Republic of the Philippines a tax equivalent to the difference between the money value of the
SUPREME COURT rental or consideration collected and the amount representing 12 per
Manila
EN BANC
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the
deceased Antonio Jayme Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-
appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor
General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to
test the legality of the taxes imposed by Commonwealth Act No. 567,
otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration
of emergency, due to the threat to our industry by the imminent imposition of
export taxes upon sugar as provided in the Tydings-McDuffe Act, and the
"eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the
benefits derived from the sugar industry by the component elements thereof"
and "to stabilize the sugar industry so as to prepare it for the eventuality of the
loss of its preferential position in the United States market and the imposition
of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing
tax on the manufacture of sugar, on a graduated basis, on each picul of sugar
manufactured; while section 3 levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —
centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a special
fund in the Philippine Treasury, to be known as the 'Sugar Adjustment
and Stabilization Fund,' and shall be paid out only for any or all of the
following purposes or to attain any or all of the following objectives, as
may be provided by law.
First, to place the sugar industry in a position to maintain itself,
despite the gradual loss of the preferntial position of the Philippine
sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and the
consequent necessity of meeting competition in the free markets of
the world;
Second, to readjust the benefits derived from the sugar industry by all
of the component elements thereof — the mill, the landowner, the
planter of the sugar cane, and the laborers in the factory and in the
field — so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically
suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to
improve their living and working conditions: Provided, That the
President of the Philippines may, until the adjourment of the next
regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment
and operation of sugar experiment station or stations and the
undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar
cane more adaptable to different district conditions in the Philippines,
(c) to lower the costs of raising sugar cane, (d) to improve the buying
quality of denatured alcohol from molasses for motor fuel, (e) to
determine the possibility of utilizing the other by-products of the
industry, (f) to determine what crop or crops are suitable for rotation
and for the utilization of excess cane lands, and (g) on other problems
 the solution of which would help rehabilitate and stabilize the industry,
and (2) for the improvement of living and working conditions in sugar
mills and sugar plantations, authorizing him to organize the necessary
agency or agencies to take charge of the expenditure and allocation
of said funds to carry out the purpose hereinbefore enumerated, and,
likewise, authorizing the disbursement from the fund herein created of
the necessary amount or amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses of said
agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate
Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of
Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging
that such tax is unconstitutional and void, being levied for the aid and support
of the sugar industry exclusively, which in plaintiff's opinion is not a public
purpose for which a tax may be constitutioally levied. The action having been
dismissed by the Court of First Instance, the plaintifs appealed the case
directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing
power. Analysis of the Act, and particularly of section 6 (heretofore quoted in
full), will show that the tax is levied with a regulatory purpose, to provide
means for the rehabilitation and stabilization of the threatened sugar industry.
In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of
the great industries of our nation, sugar occupying a leading position among
its export products; that it gives employment to thousands of laborers in fields
and factories; that it is a great source of the state's wealth, is one of the
important sources of foreign exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the
general welfare. Hence it was competent for the legislature to find that the
general welfare demanded that the sugar industry should be stabilized in turn;
and in the wide field of its police power, the lawmaking body could provide
that the distribution of benefits therefrom be readjusted among its components
to enable it to resist the added strain of the increase in taxes that it had to
sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex
rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139
So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus
industry in Florida —
The protection of a large industry constituting one of the great sources
of the state's wealth and therefore directly or indirectly affecting the
welfare of so great a portion of the population of the State is affected
to such an extent by public interests as to be within the police power
of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar
industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion must be allowed
fully play, subject only to the test of reasonableness; and it is not contended
that the means provided in section 6 of the law (above quoted) bear no
relation to the objective pursued or are oppressive in character. If objective
and methods are alike constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the state's police power (Great Atl. &
Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler,
297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
That the tax to be levied should burden the sugar producers themselves can
hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure of
the funds derived from it. 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" (Carmichael vs.
Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous
authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds
raised under the Sugar Stabilization Act, now in question, should be
exclusively spent in aid of the sugar industry, since it is that very enterprise
that is being protected. It may be that other industries are also in need of
similar protection; that the legislature is not required by the Constitution to
adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs.
Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative
authority, exerted within its proper field, need not embrace all the evils within
its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed.
893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said
that the devotion of tax money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products and solution of allied
problems, as well as to the improvements of living and working conditions in
sugar mills or plantations, without any part of such money being channeled
directly to private persons, constitutes expenditure of tax money for private
purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR
1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So
ordered.
Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador,
and Concepcion, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be
achieved.
The main issue in this case is whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income tax returns. The corollary
issue is whether or not the appeal of the private respondent from the decision
of the Collector of Internal Revenue was made on time and in accordance with
law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a
domestic corporation engaged in engineering, construction and other allied
activities, received a letter from the petitioner assessing it in the total amount
of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On
January 18, 1965, Algue flied a letter of protest or request for reconsideration,
which letter was stamp received on the same day in the office of the
petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented
to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the
protest in the dockets of the case proved fruitless. Atty. Guevara produced his
file copy and gave a photostat to BIR agent Ramon Reyes, who deferred
service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed
that the BIR was not taking any action on the protest and it was only then that
he accepted the warrant of distraint and levy earlier sought to be
served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review
of the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals.6
The above chronology shows that the petition was filed seasonably. According
to Rep. Act No. 1125, the appeal may be made within thirty days after receipt
of the decision or ruling challenged.7 It is true that as a rule the warrant of
distraint and levy is "proof of the finality of the assessment" 8 and renders
hopeless a request for reconsideration," 9 being "tantamount to an outright
denial thereof and makes the said request deemed rejected." 10 But there is a
special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of the petitioner.
It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if
at all, considered by the tax authorities. During the intervening period, the
warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private
respondent was not pro forma and was based on strong legal considerations.
It thus had the effect of suspending on January 18, 1965, when it was filed,
the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on
April 7, 1965, when the private respondent was definitely informed of the
implied rejection of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was
properly disallowed because it was not an ordinary reasonable or necessary
business expense. The Court of Tax Appeals had seen it differently. Agreeing
with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form
of promotional fees. These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed
these promotional fees to be personal holding company income 12 but later
conformed to the decision of the respondent court rejecting this assertion. 13 In
fact, as the said court found, the amount was earned through the joint efforts
of the persons among whom it was distributed It has been established that the
Philippine Sugar Estate Development Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara,
Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation
of the Vegetable Oil Investment Corporation, inducing other persons to invest
in it.14 Ultimately, after its incorporation largely through the promotion of the
said persons, this new corporation purchased the PSEDC properties.15 For
this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.16
There is no dispute that the payees duly reported their respective shares of
the fees in their income tax returns and paid the corresponding taxes
thereon.17 The Court of Tax Appeals also found, after examining the evidence,
that no distribution of dividends was involved.18
The petitioner claims that these payments are fictitious because most of the
payees are members of the same family in control of Algue. It is argued that
no indication was made as to how such payments were made, whether by
check or in cash, and there is not enough substantiation of such payments. In
short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent
when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus,
testified that the payments were not made in one lump sum but periodically
and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not
required. Even so, at the end of the year, when the books were to be closed,
each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00. 20 Admittedly, everything seemed to be
informal. This arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees
was not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was P125,000.00. 21After
deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the
payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate
properties. This finding of the respondent court is in accord with the following
provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net
income there shall be allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or
other compensation for personal services actually rendered;
... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the
ordinary and necessary expenses paid or incurred in carrying
on any trade or business may be included a reasonable
allowance for salaries or other compensation for personal
services actually rendered. The test of deductibility in the
case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This
test and deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments
purely for service. This test and its practical application may
be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact
as the purchase price of services, is not deductible. (a) An
ostensible salary paid by a corporation may be a distribution
of a dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom
draw salaries. If in such a case the salaries are in excess of
those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the
stockholdings of the officers of employees, it would seem
likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30
O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular
employ of Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's
hard earned income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The government
for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral
and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by
those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the
petitioner was filed on time with the respondent court in accordance with Rep.
Act No. 1125. And we also find that the claimed deduction by the private
respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is Republic of the Philippines
AFFIRMED in toto, without costs. SUPREME COURT
Manila
SO ORDERED. Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ.,
concur. EN BANC

G.R. No. 87479 June 4, 1990

NATIONAL POWER CORPORATION, petitioner,

vs.
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA,
and ALBAY PROVINCIAL TREASURER ABUNDIO M.
NUÑEZ, respondents.

