EN BANC

CHAMBER OF REAL G.R. No. 160756

ESTATE AND BUILDERS
ASSOCIATIONS, INC.,
Petitioner, Present:
PUNO, C.J.,
CARPIO,
CORONA,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
- v e r s u s - LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ and
MENDOZA, JJ.

THE HON. EXECUTIVE

SECRETARY ALBERTO ROMULO,
THE HON. ACTING SECRETARY OF
FINANCE JUANITA D. AMATONG,
and THE HON. COMMISSIONER OF
INTERNAL REVENUE GUILLERMO
PARAYNO, JR.,
Respondents. Promulgated:

March 9, 2010

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

DECISION

CORONA, J.:

In this original petition for certiorari and mandamus,[1] petitioner Chamber of Real Estate and Builders Associations,

Inc. is questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424 [2] and the revenue regulations

(RRs) issued by the Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable

withholding taxes.[3]
Petitioner is an association of real estate developers and builders in the Philippines. It impleaded former Executive

Secretary Alberto Romulo, then acting Secretary of Finance Juanita D. Amatong and then Commissioner of Internal

Revenue Guillermo Parayno, Jr. as respondents.

Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and

creditable withholding tax (CWT) on sales of real properties classified as ordinary assets.

Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-

98. Petitioner argues that the MCIT violates the due process clause because it levies income tax even if there is no

realized gain.

Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section

4(a)(ii) and (c)(ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale

of real properties categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to law

for two reasons: first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets and second,

respondent Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross selling

price or fair market value of the real properties classified as ordinary assets.

Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause

because, like the MCIT, the government collects income tax even when the net income has not yet been determined.

They contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but

not on other business enterprises, more particularly those in the manufacturing sector.

The issues to be resolved are as follows:

(1) whether or not this Court should take cognizance of the present case;

(2) whether or not the imposition of the MCIT on domestic corporations is unconstitutional and

(3) whether or not the imposition of CWT on income from sales of real properties classified as ordinary assets

under RRs 2-98, 6-2001 and 7-2003, is unconstitutional.

OVERVIEW OF THE ASSAILED PROVISIONS

Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of

2% of its gross income when such MCIT is greater than the normal corporate income tax imposed under Section

27(A).[4] If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the

MCIT over the normal tax shall be carried forward and credited against the normal income tax for the three

immediately succeeding taxable years. Section 27(E) of RA 8424 provides:

Section 27 (E). [MCIT] on Domestic Corporations. -

(1) Imposition of Tax. A [MCIT] of two percent (2%) of the gross income as of the end
of the taxable year, as defined herein, is hereby imposed on a corporation taxable
under this Title, beginning on the fourth taxable year immediately following the year
in which such corporation commenced its business operations, when the minimum
income tax is greater than the tax computed under Subsection (A) of this Section for
the taxable year.

(2) Carry Forward of Excess Minimum Tax. Any excess of the [MCIT] over the normal
income tax as computed under Subsection (A) of this Section shall be carried forward
and credited against the normal income tax for the three (3) immediately succeeding
taxable years.

(3) Relief from the [MCIT] under certain conditions. The Secretary of Finance is
hereby authorized to suspend the imposition of the [MCIT] on any corporation which
suffers losses on account of prolonged labor dispute, or because of force majeure, or
because of legitimate business reverses.

The Secretary of Finance is hereby authorized to promulgate, upon

recommendation of the Commissioner, the necessary rules and regulations that shall
define the terms and conditions under which he may suspend the imposition of the
[MCIT] in a meritorious case.

(4) Gross Income Defined. For purposes of applying the [MCIT] provided under
Subsection (E) hereof, the term gross income shall mean gross sales less sales
returns, discounts and allowances and cost of goods sold. Cost of goods sold shall
include all business expenses directly incurred to produce the merchandise to bring
them to their present location and use.

For trading or merchandising concern, cost of goods sold shall include the
invoice cost of the goods sold, plus import duties, freight in transporting the goods to
the place where the goods are actually sold including insurance while the goods are
in transit.

For a manufacturing concern, cost of goods manufactured and sold shall

include all costs of production of finished goods, such as raw materials used, direct
labor and manufacturing overhead, freight cost, insurance premiums and other costs
incurred to bring the raw materials to the factory or warehouse.
 In the case of taxpayers engaged in the sale of service, gross income means
gross receipts less sales returns, allowances, discounts and cost of services. Cost of
services shall mean all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (A) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service and(B)
cost of facilities directly utilized in providing the service such as depreciation or rental
of equipment used and cost of supplies: Provided, however, that in the case of banks,
cost of services shall include interest expense.

On August 25, 1998, respondent Secretary of Finance (Secretary), on the recommendation of the Commissioner of

Internal Revenue (CIR), promulgated RR 9-98 implementing Section 27(E).[5] The pertinent portions thereof read:

Sec. 2.27(E) [MCIT] on Domestic Corporations.

(1) Imposition of the Tax. A [MCIT] of two percent (2%) of the gross income as of the
end of the taxable year (whether calendar or fiscal year, depending on the accounting
period employed) is hereby imposed upon any domestic corporation beginning the
fourth (4th) taxable year immediately following the taxable year in which such
corporation commenced its business operations. The MCIT shall be imposed
whenever such corporation has zero or negative taxable income or whenever the
amount of minimum corporate income tax is greater than the normal income tax due
from such corporation.

For purposes of these Regulations, the term, normal income tax means the
income tax rates prescribed under Sec. 27(A) and Sec. 28(A)(1) of the Code xxx at
32% effective January 1, 2000 and thereafter.

xxx xxx xxx

(2) Carry forward of excess [MCIT]. Any excess of the [MCIT] over the normal
income tax as computed under Sec. 27(A) of the Code shall be carried forward on
an annual basis and credited against the normal income tax for the three (3)
immediately succeeding taxable years.

xxx xxx xxx

Meanwhile, on April 17, 1998, respondent Secretary, upon recommendation of respondent CIR, promulgated RR 2-

98 implementing certain provisions of RA 8424 involving the withholding of taxes. [6] Under Section 2.57.2(J) of RR

No. 2-98, income payments from the sale, exchange or transfer of real property, other than capital assets, by persons

residing in the Philippines and habitually engaged in the real estate business were subjected to CWT:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:

xxx xxx xxx

 (J) Gross selling price or total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange or transfer of. Real property, other than capital assets, sold by an
individual, corporation, estate, trust, trust fund or pension fund and the seller/transferor is habitually
engaged in the real estate business in accordance with the following schedule
Those which are exempt from a
withholding tax at source as prescribed in xxx xxx xxx
Sec. 2.57.5 of these regulations.
Exempt Gross selling
price shall mean
With a selling price of five hundred the
thousand pesos (P500,000.00) or less. consideration
1.5% stated in the
sales document
With a selling price of more than five or the fair
hundred thousand pesos (P500,000.00) market value
but not more than two million pesos determined in
(P2,000,000.00). accordance with
3.0% Section 6 (E) of
the Code, as
With selling price of more than two amended,
million pesos (P2,000,000.00) whichever is
5.0% higher. In an
exchange, the
fair market value of the property received in exchange, as determined in the Income Tax Regulations
shall be used.

Where the consideration or part thereof is payable on installment, no withholding tax is required to
be made on the periodic installment payments where the buyer is an individual not engaged in trade
or business. In such a case, the applicable rate of tax based on the entire consideration shall be
withheld on the last installment or installments to be paid to the seller.

However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the tax
shall be deducted and withheld by the buyer on every installment.

This provision was amended by RR 6-2001 on July 31, 2001:

Sec. 2.57.2. Income payment subject to [CWT] and rates prescribed thereon:

xxx xxx xxx

(J) Gross selling price or total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange or transfer of real property classified as ordinary
asset. - A [CWT] based on the gross selling price/total amount of consideration or
the fair market value determined in accordance with Section 6(E) of the Code,
whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real
property, other than capital asset, shall be imposed upon the withholding
agent,/buyer, in accordance with the following schedule:

Where the seller/transferor is exempt from [CWT] in

accordance with Sec. 2.57.5 of these regulations.
Exempt

Upon the following values of real property, where the

seller/transferor is habitually engaged in the real estate
business.
 With a selling price of Five Hundred Thousand Pesos
(P500,000.00) or less. 1.5%

With a selling price of more than Five Hundred Thousand

Pesos (P500,000.00) but not more than Two Million
Pesos (P2,000,000.00).
3.0%

With a selling price of more than two Million

Pesos (P2,000,000.00). 5.0%
xxx xxx xxx

Gross selling price shall remain the consideration stated in the sales document or the fair
market value determined in accordance with Section 6 (E) of the Code, as amended, whichever is
higher. In an exchange, the fair market value of the property received in exchange shall be
considered as the consideration.

xxx xxx xxx

However, if the buyer is engaged in trade or business, whether a corporation or otherwise,

these rules shall apply:

(i) If the sale is a sale of property on the installment plan (that is, payments in
the year of sale do not exceed 25% of the selling price), the tax shall be deducted
and withheld by the buyer on every installment.

(ii) If, on the other hand, the sale is on a cash basis or is a deferred-payment sale
not on the installment plan (that is, payments in the year of sale exceed 25% of
the selling price), the buyer shall withhold the tax based on the gross selling price
or fair market value of the property, whichever is higher, on the first installment.

In any case, no Certificate Authorizing Registration (CAR) shall be issued to the buyer
unless the [CWT] due on the sale, transfer or exchange of real property other than capital asset has
been fully paid.(Underlined amendments in the original)

Section 2.58.2 of RR 2-98 implementing Section 58(E) of RA 8424 provides that any sale, barter or exchange

subject to the CWT will not be recorded by the Registry of Deeds until the CIR has certified that such transfers and

conveyances have been reported and the taxes thereof have been duly paid:[7]

Sec. 2.58.2. Registration with the Register of Deeds. Deeds of conveyances of land or land and
building/improvement thereon arising from sales, barters, or exchanges subject to the creditable
expanded withholding tax shall not be recorded by the Register of Deeds unless the [CIR] or his
duly authorized representative has certified that such transfers and conveyances have been reported
and the expanded withholding tax, inclusive of the documentary stamp tax, due thereon have been
fully paid xxxx.
On February 11, 2003, RR No. 7-2003[8] was promulgated, providing for the guidelines in determining whether a

particular real property is a capital or an ordinary asset for purposes of imposing the MCIT, among others. The

pertinent portions thereof state:

Section 4. Applicable taxes on sale, exchange or other disposition of real
property. - Gains/Income derived from sale, exchange, or other disposition of real
properties shall, unless otherwise exempt, be subject to applicable taxes imposed under
the Code, depending on whether the subject properties are classified as capital assets or
ordinary assets;

a. In the case of individual citizen (including estates and trusts), resident aliens,
and non-resident aliens engaged in trade or business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines, classified as

ordinary assets, shall be subject to the [CWT] (expanded) under Sec.
2.57..2(J) of [RR 2-98], as amended, based on the gross selling price or
current fair market value as determined in accordance with Section 6(E)
of the Code, whichever is higher, and consequently, to the ordinary
income tax imposed under Sec. 24(A)(1)(c) or 25(A)(1) of the Code, as
the case may be, based on net taxable income.

xxx xxx xxx

c. In the case of domestic corporations.

xxx xxx xxx

(ii) The sale of land and/or building classified as ordinary asset and other real
property (other than land and/or building treated as capital asset), regardless of
the classification thereof, all of which are located in the Philippines, shall be
subject to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR 2-98], as amended,
and consequently, to the ordinary income tax under Sec. 27(A) of the Code. In
lieu of the ordinary income tax, however, domestic corporations may become
subject to the [MCIT] under Sec. 27(E) of the Code, whichever is applicable.

xxx xxx xxx

We shall now tackle the issues raised.

