respective oppositions
to Bayantelsapplication through the NTCs Order dated February 1, 2000.
It should be borne in mind that among the declared national policies under Republic Act No. 7925, otherwise known
as the Public Telecommunications Policy Act of the Philippines, is the healthy competition among telecommunications
carriers, to wit:

A healthy competitive environment shall be fostered, one in which telecommunications carriers are free to make business
decisions and to interact with one another in providing telecommunications services, with the end in view of encouraging
their financial viability while maintaining affordable rates.[36]

The NTC is clothed with sufficient discretion to act on matters solely within its competence. Clearly, the need for a
healthy competitive environment in telecommunications is sufficient impetus for the NTC to consider all those applicants
who are willing to offer competition, develop the market and provide the environment necessary for greater public
service. This was the intention that came to light with the issuance of Memorandum Circular 9-3-2000, allocating new
frequency bands for use of CMTS. This memorandum circular enumerated the conditions prevailing and the reasons which
necessitated its issuance as follows:
- the international accounting rates are rapidly declining, threatening the subsidy to the local exchange service
as mandated in EO 109 and RA 7925;
- the public telecommunications entities which were obligated to install, operate and maintain local exchange
network have performed their obligations in varying degrees;
- after more than three (3) years from the performance of the obligations only 52% of the total number of cities
and municipalities are provided with local telephone service.
- there are mergers and consolidations among the existing cellular mobile telephone service (CMTS) providers
threatening the efficiency of competition;
- there is a need to hasten the installation of local exchange lines in unserved areas;
- there are existing CMTS operators which are experiencing congestion in the network resulting to low grade of
service;
- the consumers/customers shall be given the freedom to choose CMTS operators from which they could get the
service.[37]

136
 Clearly spelled out is the need to provide enhanced competition and the requirement for more landlines and
telecommunications facilities in unserved areas in the country. On both scores, therefore, there was sufficient showing
that the NTC acted well within its jurisdiction and in pursuance of its avowed duties when it allowed the revival
of Bayantels application.
We now come to the issue of exhaustion of administrative remedies. The rule is well-entrenched that a party must
exhaust all administrative remedies before resorting to the courts.The premature invocation of the intervention of the
court is fatal to ones cause of action. This rule would not only give the administrative agency an opportunity to decide the
matter by itself correctly, but would also prevent the unnecessary and premature resort to courts.[38] In the case of Lopez
v. City of Manila,[39] we held:

As a general rule, where the law provides for the remedies against the action of an administrative board, body or officer,
relief to courts can be sought only after exhausting all remedies provided. The reason rests upon the presumption that
the administrative body, if given the chance to correct its mistake or error, may amend its decision on a given matter and
decide it properly. Therefore, where a remedy is available within the administrative machinery, this should be resorted to
before resort can be made to the courts, not only to give the administrative agency the opportunity to decide the matter
by itself correctly, but also to prevent unnecessary and premature resort to courts.

Clearly, Extelcom violated the rule on exhaustion of administrative remedies when it went directly to the Court of
Appeals on a petition for certiorari and prohibition from the Order of the NTC dated May 3, 2000, without first filing a
motion for reconsideration. It is well-settled that the filing of a motion for reconsideration is a prerequisite to the filing of
a special civil action for certiorari.

The general rule is that, in order to give the lower court the opportunity to correct itself, a motion for reconsideration is
a prerequisite to certiorari. It also basic that petitioner must exhaust all other available remedies before resorting to
certiorari. This rule, however, is subject to certain exceptions such as any of the following: (1) the issues raised are purely
legal in nature, (2) public interest is involved, (3) extreme urgency is obvious or (4) special circumstances warrant
immediate or more direct action.[40]

This case does not fall under any of the recognized exceptions to this rule. Although the Order of the NTC dated May
3, 2000 granting provisional authority to Bayantel was immediately executory, it did not preclude the filing of a motion
for reconsideration. Under the NTC Rules, a party adversely affected by a decision, order, ruling or resolution may within
fifteen (15) days file a motion for reconsideration. That the Order of the NTC became immediately executory does not
mean that the remedy of filing a motion for reconsideration is foreclosed to the petitioner.[41]
Furthermore, Extelcom does not enjoy the grant of any vested interest on the right to render a public service. The
Constitution is quite emphatic that the operation of a public utility shall not be exclusive. Thus:

No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted to citizens
of the Philippines or to corporations organized under the laws of the Philippines at least sixty per centum of whose capital
is owned by such citizens, nor shall such franchise, certificate or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. xxx xxx xxx.[42]

In Radio Communications of the Phils., Inc. v. National Telecommunications Commission,[43] we held:

It is well within the powers of the public respondent to authorize the installation by the private respondent network of
radio communications systems in Catarman, Samar and San Jose, Mindoro. Under the circumstances, the mere fact that
the petitioner possesses a franchise to put up and operate a radio communications system in certain areas is not an
insuperable obstacle to the public respondents issuing the proper certificate to an applicant desiring to extend the same
services to those areas. The Constitution mandates that a franchise cannot be exclusive in nature nor can a franchise be
granted except that it must be subject to amendment, alteration, or even repeal by the legislature when the common
good so requires. (Art. XII, sec. 11 of the 1986 Constitution). There is an express provision in the petitioners franchise
which provides compliance with the above mandate (RA 2036, sec. 15).

Even in the provisional authority granted to Extelcom, it is expressly stated that such authority is not exclusive. Thus,
the Court of Appeals erred when it gave due course to Extelcomspetition and ruled that it constitutes an exception to the
rule on exhaustion of administrative remedies.
Also, the Court of Appeals erred in annulling the Order of the NTC dated May 3, 2000, granting Bayantel a provisional
authority to install, operate and maintain CMTS. The general rule is that purely administrative and discretionary functions
may not be interfered with by the courts. Thus, in Lacuesta v. Herrera,[44] it was held:

137
xxx (T)he powers granted to the Secretary of Agriculture and Commerce (natural resources) by law regarding the
disposition of public lands such as granting of licenses, permits, leases and contracts, or approving, rejecting, reinstating,
or canceling applications, are all executive and administrative in nature. It is a well recognized principle that purely
administrative and discretionary functions may not be interfered with by the courts. (Coloso vs. Board of Accountancy,
G.R. No. L-5750, April 20, 1953) In general, courts have no supervising power over the proceedings and actions of the
administrative departments of the government. This is generally true with respect to acts involving the exercise
of judgement or discretion and findings of fact. (54 Am. Jur. 558-559) xxx.

The established exception to the rule is where the issuing authority has gone beyond its statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion.[45] None of these obtains in the case at bar.
Moreover, in petitions for certiorari, evidentiary matters or matters of fact raised in the court below are not proper
grounds nor may such be ruled upon in the proceedings. As held in National Federation of Labor v. NLRC:[46]

At the outset, it should be noted that a petition for certiorari under Rule 65 of the Rules of Court will prosper only if there
is a showing of grave abuse of discretion or an act without or in excess of jurisdiction on the part of the National Labor
Relations Commission. It does not include an inquiry as to the correctness of the evaluation of evidence which was the
basis of the labor official or officer in determining his conclusion. It is not for this Court to re-examine conflicting evidence,
re-evaluate the credibility of witnesses nor substitute the findings of fact of an administrative tribunal which has gained
expertise in its special field. Considering that the findings of fact of the labor arbiter and the NLRC are supported by
evidence on record, the same must be accorded due respect and finality.

This Court has consistently held that the courts will not interfere in matters which are addressed to the sound
discretion of the government agency entrusted with the regulation of activities coming under the special and technical
training and knowledge of such agency.[47] It has also been held that the exercise of administrative discretion is a policy
decision and a matter that can best be discharged by the government agency concerned, and not by the
courts.[48] In Villanueva v. Court of Appeals,[49] it was held that findings of fact which are supported by evidence and the
conclusion of experts should not be disturbed. This was reiterated in Metro Transit Organization, Inc. v. National Labor
Relations Commission,[50] wherein it was ruled that factual findings of quasi-judicial bodies which have acquired expertise
because their jurisdiction is confined to specific matters are generally accorded not only respect but even finality and are
binding even upon the Supreme Court if they are supported by substantial evidence.
Administrative agencies are given a wide latitude in the evaluation of evidence and in the exercise of its adjudicative
functions. This latitude includes the authority to take judicial notice of facts within its special competence.
In the case at bar, we find no reason to disturb the factual findings of the NTC which formed the basis for awarding
the provisional authority to Bayantel. As found by the NTC, Bayantelhas been granted several provisional and permanent
authorities before to operate various telecommunications services.[51] Indeed, it was established that Bayantel was the
first company to comply with its obligation to install local exchange lines pursuant to E.O. 109 and R.A. 7925. In recognition
of the same, the provisional authority awarded in favor of Bayantel to operate Local Exchange Services
in Quezon City, Malabon, Valenzuela and the entire Bicol region was made permanent and a CPCN for the said service was
granted in its favor. Prima facie evidence was likewise found showing Bayantels legal, financial and technical capacity to
undertake the proposed cellular mobile telephone service.
Likewise, the May 3, 2000 Order did not violate NTC Memorandum Circular No. 9-14-90 dated September 4, 1990,
contrary to the ruling of the Court of Appeals. The memorandum circular sets forth the procedure for the issuance of
provisional authority thus:

EFFECTIVE THIS DATE, and as part of the Commissions drive to streamline and fast track action on applications/petitions
for CPCN other forms of authorizations, the Commission shall be evaluating applications/petitions for immediate issuance
of provisional authorizations, pending hearing and final authorization of an application on its merit.

For this purpose, it is hereby directed that all applicants/petitioners seeking for provisional authorizations, shall submit
immediately to the Commission, either together with their application or in a Motion all their legal, technical, financial,
economic documentations in support of their prayer for provisional authorizations for evaluation. On the basis of their
completeness and their having complied with requirements, the Commission shall be issuing provisional authorizations.

Clearly, a provisional authority may be issued even pending hearing and final determination of an application on its
merits.
Finally, this Court finds that the Manifestations of Extelcom alleging forum shopping on the part of the NTC
and Bayantel are not impressed with merit. The divisions of the Supreme Court are not to be considered as separate and
distinct courts. The Supreme Court remains a unit notwithstanding that it works in divisions. Although it may have three
138
divisions, it is but a single court. Actions considered in any of these divisions and decisions rendered therein are, in effect,
by the same Tribunal. The divisions of this Court are not to be considered as separate and distinct courts but as divisions
of one and the same court.[52]
Moreover, the rules on forum shopping should not be literally interpreted. We have stated thus:

It is scarcely necessary to add that Circular No. 28-91 must be so interpreted and applied as to achieve the purposes
projected by the Supreme Court when it promulgated that circular. Circular No. 28-91 was designed to serve as an
instrument to promote and facilitate the orderly administration of justice and should not be interpreted with such
absolute literalness as to subvert its own ultimate and legitimate objection or the goal of all rules of procedure which is
to achieve substantial justice as expeditiously as possible.[53]

Even assuming that separate actions have been filed by two different parties involving essentially the same subject
matter, no forum shopping was committed as the parties did not resort to multiple judicial remedies. The Court, therefore,
directed the consolidation of the two cases because they involve essentially the same issues. It would also prevent the
absurd situation wherein two different divisions of the same court would render altogether different rulings in the cases
at bar.
We rule, likewise, that the NTC has legal standing to file and initiate legal action in cases where it is clear that its
inaction would result in an impairment of its ability to execute and perform its functions. Similarly, we have previously
held in Civil Service Commission v. Dacoycoy[54] that the Civil Service Commission, as an aggrieved party, may appeal the
decision of the Court of Appeals to this Court.
As correctly stated by the NTC, the rule invoked by Extelcom is Rule 65 of the Rules of Civil Procedure, which provides
that public respondents shall not appear in or file an answer or comment to the petition or any pleading therein.[55] The
instant petition, on the other hand, was filed under Rule 45 where no similar proscription exists.
WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The Court of Appeals Decision
dated September 13, 2000 and Resolution dated February 9, 2001are REVERSED and SET ASIDE. The permanent injunction
issued by the Court of Appeals is LIFTED. The Orders of the NTC dated February 1, 2000 and May 3, 2000 are
REINSTATED.No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

G.R. No. L-49774 February 24, 1981

SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA PLANT), petitioner,

vs.
Hon. AMADO G. INCIONG, Deputy Minister of Labor and CAGAYAN COCA-COLA FREE WORKERS UNION, respondents.