Romulo L. Ricafort and Jesus R. Cornago for respondents.

SARMIENTO, J.:

The National Power Corporation (NAPOCOR) questions the power of the

provincial government of Albay to collect real property taxes on its properties
located at Tiwi, Albay, amassed between June 11, 1984 up to March 10,
1987.

It appears that on March 14 and 15, 1989, the respondents caused the
publication of a notice of auction sale involving the properties of NAPOCOR
and the Philippine Geothermal Inc. consisting of buildings, machines, and
similar improvements standing on their offices at Tiwi, Albay. The amounts to
be realized from this advertised auction sale are supposed to be applied to the
tax delinquencies claimed, as and for, as we said, real property taxes. The
back taxes NAPOCOR has supposedly accumulated were computed at
P214,845,184.76.

NAPOCOR opposed the sale, interposing in support of its non-liability

Resolution No. 17-87, of the Fiscal Incentives Review Board (FIRB), which
provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the

tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products, granted
 under the terms and conditions of Commonwealth Act No.
120 (Creating the National Power Corporation, defining its
powers, objectives and functions, and for other purposes), as
amended, are restored effective March 10, 1987, subject to
the following conditions: 1
as well as the Memorandum of Executive Secretary Catalino Macaraig, which
also states thus:
Pursuant to Sections 1 (f) and 2 (e) of Executive Order No.
93, series of 1986, FIRB Resolution No. 17-87, series of
1987, restoring, subject to certain conditions prescribed
therein, the tax and duty exemption privileges of NPC as
provided under Commonwealth Act No. 120, as amended,
effective March 10, 1987, is hereby confirmed and
approved. 2
On March 10, 1989, the Court resolved to issue a temporary restraining order
directing the Albay provincial government "to CEASE AND DESIST from
selling and disposing of the NAPOCOR properties subject matter of this
petition. 3 It appears, however, that "the temporary restraining order failed to
reach respondents before the scheduled bidding at 10:00 a.m. on March 30,
1989 ... [h]ence, the respondents proceeded with the bidding wherein the
Province of Albay was the highest bidder. 4
The Court gathers from the records that:
(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth
Act No. 120 (charter of NAPOCOR):
Section 13. Non-profit Character of the Corporation;
Exemption from All Taxes, Duties, Fees, Imposts and Other
Charges by the Government and Government
Instrumentalities. The Corporation shall be non-profit and
shall devote all its returns from its capital investment as well
as excess revenues from its operation, for expansion, To
enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of
the policy enunciated in Section One of this Act, the
Corporation, including its subsidiaries, is hereby declared
exempt from the payment of all forms of taxes, duties, fees,
imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 5
(2) On August 24, 1975, Presidential Decree No. 776 was promulgated,
creating the Fiscal Incentives Review Board (FIRB). Among other things, the
Board was tasked as follows:
Section 2. A Fiscal Incentives Review Board is hereby
created for the purpose of determining what subsidies and tax
exemptions should be modified, withdrawn, revoked or
suspended, which shall be composed of the following
officials:
Chairman - Secretary of Finance
Members - Secretary of Industry
- Director General of the National Economic and
Development Authority
- Commissioner of Internal Revenue
- Commissioner of Customs
The Board may recommend to the President of the
Philippines and for reasons of compatibility with the declared
economic policy, the withdrawal, modification, revocation or
suspension of the enforceability of any of the abovestated
statutory subsidies or tax exemption grants, except those
granted by the Constitution. To attain its objectives, the Board
may require the assistance of any appropriate government
agency or entity. The Board shall meet once a month, or
oftener at the call of the Secretary of Finance. 6
(3) On June 11, 1984, Presidential Decree No. 1931 was
promulgated, prescribing, among other things, that:
Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment of
duties, taxes, fees, impost and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries are hereby
withdrawn. 7
(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring"
NAPOCOR's tax exemption effective June 11, 1984 to June 30, 1985;
(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption
privileges to NAPOCOR from July 1, 1985 and indefinitely thereafter;
(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR
tax exemption privileges effective until March 10, 1987; 8
(7) On December 17, 1986, Executive Order No. 93 was promulgated by
President Corazon Aquino, providing, among other things, as follows:
SECTION 1. The provisions of any general or special law to
the contrary notwithstanding, all tax and duty incentives
granted to government and private entities are hereby
withdrawn, except. 9
and
SECTION 2. The Fiscal Incentives Review Board created
under Presidential Decree No. 776, as amended, is hereby
authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in
whole or in part;
b) revise the scope and coverage of tax and/or duty
exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty
exemption;
d) prescribe the date or period of effectivity of the restoration
of tax and/or duty exemption;
e) formulate and submit to the President for approval, a
complete system for the grant of subsidies to deserving
beneficiaries, in lieu of or in combination with the restoration
of tax and duty exemptions or preferential treatment in
taxation, indicating the source of funding therefor, eligible
beneficiaries and the terms and conditions for the grant
thereof taking into consideration the international
commitments of the Philippines and the necessary
precautions such that the grant of subsidies does not become
the basis for countervailing action. 10
(8) On October 5, 1987, the Office of the President issued the Memorandum,
confirming NAPOCOR's tax exemption aforesaid. 11
The provincial government of Albay now defends the auction sale in question
on the theory that the various FIRB issuances constitute an undue delegation
of the taxing Power and hence, null and void, under the Constitution. It is also
contended that, insofar as Executive Order No. 93 authorizes the FIRB to
grant tax exemptions, the same is of no force and effect under the
constitutional provision allowing the legislature alone to accord tax exemption
privileges.
It is to be pointed out that under Presidential Decree No. 776, the power of the
FIRB was merely to "recommend to the President of the Philippines and for
reasons of compatibility with the declared economic policy, the withdrawal,
modification, revocation or suspension of the enforceability of any of the
above-cited statutory subsidies or tax exemption grants, except those granted
by the Constitution." It has no authority to impose taxes or revoke existing
ones, which, after all, under the Constitution, only the legislature may
accomplish. 12 The question therefore is whether or not the various tax
exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-
87 are valid and constitutional.
We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions
Nos. 10- 85 and 1-86, we sustain the provincial government of Albay.
As we said, the FIRB, under its charter, Presidential Decree No. 776, had
been empowered merely to "recommend" tax exemptions. By itself, it could