EXISTENCE OF A JUSTICIABLE CONTROVERSY

Courts will not assume jurisdiction over a constitutional question unless the following requisites are satisfied:

(1) there must be an actual case calling for the exercise of judicial review; (2) the question before the court must be

ripe for adjudication; (3) the person challenging the validity of the act must have standing to do so; (4) the question
of constitutionality must have been raised at the earliest opportunity and (5) the issue of constitutionality must be the

very lis mota of the case.[9]

Respondents aver that the first three requisites are absent in this case.According to them, there is no actual

case calling for the exercise of judicial power and it is not yet ripe for adjudication because

[petitioner] did not allege that CREBA, as a corporate entity, or any of its members, has been
assessed by the BIR for the payment of [MCIT] or [CWT] on sales of real property. Neither did
petitioner allege that its members have shut down their businesses as a result of the payment of the
MCIT or CWT. Petitioner has raised concerns in mere abstract and hypothetical form without any
actual, specific and concrete instances cited that the assailed law and revenue regulations have
actually and adversely affected it. Lacking empirical data on which to base any conclusion, any
discussion on the constitutionality of the MCIT or CWT on sales of real property is essentially an
academic exercise.

Perceived or alleged hardship to taxpayers alone is not an adequate justification for adjudicating
abstract issues. Otherwise, adjudication would be no different from the giving of advisory opinion
that does not really settle legal issues.[10]

An actual case or controversy involves a conflict of legal rights or an assertion of opposite legal claims which

is susceptible of judicial resolution as distinguished from a hypothetical or abstract difference or dispute. [11]On the

other hand, a question is considered ripe for adjudication when the act being challenged has a direct adverse effect on

the individual challenging it.[12]

Contrary to respondents assertion, we do not have to wait until petitioners members have shut down their

operations as a result of the MCIT or CWT. The assailed provisions are already being implemented. As we stated

in Didipio Earth-Savers Multi-Purpose Association, Incorporated (DESAMA) v. Gozun:[13]

By the mere enactment of the questioned law or the approval of the challenged act, the
dispute is said to have ripened into a judicial controversy even without any other overt act. Indeed,
even a singular violation of the Constitution and/or the law is enough to awaken judicial duty. [14]

If the assailed provisions are indeed unconstitutional, there is no better time than the present to settle such question

once and for all.

Respondents next argue that petitioner has no legal standing to sue:

 Petitioner is an association of some of the real estate developers and builders in the
Philippines. Petitioners did not allege that [it] itself is in the real estate business. It did not allege
any material interest or any wrong that it may suffer from the enforcement of [the assailed
provisions].[15]

Legal standing or locus standi is a partys personal and substantial interest in a case such that it has sustained

or will sustain direct injury as a result of the governmental act being challenged.[16] In Holy Spirit Homeowners

Association, Inc. v. Defensor,[17] we held that the association had legal standing because its members stood to be

injured by the enforcement of the assailed provisions:

Petitioner association has the legal standing to institute the instant petition xxx. There is no
dispute that the individual members of petitioner association are residents of the NGC. As such they
are covered and stand to be either benefited or injured by the enforcement of the IRR, particularly
as regards the selection process of beneficiaries and lot allocation to qualified beneficiaries. Thus,
petitioner association may assail those provisions in the IRR which it believes to be unfavorable to
the rights of its members. xxx Certainly, petitioner and its members have sustained direct injury
arising from the enforcement of the IRR in that they have been disqualified and eliminated from the
selection process.[18]

In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an

actual case, ripeness or legal standing when paramount public interest is involved.[19] The questioned MCIT and CWT

affect not only petitioners but practically all domestic corporate taxpayers in our country. The transcendental

importance of the issues raised and their overreaching significance to society make it proper for us to take cognizance

of this petition.[20]

CONCEPT AND RATIONALE OF THE MCIT

The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation

system. It came about as a result of the perceived inadequacy of the self-assessment system in capturing the true

income of corporations.[21] It was devised as a relatively simple and effective revenue-raising instrument compared to

the normal income tax which is more difficult to control and enforce. It is a means to ensure that everyone will make

some minimum contribution to the support of the public sector. The congressional deliberations on this are

illuminating:

Senator Enrile. Mr. President, we are not unmindful of the practice of certain corporations of
reporting constantly a loss in their operations to avoid the payment of taxes, and thus avoid sharing
 in the cost of government. In this regard, the Tax Reform Act introduces for the first time a new
concept called the [MCIT] so as to minimize tax evasion, tax avoidance, tax manipulation in the
country and for administrative convenience. This will go a long way in ensuring that corporations
will pay their just share in supporting our public life and our economic advancement. [22]

Domestic corporations owe their corporate existence and their privilege to do business to the government.

They also benefit from the efforts of the government to improve the financial market and to ensure a favorable business

climate. It is therefore fair for the government to require them to make a reasonable contribution to the public expenses.

Congress intended to put a stop to the practice of corporations which, while having large turn-overs, report

minimal or negative net income resulting in minimal or zero income taxes year in and year out, through under-

declaration of income or over-deduction of expenses otherwise called tax shelters.[23]

Mr. Javier (E.) [This] is what the Finance Dept. is trying to remedy, that is why they have proposed
the [MCIT]. Because from experience too, you have corporations which have been losing year in
and year out and paid no tax. So, if the corporation has been losing for the past five years to ten
years, then that corporation has no business to be in business. It is dead.Why continue if you are
losing year in and year out? So, we have this provision to avoid this type of tax shelters, Your
Honor.[24]

The primary purpose of any legitimate business is to earn a profit.Continued and repeated losses after

operations of a corporation or consistent reports of minimal net income render its financial statements and its tax

payments suspect. For sure, certain tax avoidance schemes resorted to by corporations are allowed in our

jurisdiction. The MCIT serves to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and

minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and other

stratagems. Since the tax base was broader, the tax rate was lowered.

To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law:

First, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital

expenditures, the imposition of the MCIT commences only on the fourth taxable year immediately following the year

in which the corporation commenced its operations.[25] This grace period allows a new business to stabilize first and

make its ventures viable before it is subjected to the MCIT.[26]

 Second, the law allows the carrying forward of any excess of the MCIT paid over the normal income tax

which shall be credited against the normal income tax for the three immediately succeeding years. [27]

Third, since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of

Finance to suspend the imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force

majeure and legitimate business reverses.[28]

Even before the legislature introduced the MCIT to the Philippine taxation system, several other countries

already had their own system of minimum corporate income taxation. Our lawmakers noted that most developing

countries, particularly Latin American and Asian countries, have the same form of safeguards as we do. As pointed

out during the committee hearings:

[Mr. Medalla:] Note that most developing countries where you have of course quite a bit of room
for underdeclaration of gross receipts have this same form of safeguards.

In the case of Thailand, half a percent (0.5%), theres a minimum of income tax of half a percent
(0.5%) of gross assessable income. In Korea a 25% of taxable income before deductions and
exemptions. Of course the different countries have different basis for that minimum income tax.

The other thing youll notice is the preponderance of Latin American countries that employed this
method. Okay, those are additional Latin American countries.[29]

At present, the United States of America, Mexico, Argentina, Tunisia, Panama and Hungary have their own versions

of the MCIT.[30]

MCIT IS NOT VIOLATIVE OF DUE PROCESS

Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive,

arbitrary and confiscatory which amounts to deprivation of property without due process of law. It explains that gross

income as defined under said provision only considers the cost of goods sold and other direct expenses; other major

expenditures, such as administrative and interest expenses which are equally necessary to produce gross income, were

not taken into account.[31] Thus, pegging the tax base of the MCIT to a corporations gross income is tantamount to a

confiscation of capital because gross income, unlike net income, is not realized gain. [32]

We disagree.
 Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The

exercise of taxing power derives its source from the very existence of the State whose social contract with its citizens

obliges it to promote public interest and the common good.[33]

Taxation is an inherent attribute of sovereignty.[34] It is a power that is purely legislative.[35] Essentially, this

means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate),

coverage (subjects) and situs (place) of taxation.[36] It has the authority to prescribe a certain tax at a specific rate for

a particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power

to define what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or

what) it shall be imposed and where it shall be imposed.

As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so

that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the

tax) to its constituency who are to pay it.[37]Nevertheless, it is circumscribed by constitutional limitations. At the same

time, like any other statute, tax legislation carries a presumption of constitutionality.

The constitutional safeguard of due process is embodied in the fiat [no] person shall be deprived of life,

liberty or property without due process of law. In Sison, Jr. v. Ancheta, et al.,[38] we held that the due process clause

may properly be invoked to invalidate, in appropriate cases, a revenue measure[39] when it amounts to a confiscation

of property.[40] But in the same case, we also explained that we will not strike down a revenue measure as

unconstitutional (for being violative of the due process clause) on the mere allegation of arbitrariness by the

taxpayer.[41] There must be a factual foundation to such an unconstitutional taint. [42] This merely adheres to the

authoritative doctrine that, where the due process clause is invoked, considering that it is not a fixed rule but rather a

broad standard, there is a need for proof of such persuasive character. [43]

Petitioner is correct in saying that income is distinct from capital.[44]Income means all the wealth which flows

into the taxpayer other than a mere return on capital. Capital is a fund or property existing at one distinct point in time

while income denotes a flow of wealth during a definite period of time.[45] Income is gain derived and severed from

capital.[46] For income to be taxable, the following requisites must exist:

 (1) there must be gain;

(2) the gain must be realized or received and

(3) the gain must not be excluded by law or treaty from

taxation.[47]

Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words,

it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital.

The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in

the sale of its goods, i.e., the cost of goods[48] and other direct expenses from gross sales. Clearly, the capital is not

being taxed.

Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and

only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due

from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporations gross income.

Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at

the same time reducing the applicable tax rate.[49]

Statutes taxing the gross "receipts," "earnings," or "income" of particular

corporations are found in many jurisdictions. Tax thereon is generally held to be within the power
of a state to impose; or constitutional, unless it interferes with interstate commerce or violates the
requirement as to uniformity of taxation.[50]

The United States has a similar alternative minimum tax (AMT) system which is generally characterized by

a lower tax rate but a broader tax base.[51] Since our income tax laws are of American origin, interpretations by

American courts of our parallel tax laws have persuasive effect on the interpretation of these laws. [52] Although our

MCIT is not exactly the same as the AMT, the policy behind them and the procedure of their implementation are

comparable. On the question of the AMTs constitutionality, the United States Court of Appeals for the Ninth Circuit

stated in Okin v. Commissioner:[53]

In enacting the minimum tax, Congress attempted to remedy general taxpayer distrust of the system
growing from large numbers of taxpayers with large incomes who were yet paying no taxes.
 xxx xxx xxx

We thus join a number of other courts in upholding the constitutionality of the [AMT]. xxx [It] is a
rational means of obtaining a broad-based tax, and therefore is constitutional.[54]

The U.S. Court declared that the congressional intent to ensure that corporate taxpayers would contribute a minimum

amount of taxes was a legitimate governmental end to which the AMT bore a reasonable relation. [55]

American courts have also emphasized that Congress has the power to condition, limit or deny deductions from gross

income in order to arrive at the net that it chooses to tax. [56] This is because deductions are a matter of legislative

grace.[57]

Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of

the MCIT, taken with the reduction of the tax rate from 32% to 2%, is not constitutionally objectionable.

Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its members nor

does it present empirical data to show that the implementation of the MCIT resulted in the confiscation of their

property.

In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and

confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes. [58]Taxation is

necessarily burdensome because, by its nature, it adversely affects property rights. [59] The party alleging the laws

unconstitutionality has the burden to demonstrate the supposed violations in understandable terms. [60]

RR 9-98 MERELY CLARIFIES

SECTION 27(E) OF RA 8424

Petitioner alleges that RR 9-98 is a deprivation of property without due process of law because the MCIT is

being imposed and collected even when there is actually a loss, or a zero or negative taxable income:
Sec. 2.27(E) [MCIT] on Domestic Corporations.