DE CASTRO, J.:

Petition for certiorari and prohibition, with preliminary injunction to review the Order 1 dated December 19, 1978
rendered by the Deputy Minister of Labor in STF ROX Case No. 009-77 docketed as "Cagayan Coca-Cola Free Workers
Union vs. Cagayan Coca-Cola Plant, San Miguel Corporation, " which denied herein petitioner's motion for reconsideration
and ordered the immediate execution of a prior Order 2 dated June 7, 1978.

On January 3, 1977, Cagayan Coca-Cola Free Workers Union, private respondent herein, filed a complaint against San
Miguel Corporation (Cagayan Coca-Cola Plant), petitioner herein, alleging failure or refusal of the latter to include in the
computation of 13th- month pay such items as sick, vacation or maternity leaves, premium for work done on rest days
and special holidays, including pay for regular holidays and night differentials.

An Order 3 dated February 15, 1977 was issued by Regional Office No. X where the complaint was filed requiring herein
petitioner San Miguel Corporation (Cagayan Coca-Cola Plant) "to pay the difference of whatever earnings and the amount
actually received as 13th month pay excluding overtime premium and emergency cost of living allowance. "

Herein petitioner appealed from that Order to the Minister of Labor in whose behalf the Deputy Minister of Labor Amado
G. Inciong issued an Order 4 dated June 7, 1978 affirming the Order of Regional Office No. X and dismissing the appeal for
lack of merit. Petitioner's motion for reconsideration having been denied, it filed the instant petition.

139
On February 14, 1979, this Court issued a Temporary Restraining Order 5 enjoining respondents from enforcing the Order
dated December 19, 1978.

The crux of the present controversy is whether or not in the computation of the 13th-month pay under Presidential Decree
851, payments for sick, vacation or maternity leaves, premium for work done on rest days and special holidays, including
pay for regular holidays and night differentials should be considered.

Public respondent's consistent stand on the matter since the effectivity of Presidential Decree 851 is that "payments for
sick leave, vacation leave, and maternity benefits, as well as salaries paid to employees for work performed on rest days,
special and regular holidays are included in the computation of the 13th-month pay. 6 On its part, private respondent cited
innumerable past rulings, opinions and decisions rendered by then Acting Labor Secretary Amado G. Inciong to the effect
that, "in computing the mandatory bonus, the basis is the total gross basic salary paid by the employer during the calendar
year. Such gross basic salary includes: (1) regular salary or wage; (2) payments for sick, vacation and maternity leaves; (3)
premium for work performed on rest days or holidays: (4) holiday pay for worked or unworked regular holiday; and (5)
emergency allowance if given in the form of a wage adjustment." 7

Petitioner, on the other hand, assails as erroneous the aforesaid order, ruling and opinions, vigorously contends that
Presidential Decree 851 speaks only of basic salary as basis for the determination of the 13th-month pay; submits that
payments for sick, vacation, or maternity leaves, night differential pay, as well as premium paid for work performed on
rest days, special and regular holidays do not form part of the basic salary; and concludes that the inclusion of those
payments in the computation of the 13th-month pay is clearly not sanctioned by Presidential Decree 851.

The Court finds petitioner's contention meritorious.

The provision in dispute is Section 1 of Presidential Decree 851 and provides:

All employers are hereby required to pay all their employees receiving a basic salary of not more than
Pl,000 a month, regardless of the nature of the employment, a 13th-month pay not later than December
24 of every year.

Section 2 of the Rules and Regulations for the implementation of Presidential Decree 851 provides:

a) Thirteenth-month pay shall mean one twelfth (1/12) of the basic salary of an employee within a
calendar year

b) Basic salary shall include all remunerations on earnings paid by an employer to an employee for services
rendered but may not include cost-of-living allowances granted pursuant to Presidential Decree No. 525
or Letter of Instructions No. 174, profit sharing payments and all allowances and monetary benefits which
are not considered or integrated as part of the regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.

Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the basis in the
determination of his 13th-month pay. Any compensations or remunerations which are deemed not part of the basic pay
is excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the following compensations are deemed not
part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of Instructions No.
174;

b) Profit sharing payments;

c) All allowances and monetary benefits which are not considered or integrated as part of the regular
basic salary of tile employee at the time of the promulgation of the Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 issued by the then Labor
Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as part of the basic salary and in the
computation of the 13th-month pay.