not have validly prescribed exemptions or restore taxability. Hence, as of June
11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had
ceased to enjoy tax exemption privileges.
The fact that under Executive Order No. 93, the FIRB has been given the
prerogative to "restore tax and/or duty exemptions withdrawn hereunder in
whole or in part," 13 and "impose conditions for ... tax and/or duty
exemption" 14is of no moment. These provisions are prospective in character
and can not affect the Board's past acts.
The Court is aware that in its preamble, Executive Order No. 93 states:
WHEREAS, a number of affected entities, government and private were able
to get back their tax and duty exemption privileges through the review
mechanism implemented by the Fiscal Incentives Review Board (FIRB); 15but
by no means can we say that it has "ratified" the acts of FIRB. It is to
misinterpret the scope of FIRB's powers under Presidential Decree No. 776 to
say that it has. Apart from that, Section 2 of the Executive Order was clearly
intended to amend Presidential Decree No. 776, which means, mutatis
mutandis, that FIRB did not have the right, in the first place, to grant tax
exemptions or withdraw existing ones.
Does Executive Order No. 93 constitute an unlawful delegation of legislative
power? It is to be stressed that the provincial government of Albay admits that
as of March 10, 1987 (the date Resolution No. 17-87 was affirmed by the
Memorandum of the Office of the President, dated October 5, 1987),
NAPOCOR's exemption had been validly restored. What it questions is
NAPOCOR's liability in the interregnum between June 11, 1984, the date its
tax privileges were withdrawn, and March 10, 1987, the date they were
purportedly restored. To be sure, it objects to Executive Order No. 93 as
alledgedly a delegation of legislative power, but only insofar as its
(NAPOCOR's) June 11, 1984 to March 10, 1987 tax accumulation is
concerned. We therefore leave the issue of "delegation" to the future and its
constitutionality when the proper case arises. For the nonce, we leave
Executive Order No. 93 alone, and so also, its validity as far as it grants tax
exemptions (through the FIRB) beginning December 17, 1986, the date of its
promulgation.
NAPOCOR must then be held liable for the intervening years aforesaid. So it
has been held:
xxx xxx xxx
The last issue to be resolved is whether or not the private-
respondent is liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 (i.e. for the period from
January 1, 1946 to February 29, 1948) before the approval of
its municipal franchises. As aforestated, the franchises were
approved by the President only on February 24,1948.
Therefore, before the said date, the private respondent was
liable for the payment of percentage and fixed taxes as seller
of light, heat, and power which, as the petitioner claims,
amounted to P3,025.96. The legislative franchise (R.A. No.
3843) exempted the grantee from all kinds of taxes other than
the 2% tax from the date the original franchise was granted.
The exemption, therefore, did not cover the period before the
franchise was granted, i.e. before February 24, 1948. ... 16
Actually, the State has no reason to decry the taxation of NAPOCOR's
properties, as and by way of real property taxes. Real property taxes, after all,
form part and parcel of the financing apparatus of the Government in
development and nation-building, particularly in the local government level,
Thus:
SEC. 86. Distribution of proceeds. — (a) The proceeds of the
real property tax, except as otherwise provided in this Code,
shall accrue to the province, city or municipality where the
property subject to the tax is situated and shall be applied by
the respective local government unit for its own use and
benefit.
(b) Barrio shares in real property tax collections. — The
annual shares of the barrios in real property tax collections
shall be as follows:
(1) Five per cent of the real property tax collections of the
province and another five percent of the collections of the
municipality shall accrue to the barrio where the property
subject to the tax is situated.
(2) In the case of the city, ten per cent of the collections of the
tax shag likewise accrue to the barrio where the property is
situated.
Thirty per cent of the barrio shares herein referred to may be spent for
salaries or per diems of the barrio officials and other administrative expenses,
while the remaining seventy per cent shall be utilized for development projects
approved by the Secretary of Local Government and Community
Development or by such committee created, or representatives designated, by
him.
SEC. 87. Application of proceeds. — (a) The proceeds of the
real property tax pertaining to the city and to the municipality
shall accrue entirely to their respective general funds. In the
case of the province, one-fourth thereof shall accrue to its
road and bridge fund and the remaining three-fourths, to its
general fund.
(b) The entire proceeds of the additional one per cent real
property tax levied for the Special Education Fund created
under R.A. No. 5447 collected in the province or city on real
property situated in their respective territorial jurisdictions
shall be distributed as follows:
(1) Collections in the provinces: Fifty per cent shall accrue to
the municipality where the property subject to the tax is
situated; twenty per cent shall accrue to the province; and
thirty per cent shall be remitted to the Treasurer of the
Philippines to be expended exclusively for stabilizing the
Special Education Fund in municipalities, cities and provinces
in accordance with the provisions of Section seven of R.A.
No. 5447.
(2) Collections in the cities: Sixty per cent shall be retained by
the city; and forty per cent shall be remitted to the Treasurer
of the Philippines to be expended exclusively for stabilizing
the special education fund in municipalities, cities and
provinces as provided under Section 7 of R.A. No. 5447.
However, any increase in the shares of
provinces, cities and municipalities from said
additional tax accruing to their respective
local school boards commencing with fiscal
year 1973-74 over what has been actually
realized during the fiscal year 1971-72 which,
for purposes of this Code, shall remain as the
based year, shall be divided equally between
the general fund and the special education
fund of the local government units concerned.
The Secretary of Finance may, however, at
his discretion, increase to not more than
seventy-five per cent the amount that shall
accrue annually to the local general fund.
(d) The proceeds of the additional real property tax on Idle
private lands shall accrue to the respective general funds of
the province, city and municipality where the land subject to
the tax is situated. 17
To all intents and purposes, real property taxes are funds taken by the State
with one hand and given to the other. In no measure can the Government be
said to have lost anything.
As a rule finally, claims of tax exemption are construed strongly against the
claimant. 18 They must also be shown to exist clearly and categorically, and
supported by clear legal provisions. 19
Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the
common weal.
WHEREFORE, the petition is DENIED. No costs. The auction sale of the
petitioner's properties to answer for real estate taxes accumulated between
June 11, 1984 through March 10, 1987 is hereby declared valid.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Padilla,
Bidin, Cortes and Medialdea, JJ., concur.
Feliciano, J., concurs in the result.
Regalado, J., took no part.
Gancayco and Griño-Aquino, JJ., are on leave.