(1) Imposition of the Tax. xxx The MCIT shall be imposed whenever such corporation has zero or
negative taxable income or whenever the amount of [MCIT] is greater than the normal income tax
due from such corporation. (Emphasis supplied)
 RR 9-98, in declaring that MCIT should be imposed whenever such corporation has zero or negative taxable

income, merely defines the coverage of Section 27(E). This means that even if a corporation incurs a net loss in its

business operations or reports zero income after deducting its expenses, it is still subject to an MCIT of 2% of its gross

income. This is consistent with the law which imposes the MCIT on gross income notwithstanding the amount of the

net income. But the law also states that the MCIT is to be paid only if it is greater than the normal net

income.Obviously, it may well be the case that the MCIT would be less than the net income of the corporation which

posts a zero or negative taxable income.

We now proceed to the issues involving the CWT.

The withholding tax system is a procedure through which taxes (including income taxes) are

collected.[61] Under Section 57 of RA 8424, the types of income subject to withholding tax are divided into three

categories: (a) withholding of final tax on certain incomes; (b) withholding of creditable tax at source and (c) tax-free

covenant bonds. Petitioner is concerned with the second category (CWT) and maintains that the revenue regulations

on the collection of CWT on sale of real estate categorized as ordinary assets are unconstitutional.

Petitioner, after enumerating the distinctions between capital and ordinary assets under RA 8424, contends

that Sections 2.57.2(J) and 2.58.2 of RR 2-98 and Sections 4(a)(ii) and (c)(ii) of RR 7-2003 were promulgated with

grave abuse of discretion amounting to lack of jurisdiction and patently in contravention of law[62] because they ignore

such distinctions.Petitioners conclusion is based on the following premises: (a) the revenue regulations use gross

selling price (GSP) or fair market value (FMV) of the real estate as basis for determining the income tax for the sale

of real estate classified as ordinary assets and (b) they mandate the collection of income tax on a per transaction

basis, i.e., upon consummation of the sale via the CWT, contrary to RA 8424 which calls for the payment of the net

income at the end of the taxable period.[63]

Petitioner theorizes that since RA 8424 treats capital assets and ordinary assets differently, respondents

cannot disregard the distinctions set by the legislators as regards the tax base, modes of collection and payment of

taxes on income from the sale of capital and ordinary assets.

Petitioners arguments have no merit.

AUTHORITY OF THE SECRETARY OF FINANCE
TO ORDER THE COLLECTION OF CWT ON
SALES OF REAL PROPERTY CONSIDERED AS
ORDINARY ASSETS

The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary

rules and regulations for the effective enforcement of the provisions of the law. Such authority is subject to the

limitation that the rules and regulations must not override, but must remain consistent and in harmony with, the law

they seek to apply and implement.[64] It is well-settled that an administrative agency cannot amend an act of

Congress.[65]

We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which

is sanctioned by our tax laws.[66]The withholding tax system was devised for three primary reasons: first, to provide

the taxpayer a convenient manner to meet his probable income tax liability; second, to ensure the collection of income

tax which can otherwise be lost or substantially reduced through failure to file the corresponding returns and third, to

improve the governments cash flow.[67] This results in administrative savings, prompt and efficient collection of taxes,

prevention of delinquencies and reduction of governmental effort to collect taxes through more complicated means

and remedies.[68]

Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any

person, national or juridical, residing in the Philippines. Such authority is derived from Section 57(B) of RA 8424

which provides:

SEC. 57. Withholding of Tax at Source.

xxx xxx xxx

(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon the
recommendation of the [CIR], require the withholding of a tax on the items of
income payable to natural or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not less than one percent
(1%) but not more than thirty-two percent (32%) thereof, which shall be credited
against the income tax liability of the taxpayer for the taxable year.
 The questioned provisions of RR 2-98, as amended, are well within the authority given by Section 57(B) to

the Secretary, i.e., the graduated rate of 1.5%-5% is between the 1%-32% range; the withholding tax is imposed on

the income payable and the tax is creditable against the income tax liability of the taxpayer for the taxable year.

EFFECT OF RRS ON THE TAX BASE FOR THE

INCOME TAX OF INDIVIDUALS OR
CORPORATIONS ENGAGED IN THE REAL
ESTATE BUSINESS

Petitioner maintains that RR 2-98, as amended, arbitrarily shifted the tax base of a real estate business income tax

from net income to GSP or FMV of the property sold.

Petitioner is wrong.

The taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible tax

obligation. [69] They are installments on the annual tax which may be due at the end of the taxable year. [70]

Under RR 2-98, the tax base of the income tax from the sale of real property classified as ordinary assets

remains to be the entitys net income imposed under Section 24 (resident individuals) or Section 27 (domestic

corporations) in relation to Section 31 of RA 8424, i.e. gross income less allowable deductions. The CWT is to be

deducted from the net income tax payable by the taxpayer at the end of the taxable year. [71] Precisely, Section 4(a)(ii)

and (c)(ii) of RR 7-2003 reiterate that the tax base for the sale of real property classified as ordinary assets remains to

be the net taxable income:

Section 4. Applicable taxes on sale, exchange or other disposition of real property. - Gains/Income
derived from sale, exchange, or other disposition of real properties shall unless otherwise exempt,
be subject to applicable taxes imposed under the Code, depending on whether the subject properties
are classified as capital assets or ordinary assets;

xxx xxx xxx

a. In the case of individual citizens (including estates and trusts), resident aliens, and non-
resident aliens engaged in trade or business in the Philippines;

xxx xxx xxx

(ii) The sale of real property located in the Philippines, classified as ordinary assets, shall be subject
to the [CWT] (expanded) under Sec. 2.57.2(j) of [RR 2-98], as amended, based on the [GSP] or
current [FMV] as determined in accordance with Section 6(E) of the Code, whichever is higher,
 and consequently, to the ordinary income tax imposed under Sec. 24(A)(1)(c) or 25(A)(1) of
the Code, as the case may be, based on net taxable income.

xxx xxx xxx

c. In the case of domestic corporations.

The sale of land and/or building classified as ordinary asset and other real property (other than land
and/or building treated as capital asset), regardless of the classification thereof, all of which are
located in the Philippines, shall be subject to the [CWT] (expanded) under Sec. 2.57.2(J) of [RR
2-98], as amended, and consequently, to the ordinary income tax under Sec. 27(A) of the Code.
In lieu of the ordinary income tax, however, domestic corporations may become subject to the
[MCIT] under Sec. 27(E) of the same Code, whichever is applicable. (Emphasis supplied)

Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return and credit the taxes withheld (by

the withholding agent/buyer) against its tax due. If the tax due is greater than the tax withheld, then the taxpayer shall

pay the difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a

refund or tax credit.Undoubtedly, the taxpayer is taxed on its net income.

The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality

and convenience. Obviously, the withholding agent/buyer who is obligated to withhold the tax does not know, nor is

he privy to, how much the taxpayer/seller will have as its net income at the end of the taxable year. Instead, said

withholding agents knowledge and privity are limited only to the particular transaction in which he is a party. In such

a case, his basis can only be the GSP or FMV as these are the only factors reasonably known or knowable by him in

connection with the performance of his duties as a withholding agent.

NO BLURRING OF DISTINCTIONS
BETWEEN ORDINARY ASSETS AND CAPITAL
ASSETS

RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real property categorized as ordinary

assets. On the other hand, Section 27(D)(5) of RA 8424 imposes a final tax and flat rate of 6% on the gain presumed

to be realized from the sale of a capital asset based on its GSP or FMV. This final tax is also withheld at source.[72]

The differences between the two forms of withholding tax, i.e., creditable and final, show that ordinary assets

are not treated in the same manner as capital assets. Final withholding tax (FWT) and CWT are distinguished as

follows:
 FWT
a) The amount of income tax withheld by
the withholding agent is constituted as a
full and final payment of the income tax
due from the payee on the said income.
CWT
a) Taxes withheld on certain income
payments are intended to equal or at least
approximate the tax due of the payee on said
income.

b)The liability for payment of the tax
rests primarily on the payor as a
withholding agent.
c) The payee is not required to file an
income tax return for the particular
income.[73]
b) Payee of income is required to report the
income and/or pay the difference between
the tax withheld and the tax due on the
income. The payee also has the right to ask
for a refund if the tax withheld is more than
the tax due.
c) The income recipient is still required to
file an income tax return, as prescribed in
Sec. 51 and Sec. 52 of the NIRC, as
amended.[74]

As previously stated, FWT is imposed on the sale of capital assets. On the other hand, CWT is imposed on the sale of

ordinary assets. The inherent and substantial differences between FWT and CWT disprove petitioners contention that

ordinary assets are being lumped together with, and treated similarly as, capital assets in contravention of the pertinent

provisions of RA 8424.

Petitioner insists that the levy, collection and payment of CWT at the time of transaction are contrary to the

provisions of RA 8424 on the manner and time of filing of the return, payment and assessment of income tax involving

ordinary assets.[75]

The fact that the tax is withheld at source does not automatically mean that it is treated exactly the same way

as capital gains. As aforementioned, the mechanics of the FWT are distinct from those of the CWT. The withholding

agent/buyers act of collecting the tax at the time of the transaction by withholding the tax due from the income payable

is the essence of the withholding tax method of tax collection.

NO RULE THAT ONLY PASSIVE

INCOMES CAN BE SUBJECT TO CWT

Petitioner submits that only passive income can be subjected to withholding tax, whether final or

creditable. According to petitioner, the whole of Section 57 governs the withholding of income tax on passive income.
The enumeration in Section 57(A) refers to passive income being subjected to FWT. It follows that Section 57(B) on

CWT should also be limited to passive income:

SEC. 57. Withholding of Tax at Source.

(A) Withholding of Final Tax on Certain Incomes. Subject to rules and regulations, the [Secretary]
may promulgate, upon the recommendation of the [CIR], requiring the filing of income tax return
by certain income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C),
24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5);
28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4),
28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified items of income shall
be withheld by payor-corporation and/or person and paid in the same manner and subject to the
same conditions as provided in Section 58 of this Code.

(B) Withholding of Creditable Tax at Source. The [Secretary] may, upon the recommendation of
the [CIR], require the withholding of a tax on the items of income payable to natural or juridical
persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the
rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof, which
shall be credited against the income tax liability of the taxpayer for the taxable year. (Emphasis
supplied)

This line of reasoning is non sequitur.

Section 57(A) expressly states that final tax can be imposed on certain kinds of income and enumerates these

as passive income. The BIR defines passive income by stating what it is not:

if the income is generated in the active pursuit and performance of the corporations primary
purposes, the same is not passive income[76]

It is income generated by the taxpayers assets. These assets can be in the form of real properties that return rental

income, shares of stock in a corporation that earn dividends or interest income received from savings.

On the other hand, Section 57(B) provides that the Secretary can require a CWT on income payable to natural

or juridical persons, residing in the Philippines. There is no requirement that this income be passive income.If that

were the intent of Congress, it could have easily said so.

Indeed, Section 57(A) and (B) are distinct. Section 57(A) refers to FWT while Section 57(B) pertains to CWT. The

former covers the kinds of passive income enumerated therein and the latter encompasses any income other than those

listed in 57(A). Since the law itself makes distinctions, it is wrong to regard 57(A) and 57(B) in the same way.
 To repeat, the assailed provisions of RR 2-98, as amended, do not modify or deviate from the text of Section

57(B). RR 2-98 merely implements the law by specifying what income is subject to CWT. It has been held that, where

a statute does not require any particular procedure to be followed by an administrative agency, the agency may adopt

any reasonable method to carry out its functions.[77] Similarly, considering that the law uses the general term income,

the Secretary and CIR may specify the kinds of income the rules will apply to based on what is feasible. In addition,

administrative rules and regulations ordinarily deserve to be given weight and respect by the courts [78] in view of the

rule-making authority given to those who formulate them and their specific expertise in their respective fields.