140
The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instructions No. 174, and profit
sharing payments indicate the intention to strip basic salary of other payments which are properly considered as "fringe"
benefits. Likewise, the catch-all exclusionary phrase "all allowances and monetary benefits which are not considered or
integrated as part of the basic salary" shows also the intention to strip basic salary of any and all additions which may be
in the form of allowances or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more emphatic in
declaring that earnings and other remunerations which are not part of the basic salary shall not be included in the
computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree 851 which
defines basic salary to include all remunerations or earnings paid by an employer to an employee, this cloud is dissipated
in the later and more controlling Supplementary Rules and Regulations which categorically, exclude from the definition of
basic salary earnings and other remunerations paid by employer to an employee. A cursory perusal of the two sets of
Rules indicates that what has hitherto been the subject of a broad inclusion is now a subject of broad exclusion. The
Supplementary rules and Regulations cure the seeming tendency of the former rules to include all remunerations and
earnings within the definition of basic salary.

The all-embracing phrase "earnings and other renumeration" which are deemed not part of the basic salary includes within
its meaning payments for sick, vacation, or maternity leaves. Maternity premium for works performed on rest days and
special holidays pays for regular holidays and night differentials. As such they are deemed not part of the basic salary and
shall not be considered in the computation of the 13th-month they, were not so excluded, it is hard to find any "earnings
and other remunerations" expressly excluded in the computation of the 13th-month pay. Then the exclusionary provision
would prove to be Idle and with no purpose.

This conclusion finds strong support under the Labor Code of the Philippines. To cite a few provisions:

Art. 87. — overtime work. Work may be performed beyond eight hours a day provided what the employee
is paid for the overtime work, additional compensation equivalent to his regular wage plus at least twenty-
five (25%) percent thereof.

It is clear that overtime pay is an additional compensation other than and added to the regular wage or basic salary, for
reason of which such is categorically excluded from the definition of basic salary under the Supplementary Rules and
Regulations Implementing Presidential Decree 851.

In Article 93 of the same Code, paragraph

c) work performed on any special holiday shall be paid an additional compensation of at least thirty
percent (30%) of the regular wage of the employee.

It is likewise clear that prernium for special holiday which is at least 30% of the regular wage is an additional compensation
other than and added to the regular wage or basic salary. For similar reason it shall not be considered in the computation
of the 13th- month pay.

WHEREFORE, the Orders of the Deputy Labor Minister dated June 7, 1978 and December 19, 1978 are hereby set aside
and a new one entered as above indicated. The Temporary Restraining Order issued by this Court on February 14, 1979 is
hereby made permanent. No pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

Mr. Justice de Castro was designated to sit with the First Division under Special Order No. 225.

G.R. No. L-19337 September 30, 1969

ASTURIAS SUGAR CENTRAL, INC., petitioner,

vs.
COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS, respondents.

141
Laurea, Laurea and Associates for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Esmeraldo Umali and Solicitor Sumilang V.
Bernardo for respondents.

CASTRO, J.:

This is a petition for review of the decision of the Court of Tax Appeals of November 20, 1961, which denied recovery of
the sum of P28,629.42, paid by the petitioner, under protest, in the concept of customs duties and special import tax, as
well as the petitioner's alternative remedy to recover the said amount minus one per cent thereof by way of a drawback
under sec. 106 (b) of the Tariff and Customs Code.

The petitioner Asturias Sugar Central, Inc. is engaged in the production and milling of centrifugal sugar for exert, the sugar
so produced being placed in containers known as jute bags. In 1957 it made two importations of jute bags. The first
shipment consisting of 44,800 jute bags and declared under entry 48 on January 8, 1967, entered free of customs duties
and special import tax upon the petitioner's filing of Re-exportation and Special Import Tax Bond no. 1 in the amounts of
P25,088 and P2,464.50, conditioned upon the exportation of the jute bags within one year from the date of importation.
The second shipment consisting of 75,200 jute bags and declared under entry 243 on February 8, 1957, likewise entered
free of customs duties and special import tax upon the petitioner's filing of Re-exportation and Special Import Tax Bond
no. 6 in the amounts of P42,112 and P7,984.44, with the same conditions as stated in bond no. 1.

Of the 44,800 jute bags declared under entry 48, only 8,647 were exported within one year from the date of importation
as containers of centrifugal sugar. Of the 75,200 jute bags declared under entry 243, only 25,000 were exported within
the said period of one year. In other words, of the total number of imported jute bags only 33,647 bags were exported
within one year after their importation. The remaining 86,353 bags were exported after the expiration of the one-year
period but within three years from their importation.