(c) The proceeds of all delinquent taxes and penalties, as well

as the income realized from the use, lease or other
disposition of real property acquired by the province or city at
a public auction in accordance with the provisions of this
Code, and the proceeds of the sale of the delinquent real
property or, of the redemption thereof shall accrue to the
province, city or municipality in the same manner and
proportion as if the tax or taxes had been paid in regular
course.
 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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-
appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R
Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor
Enrique M. Reyes for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its
Civil Case No. 3294, which was certified to Us by the Court of Appeals on
October 6, 1969, as involving only pure questions of law, challenging the
power of taxation delegated to municipalities under the Local Autonomy Act
(Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of
the Philippines, Inc., commenced a complaint with preliminary injunction
before the Court of First Instance of Leyte for that court to declare Section 2 of
Republic Act No. 2264.1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material
portions of which state that, first, both Ordinances Nos. 23 and 27 embrace or
cover the same subject matter and the production tax rates imposed therein
are practically the same, and second, that on January 17, 1963, the acting
Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to
enforce compliance by the latter of the provisions of said Ordinance No. 27,
series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on
September 25, 1962, levies and collects "from soft drinks producers and
manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft
drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal
Treasurer a monthly report, of the total number of bottles produced and
corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on
October 28, 1962, levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun
company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as
"municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the said
Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the
Court of Appeals, which, in turn, elevated the case to Us pursuant to Section
31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264 an undue
delegation of power, confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double
taxation and impose percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. 6 It is a power that is purely legislative and
which the central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the
power to tax. 9 Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: "Each local government unit shall have
the power to create its sources of revenue and to levy taxes, subject to such
limitations as may be provided by law." Withal, it cannot be said that Section 2
of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant's pretense, would not suffice to invalidate the said law as
confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said
that the taxing power may be delegated to municipalities and the like, it is
meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities may
be permitted to tax subjects which for reasons of public policy the State has
not deemed wise to tax for more general purposes. 10 This is not to say
though that the constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the taxing
power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax imposed is for a
private as distinguished from a public purpose; a tax is imposed on property
outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes. But, a tax does not
violate the due process clause, as applied to a particular taxpayer, although
the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or
the amount of tax to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in which it shall
be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be
declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The
reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the injunction
against double taxation found in the Constitution of the United States and
some states of the Union.14 Double taxation becomes obnoxious only where
the taxpayer is taxed twice for the benefit of the same governmental
entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute
double taxation, because these two ordinances cover the same subject matter
and impose practically the same tax rate. The thesis proceeds from its
assumption that both ordinances are valid and legally enforceable. This is not
so. As earlier quoted, Ordinance No. 23, which was approved on September
25, 1962, levies or collects from soft drinks producers or manufacturers a tax
of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the
volume contents of the bottle used. When it was discovered that the producer
or manufacturer could increase the volume contents of the bottle and still pay
the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27,
approved on October 28, 1962, imposing a tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. The difference
between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle
corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council
of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a
plain substitute for the prior Ordinance No. 23, and operates as a repeal of the
latter, even without words to that effect. 18 Plaintiff-appellant in its brief
admitted that defendants-appellees are only seeking to enforce Ordinance No.
27, series of 1962. Even the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance
by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of
1962. The aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even the Provincial
Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the
provisions of the latter are inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27
imposes a percentage or a specific tax. Undoubtedly, the taxing authority
conferred on local governments under Section 2, Republic Act No. 2264, is
broad enough as to extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and limitations in the law, the
same comes within the ambit of the general rule, pursuant to the rules
of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The
limitation applies, particularly, to the prohibition against municipalities and
municipal districts to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax except
gasoline, under the provisions of the National Internal Revenue Code." For
purposes of this particular limitation, a municipal ordinance which prescribes a
set ratio between the amount of the tax and the volume of sale of the taxpayer
imposes a sales tax and is null and void for being outside the power of the
municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks
produced or manufactured under Ordinance No. 27 does not partake of the
nature of a percentage tax on sales, or other taxes in any form based thereon.
The tax is levied on the produce (whether sold or not) and not on the sales.
The volume capacity of the taxpayer's production of soft drinks is considered
solely for purposes of determining the tax rate on the products, but there is not
set ratio between the volume of sales and the amount of the tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those
imposed on specified articles, such as distilled spirits, wines, fermented
liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel
fuel oil, cinematographic films, playing cards, saccharine, opium and other
habit-forming drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½
centavos per case, 23 cannot be considered unjust and unfair. 24 an increase
in the tax alone would not support the claim that the tax is oppressive, unjust
and confiscatory. Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line with the
constutional policy of according the widest possible autonomy to local
governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance
as unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five
but not more than ten crowners or P2,000.00 with ten but not more than
twenty crowners imposed on manufacturers, producers, importers and dealers
of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964,
as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the validity of Ordinance
No. 27. Municipalities are empowered to impose, not only municipal license
taxes upon persons engaged in any business or occupation but also to levy
for public purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, as amended, is hereby upheld
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series
of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby
declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz
Palma, Aquino and Concepcion, Jr., JJ., concur.
Separate Opinions
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a
scholarly and comprehensive character. Insofar as it shows adherence to tried
and tested concepts of the law of municipal taxation, I am only in agreement.
If I limit myself to concurrence in the result, it is primarily because with the
article on Local Autonomy found in the present Constitution, I feel a sense of
reluctance in restating doctrines that arose from a different basic premise as
to the scope of such power in accordance with the 1935 Charter. Nonetheless
it is well-nigh unavoidable that I do so as I am unable to share fully what for
me are the nuances and implications that could arise from the approach taken
by my brethren. Likewise as to the constitutional aspect of the thorny question
of double taxation, I would limit myself to what has been set forth in City of
Baguio v. De Leon.1
1. The present Constitution is quite explicit as to the power of taxation vested
in local and municipal corporations. It is therein specifically provided: "Each
local government unit shall have the power to create its own sources of
revenue and to levy taxes subject to such limitations as may be provided by
law. 2 That was not the case under the 1935 Charter. The only limitation then
on the authority, plenary in character of the national government, was that
while the President of the Philippines was vested with the power of control
over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law
... 3As far as legislative power over local government was concerned, no
restriction whatsoever was placed on the Congress of the Philippines. It would
appear therefore that the extent of the taxing power was solely for the
legislative body to decide. It is true that in 1939, there was a statute that
enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such
competence was further expanded in the Local Autonomy Act. 5 Nevertheless,
as late as December of 1964, five years after its enactment of the Local
Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber
Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The
rule is well-settled that municipal corporations, unlike sovereign states, after
clothed with no power of taxation; that its charter or a statute must clearly
show an intent to confer that power or the municipal corporation cannot
assume and exercise it, and that any such power granted must be construed
strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality."7
Taxation, according to Justice Parades in the earlier case of Tan v.
Municipality of Pagbilao,8 "is an attribute of sovereignty which municipal
corporations do not enjoy." 9 That case left no doubt either as to weakness of
a claim "based merely by inferences, implications and deductions, [as they
have no place in the interpretation of the power to tax of a municipal
corporation." 10 As the conclusion reached by the Court finds support in such
grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely
on the doctrine announced by this Court in City of Baguio v. De Leon. 11 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 grouse With 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 justice to 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 stage. 'In a 1947 decision, however, we quoted with approval this
excerpt from a leading American decision: 'Where, as here, Congress has
clearly expressed its intention, the statute must be sustained even though
double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
Separate Opinions
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a
scholarly and comprehensive character. Insofar as it shows adherence to tried
and tested concepts of the law of municipal taxation, I am only in agreement.
If I limit myself to concurrence in the result, it is primarily because with the
article on Local Autonomy found in the present Constitution, I feel a sense of
reluctance in restating doctrines that arose from a different basic premise as
to the scope of such power in accordance with the 1935 Charter. Nonetheless
it is well-nigh unavoidable that I do so as I am unable to share fully what for
me are the nuances and implications that could arise from the approach taken
by my brethren. Likewise as to the constitutional aspect of the thorny question
of double taxation, I would limit myself to what has been set forth in City
of Baguio v. De Leon.1
1. The present Constitution is quite explicit as to the power of taxation vested
in local and municipal corporations. It is therein specifically provided: "Each
local government unit shall have the power to create its own sources of
revenue and to levy taxes subject to such limitations as may be provided by
law. 2 That was not the case under the 1935 Charter. The only limitation then
on the authority, plenary in character of the national government, was that
while the President of the Philippines was vested with the power of control
over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law
... 3As far as legislative power over local government was concerned, no
restriction whatsoever was placed on the Congress of the Philippines. It would
appear therefore that the extent of the taxing power was solely for the
legislative body to decide. It is true that in 1939, there was a statute that
enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such
competence was further expanded in the Local Autonomy Act. 5 Nevertheless,
as late as December of 1964, five years after its enactment of the Local
Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber
Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The
rule is well-settled that municipal corporations, unlike sovereign states, after
clothed with no power of taxation; that its charter or a statute must clearly
show an intent to confer that power or the municipal corporation cannot