NO DEPRIVATION OF PROPERTY
WITHOUT DUE PROCESS

Petitioner avers that the imposition of CWT on GSP/FMV of real estate classified as ordinary assets deprives

its members of their property without due process of law because, in their line of business, gain is never assured by

mere receipt of the selling price. As a result, the government is collecting tax from net income not yet gained or earned.

Again, it is stressed that the CWT is creditable against the tax due from the seller of the property at the end of the

taxable year. The seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is

taken that is not due so there is no confiscation of property repugnant to the constitutional guarantee of due

process. More importantly, the due process requirement applies to the power to tax. [79] The CWT does not impose new

taxes nor does it increase taxes.[80] It relates entirely to the method and time of payment.

Petitioner protests that the refund remedy does not make the CWT less burdensome because taxpayers have

to wait years and may even resort to litigation before they are granted a refund. [81] This argument is misleading. The

practical problems encountered in claiming a tax refund do not affect the constitutionality and validity of the CWT as

a method of collecting the tax.

Petitioner complains that the amount withheld would have otherwise been used by the enterprise to pay labor

wages, materials, cost of money and other expenses which can then save the entity from having to obtain loans

entailing considerable interest expense. Petitioner also lists the expenses and pitfalls of the trade which add to the

burden of the realty industry: huge investments and borrowings; long gestation period; sudden and unpredictable
interest rate surges; continually spiraling development/construction costs; heavy taxes and prohibitive up-front

regulatory fees from at least 20 government agencies.[82]

Petitioners lamentations will not support its attack on the constitutionality of the CWT. Petitioners complaints

are essentially matters of policy best addressed to the executive and legislative branches of the government. Besides,

the CWT is applied only on the amounts actually received or receivable by the real estate entity. Sales on installment

are taxed on a per-installment basis.[83] Petitioners desire to utilize for its operational and capital expenses money

earmarked for the payment of taxes may be a practical business option but it is not a fundamental right which can be

demanded from the court or from the government.

NO VIOLATION OF EQUAL PROTECTION

Petitioner claims that the revenue regulations are violative of the equal protection clause because the CWT is being

levied only on real estate enterprises. Specifically, petitioner points out that manufacturing enterprises are not similarly

imposed a CWT on their sales, even if their manner of doing business is not much different from that of a real estate

enterprise.Like a manufacturing concern, a real estate business is involved in a continuous process of production and

it incurs costs and expenditures on a regular basis. The only difference is that goods produced by the real estate

business are house and lot units.[84]

Again, we disagree.

The equal protection clause under the Constitution means that no person or class of persons shall be deprived

of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like

circumstances.[85] Stated differently, all persons belonging to the same class shall be taxed alike. It follows that the

guaranty of the equal protection of the laws is not violated by legislation based on a reasonable

classification. Classification, to be valid, must (1) rest on substantial distinctions; (2) be germane to the purpose of the

law; (3) not be limited to existing conditions only and (4) apply equally to all members of the same class. [86]
The taxing power has the authority to make reasonable classifications for purposes of taxation. [87] Inequalities which

result from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation. [88] The

real estate industry is, by itself, a class and can be validly treated differently from other business enterprises.

Petitioner, in insisting that its industry should be treated similarly as manufacturing enterprises, fails to realize that

what distinguishes the real estate business from other manufacturing enterprises, for purposes of the imposition of the

CWT, is not their production processes but the prices of their goods sold and the number of transactions involved. The

income from the sale of a real property is bigger and its frequency of transaction limited, making it less cumbersome

for the parties to comply with the withholding tax scheme.

On the other hand, each manufacturing enterprise may have tens of thousands of transactions with several thousand

customers every month involving both minimal and substantial amounts. To require the customers of manufacturing

enterprises, at present, to withhold the taxes on each of their transactions with their tens or hundreds of suppliers may

result in an inefficient and unmanageable system of taxation and may well defeat the purpose of the withholding tax

system.

Petitioner counters that there are other businesses wherein expensive items are also sold infrequently, e.g. heavy

equipment, jewelry, furniture, appliance and other capital goods yet these are not similarly subjected to the

CWT.[89] As already discussed, the Secretary may adopt any reasonable method to carry out its functions.[90] Under

Section 57(B), it may choose what to subject to CWT.

A reading of Section 2.57.2 (M) of RR 2-98 will also show that petitioners argument is not accurate. The sales of

manufacturers who have clients within the top 5,000 corporations, as specified by the BIR, are also subject to CWT

for their transactions with said 5,000 corporations. [91]

SECTION 2.58.2 OF RR NO. 2-98 MERELY

IMPLEMENTS SECTION 58 OF RA 8424

Lastly, petitioner assails Section 2.58.2 of RR 2-98, which provides that the Registry of Deeds should not

effect the regisration of any document transferring real property unless a certification is issued by the CIR that the
withholding tax has been paid. Petitioner proffers hardly any reason to strike down this rule except to rely on its

contention that the CWT is unconstitutional. We have ruled that it is not. Furthermore, this provision uses almost

exactly the same wording as Section 58(E) of RA 8424 and is unquestionably in accordance with it:

Sec. 58. Returns and Payment of Taxes Withheld at Source.

(E) Registration with Register of Deeds. - No registration of any document transferring real
property shall be effected by the Register of Deeds unless the [CIR] or his duly authorized
representative has certified that such transfer has been reported, and the capital gains or
[CWT], if any, has been paid: xxxx any violation of this provision by the Register of Deeds shall
be subject to the penalties imposed under Section 269 of this Code. (Emphasis supplied)

CONCLUSION

The renowned genius Albert Einstein was once quoted as saying [the] hardest thing in the world to understand is the

income tax.[92] When a party questions the constitutionality of an income tax measure, it has to contend not only with

Einsteins observation but also with the vast and well-established jurisprudence in support of the plenary powers of

Congress to impose taxes. Petitioner has miserably failed to discharge its burden of convincing the Court that the

imposition of MCIT and CWT is unconstitutional.

WHEREFORE, the petition is hereby DISMISSED.

THIRD DIVISION

THE CITY G.R. No. 181845

OF MANILA,LIBERTY M. TOLEDO, in her
capacity as THE TREASURER
OF MANILA and JOSEPH SANTIAGO, in Present:
his capacity as the CHIEF OF THE LICENSE
DIVISION OF CITY OF MANILA, YNARES-SANTIAGO, J.,
Petitioners, Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
- versus - NACHURA, and
PERALTA, JJ.

COCA-COLA BOTTLERS PHILIPPINES,

INC., Promulgated:
Respondent.
 August 4, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil Procedure
seeking to review and reverse the Decision[1] dated 18 January 2008 and Resolution[2] dated 18 February 2008 of the
Court of Tax Appeals en banc (CTA en banc) in C.T.A. EB No. 307. In its assailed Decision, the CTA en
banc dismissed the Petition for Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph
Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007,[3] 8 June 2007,[4] and 26 July 2007,[5] of the
CTA First Division in C.T.A. AC No. 31, which, in turn, dismissed the Petition for Review of petitioners in said case
for being filed out of time. In its questioned Resolution, the CTA en banc denied the Motion for Reconsideration of
petitioners.

Petitioner City of Manila is a public corporation empowered to collect and assess business taxes, revenue
fees, and permit fees, through its officers, petitioners Toledo and Santiago, in their capacities as City Treasurer and
Chief of the Licensing Division, respectively. On the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a
corporation engaged in the business of manufacturing and selling beverages, and which maintains a sales office in the
City of Manila.

The case stemmed from the following facts:

Prior to 25 February 2000, respondent had been paying the City of Manila local business tax only under
Section 14 of Tax Ordinance No. 7794,[6] being expressly exempted from the business tax under Section 21 of the
same tax ordinance. Pertinent provisions of Tax Ordinance No. 7794 provide:

Section 14. Tax on Manufacturers, Assemblers and Other Processors. There is hereby
imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind or nature, in accordance with any of the following schedule:
xxxx

over P6,500,000.00 up to
P25,000,000.00 - - - - - - - - - - - - - - - - - - - -- P36,000.00 plus 50% of 1%
in excess of P6,500,000.00

xxxx
 Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage Taxes
under the NIRC. On any of the following businesses and articles of commerce subject to excise,
value-added or percentage taxes under the National Internal Revenue Code hereinafter referred to
as NIRC, as amended, a tax of FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on
the gross sales or receipts of the preceding calendar year is hereby imposed:

(A) On persons who sell goods and services in the course of trade or business; and those
who import goods whether for business or otherwise; as provided for in Sections 100 to 103 of the
NIRC as administered and determined by the Bureau of Internal Revenue pursuant to the pertinent
provisions of the said Code.

xxxx
(D) Excisable goods subject to VAT
(1) Distilled spirits
(2) Wines
xxxx

(8) Coal and coke

(9) Fermented liquor, brewers wholesale price, excluding the ad valorem tax

xxxx

PROVIDED, that all registered businesses in the City of Manilathat are already paying the
aforementioned tax shall be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No. 7988, [7] amending
certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to
certain establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting
the proviso found therein, which stated that all registered businesses in the City of Manila that are already paying the
aforementioned tax shall be exempted from payment thereof. Petitioner City of Manila approved only after a year,
on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.

Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-Cola Bottlers
Philippines, Inc. v. City of Manila[8] (Coca-Cola case) for the following reasons: (1) Tax Ordinance No. 7988 was
enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its implementing rules
and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did
not legally exist.

However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and
void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794, as amended
by the aforementioned tax ordinances, for deficiency local business taxes, penalties, and interest, in the total amount
of P18,583,932.04, for the third and fourth quarters of the year 2000.Respondent filed a protest with petitioner Toledo
on the ground that the said assessment amounted to double taxation, as respondent was taxed twice, i.e., under Sections
14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did
not respond to the protest of respondent.

Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47, an action for the
cancellation of the assessment against respondent for business taxes, which was docketed as Civil Case No. 03-
107088.

On 14 July 2006, the RTC rendered a Decision[9] dismissing Civil Case No. 03-107088. The RTC ruled that
the business taxes imposed upon the respondent under Sections 14 and 21 of Tax Ordinance No. 7988, as amended,
were not of the same kind or character; therefore, there was no double taxation. The RTC, though, in an
Order[10] dated 16 November 2006, granted the Motion for Reconsideration of respondent, decreed the cancellation
and withdrawal of the assessment against the latter, and barred petitioners from further imposing/assessing local
business taxes against respondent under Section 21 of Tax Ordinance No. 7794, as amended by Tax Ordinance No.
7988 and Tax Ordinance No. 8011. The 16 November 2006 Decision of the RTC was in conformity with the ruling
of this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were declared
null and void. The Motion for Reconsideration of petitioners was denied by the RTC in an Order [11] dated 4 April
2007.Petitioners received a copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of
the 16 November 2006 Order of the same court, on 20 April 2007.

On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File Petition for Review,
praying for a 15-day extension or until 20 May 2007 within which to file their Petition. The Motion for Extension of
petitioners was docketed as C.T.A. AC No. 31, raffled to the CTA First Division.

Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for Extension of Time
to File a Petition for Review, praying for another 10-day extension, or until 30 May 2007, within which to file their
Petition.

On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing C.T.A. AC No.
31 for failure of petitioners to timely file their Petition for Review on 20 May 2007.

Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their Petition for Review
therewith on 30 May 2007 viaregistered mail. On 8 June 2007, the CTA First Division issued another Resolution,
reiterating the dismissal of the Petition for Review of petitioners.

Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007 and 8 June 2007,
but their motion was denied by the CTA First Division in a Resolution dated 26 July 2007. The CTA First Division
reasoned that the Petition for Review of petitioners was not only filed out of time -- it also failed to comply with the
provisions of Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA.

Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as C.T.A. EB No. 307,
arguing that the CTA First Division erred in dismissing their Petition for Review in C.T.A. AC No. 31 for being filed
out of time, without considering the merits of their Petition.