On February 6, 1958 the petitioner, thru its agent Theo. H. Davies & Co., Far East, Ltd., requested the Commissioner of
Customs for a week's extension of Re-exportation and Special Import Tax Bond no. 6 which was to expire the following
day, giving the following as the reasons for its failure to export the remaining jute bags within the period of one year: (a)
typhoons and severe floods; (b) picketing of the Central railroad line from November 6 to December 21, 1957 by certain
union elements in the employ of the Philippine Railway Company, which hampered normal operations; and (c) delay in
the arrival of the vessel aboard which the petitioner was to ship its sugar which was then ready for loading. This request
was denied by the Commissioner per his letter of April 15, 1958.

Due to the petitioner's failure to show proof of the exportation of the balance of 86,353 jute bags within one year from
their importation, the Collector of Customs of Iloilo, on March 17, 1958, required it to pay the amount of P28,629.42
representing the customs duties and special import tax due thereon, which amount the petitioner paid under protest.

In its letter of April 10, 1958, supplemented by its letter of May 12, 1958, the petitioner demanded the refund of the
amount it had paid, on the ground that its request for extension of the period of one year was filed on time, and that its
failure to export the jute bags within the required one-year period was due to delay in the arrival of the vessel on which
they were to be loaded and to the picketing of the Central railroad line. Alternatively, the petitioner asked for refund of
the same amount in the form of a drawback under section 106(b) in relation to section 105(x) of the Tariff and Customs
Code.

After hearing, the Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the claim for refund.
From his action, appeal was taken to the Commissioner of Customs who upheld the decision of the Collector. Upon a
petition for review the Court of Tax Appeals affirmed the decision of the Commissioner of Customs.

The petitioner imputes three errors to the Court of Tax Appeals, namely:

1. In not declaring that force majeure and/or fortuitous event is a sufficient justification for the failure of the
petitioner to export the jute bags in question within the time required by the bonds.

2. In not declaring that it is within the power of the Collector of Customs and/or the Commissioner of Customs to
extend the period of one (1) year within which the jute bags should be exported.

142
 3. In not declaring that the petitioner is entitled to a refund by way of a drawback under the provisions of section
106, par. (b), of the Tariff and Customs Code.

1. The basic issue tendered for resolution is whether the Commissioner of Customs is vested, under the Philippine Tariff
Act of 1909, the then applicable law, with discretion to extend the period of one year provided for in section 23 of the Act.
Section 23 reads:

SEC. 23. That containers, such as casks, large metal, glass, or other receptacles which are, in the opinion of the
collector of customs, of such a character as to be readily identifiable may be delivered to the importer thereof
upon identification and the giving of a bond with sureties satisfactory to the collector of customs in an amount
equal to double the estimated duties thereon, conditioned for the exportation thereof or payment of the
corresponding duties thereon within one year from the date of importation, under such rules and regulations as
the Insular Collector of Customs shall provide.1

To implement the said section 23, Customs Administrative Order 389 dated December 6, 1940 was promulgated,
paragraph XXVIII of which provides that "bonds for the re-exportation of cylinders and other containers are good for 12
months without extension," and paragraph XXXI, that "bonds for customs brokers, commercial samples, repairs and those
filed to guarantee the re-exportation of cylinders and other containers are not extendible."

And insofar as jute bags as containers are concerned, Customs Administrative Order 66 dated August 25, 1948 was issued,
prescribing rules and regulations governing the importation, exportation and identification thereof under section 23 of
the Philippine Tariff Act of 1909. Said administrative order provides:

That importation of jute bags intended for use as containers of Philippine products for exportation to foreign
countries shall be declared in a regular import entry supported by a surety bond in an amount equal to double the
estimated duties, conditioned for the exportation or payment of the corresponding duties thereon within one
year from the date of importation.

It will be noted that section 23 of the Philippine Tariff Act of 1909 and the superseding sec. 105(x) of the Tariff and Customs
Code, while fixing at one year the period within which the containers therein mentioned must be exported, are silent as
to whether the said period may be extended. It was surely by reason of this silence that the Bureau of Customs issued
Administrative Orders 389 and 66, already adverted to, to eliminate confusion and provide a guide as to how it shall apply
the law, 2 and, more specifically, to make officially known its policy to consider the one-year period mentioned in the law
as non-extendible.