assume and exercise it, and that any such power granted must be construed
strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality."7
Taxation, according to Justice Parades in the earlier case of Tan v.
Municipality of Pagbilao,8 "is an attribute of sovereignty which municipal
corporations do not enjoy." 9 That case left no doubt either as to weakness of
a claim "based merely by inferences, implications and deductions, [as they
have no place in the interpretation of the power to tax of a municipal
corporation." 10 As the conclusion reached by the Court finds support in such
grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely
on the doctrine announced by this Court in City of Baguio v. De Leon. 11 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 grouse With 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 justice to 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 stage. 'In a 1947 decision, however, we quoted with approval this
excerpt from a leading American decision: 'Where, as here, Congress has
clearly expressed its intention, the statute must be sustained even though
double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
June 18, 1987
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF
MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf
and purportedly on behalf of other videogram operators adversely affected. It
assails the constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry (hereinafter briefly referred to as the
BOARD). The Decree was promulgated on October 5, 1985 and took effect on
April 10, 1986, fifteen (15) days after completion of its publication in the
Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned
decree, Presidential Decree No. 1994 amended the National Internal Revenue
Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each
processed video-tape cassette, ready for playback, regardless of
length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales
tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated
Movie Producers, Importers and Distributors Association of the Philippines,
and Philippine Motion Pictures Producers Association, hereinafter collectively
referred to as the Intervenors, were permitted by the Court to intervene in the
case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival
and very existence is threatened by the unregulated proliferation of film
piracy." The Intervenors were thereafter allowed to file their Comment in
Intervention.
The rationale behind the enactment of the DECREE, is set out in its
preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes or
any technical improvement or variation thereof, have greatly
prejudiced the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales,
contractor's specific, amusement and other taxes, thereby resulting in
substantial losses estimated at P450 Million annually in government
revenues;
2. WHEREAS, videogram(s) establishments collectively earn around
P600 Million per annum from rentals, sales and disposition of
videograms, and such earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in
taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments
have also affected the viability of the movie industry, particularly the
more than 1,200 movie houses and theaters throughout the country,
and occasioned industry-wide displacement and unemployment due
to the shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is
imperative for the Government to create an environment conducive to
growth and development of all business industries, including the
movie industry which has an accumulated investment of about P3
Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition of the
 movie industry upon which more than 75,000 families and 500,000
workers depend for their livelihood, but also provide an additional
source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene
videogram features constitutes a clear and present danger to the
moral and spiritual well-being of the youth, and impairs the mandate
of the Constitution for the State to support the rearing of the youth for
civic efficiency and the development of moral character and promote
their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for
remedial measures to curb these blatant malpractices which have
flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the
moral values of the people and betraying the national economic
recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the
following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same is
not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause of the
Constitution;
3. There is no factual nor legal basis for the exercise by the President
of the vast powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a
nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one
subject which shall be expressed in the title thereof" 1 is sufficiently complied
with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express
each and every end that the statute wishes to accomplish. The requirement is
satisfied if all the parts of the statute are related, and are germane to the
subject matter expressed in the title, or as long as they are not inconsistent
with or foreign to the general subject and title. 2An act having a single general
subject, indicated in the title, may contain any number of provisions, no matter
how diverse they may be, so long as they are not inconsistent with or foreign
to the general subject, and may be considered in furtherance of such subject
by providing for the method and means of carrying out the general
object." 3 The rule also is that the constitutional requirement as to the title of a
bill should not be so narrowly construed as to cripple or impede the power of
legislation. 4 It should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision
of the DECREE is a rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. —
Notwithstanding any provision of law to the contrary, the province
shall collect a tax of thirty percent (30%) of the purchase price or
rental rate, as the case may be, for every sale, lease or disposition of
a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the other fifty percent
(50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared
equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary
for the accomplishment of, the general object of the DECREE, which is the
regulation of the video industry through the Videogram Regulatory Board as
expressed in its title. The tax provision is not inconsistent with, nor foreign to
that general subject and title. As a tool for regulation 6 it is simply one of the
regulatory and control mechanisms scattered throughout the DECREE. The
express purpose of the DECREE to include taxation of the video industry in
order to regulate and rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra. Those preambles
explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its Preamble
and reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the
DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh
and oppressive, confiscatory, and in restraint of trade. However, it is beyond
serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The
power to impose taxes is one so unlimited in force and so searching in extent,
that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which
exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This
is, in general, a sufficient security against erroneous and oppressive
taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected to
tax, thereby depriving the Government of an additional source of revenue. It is
an end-user tax, imposed on retailers for every videogram they make
available for public viewing. It is similar to the 30% amusement tax imposed or
borne by the movie industry which the theater-owners pay to the government,
but which is passed on to the entire cost of the admission ticket, thus shifting
the tax burden on the buying or the viewing public. It is a tax that is imposed
uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of
the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry
over another. 11
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 "inequities
which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". 12 Taxation has been
made the implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the
promulgation of the DECREE by the former President under Amendment No.
6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence
thereof, or whenever the interim Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for any reason
that in his judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of instructions, which
shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the
8th "whereas" clause sufficiently summarizes the justification in that grave
emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures
to be adopted with dispatch. Whatever the reasons "in the judgment" of the
then President, considering that the issue of the validity of the exercise of
legislative power under the said Amendment still pends resolution in several
other cases, we reserve resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue
delegation of legislative power. The grant in Section 11 of the DECREE of
authority to the BOARD to "solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed and limited period, the heads
or personnel of such agencies and units to perform enforcement functions for
the Board" is not a delegation of the power to legislate but merely a
conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be,
and conferring authority or discretion as to its execution to be exercised under
and in pursuance of the law. The first cannot be done; to the latter, no valid
objection can be made." 14 Besides, in the very language of the decree, the
authority of the BOARD to solicit such assistance is for a "fixed and limited
period" with the deputized agencies concerned being "subject to the direction
and control of the BOARD." That the grant of such authority might be the
source of graft and corruption would not stigmatize the DECREE as
unconstitutional. Should the eventuality occur, the aggrieved parties will not
be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post
facto law is, among other categories, one which "alters the legal rules of
evidence, and authorizes conviction upon less or different testimony than the
law required at the time of the commission of the offense." It is petitioner's
position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a
period of forty-five (45) days after the effectivity of this Decree within
which to register with and secure a permit from the BOARD to engage
in the videogram business and to register with the BOARD all their
inventories of videograms, including videotapes, discs, cassettes or
other technical improvements or variations thereof, before they could
be sold, leased, or otherwise disposed of. Thereafter any videogram
found in the possession of any person engaged in the videogram
business without the required proof of registration by the BOARD,
shall be prima facie evidence of violation of the Decree, whether the
possession of such videogram be for private showing and/or public
exhibition.
raises immediately a prima facie evidence of violation of the DECREE when
the required proof of registration of any videogram cannot be presented and
thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta
vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the
passage of a law providing that the presumption of innocence may be
overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to
overcome such presumption of innocence" (People vs. Mingoa 92
Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature
may enact that when certain facts have been proved that they shall be
prima facie evidence of the existence of the guilt of the accused and
shift the burden of proof provided there be a rational connection
between the facts proved and the ultimate facts presumed so that the
inference of the one from proof of the others is not unreasonable and
arbitrary because of lack of connection between the two in common
experience". 16
Applied to the challenged provision, there is no question that there is a
rational connection between the fact proved, which is non-registration, and the
ultimate fact presumed which is violation of the DECREE, besides the fact that
the prima facie presumption of violation of the DECREE attaches only after a
forty-five-day period counted from its effectivity and is, therefore, neither
retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-
regulated and being eased out of existence as if it were a nuisance. Being a
relatively new industry, the need for its regulation was apparent. While the
underlying objective of the DECREE is to protect the moribund movie industry,
there is no question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy; the erosion
of the moral fiber of the viewing public brought about by the availability of
unclassified and unreviewed video tapes containing pornographic films and
films with brutally violent sequences; and losses in government revenues due
to the drop in theatrical attendance, not to mention the fact that the activities
of video establishments are virtually untaxed since mere payment of Mayor's
permit and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are
seen to have proliferated in many places notwithstanding the 30% tax
imposed.
In the last analysis, what petitioner basically questions is the necessity,
wisdom and expediency of the DECREE. These considerations, however, are
primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for declaring a statute invalid. This is
as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and
confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the
discretion of a coordinate branch, the judiciary would substitute its
own. If there be adherence to the rule of law, as there ought to be, the
last offender should be courts of justice, to which rightly litigants
submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity
of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be
sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches Republic of the Philippines
to a challenged statute. We find no clear violation of the Constitution which SUPREME COURT
would justify us in pronouncing Presidential Decree No. 1987 as Manila
unconstitutional and void.
SECOND DIVISION
WHEREFORE, the instant Petition is hereby dismissed.
G.R. No. L-30232 July 29, 1988
No costs.
LUZON STEVEDORING CORPORATION, petitioner-appellant,
SO ORDERED. vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, INTERNAL REVENUE, respondents-appellees.
Feliciano, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.
H. San Luis & V.L. Simbulan for petitioner-appellant.