The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for Review of petitioners
and affirming the Resolutions dated 24 May 2007, 8 June 2007, and 26 July 2007 of the CTA First Division. The
CTA en banc similarly denied the Motion for Reconsideration of petitioners in a Resolution dated 18 February 2008.

Hence, the present Petition, where petitioners raise the following issues:

I. WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH

THE REGLEMENTARY PERIOD TO TIMELY APPEAL THE CASE FOR REVIEW
BEFORE THE [CTA DIVISION].

II. WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER

[COCA-COLA CASE] IS DOCTRINAL AND CONTROLLING IN THE INSTANT
CASE.

III. WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS

TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO. 7794, AS
AMENDED].

IV. WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX

ORDINANCE NO. 7794, AS AMENDED] CONSTITUTES DOUBLE TAXATION.

Petitioners assert that Section 1, Rule 7[12] of the Revised Rules of the CTA refers to certain provisions of the
Rules of Court, such as Rule 42 of the latter, and makes them applicable to the tax court. Petitioners then cannot be
faulted in relying on the provisions of Section 1, Rule 42 [13] of the Rules of Court as regards the period for filing a
Petition for Review with the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period,
reckoned from receipt of the adverse decision of the trial court, within which to file a Petition for Review with the
Court of Appeals.The same rule allows an additional 15-day period within which to file such a Petition; and, only for
the most compelling reasons, another extension period not to exceed 15 days. Petitioners received on 20 April 2007 a
copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November 2006 Order
of the same court. On 4 May 2007, believing that they only had 15 days to file a Petition for Review with the CTA in
division, petitioners moved for a 15-day extension, or until 20 May 2007, within which to file said Petition. Prior to
the lapse of their first extension period, or on 18 May 2007, petitioners again moved for a 10-day extension, or until 30
May 2007, within which to file their Petition for Review. Thus, when petitioners filed their Petition for Review with
the CTA First Division on 30 May 2007, the same was filed well within the reglementary period for doing so.

Petitioners argue in the alternative that even assuming that Section 3(a), Rule 8 [14] of the Revised Rules of
the CTA governs the period for filing a Petition for Review with the CTA in division, still, their Petition for Review
was filed within the reglementary period. Petitioners call attention to the fact that prior to the lapse of the 30-day
period for filing a Petition for Review under Section 3(a), Rule 8 of the Revised Rules of the CTA, they had already
moved for a 10-day extension, or until 30 May 2007, within which to file their Petition. Petitioners claim that there
was sufficient justification in equity for the grant of the 10-day extension they requested, as the primordial
consideration should be the substantive, and not the procedural, aspect of the case. Moreover, Section 3(a), Rule 8 of
the Revised Rules of the CTA, is silent as to whether the 30-day period for filing a Petition for Review with the CTA
in division may be extended or not.

Petitioners also contend that the Coca-Cola case is not determinative of the issues in the present case because
the issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 is not the lis mota herein.The Coca-
Cola case is not doctrinal and cannot be considered as the law of the case.

Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No. 7988 and Tax
Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local legislation. The nullity of Tax Ordinance
No. 7988 and Tax Ordinance No. 8011 does not effectively bar petitioners from imposing local business taxes upon
respondent under Sections 14 and 21 of Tax Ordinance No. 7794, as they were read prior to their being amended by
the foregoing null and void tax ordinances.

Petitioners finally maintain that imposing upon respondent local business taxes under both Sections 14 and
21 of Tax Ordinance No. 7794 does not constitute direct double taxation. Section 143 of the LGC gives municipal, as
well as city governments, the power to impose business taxes, to wit:

SECTION 143. Tax on Business. The municipality may impose taxes on the following
businesses:

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and

compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of
whatever kind or nature, in accordance with the following schedule:

xxxx

(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or

nature in accordance with the following schedule:

xxxx
 (c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors,
dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half
(1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section:

xxxx

Provided, however, That barangays shall have the exclusive power to levy taxes, as
provided under Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty
thousand pesos (P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000) or
less, in the case of municipalities.

(e) On contractors and other independent contractors, in accordance with the following
schedule:

xxxx

(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one
percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions
and discounts from lending activities, income from financial leasing, dividends, rentals on property
and profit from exchange or sale of property, insurance premium.

(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate
not exceeding Fifty pesos (P50.00) per peddler annually.

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian
concerned may deem proper to tax: Provided, That on any business subject to the excise, value-
added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall
not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC. On the other hand, the local
business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services in the
course of trade or business, and those importing goods for business or otherwise, who, pursuant to Section 143(h) of
the LGC, are subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal Revenue
Code (NIRC). Thus, there can be no double taxation when respondent is being taxed under both Sections 14 and 21
of Tax Ordinance No. 7794, for under the first, it is being taxed as a manufacturer; while under the second, it is being
taxed as a person selling goods in the course of trade or business subject to excise, VAT, or percentage tax.

The Court first addresses the issue raised by petitioners concerning the period within which to file with the
CTA a Petition for Review from an adverse decision or ruling of the RTC.

The period to appeal the decision or ruling of the RTC to the CTA viaa Petition for Review is specifically
governed by Section 11 of Republic Act No. 9282, [15] and Section 3(a), Rule 8 of the Revised Rules of the CTA.

Section 11 of Republic Act No. 9282 provides:

 SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the
Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an Appeal with the CTA within thirty (30) days after the receipt of such decision
or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2)
herein.

Appeal shall be made by filing a petition for review under a procedure analogous to
that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty
(30) days from the receipt of the decision or ruling or in the case of inaction as herein provided,
from the expiration of the period fixed by law to act thereon. x x x. (Emphasis supplied.)

Section 3(a), Rule 8 of the Revised Rules of the CTA states:

SEC 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling
or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for
refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or
a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court
by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or
expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments. x x x. (Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or ruling of the RTC to
the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse
decision or ruling of the RTC.

It is also true that the same provisions are silent as to whether such 30-day period can be extended or
not. However, Section 11 of Republic Act No. 9282 does state that the Petition for Review shall be filed with the
CTA following the procedure analogous to Rule 42 of the Revised Rules of Civil Procedure. Section 1, Rule
42[16] of the Revised Rules of Civil Procedure provides that the Petition for Review of an adverse judgment or final
order of the RTC must be filed with the Court of Appeals within: (1) the original 15-day period from receipt of the
judgment or final order to be appealed; (2) an extended period of 15 days from the lapse of the original period; and
(3) only for the most compelling reasons, another extended period not to exceed 15 days from the lapse of the first
extended period.

Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period
for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section
3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be
allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15
days.

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day period within which
to file the Petition for Review with the CTA may, indeed, be extended, thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an additional period of
fifteen (15) days for the movant to file a Petition for Review, upon Motion, and payment of the full
amount of the docket fees. A further extension of fifteen (15) days may be granted on compelling
reasons in accordance with the provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure
x x x.[17]

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their Petition for
Review in C.T.A. AC No. 31 within the reglementary period.

From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the RTC, denying their
Motion for Reconsideration of the 16 November 2006 Order, petitioners had 30 days, or until 20 May 2007, within
which to file their Petition for Review with the CTA. Hence, the Motion for Extension filed by petitioners on 4 May
2007 grounded on their belief that the reglementary period for filing their Petition for Review with the CTA was to
expire on 5 May 2007, thus, compelling them to seek an extension of 15 days, or until 20 May 2007, to file said
Petition was unnecessary and superfluous. Even without said Motion for Extension, petitioners could file their Petition
for Review until 20 May 2007, as it was still within the 30-day reglementary period provided for under Section 11 of
Republic Act No. 9282; and implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA.

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the 30-day
reglementary period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May
2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. The CTA First
Division should have granted the same, as it was sanctioned by the rules of procedure. In fact, petitioners were only
praying for a 10-day extension, five days less than the 15-day extended period allowed by the rules. Thus, when
petitioners filed viaregistered mail their Petition for Review in C.T.A. AC No. 31 on 30 May 2007, they were able to
comply with the reglementary period for filing such a petition.

Nevertheless, there were other reasons for which the CTA FirstDivision dismissed the Petition for Review
of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to Section 4 of Rule 5, and Section 2 of Rule 6
of the Revised Rules of the CTA. The Court sustains the CTA First Division in this regard.

Section 4, Rule 5 of the Revised Rules of the CTA requires that:

 SEC. 4. Number of copies. The parties shall file eleven signed copies of every paper for cases before
the Court en banc and six signed copies for cases before a Division of the Court in addition to
the signed original copy, except as otherwise directed by the Court. Papers to be filed in more than
one case shall include one additional copy for each additional case. (Emphasis supplied.)

Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:

SEC. 2. Petition for review; contents. The petition for review shall contain allegations showing the
jurisdiction of the Court, a concise statement of the complete facts and a summary statement of the
issues involved in the case, as well as the reasons relied upon for the review of the challenged
decision. The petition shall be verified and must contain a certification against forum shopping as
provided in Section 3, Rule 46 of the Rules of Court. A clearly legible duplicate original or
certified true copy of the decision appealed from shall be attached to the petition.(Emphasis
supplied.)

The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the Revised Rules of the
CTA, which provides:

SECTION 1. Applicability of the Rules of Court on procedure in the Court of Appeals,

exception. The procedure in the Court en banc or in Divisions in original or in appealed cases shall
be the same as those in petitions for review and appeals before the Court of Appeals pursuant to the
applicable provisions of Rules 42, 43, 44, and 46 of the Rules of Court, except as otherwise
provided for in these Rules. (Emphasis supplied.)

As found by the CTA First Division and affirmed by the CTA en banc, the Petition for Review filed by
petitioners via registered mail on 30 May 2007 consisted only of one copy and all the attachments thereto, including
the Decision dated 14 July 2006; and that the assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC
in Civil Case No. 03-107088 were mere machine copies. Evidently, petitioners did not comply at all with the
requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of the Revised Rules of the CTA. Although
the Revised Rules of the CTA do not provide for the consequence of such non-compliance, Section 3, Rule 42 of the
Rules of Court may be applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the CTA. Section
3, Rule 42 of the Rules of Court reads:

SEC. 3. Effect of failure to comply with requirements. The failure of the petitioner to
comply with any of the foregoing requirements regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the petition, and the contents of and the documents
which should accompany the petition shall be sufficient ground for the dismissal thereof. (Emphasis
supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July 2006 and assailed
Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No. 03-107088, but a closer examination
of the stamp on said documents reveals that they were prepared and certified only on 14 August 2007, about two
months and a half after the filing of the Petition for Review by petitioners.

Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5, and Section 2 of
Rule 6 of the Revised Rules of the CTA. Hence, although the Court had, in previous instances, relaxed the application
of rules of procedure, it cannot do so in this case for lack of any justification.

Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31 should have been
given due course by the CTA First Division, it is still dismissible for lack of merit.

Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. The
pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void,
which this Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department
of Justice (DOJ) as null and void and without legal effect due to the failure of herein petitioner City of Manila to
satisfy the requirement under the law that said ordinance be published for three consecutive
days. Petitioner City of Manila never appealed said declaration of the DOJ Secretary; thus, it attained finality after the
lapse of the period for appeal of the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance No.
7988, did not cure the defects of the latter, which, in any way, did not legally exist.

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are null and void
and without any legal effect.Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax
Ordinance No. 7988 and Tax Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No.
8011, respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance
No. 7944 as they were originally read, without the amendment by the null and void tax ordinances.

Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 by petitioner City of Manila, petitioners subjected and assessed respondent only for the local business tax
under Section 14 of Tax Ordinance No. 7794, but never under Section 21 of the same. This was due to the clear and
unambiguous provisoin Section 21 of Tax Ordinance No. 7794, which stated that all registered business in the City
of Manila that are already paying the aforementioned tax shall be exempted from payment thereof. The
aforementioned tax referred to in said proviso refers to local business tax. Stated differently, Section 21 of Tax
Ordinance No. 7794 exempts from the payment of the local business tax imposed by said section, businesses that are
already paying such tax under other sections of the same tax ordinance. The said proviso, however, was deleted from
Section 21 of Tax Ordinance No. 7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners
began assessing respondent for the local business tax under Section 21 of Tax Ordinance No. 7794, as amended.