Considering that the statutory provisions in question have not been the subject of previous judicial interpretation, then
the application of the doctrine of "judicial respect for administrative construction," 3 would, initially, be in order.

Only where the court of last resort has not previously interpreted the statute is the rule applicable that courts will give
consideration to construction by administrative or executive departments of the state.41awphîl.nèt

The formal or informal interpretation or practical construction of an ambiguous or uncertain statute or law by the
executive department or other agency charged with its administration or enforcement is entitled to consideration
and the highest respect from the courts, and must be accorded appropriate weight in determining the meaning
of the law, especially when the construction or interpretation is long continued and uniform or is
contemporaneous with the first workings of the statute, or when the enactment of the statute was suggested by
such agency.5

The administrative orders in question appear to be in consonance with the intention of the legislature to limit the period
within which to export imported containers to one year, without extension, from the date of importation. Otherwise, in
enacting the Tariff and Customs Code to supersede the Philippine Tariff Act of 1909, Congress would have amended
section 23 of the latter law so as to overrule the long-standing view of the Commissioner of Customs that the one-year
period therein mentioned is not extendible.

Implied legislative approval by failure to change a long-standing administrative construction is not essential to
judicial respect for the construction but is an element which greatly increases the weight given such construction.6

The correctness of the interpretation given a statute by the agency charged with administering its provision is
indicated where it appears that Congress, with full knowledge of the agency's interpretation, has made significant
additions to the statute without amending it to depart from the agency's view.7

143
Considering that the Bureau of Customs is the office charged with implementing and enforcing the provisions of our Tariff
and Customs Code, the construction placed by it thereon should be given controlling weight.1awphîl.nèt

In applying the doctrine or principle of respect for administrative or practical construction, the courts often refer to several
factors which may be regarded as bases of the principle, as factors leading the courts to give the principle controlling
weight in particular instances, or as independent rules in themselves. These factors are the respect due the governmental
agencies charged with administration, their competence, expertness, experience, and informed judgment and the fact
that they frequently are the drafters of the law they interpret; that the agency is the one on which the legislature must
rely to advise it as to the practical working out of the statute, and practical application of the statute presents the agency
with unique opportunity and experiences for discovering deficiencies, inaccuracies, or improvements in the statute; ... 8

If it is further considered that exemptions from taxation are not favored, 9 and that tax statutes are to be construed
in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 10 then we are hard put to sustain the
petitioner's stand that it was entitled to an extension of time within which to export the jute bags and, consequently, to
a refund of the amount it had paid as customs duties.

In the light of the foregoing, it is our considered view that the one-year period prescribed in section 23 of the Philippine
Tariff Act of 1909 is non-extendible and compliance therewith is mandatory.

The petitioner's argument that force majeure and/or fortuitous events prevented it from exporting the jute bags within
the one-year period cannot be accorded credit, for several reasons. In the first place, in its decision of November 20, 1961,
the Court of Tax Appeals made absolutely no mention of or reference to this argument of the petitioner, which can only
be interpreted to mean that the court did not believe that the "typhoons, floods and picketing" adverted to by the
petitioner in its brief were of such magnitude or nature as to effectively prevent the exportation of the jute bags within
the required one-year period. In point of fact nowhere in the record does the petitioner convincingly show that the so-
called fortuitous events or force majeure referred to by it precluded the timely exportation of the jute bags. In the second
place, assuming, arguendo, that the one-year period is extendible, the jute bags were not actually exported within the
one-week extension the petitioner sought. The record shows that although of the remaining 86,353 jute bags 21,944 were
exported within the period of one week after the request for extension was filed, the rest of the bags, amounting to a
total of 64,409, were actually exported only during the period from February 16 to May 24, 1958, long after the expiration
of the one-week extension sought by the petitioner. Finally, it is clear from the record that the typhoons and floods which,
according to the petitioner, helped render impossible the fulfillment of its obligation to export within the one-year period,
assuming that they may be placed in the category of fortuitous events or force majeure, all occurred prior to the execution
of the bonds in question, or prior to the commencement of the one-year period within which the petitioner was in law
required to export the jute bags.