PARAS, J.:

This is a petition for review of the October 21, 1968 Decision * of the Court of
Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring Corporation v. Hon.
Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the
various claims for tax refund; and the February 20, 1969 Resolution of the
same court denying the motion for reconsideration.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance
of its tugboats, imported various engine parts and other equipment for which it
paid, under protest, the assessed compensating tax. Unable to secure a tax
refund from the Commissioner of Internal Revenue, on January 2, 1964, it
filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals,
docketed therein as CTA Case No. 1484, praying among others, that it be
granted the refund of the amount of P33,442.13. The Court of Tax Appeals,
however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27), denied the
various claims for tax refund. The decretal portion of the said decision reads:

WHEREFORE, finding petitioner's various claims for refund

amounting to P33,442.13 without sufficient legal justification,
the said claims have to be, as they are hereby, denied. With
costs against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration
(Ibid., pp. 28-34), but the same was denied in a Resolution dated February 20,
1969 (Ibid., p. 35). Hence, the instant petition.
This Court, in a Resolution dated March 13, 1969, gave due course to the
petition (Ibid., p. 40). Petitioner-appellant raised three (3) assignments of
error, to wit:
I constitute a single vessel. Accordingly, it concludes that the engines, spare
The lower court erred in holding that the petitioner-appellant
is engaged in business as stevedore, the work of unloading
and loading of a vessel in port, contrary to the evidence on
record.
II
The lower court erred in not holding that the business in
which petitioner-appellant is engaged, is part and parcel of
the shipping industry.
III
The lower court erred in not allowing the refund sought by
petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be
interpreted to be included in the term "cargo vessels" for purposes of the tax
exemption provided for in Section 190 of the National Internal Revenue Code,
as amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. — ... And Provided further, That
the tax imposed in this section shall not apply to articles to be
used by the importer himself in the manufacture or
preparation of articles subject to specific tax or those for
consignment abroad and are to form part thereof or to articles
to be used by the importer himself as passenger and/or cargo
vessel, whether coastwise or oceangoing, including engines
and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the
term cargo vessel under the tax exemption provisions of Section 190 of the
Revenue Code, as amended by Republic Act. No. 3176. He argues that in
legal contemplation, the tugboat and a barge loaded with cargoes with the
former towing the latter for loading and unloading of a vessel in part,
parts and equipment imported by it and used in the repair and maintenance of
its tugboats are exempt from compensating tax (Rollo, p. 23).
On the other hand, respondents-appellees counter that petitioner-appellant's
"tugboats" are not "Cargo vessel" because they are neither designed nor used
for carrying and/or transporting persons or goods by themselves but are
mainly employed for towing and pulling purposes. As such, it cannot be
claimed that the tugboats in question are used in carrying and transporting
passengers or cargoes as a common carrier by water, either coastwise or
oceangoing and, therefore, not within the purview of Section 190 of the Tax
Code, as amended by Republic Act No. 3176 (Brief for Respondents-
Appellees, pp. 45).
This Court has laid down the rule that "as the power of taxation is a high
prerogative of sovereignty, the relinquishment is never presumed and any
reduction or dimunition thereof with respect to its mode or its rate, must be
strictly construed, and the same must be coached in clear and unmistakable
terms in order that it may be applied." (84 C.J.S. pp. 659-800), More
specifically stated, the general rule is that any claim for exemption from the
tax statute should be strictly construed against the taxpayer (Acting
Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977]
and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65
SCRA 142 [1975]).
As correctly analyzed by the Court of Tax Appeals, in order that the
importations in question may be declared exempt from the compensating tax,
it is indispensable that the requirements of the amendatory law be complied
with, namely: (1) the engines and spare parts must be used by the importer
himself as a passenger and/or cargo, vessel; and (2) the said passenger
and/or cargo vessel must be used in coastwise or oceangoing navigation
(Decision, CTA Case No. 1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory provisions of
Republic Act No. 3176 limit tax exemption from the compensating tax to
imported items to be used by the importer himself as operator of passenger
and/or cargo vessel (Ibid., p. 25).
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as
follows:
A tugboat is a strongly built, powerful steam or power vessel,
used for towing and, now, also used for attendance on vessel.
(Webster New International Dictionary, 2nd Ed.)
cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its
trade name is indicative that its sole and principal business is stevedoring and
lighterage, taxed under Section 191 of the National Internal Revenue Code as
a contractor, and not an entity which transports passengers or freight for hire
which is taxed under Section 192 of the same Code as a common carrier by
water (Decision, CTA Case No. 1484; Rollo, p. 25).
Under the circumstances, there appears to be no plausible reason to disturb
the findings and conclusion of the Court of Tax Appeals.

A tugboat is a diesel or steam power vessel designed
primarily for moving large ships to and from piers for towing
barges and lighters in harbors, rivers and canals.
(Encyclopedia International Grolier, Vol. 18, p. 256).
A tug is a steam vessel built for towing, synonymous with
tugboat. (Bouvier's Law Dictionary.) (Rollo, p. 24).
As a matter of principle, this Court will not set aside the conclusion reached by
an agency such as the Court of Tax Appeals, which is, by the very nature of
its function, dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject unless
there has been an abuse or improvident exercise of authority (Reyes v.
Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not
present in the instant case.

PREMISES CONSIDERED, the instant petition is DISMISSED and the

Under the foregoing definitions, petitioner's tugboats clearly do not fall under
decision of the Court of Tax Appeals is AFFIRMED.
the categories of passenger and/or cargo vessels. Thus, it is a cardinal
principle of statutory construction that where a provision of law speaks
categorically, the need for interpretation is obviated, no plausible pretense SO ORDERED.
being entertained to justify non-compliance. All that has to be done is to apply
it in every case that falls within its terms (Allied Brokerage Corp. v. Melencio-Herrera, Padilla and Sarmiento, JJ., concur.
Commissioner of Customs, L-27641, 40 SCRA 555 [1971]; Quijano, etc. v.
DBP, L-26419, 35 SCRA 270 [1970]).

And, even if construction and interpretation of the law is insisted upon,

following another fundamental rule that statutes are to be construed in the
light of purposes to be achieved and the evils sought to be remedied (People
v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that
the legislature in amending Section 190 of the Tax Code by Republic Act
3176, as appearing in the records, intended to provide incentives and
inducements to bolster the shipping industry and not the business of
stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat
(Rollo, p. 26).