The Court easily infers from the foregoing circumstances that petitioners themselves believed that prior to
Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent was exempt from the local business tax under
Section 21 of Tax Ordinance No. 7794. Hence, petitioners had to wait for the deletion of the exempting proviso in
Section 21 of Tax Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they assessed
respondent for the local business tax under said section. Yet, with the pronouncement by this Court in the Coca-
Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal effect, then
Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in
effect.Accordingly, respondent should not have been subjected to the local business tax under Section 21 of Tax
Ordinance No. 7794 for the third and fourth quarters of 2000, given its exemption therefrom since it was already
paying the local business tax under Section 14 of the same ordinance.

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own
detriment. Said exempting provisowas precisely included in said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the
same person twice by the same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice, when
it should be but once. Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and the taxes must be of the same kind or character.[18]

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the
taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same
subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons
conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner
City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for
the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross
sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No. 7794 is
specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and cities to
impose a local business tax, and to which any local business tax imposed by petitioner City of Manila must conform. It
is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a)
of the LGC, said municipality or city may no longer subject the same manufacturers, etc. to a business tax under
Section 143(h) of the same Code.Section 143(h) may be imposed only on businesses that are subject to excise tax,
VAT, or percentage tax under the NIRC, and that are not otherwise specified in preceding paragraphs. In the same
way, businesses such as respondents, already subject to a local business tax under Section 14 of Tax Ordinance No.
7794 [which is based on Section 143(a) of the LGC], can no longer be made liable for local business tax under Section
21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC].
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED. No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified
that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]
Penned by Associate Justice Juanito C. Castaeda, Jr. with Presiding Justice Ernesto D. Acosta, Associate Justices
Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez, concurring, rollo, pp. 32-
44.
[2]
Id. at 45-46.
[3]
Signed by Presiding Justice Ernesto D. Acosta and Associate Justices Lovell R. Bautista and Caesar A.
Casanova, rollo, pp. 106-107.
[4]
Id. at 127-129.
[5]
Id. at 130-133.
[6]
Otherwise known as Revenue Code of the City of Manila. Tax Ordinance No. 7794, as referred to in this case, is
deemed to have already incorporated the amendments previously introduced to it by Tax Ordinance No.
7807. The Court no longer highlights the fact of the previous amendment of Tax Ordinance No. 7794 by Tax
Ordinance No. 7807, since it is not an issue in this case, and to avoid confusion with the subsequent
amendment of the former by Tax Ordinances No. 7988 and No. 8011.
[7]
Otherwise known as Revised Revenue Code of the City of Manila.
[8]
G.R. No. 156252, 27 June 2006, 493 SCRA 279.
[9]
Penned by Presiding Judge Augusto T. Gutierrez, rollo, pp. 47-53.
[10]
Id. at 89-90.
[11]
Id. at 96-97.
[12]
SEC. 1. Applicability of the Rules on procedure in the Court of Appeals, exception. The procedure in the Court En
Banc or in Divisions in original and in appealed cases shall be the same as those in petitions for review and
appeals before the Court of Appeals pursuant to the applicable provisions of Rules 42, 43, 44 and 46 of the
Rules of Court, except as otherwise provided for in these Rules.
[13]
SEC. 1. How appeal taken; time for filing. A party desiring to appeal from a decision of the Regional Trial Court
rendered in the exercise of its appellate jurisdiction may file a verified petition for review with the Court of
Appeals, paying at the same time to the clerk of said court the corresponding docket and other lawful fees,
depositing the amount of P500.00 for costs, and furnishing the Regional Trial Court and the adverse party
with a copy of the petition. The petition shall be filed and served within fifteen (15) days from notice of the
decision sought to be reviewed or of the denial of petitioners motion for new trial or reconsideration filed in
due time after judgment. Upon proper motion and the payment of the full amount of the docket and other
lawful fees and the deposit for costs before the expiration of the reglementary period, the Court of Appeals
 may grant an additional period of fifteen (15) days only within which to file the petition for review. No further
extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days.
[14]
SEC. 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the inaction
of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue
taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of
Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original
jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of
such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue
to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims
for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for
review within the two-year period prescribed by law from payment or collection of the taxes.
[15]
An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a
Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain
Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax
Appeals and for Other Purposes.
[16]
Section 1. How appeal taken; time for filing. x x x The petition shall be filed and served within fifteen (15) days
from notice of the decision sought to be reviewed or of the denial of petitioners motion for new trial or
reconsideration filed in due time after judgment. Upon proper motion and the payment of the full amount of
the docket and other lawful fees and the deposit for costs before the expiration of the reglementary period,
the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition
for review. No further extension shall be granted except for the most compelling reason and in no case to
exceed fifteen (15) days.
[17]
Rollo, p. 40.
[18]
Commissioner of Internal Revenue v. Bank of Commerce, G.R. No. 149636, 8 June 2005, 459 SCRA 638, 655.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.

Sotero H. Laurel for respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco Arca
of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents,
declaring Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is
made permanent. No pronouncement as to cost.
 SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.)
FRANC
ISCO
ARCA

J
u
d
g
e
1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and
signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE

PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE
ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY
OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE
MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any
position or occupation or business enumerated therein, whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons
employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both
the Philippine Government and any foreign government, and those working in their respective households, and
members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or
fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the
Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of the
writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a
judgment declaring said Ordinance No. 6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared
null and void:

1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537
is discriminatory and violative of the rule of the uniformity in taxation;

2) As a police power measure, it makes no distinction between useful and non-useful occupations,
imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration
and that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus,
violating the fundamental principle on illegal delegation of legislative powers:
 3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived
of their rights to life, liberty and property and therefore, violates the due process and equal
protection clauses of the Constitution.7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered
judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition on
March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the latter's
decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN

RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF
UNIFORMITY OF TAXATION.

II

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF

LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST
UNDUE DESIGNATION OF LEGISLATIVE POWER.

III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF

LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND
EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police
power of the state, it being principally a regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval
or disapproval of applications for employment permits and therefore is regulatory in character the second part which
requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or
justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of
the ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause of
the Constitution does not forbid classification, it is imperative that the classification should be based on real and
substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of
P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or
whether he is a lowly employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion.
It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide
or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for
its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to
grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited
delegation of power to allow or prevent an activity per se lawful. 10

In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency
power to determine the allocation of wheat flour among importers, the Supreme Court ruled against the
interpretation of uncontrolled power as it vested in the administrative officer an arbitrary discretion to be exercised
without a policy, rule, or standard from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes
conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal
discretion to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the
exercise of the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or
refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of
livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an
alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means of
livelihood. The shelter of protection under the due process and equal protection clause is given to all persons, both
aliens and citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

Barredo, Makasiar, Muñoz Palma, Santos and Guerrero, JJ., concur.

Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.

Concepcion, Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring
Ordinance No. 6537 of the City of Manila null and void for the reason that the employment of aliens within the
country is a matter of national policy and regulation, which properly pertain to the national government officials and
agencies concerned and not to local governments, such as the City of Manila, which after all are mere creations of
the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various
Philippine nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the
country with the exception of certain specific fields and areas. Such national policies may not be interfered with,
thwarted or in any manner negated by any local government or its officials since they are not separate from and
independent of the national government.

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of
Manila is a subordinate body to the Insular (National Government ...). When the Insular (National) Government
adopts a policy, a municipality is without legal authority to nullify and set at naught the action of the superior
authority." Indeed, "not only must all municipal powers be exercised within the limits of the organic laws, but they
must be consistent with the general law and public policy of the particular state ..." (I McQuillin, Municipal
Corporations, 2nd sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve our foreign relations
with other countries and their nationals who have been lawfully admitted here, since in such matters the views and
decisions of the Chief of State and of the legislature must prevail over those of subordinate and local governments
and officials who have no authority whatever to take official acts to the contrary.

Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring
Ordinance No. 6537 of the City of Manila null and void for the reason that the employment of aliens within the
country is a matter of national policy and regulation, which properly pertain to the national government officials and
agencies concerned and not to local governments, such as the City of Manila, which after all are mere creations of
the national government.

The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various
Philippine nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the
country with the exception of certain specific fields and areas. Such national policies may not be interfered with,
thwarted or in any manner negated by any local government or its officials since they are not separate from and
independent of the national government.

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of
Manila is a subordinate body to the Insular (National Government ...). When the Insular (National) Government
adopts a policy, a municipality is without legal authority to nullify and set at naught the action of the superior
authority." Indeed, "not only must all municipal powers be exercised within the limits of the organic laws, but they
must be consistent with the general law and public policy of the particular state ..." (I McQuillin, Municipal
Corporations, 2nd sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve our foreign relations
with other countries and their nationals who have been lawfully admitted here, since in such matters the views and
decisions of the Chief of State and of the legislature must prevail over those of subordinate and local governments
and officials who have no authority whatever to take official acts to the contrary.

Footnotes

1 Annex "F", Petition, Rollo, p. 64.

 2 Petition, Rollo, p. 28.

3 Annex "A", of Petition, Rollo, p. 37-38.

4 Section 1. It shall he unlawful for any person not a citizen of the Philippines to be employed in
any kind of position or occupation or allowed directly or indirectly to participate in the functions,
administration or management in any office, corporation, store, restaurant, factory, business firm,
or any other place of employment either as consultant, adviser, clerk, employee, technician,
teacher, actor, actress, acrobat, singer or other theatrical performer, laborer, cook, etc., whether
temporary, casual, permanent or otherwise and irrespective of the source or origin of his
compensation or number of hours spent in said office, store, restaurant, factory, corporation or any
other place of employment, or to engage in any kind of business and trade within the City of
Manila, without first securing an employment permit from the Mayor of Manila, and paying the
necessary fee therefor to the City the City Treasurer: PROVIDED, HOWEVER, That persons
employed in diplomatic and consular missions of foreign countries and in technical assistance
programs agreed upon by the Philippine Government and any foreign government, and those
working in their respective households, and members of different congregations or religious orders
of any religion, sect or denomination, who are not paid either monetarily or in kind shag be
exempted from the provisions of this Ordinance.

5 Section 4. Any violation of this Ordinance shall upon conviction, be punished by imprisonment
of not less than three (3) months but not more than six (6) months or by a fine of not less than one
hundred pesos (P100.00) but not more than two hundred pesos (P200.00), or by both such fine and
imprisonment, in the discretion of the Court: PROVIDED, HOWEVER, That in case of juridical
persons, the President, the Vice-President or the person in charge shall be liable.

6 Annex "B", Petition, Rollo, p. 39.

7 Ibid

8 Annex "F", Petition, Rollo, pp. 75-83.

9 Petition, Rollo, p. 31.

10 People vs. Fajardo, 104 Phil. 443, 446.

11 89 Phil. 439, 459-460.

12 80 Phil. 86.

13 Kwong Sing vs. City of Manila, 41 Phil, 103.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.

The City Attorney for plaintiff-appellee.

Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio imposing a
license fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-
appellant Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth more than
P10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That
is the principal question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the
lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filed against him
by the City Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from the
first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-
appellant agreeable to such a suit being instituted by the City Treasurer without the consent of the Mayor, which for
him was indispensable. The lower court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and held
defendant-appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal. Assume the
validity of such ordinance, and there would be no question about the liability of defendant-appellant for the above
license fee, it being shown in the partial stipulation of facts, that he was "engaged in the rental of his property in
Baguio" deriving income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of
1962.

The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city charter
of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as may be
established or practiced in the City."

Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of the
ordinance now assailed, the decision appealed from must be affirmed. The task confronting defendant-appellant,
therefore, was far from easy. Why he failed is understandable, considering that even a cursory reading of the above
amendment readily discloses that the enactment of the ordinance in question finds support in the power thus
conferred.

Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of Baguio,3 the
effect of the amendatory section insofar as it would expand the previous power vested by the city charter was
clarified in these terms: "Appellants apparently have in mind section 2553, paragraph (c) of the Revised
Administrative Code, which empowers the City of Baguio merely to impose a license fee for the purpose of rating
the business that may be established in the city. The power as thus conferred is indeed limited, as it does not include
the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city
and adding to its power to license the power to tax and to regulate. And it is precisely having in view this
amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for
purposes of revenue, more so when in amending section 2553 (b), the phrase 'as provided by law' has been removed
by section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, to license and
to regulate provided that the subjects affected be one of those included in the charter. In this sense, the ordinance
under consideration cannot be considered ultra vires whether its purpose be to levy a tax or impose a license fee.
The terminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to
be sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could be
discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the
lower court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now
turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for the
collection of the real estate dealer's fee from him in the amount of P300. He contended before the lower court, and it
is his contention now, that while the amount of P300 sought was within the jurisdiction of the City Court of Baguio
where this action originated, since the principal issue was the legality and constitutionality of the challenged
ordinance, it is not such City Court but the Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on September
7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in that case
filed a claim for the payment of his salary before the Justice of the Peace Court of Pagadian, Zamboanga del Sur.
The question of jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement of
the decision of the Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try
the case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money claim" and
therefore "within the original jurisdiction of the Justice of the Peace Court where it was filed, considering the
amount involved." Such is likewise the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee corresponding
to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amount involved. The
thought that the municipal court lacked jurisdiction apparently was not even in the minds of the parties and did not
receive any consideration by this Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is the
Court of First Instance that should have original jurisdiction on the matter. It does not admit of doubt, however, that
what confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered was clearly
within the jurisdiction of the City Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as a defense against
its enforcement from one adversely affected, the matter should be elevated to the Court of First Instance. For the
City Court could rely on the presumption of the validity of such ordinance, 6 and the mere fact, however, that in the
answer to such a complaint a constitutional question was raised did not suffice to oust the City Court of its
jurisdiction. The suit remains one for collection, the lack of validity being only a defense to such an attempt at
recovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the judicial power
embraces the ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of competence to proceed
on the matter. In the exercise of such delicate power, however, the admonition of Cooley on inferior tribunals is well
worth remembering. Thus: "It must be evident to any one that the power to declare a legislative enactment void is
one which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in any case
where he can conscientiously and with due regard to duty and official oath decline the responsibility."7 While it
remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe certain constitutional
rights of a litigant exists, still it should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutory
authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of the
allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated the
requirement of uniformity. We do not view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The
objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause]
no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings
unconstitutional on other grounds." 8With that decision rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup de
graceto the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem
though that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a
1947 decision, however,9 we quoted with approval this excerpt from a leading American decision: 10 "Where, as
here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked
where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same
occupation, calling or activity by both the state and the political subdivisions thereof." 11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by the constitution. According to
the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must pay an annual fee of
P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than
P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement
of uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is
a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The
taxing power has the authority to make reasonable and natural classifications for purposes of taxation; ..." About two
years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la
Fuente14incorporated the above excerpt in his opinion and continued: "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is
not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that the
statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation."
This Court is on record as accepting the view in a leading American case 16 that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation." 17

It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the
allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is
no need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained that the
license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe the
mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate a grievance on the
complaint having been started by the City Treasurer rather than the City Mayor of Baguio. These alleged errors, as
was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performed within the limits of
his authority, is presumptively the act of the President unless reprobated or disapproved, 18 similarly the act of the
City Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of the City
Mayor unless repudiated or set aside. This should be the case considering that such city official is called upon to see
to it that revenues due the City are collected. When administrative steps are futile and unavailing, given the
stubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be
resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met by
condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from the
functional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipal
ordinance is enforced, then opportunity exists for favoritism and undue discrimination to come into play. Whatever
valid reason may exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion is
unavoidable that such a manifestation of official favor could have been induced by unnamed but not unknown
consideration. It would not be going too far to assert that even defendant-appellant would find no satisfaction in such
a sad state of affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one that
would do away with such temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-
appellant.

Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,

vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on
Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.

Antero Sison for petitioner and for his own behalf.

The Solicitor General for respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of
Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision
further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on
citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other
winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from
trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable
partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his
profession vis-a-visthose which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes
the above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5 For petitioner,
therefore, there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as
of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice.
Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28,
1982. 8The facts as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions
or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative
Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is
for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth
by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and
which the government was called upon to enter optionally, and only 'because it was better equipped to administer for
the public welfare than is any private individual or group of individuals,' continue to lose their well-defined
boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is
to meet the increasing social challenges of the times." 11 Hence the need for more revenues. The power to tax, an
inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the
bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and
certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of
all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly
rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate
in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to
emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr.
Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or
executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory
provision — as petitioner here alleges — fails to abide by its command, then this Court must so declare and adjudge
it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net
income derived from business or profession than on compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not
suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would
condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc
not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property.
That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum.
It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process
grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to
demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then
that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in
terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the
laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity,
which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of
Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not
relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, address to the
attainment of specific ends by the use of specific remedies. The Constitution does not require things which are
different in fact or opinion to be treated in law as though they were the same." 21 Hence the constant reiteration of
the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust
Company v. Yatco,25 decided in 1940, when the tax "operates with the same force and effect in every place where the
subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable." 27 The problem of classification did not present itself in that case. It did
not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by Justice
Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then to the
standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and
corporations placed in similar situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating
all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different
categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of generalized rules removing all deductible items
for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class. As there is practically no overhead expense, these
taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more
or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the
disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while continuing the system of net income taxation as regards
professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between
compensation and taxable net income of professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas,
JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such
circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact, the
reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because
they claim all sort of deduction justified or not I vote for dismissal.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such
circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact, the
reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because
they claim all sort of deduction justified or not I vote for dismissal.

FIRST DIVISION
 [G.R. No. 150947. July 15, 2003]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MICHEL J. LHUILLIER PAWNSHOP,

INC., respondent.

DECISION
DAVIDE, JR., C.J.:

Are pawnshops included in the term lending investors for the purpose of imposing the 5% percentage tax under
then Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended by Executive Order No. 273?
Petitioner Commissioner of Internal Revenue (CIR) filed the instant petition for review to set aside the
decision[1] of 20 November 2001 of the Court of Appeals in CA G.R. SP No. 62463, which affirmed the decision of
13 December 2000 of the Court of Tax Appeals (CTA) in CTA Case No. 5690 cancelling the assessment issued against
respondent Michel J. Lhuillier Pawnshop, Inc. (hereafter Lhuillier) in the amount of P3,360,335.11 as deficiency
percentage taxfor 1994, inclusive of interest and surcharges.
The facts are as follows:
On 11 March 1991, CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91 imposing a 5%
lending investors tax on pawnshops; thus:

A restudy of P.D. [No.] 114 shows that the principal activity of pawnshops is lending money at interest and
incidentally accepting a pawn of personal property delivered by the pawner to the pawnee as security for the
loan.(Sec. 3, Ibid). Clearly, this makes pawnshop business akin to lending investors business activity which is broad
enough to encompass the business of lending money at interest by any person whether natural or juridical. Such
being the case, pawnshops shall be subject to the 5% lending investors tax based on their gross income pursuant to
Section 116 of the Tax Code, as amended.

This RMO was clarified by Revenue Memorandum Circular (RMC) No. 43-91 on 27 May 1991, which reads:

1. RM[O] 15-91 dated March 11, 1991.

This Circular subjects to the 5% lending investors tax the gross income of pawnshops pursuant to Section 116 of the
Tax Code, and it thus revokes BIR Ruling No[]. 6-90, and VAT Ruling Nos. 22-90 and 67-90. In order to have a
uniform cut-off date, avoid unfairness on the part of tax- payers if they are required to pay the tax on past
transactions, and so as to give meaning to the express provisions of Section 246 of the Tax Code, pawnshop owners
or operators shall become liable to the lending investors tax on their gross income beginning January 1, 1991. Since
the deadline for the filing of percentage tax return (BIR Form No. 2529A-0) and the payment of the tax on lending
investors covering the first calendar quarter of 1991 has already lapsed, taxpayers are given up to June 30, 1991
within which to pay the said tax without penalty. If the tax is paid after June 30, 1991, the corresponding penalties
shall be assessed and computed from April 21, 1991.

Since pawnshops are considered as lending investors effective January 1, 1991, they also become subject to
documentary stamp taxes prescribed in Title VII of the Tax Code. BIR Ruling No. 325-88 dated July 13, 1988 is
hereby revoked.

On 11 September 1997, pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued Assessment
Notice No. 81-PT-13-94-97-9-118 against Lhuillier demanding payment of deficiency percentage tax in the sum
ofP3,360,335.11 for 1994 inclusive of interest and surcharges.
On 3 October 1997, Lhuillier filed an administrative protest with the Office of the Revenue Regional Director
contending that (1) neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on the gross income
of pawnshops; (2) pawnshops are different from lending investors, which are subject to the 5% percentage tax under
the specific provision of the Tax Code; (3) RMO No. 15-91 is not implementing any provision of the Internal Revenue
laws but is a new and additional tax measure on pawnshops, which only Congress could enact; (4) RMO No. 15-91
impliedly amends the Tax Code and is therefore taxation by implication, which is proscribed by law; and (5) RMO
No. 15-91 is a class legislation because it singles out pawnshops among other lending and financial operations.
On 12 October 1998, Deputy BIR Commissioner Romeo S. Panganiban issued Warrant of Distraint and/or Levy
No. 81-043-98 against Lhuilliers property for the enforcement and payment of the assessed percentage tax.
Its protest having been unacted upon, Lhuillier, in a letter dated 3 March 1998, elevated the matter to the
CIR. Still, the protest was not acted upon by the CIR. Thus, on 11 November 1998, Lhuillier filed a Notice and
Memorandum on Appeal with the Court of Tax Appeals invoking Section 228 of Republic Act No.8424, otherwise
known as the Tax Reform Act of 1997, which provides:

Section 228. Protesting of Assessment.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-
day period; otherwise, the decision shall become final, executory and demandable.

The case was docketed as CTA Case No. 5690.