2. The next argument of the petitioner is that granting that Customs Administrative Order 389 is valid and binding, yet
"jute bags" cannot be included in the phrase "cylinders and other containers" mentioned therein. It will be noted,
however, that the Philippine Tariff Act of 1909 and the Tariff and Customs Code, which Administrative Order 389 seeks to
implement, speak of "containers" in general. The enumeration following the word "containers" in the said statutes serves
merely to give examples of containers and not to specify the particular kinds thereof. Thus, sec. 23 of the Philippine Tariff
Act states, "containers such as casks large metals, glass or other receptacles," and sec. 105 (x) of the Tariff and Customs
Code mentions "large containers," giving as examples "demijohn cylinders, drums, casks and other similar receptacles of
metal, glass or other materials." (emphasis supplied) There is, therefore, no reason to suppose that the customs
authorities had intended, in Customs Administrative Order 389 to circumscribe the scope of the word "container," any
more than the statures sought to be implemented actually intended to do.

3. Finally, the petitioner claims entitlement to a drawback of the duties it had paid, by virtue of section 106 (b) of the Tariff
and Customs Code, 11 which reads:

SEC. 106. Drawbacks: ...

b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes Thereof. — Upon the
exportation of articles manufactured or produced in the Philippines, including the packing, covering, putting up,
marking or labeling thereof, either in whole or in part of imported materials, or from similar domestic materials
of equal quantity and productive manufacturing quality and value, such question to be determined by the
Collector of Customs, there shall be allowed a drawback equal in amount to the duties paid on the imported
materials so used, or where similar domestic materials are used, to the duties paid on the equivalent imported
similar materials, less one per cent thereof: Provided, That the exportation shall be made within three years after
the importation of the foreign material used or constituting the basis for drawback ... .

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The petitioner argues that not having availed itself of the full exemption granted by sec. 105(x) of the Tariff and Customs
Code due to its failure to export the jute bags within one year, it is nevertheless, by authority of the above-quoted
provision, entitled to a 99% drawback of the duties it had paid, averring further that sec. 106(b) does not presuppose
immediate payment of duties and taxes at the time of importation.

The contention is palpably devoid of merit.

The provisions invoked by the petitioner (to sustain his claim for refund) offer two options to an importer. The first, under
sec. 105 (x), gives him the privilege of importing, free from import duties, the containers mentioned therein as long as he
exports them within one year from the date of acceptance of the import entry, which period as shown above, is not
extendible. The second, presented by sec. 106 (b), contemplates a case where import duties are first paid, subject to
refund to the extent of 99% of the amount paid, provided the articles mentioned therein are exported within three years
from importation.

It would seem then that the Government would forego collecting duties on the articles mentioned in section 105(x) of
Tariff and Customs Code as long as it is assured, by the filing of a bond, that the same shall be exported within the relatively
short period of one year from the date of acceptance of the import entry. Where an importer cannot provide such
assurance, then the Government, under sec. 106(b) of said Code, would require payment of the corresponding duties first.
The basic purpose of the two provisions is the same, which is, to enable a local manufacturer to compete in foreign
markets, by relieving him of the disadvantages resulting from having to pay duties on imported merchandise, thereby
building up export trade and encouraging manufacture in the country. 12 But there is a difference, and it is this: under
section 105(x) full exemption is granted to an importer who justifies the grant of exemption by exporting within one-year.
The petitioner, having opted to take advantage of the provisions of section 105(x), may not, after having failed to comply
with the conditions imposed thereby, avoid the consequences of such failure by being allowed a drawback under section
106(b) of the same Act without having complied with the conditions of the latter section.

For it is not to be supposed that the legislature had intended to defeat compliance with the terms of section 105(x) thru
a refuge under the provisions of section 106(b). A construction should be avoided which affords an opportunity to defeat
compliance with the terms of a statute. 13 Rather courts should proceed on the theory that parts of a statute may be
harmonized and reconciled with each other.

A construction of a statute which creates an inconsistency should be avoided when a reasonable interpretation can be
adopted which will not do violence to the plain words of the act and will carry out the intention of Congress.

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an
effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute.
Hence, it is a general principle, embodied in the maxim, "ut res magis valeat quam pereat," that the courts should,
if reasonably possible to do so without violence to the spirit and language of an act, so interpret the statute to
give it efficient operation and effect as a whole. An interpretation should, if possible, be avoided under which a
statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated,
repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory. 14

ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmed, at petitioner's cost.

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