On analysis of petitioner-appellant's transactions, the Court of Tax Appeals

found that no evidence was adduced by petitioner-appellant that tugboats are
passenger and/or cargo vessels used in the shipping industry as an
independent business. On the contrary, petitioner-appellant's own evidence
supports the view that it is engaged as a stevedore, that is, the work of
unloading and loading of a vessel in port; and towing of barges containing
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 90776 June 3, 1991
PHILIPPINE PETROLEUM CORPORATION, petitioner,
vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR
NICOMEDES F. PATENIA, respondent.
Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.
PARAS, J.:
This is a petition for certiorari seeking to annul and set aside: (a) the March
17, 1989 decision * of the Regional Trial Court, Branch 80, Tanay, Rizal in
Civil Case No. 057-T entitled, "Municipality of Pililla, Rizal, represented by
Mayor Nicomedes F. Patenia vs. Philippine Petroleum Corporation", (PPC for
short) upholding the legality of the taxes, fees and charges being imposed in
Pililla under Municipal Tax Ordinance No. 1 and directing the herein petitioner
to pay the amount of said taxes, fees and charges due the respondent: and
(b) the November 2, 1989 resolution of the same court denying petitioner's
motion for reconsideration of the said decision.
The undisputed facts of the case are:
Petitioner, Philippine Petroleum Corporation (PPC for short) is a business
enterprise engaged in the manufacture of lubricated oil basestock which is a
petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal,
conducting its business activities within the territorial jurisdiction of the
Municipality of Pililla, Rizal and is in continuous operation up to the present
(Rollo p. 60). PPC owns and maintains an oil refinery including forty-nine
storage tanks for its petroleum products in Malaya, Pililla, Rizal (Rollo, p. 12).
Under Section 142 of the National Internal Revenue Code of 1939,
manufactured oils and other fuels are subject to specific tax.
On June 28, 1973, Presidential Decree No. 231, otherwise known as the
Local Tax Code was issued by former President Ferdinand E. Marcos
governing the exercise by provinces, cities, municipalities and barrios of their
taxing and other revenue-raising powers. Sections 19 and 19 (a) thereof,
provide among others, that the municipality may impose taxes on business,
except on those for which fixed taxes are provided on manufacturers,
importers or producers of any article of commerce of whatever kind or nature,
including brewers, distillers, rectifiers, repackers, and compounders of liquors,
distilled spirits and/or wines in accordance with the schedule listed therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated
December 27, 1973, directed to all provincial, city and municipal treasurers to
refrain from collecting any local tax imposed in old or new tax ordinances in
the business of manufacturing, wholesaling, retailing, or dealing in petroleum
products subject to the specific tax under the National Internal Revenue Code
(Rollo, p. 76).
Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued
by the Secretary of Finance instructing all City Treasurers to refrain from
collecting any local tax imposed in tax ordinances enacted before or after the
effectivity of the Local Tax Code on July 1, 1973, on the businesses of
manufacturing, wholesaling, retailing, or dealing in, petroleum products
subject to the specific tax under the National Internal Revenue Code (Rollo, p.
79).
Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution
No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974 otherwise
known as "The Pililla Tax Code of 1974" on June 14, 1974, which took effect
on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance
imposed a tax on business, except for those for which fixed taxes are
provided in the Local Tax Code on manufacturers, importers, or producers of
any article of commerce of whatever kind or nature, including brewers,
distillers, rectifiers, repackers, and compounders of liquors, distilled spirits
and/or wines in accordance with the schedule found in the Local Tax Code, as
well as mayor's permit, sanitary inspection fee and storage permit fee for
flammable, combustible or explosive substances (Rollo, pp. 183-187), while
Section 139 of the disputed ordinance imposed surcharges and interests on
unpaid taxes, fees or charges (Ibid., p. 193).
On March 30, 1974, Presidential Decree No. 426 was issued amending
certain provisions of P.D. 231 but retaining Sections 19 and 19 (a) with
adjusted rates and 22(b).
On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on
lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar
petroleum products levied under Sections 142, 144 and 145 of the National
Internal Revenue Code, as amended, and granting provinces, cities and
municipalities certain shares in the specific tax on such products in lieu of
local taxes imposed on petroleum products.
The questioned Municipal Tax Ordinance No. 1 was reviewed and approved
by the Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but
was not implemented and/or enforced by the Municipality of Pililla because of
its having been suspended up to now in view of Provincial Circular Nos. 26-73
and 26 A-73.
Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing
all city and municipal treasurers to refrain from collecting the so-called storage
fee on flammable or combustible materials imposed under the local tax
ordinance of their respective locality, said fee partaking of the nature of a
strictly revenue measure or service charge.
On June 3, 1977, P.D. 1158 otherwise known as the National Internal
Revenue Code of 1977 was enacted, Section 153 of which specifically
imposes specific tax on refined and manufactured mineral oils and motor
fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent
filed a complaint on April 4, 1986 docketed as Civil Case No. 057-T against
PPC for the collection of the business tax from 1979 to 1986; storage permit
fees from 1975 to 1986; mayor's permit and sanitary inspection fees from
1975 to 1984. PPC, however, have already paid the last-named fees starting
1985 (Rollo, p. 74).
After PPC filed its answer, a pre-trial conference was held on August 24, 1988
where the parties thru their respective counsel, after coming up with certain
admissions and stipulations agreed to the submission of the case for decision
based on documentary evidence offered with their respective comments
(Rollo, p. 41).
On March 17, 1987, the trial court rendered a decision against the petitioner,
the dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court hereby renders
judgment in favor of the plaintiffs as against the defendants thereby
directing the defendants to 1) pay the plaintiffs the amount of
P5,301,385.00 representing the Tax on Business due from the
defendants under Sec. 9 (A) of the Municipal Tax Ordinance of the
plaintiffs for the period from 1979 to 1983 inclusive plus such amount
of tax that may accrue until final determination of case; 2) to pay
storage permit fee in the amount of P3,321,730.00 due from the
defendants under Sec. 10, par. z (13) (b) (1 C) of the Municipal Tax
Ordinance of the plaintiffs for the period from 1975 to 1986 inclusive
plus such amount of fee that may accrue until final determination of
case; 3) to pay Mayor's Permit Fee due from the defendants under
Sec. 10, par. (P) (2) of the Municipal Tax Ordinance of the plaintiffs
from 1975 to 1984 inclusive in the amount of P12,120.00 plus such
amount of fee that may accrue until final determination of the case;
and 4) to pay sanitary inspection fee in the amount of P1,010.00 for
the period from 1975 to 1984 plus such amount that may accrue until
final determination of case and 5) to pay the costs of suit.
SO ORDERED. (Rollo, pp. 49-50)
PPC moved for reconsideration of the decision, but this was denied by the
lower court in a resolution of November 2, 1989, hence, the instant petition.
The Court resolved to give due course to the petition and required both parties
to submit simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305).
PPC assigns the following alleged errors:
1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE
BUSINESS TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE
IN THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26
A-73;.
2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE
FOR THE PAYMENT OF STORAGE PERMIT FEE UNDER
SECTION 10 Z (13) (b) (1-c) OF THE TAX ORDINANCE
CONSIDERING THE ISSUANCE OF PROVINCIAL CIRCULAR NO.
6-77;
3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS
COMPUTATION OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;
4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S
PERMIT AND SANITARY INSPECTION FEES CONSIDERING THAT
 THE SAME HAS BEEN VALIDLY AND LEGALLY WAIVED BY THE
MAYOR;
5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND
DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE
FIVE (5) YEAR PERIOD FROM THE FILING OF THIS CASE ON
APRIL 4, 1986 HAS ALREADY PRESCRIBED.
The crucial issue in this case is whether or not petitioner PPC whose oil
products are subject to specific tax under the NIRC, is still liable to pay (a) tax
on business and (b) storage fees, considering Provincial Circular No. 6-77;
and mayor's permit and sanitary inspection fee unto the respondent
Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1.
Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as
contrary to national economic policy the imposition of local taxes on the
manufacture of petroleum products as they are already subject to specific tax
under the National Internal Revenue Code; (b) the above declaration covers
not only old tax ordinances but new ones, as well as those which may be
enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are
still effective, hence, unless and until revoked, any effort on the part of the
respondent to collect the suspended tax on business from the petitioner would
be illegal and unauthorized; and (d) Section 2 of P.D. 436 prohibits the
imposition of local taxes on petroleum products.
PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax
ordinances imposing a tax on business under Section 19 (a) of the Local Tax
Code (P.D. No. 231), with regard to manufacturers, retailers, wholesalers or
dealers in petroleum products subject to the specific tax under the National
Internal Revenue Code NIRC, in view of Section 22 (b) of the Code regarding
non-imposition by municipalities of taxes on articles, subject to specific tax
under the provisions of the NIRC.
There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the
assailed taxes, fees and charges is valid especially Section 9 (A) which
according to the trial court "was lifted in toto and/or is a literal reproduction of
Section 19 (a) of the Local Tax Code as amended by P.D. No. 426." It
conforms with the mandate of said law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed
Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance
when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no
exemptions were given to manufacturers, wholesalers, retailers, or dealers in
petroleum products.
Well-settled is the rule that administrative regulations must be in harmony with
the provisions of the law. In case of discrepancy between the basic law and
an implementing rule or regulation, the former prevails (Shell Philippines, Inc.
v. Central Bank of the Philippines, 162 SCRA 628 [1988]). As aptly held by the
court a quo:
Necessarily, there could not be any other logical conclusion than that
the framers of P.D. No. 426 really and actually intended to terminate
the effectivity and/or enforceability of Provincial Circulars Nos. 26-73
and 26 A-73 inasmuch as clearly these circulars are in contravention
with Sec. 19 (a) of P.D. 426-the amendatory law to P.D. No. 231. That
intention to terminate is very apparent and in fact it is expressed in
clear and unequivocal terms in the effectivity and repealing clause of
P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local
taxes on petroleum products, said decree did not amend Sections 19 and 19
(a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted
the right to levy taxes on business of manufacturers, importers, producers of
any article of commerce of whatever kind or nature. A tax on business is
distinct from a tax on the article itself. Thus, if the imposition of tax on
business of manufacturers, etc. in petroleum products contravenes a declared
national policy, it should have been expressly stated in P.D. No. 436.
The exercise by local governments of the power to tax is ordained by the
present Constitution.1âwphi1 To allow the continuous effectivity of the
prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting
their power to tax by mere administrative issuances. Under Section 5, Article
X of the 1987 Constitution, only guidelines and limitations that may be
established by Congress can define and limit such power of local
governments. Thus:
Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees, and charges subject to
such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to
refrain from collecting the so-called storage fee on flammable or combustible
materials imposed in the local tax ordinance of their respective locality frees cannot be a charge for service by the municipality), the assailed DECISION is
petitioner PPC from the payment of storage permit fee. hereby AFFIRMED.

The storage permit fee being imposed by Pililla's tax ordinance is a fee for the SO ORDERED.
installation and keeping in storage of any flammable, combustible or explosive
substances. Inasmuch as said storage makes use of tanks owned not by the Melencio-Herrera, Padilla and Regalado, JJ., concur.
municipality of Pililla, but by petitioner PPC, same is obviously not a charge Sarmiento, J., is on leave.
for any service rendered by the municipality as what is envisioned in Section
37 of the same Code.

Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a

permit fee is a permit fee allowed under Section 36 of the amended Code.