On 19 November 1998, the CIR filed with the CTA a motion to dismiss Lhuilliers petition on the ground that it
did not state a cause of action, as there was no action yet on the protest.
Lhuillier opposed the motion to dismiss and moved for the issuance of a writ of preliminary injunction praying
that the BIR be enjoined from enforcing the warrant of distraint and levy.
For Lhuilliers failure to appear on the scheduled date of hearing, the CTA denied the motion for the issuance of
a writ of preliminary injunction. However, on Lhuilliers motion for reconsideration, said denial was set aside and a
hearing on the motion for the issuance of a writ of preliminary injunction was set.
On 30 June 1999, after due hearing, the CTA denied the CIRs motion to dismiss and granted Lhuilliers motion
for the issuance of a writ of preliminary injunction.
On 13 December 2000, the CTA rendered a decision declaring (1) RMO No. 15-91 and RMC No. 43-91 null
and void insofar as they classify pawnshops as lending investors subject to 5% percentage tax; and (2) Assessment
Notice No. 81-PT-13-94-97-9-118 as cancelled, withdrawn, and with no force and effect.[2]
Dissatisfied, the CIR filed a petition for review with the Court of Appeals praying that the aforesaid decision be
reversed and set aside and another one be rendered ordering Lhuillier to pay the 5% lending investors tax for 1994
with interests and surcharges.
Upon due consideration of the issues presented by the parties in their respective memoranda, the Court of
Appeals affirmed the CTA decision on 20 November 2001.
The CIR is now before this Court via this petition for review on certiorari, alleging that the Court of Appeals
erred in holding that pawnshops are not subject to the 5% lending investors tax. He invokes then Section 116 of the
Tax Code, which imposed a 5% percentage tax on lending investors. He argues that the legal definition of lending
investors provided in Section 157 (u) of the Tax Code is broad enough to include pawnshop operators. Section 3 of
Presidential Decree No. 114 states that the principal business activity of a pawnshop is lending money; thus, a
pawnshop easily falls under the legal definition of lending investors. RMO No. 15-91 and RMC No. 43-91, which
subject pawnshops to the 5% lending investors tax based on their gross income, are valid. Being mere interpretations
of the NIRC, they need not be published. Lastly, the CIR invokes the case of Commissioner of Internal Revenue vs.
Agencia Exquisite of Bohol, Inc.,[3] where the Court of Appeals Special Fourteenth Division ruled that a pawnshop is
subject to the 5% lending investors tax.[4]
 Lhuillier, on the other hand, maintains that before and after the amendment of the Tax Code by E.O. No. 273,
which took effect on 1 January 1988, pawnshops and lending investors were subjected to different tax
treatments.Pawnshops were required to pay an annual fixed tax of only P1,000, while lending investors were subject
to a 5% percentage tax on their gross income in addition to their fixed annual taxes. Accordingly, during the period
from April 1982 up to December 1990, the CIR consistently ruled that a pawnshop is not a lending investor and should
not therefore be required to pay percentage tax on its gross income.
Lhuillier likewise asserts that RMO No. 15-91 and RMC No. 43-91 are not implementing rules but are new and
additional tax measures, which only Congress is empowered to enact. Besides, they are invalid because they have
never been published in the Official Gazette or any newspaper of general circulation.
Lhuillier further points out that pawnshops are strictly regulated by the Central Bank pursuant to P.D. No. 114,
otherwise known as The Pawnshop Regulation Act. On the other hand, there is no special law governing lending
investors. Due to the wide differences between the two, pawnshops had never been considered as lending investors for
tax purposes. In fact, in 1994, Congress passed House Bill No. 11197,[5] which attempted to amend Section 116 of the
NIRC, as amended, to include owners of pawnshops as among those subject to percentage tax. However, the Senate
Bill and the subsequent Bicameral Committee version, which eventually became the E-VAT Law, did not incorporate
such proposed amendment.
Lastly, Lhuillier argues that following the maxim in statutory construction expressio unius est exclusio alterius, it
was not the intention of the Legislature to impose percentage taxes on pawnshops because if it were so, pawnshops
would have been included as among the businesses subject to the said tax. Inasmuch as revenue laws impose special
burdens upon taxpayers, the enforcement of such laws should not be extended by implication beyond the clear import
of the language used.
We are therefore called upon to resolve the issue of whether pawnshops are subject to the 5% lending investors
tax. Corollary to this issue are the following questions: (1) Are RMO No. 15-91 and RMC No. 43-91 valid? (2) Were
they issued to implement Section 116 of the NIRC of 1977, as amended? (3) Are pawnshops considered lending
investors for the purpose of the imposition of the lending investors tax? (4) Is publication necessary for the validity of
RMO No. 15-91 and RMC No. 43-91.
RMO No. 15-91 and RMC No. 43-91 were issued in accordance with the power of the CIR to make rulings and
opinions in connection with the implementation of internal revenue laws, which was bestowed by then Section 245 of
the NIRC of 1977, as amended by E.O. No. 273. [6] Such power of the CIR cannot be controverted. However, the CIR
cannot, in the exercise of such power, issue administrative rulings or circulars not consistent with the law sought to
be applied. Indeed, administrative issuances must not override, supplant or modify the law, but must remain consistent
with the law they intend to carry out. Only Congress can repeal or amend the law. [7]
The CIR argues that both issuances are mere rules and regulations implementing then Section 116 of the NIRC,
as amended, which provided:

SEC. 116. Percentage tax on dealers in securities; lending investors. - Dealers in securities and lending investors
shall pay a tax equivalent to six (6) per centum of their gross income. Lending investors shall pay a tax equivalent to
five (5%) percent of their gross income.

It is clear from the aforequoted provision that pawnshops are not specifically included. Thus, the question is
whether pawnshops are considered lending investors for the purpose of imposing percentage tax.
We rule in the negative.
Incidentally, we observe that both parties, as well as the Court of Tax Appeals and the Court of Appeals, refer
to the National Internal Revenue Code as the Tax Code. They did not specify whether the provisions they cited were
taken from the NIRC of 1977, as amended, or the NIRC of 1986, as amended.For clarity, it must be pointed out that
the NIRC of 1977 as renumbered and rearranged by E.O. No. 273 is a later law than the NIRC of 1986, as amended
by P.D. Nos. 1991, 1994, 2006 and 2031. The citation of the specific Code is important for us to determine the intent
of the law.
Under Section 157(u) of the NIRC of 1986, as amended, the term lending investor includes all persons who make
a practice of lending money for themselves or others at interest. A pawnshop, on the other hand, is defined under
Section 3 of P.D. No. 114 as a person or entity engaged in the business of lending money on personal property
delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn
brokerage.
While it is true that pawnshops are engaged in the business of lending money, they are not considered lending
investors for the purpose of imposing the 5% percentage taxes for the following reasons:
First. Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff), of the NIRC of 1977, prior to its amendment
by E.O. No. 273, as well as Section 161, paragraph 2, sub-paragraphs (dd) and (ff), of the NIRC of 1986, pawnshops
and lending investors were subjected to different tax treatments; thus:

(3) Other Fixed Taxes. The following fixed taxes shall be collected as follows, the amount stated being for the whole
year, when not otherwise specified:

(dd) Lending investors

1. In chartered cities and first class municipalities, one thousand pesos;

2. In second and third class municipalities, five hundred pesos;
3. In fourth and fifth class municipalities and municipal districts, two hundred fifty pesos: Provided, That
lending investors who do business as such in more than one province shall pay a tax of one thousand
pesos.

(ff) Pawnshops, one thousand pesos (underscoring ours)

Second. Congress never intended pawnshops to be treated in the same way as lending investors. Section 116 of
the NIRC of 1977, as renumbered and rearranged by E.O. No. 273, was basically lifted from Section 175 [8] of the
NIRC of 1986, which treated both tax subjects differently. Section 175 of the latter Code read as follows:

Sec. 175. Percentage tax on dealers in securities, lending investors. -- Dealers in securities shall pay a tax
equivalent to six (6%) percent of their gross income. Lending investors shall pay a tax equivalent to five (5%)
percent of their gross income. (As amended by P.D. No. 1739, P.D. No. 1959 and P.D. No. 1994).

We note that the definition of lending investors found in Section 157 (u) of the NIRC of 1986 is not found in the
NIRC of 1977, as amended by E.O. No. 273, where Section 116 invoked by the CIR is found. However, as emphasized
earlier, both the NIRC of 1986 and the NIRC of 1977 dealt with pawnshops and lending investors differently. Verily
then, it was the intent of Congress to deal with both subjects differently. Hence, we must likewise interpret the statute
to conform with such legislative intent.
Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers in
securities and lending investors only. There is no mention of pawnshops. Under the maxim expressio unius est
exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute
enumerates the things upon which it is to operate, everything else must necessarily and by implication be excluded
from its operation and effect.[9] This rule, as a guide to probable legislative intent, is based upon the rules of logic and
natural workings of the human mind.[10]
Fourth. The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops
were not subject to the 5% percentage tax imposed by Section 116 of the NIRC of 1977, as amended by E.O. No.
273.This was even admitted by the CIR in RMO No. 15-91 itself. Considering that Section 116 of the NIRC of 1977,
as amended, was practically lifted from Section 175 of the NIRC of 1986, as amended, and there being no change in
the law, the interpretation thereof should not have been altered.
 It may not be amiss to state that, as pointed out by the respondent, pawnshops was sought to be included as
among those subject to 5% percentage tax by House Bill No. 11197 in 1994. Section 13 thereof reads:

Section 13. Section 116 of the National Internal Revenue Code, as amended, is hereby further amended to read as
follows:

SEC. 116. Percentage tax on dealers in securities; lending investors; OWNERS OF PAWNSHOPS; FOREIGN
CURRENCY DEALERS AND/OR MONEY CHANGERS. Dealers in securities shall pay a tax equivalent to Six
(6%) per centum of their gross income. Lending investors, OWNERS OF PAWNSHOPS AND FOREIGN
CURRENCY DEALERS AND/OR MONEY CHANGERS shall pay a tax equivalent to Five (5%) percent of their
gross income.

If pawnshops were covered within the term lending investor, there would have been no need to introduce such
amendment to include owners of pawnshops. At any rate, such proposed amendment was not adopted. Instead, the
approved bill which became R.A. No. 7716 [11] repealed Section 116 of NIRC of 1977, as amended, which was the
basis of RMO No. 15-91 and RMC No. 43-91; thus:

SEC. 20. Repealing Clauses. -- The provisions of any special law relative to the rate of franchise taxes are hereby
expressly repealed. Sections 113, 114 and 116 of the National Internal Revenue Code are hereby repealed.

Section 21 of the same law provides that the law shall take effect fifteen (15) days after its complete publication in
the Official Gazette or in at least two (2) national newspapers of general circulation whichever comes earlier. R.A.
No. 7716 was published in the Official Gazette on 1 August 1994 [12]; in the Journal and Malaya newspapers, on 12
May 1994; and in the Manila Bulletin, on 5 June 1994. Thus, R.A. No. 7716 is deemed effective on 27 May 1994.
Since Section 116 of the NIRC of 1977, which breathed life on the questioned administrative issuances, had
already been repealed, RMO 15-91 and RMC 43-91, which depended upon it, are deemed automatically
repealed.Hence, even granting that pawnshops are included within the term lending investors, the assessment from 27
May 1994 onward would have no leg to stand on.
Adding to the invalidity of the RMC No. 43-91 and RMO No. 15-91 is the absence of publication. While the
rule-making authority of the CIR is not doubted, like any other government agency, the CIR may not disregard legal
requirements or applicable principles in the exercise of quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances: the legislative rule and the interpretative
rule. A legislative rule is in the nature 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.[13]
In Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary,[14] this Tribunal
ruled:

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 weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.

In addition, such rule must be published.

 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, on 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 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.[15]
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or corrective measures
revoking in the process the previous rulings of past Commissioners. Specifically, they would have been amendatory
provisions applicable to pawnshops. Without these disputed CIR issuances, pawnshops would not be liable to pay the
5% percentage tax, considering that they were not specifically included in Section 116 of the NIRC of 1977, as
amended. In so doing, the CIR did not simply interpret the law. The due observance of the requirements of notice,
hearing, and publication should not have been ignored.
There is no need for us to discuss the ruling in CA-G.R. SP No. 59282 entitled Commissioner of Internal Revenue
v. Agencia Exquisite of Bohol Inc., which upheld the validity of RMO No. 15-91 and RMC No. 43-91. Suffice it to
say that the judgment in that case cannot be binding upon the Supreme Court because it is only a decision of the Court
of Appeals. The Supreme Court, by tradition and in our system of judicial administration, has the last word on what
the law is; it is the final arbiter of any justifiable controversy. There is only one Supreme Court from whose decisions
all other courts should take their bearings.[16]
In view of the foregoing, RMO No. 15-91 and RMC No. 43-91 are hereby declared null and void. Consequently,
Lhuillier is not liable to pay the 5% lending investors tax.
WHEREFORE, the petition is hereby DISMISSED for lack of merit. The decision of the Court of Appeals of
20 November 2001 in CA-G.R. SP No. 62463 is AFFIRMED.
SO ORDERED.
Vitug, Ynarez-Santiago, Carpio, and Azcuna, JJ., concur.

FIRST DIVISION

[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
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

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% 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.

"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 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 question but 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 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.