As to the authority of the mayor to waive payment of the mayor's permit and
sanitary inspection fees, the trial court did not err in holding that "since the
power to tax includes the power to exempt thereof which is essentially a
legislative prerogative, it follows that a municipal mayor who is an executive
officer may not unilaterally withdraw such an expression of a policy thru the
enactment of a tax." The waiver partakes of the nature of an exemption. It is
an ancient rule that exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority (Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488
[1966]). Tax exemptions are looked upon with disfavor (Western Minolco
Corp. v. Commissioner of Internal Revenue, 124 SCRA 121 [1983]). Thus, in
the absence of a clear and express exemption from the payment of said fees,
the waiver cannot be recognized. As already stated, it is the law-making body,
and not an executive like the mayor, who can make an exemption. Under
Section 36 of the Code, a permit fee like the mayor's permit, shall be required
before any individual or juridical entity shall engage in any business or
occupation under the provisions of the Code.

However, since the Local Tax Code does not provide the prescriptive period
for collection of local taxes, Article 1143 of the Civil Code applies. Said law
provides that an action upon an obligation created by law prescribes within ten
(10) years from the time the right of action accrues. The Municipality of Pililla
can therefore enforce the collection of the tax on business of petitioner PPC
due from 1976 to 1986, and NOT the tax that had accrued prior to 1976.

PREMISES CONSIDERED, with the MODIFICATION that business taxes

accruing PRIOR to 1976 are not to be paid by PPC (because the same have
prescribed) and that storage fees are not also to be paid by PPC (for the
storage tanks are owned by PPC and not by the municipality, and therefore
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-33693-94 May 31, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and THE FAIR
TRADE BOARD, petitioner,
vs.
HON. SERAFIN R. CUEVAS, as Judge of the Court of First Instance of
Manila, Branch IV, INSTITUTE OF EVAPORATED FILLED MILK
MANUFACTURERS OF THE PHILIPPINES, INC., CONSOLIDATED MILK
COMPANY (PHIL.) INC., and MILK INDUSTRIES, INC., respondents.
Solicitor General Felix Q. Antonio and Solicitor Bernardo P. Pardo for
petitioners.
Sycip, Salazar, Luna, Manalo & Feliciano for private respondents.
DE CASTRO, J.:
This is a petition for certiorari with preliminary injunction to review the decision
rendered by respondent judge, in Civil Case No. 52276 and in Special Civil
Action No. 52383 both of the Court of First Instance of Manila.
Plaintiffs, in Civil Case No. 52276 private respondents herein, are engaged in
the manufacture, sale and distribution of filled milk products throughout the
Philippines. The products of private respondent, Consolidated Philippines Inc.
are marketed and sold under the brand Darigold whereas those of private
respondent, General Milk Company (Phil.), Inc., under the brand "Liberty;" and
those of private respondent, Milk Industries Inc., under the brand "Dutch
Baby." Private respondent, Institute of Evaporated Filled Milk Manufacturers of
the Philippines, is a corporation organized for the principal purpose of
upholding and maintaining at its highest the standards of local filled milk
industry, of which all the other private respondents are members.
Civil Case No. 52276 is an action for declaratory relief with ex-parte petition
for preliminary injunction wherein plaintiffs pray for an adjudication of their
respective rights and obligations in relation to the enforcement of Section 169
of the Tax Code against their filled milk products.
The controversy arose from the order of defendant, Commissioner of Internal
Revenue now petitioner herein, requiring plaintiffs- private respondents to
withdraw from the market all of their filled milk products which do not bear the
inscription required by Section 169 of the Tax Code within fifteen (15) days
from receipt of the order with the explicit warning that failure of plaintiffs'
private respondents to comply with said order will result in the institution of the
necessary action against any violation of the aforesaid order. Section 169 of
the Tax Code reads as follows:
Section 169. Inscription to be placed on skimmed milk. — All
condensed skimmed milk and all milk in whatever form, from
which the fatty part has been removed totally or in part, sold
or put on sale in the Philippines shall be clearly and legibly
marked on its immediate containers, and in all the language
in which such containers are marked, with the words, "This
milk is not suitable for nourishment for infants less than one
year of age," or with other equivalent words.
The Court issued a writ of preliminary injunction dated February 16, 1963
restraining the Commissioner of Internal Revenue from requiring plaintiffs'
private respondents to print on the labels of their rifled milk products the
words, "This milk is not suitable for nourishment for infants less than one year
of age or words of similar import, " as directed by the above quoted provision
of Law, and from taking any action to enforce the above legal provision
against the plaintiffs' private respondents in connection with their rifled milk
products, pending the final determination of the case, Civil Case No. 52276,
on the merits.
On July 25, 1969, however, the Office of the Solicitor General brought an
appeal from the said order by way of certiorari to the Supreme Court. 1 In view
thereof, the respondent court in the meantime suspended disposition of these
cases but in view of the absence of any injunction or restraining order from the
Supreme Court, it resumed action on them until their final disposition therein.
Special Civil Action No. 52383, on the other hand, is an action for prohibition
and injunction with a petition for preliminary injunction. Petitioners therein pray
that the respondent Fair Trade Board desist from further proceeding with FTB
I.S. No. I . entitled "Antonio R. de Joya vs. Institute of Evaporated Milk
Manufacturers of the Philippines, etc." pending final determination of Civil
Case No. 52276. The facts of this special civil action show that on December
7, 1962, Antonio R. de Joya and Sufronio Carrasco, both in their individual the proceedings so far undertaken by the respondent Board
capacities and in their capacities as Public Relations Counsel and President on said complaints. (pp. 20- 21, Rollo).
of the Philippine Association of Nutrition, respectively, filed FTB I.S. No. 1 with
Fair Trade Board for misleading advertisement, mislabeling and/or From the above decision of the respondent court, the Commissioner of
misbranding. Among other things, the complaint filed include the charge of Internal Revenue and the Fair Trade Board joined together to file the present
omitting to state in their labels any statement sufficient to Identify their filled petition for certiorari with preliminary injunction, assigning the following errors:
milk products as "imitation milk" or as an imitation of genuine cows milk. and
omitting to mark the immediate containers of their filled milk products with the I. THE LOWER COURT ERRED IN RULING THAT SEC.
words: "This milk is not suitable for nourishment for infants less than one year TION 169 OF THE TAX CODE HAS BEEN REPEALED BY
of age or with other equivalent words as required under Section 169 of the
IMPLICATION.
Tax Code. The Board proceeded to hear the complaint until it received the writ
of preliminary injunction issued by the Court of First Instance on March 19,
1963. II. THE LOWER COURT ERRED IN RULING THAT
SECTION 169 OF THE TAX CODE HAS LOST ITS TAX
PURPOSE, AND THAT COMMISSIONER NECESSARILY
Upon agreement of the parties, Civil Case No. 52276 and Special Civil Action
LOST HIS AUTHORITY TO ENFORCE THE SAME AND
No. 52383 were heard jointly being intimately related with each other, with
THAT THE PROPER AUTHORITY TO PROMOTE THE
common facts and issues being also involved therein. On April 16, 1971, the
HEALTH OF INFANTS IS THE FOOD AND DRUG
respondent court issued its decision, the dispositive part of which reads as
ADMINISTRATION, THE SECRETARY OF HEALTH AND
follows: THE SECRETARY OF JUSTICE, AS PROVIDED FOR IN RA
3720, NOT THE COMMISSIONER OF INTERNAL
Wherefore, judgment is hereby rendered: REVENUE.

In Civil Case No. 52276:
(a) Perpetually restraining the defendant, Commissioner of
Internal Revenue, his agents, or employees from requiring
plaintiffs to print on the labels of their filled milk products the
words: "This milk is not suitable for nourishment for infants
less than one year of age" or words with equivalent import
and declaring as nun and void and without authority in law,
the order of said defendant dated September 28, 1961,
Annex A of the complaint, and the Ruling of the Secretary of
Finance, dated November 12, 1962, Annex G of the
complaint; and
In Special Civil Action No. 52383:
(b) Restraining perpetually the respondent Fair Trade Board,
its agents or employees from continuing in the investigation of
the complaints against petitioners docketed as FTB I.S. No. 2,
or any charges related to the manufacture or sale by the
petitioners of their filled milk products and declaring as null
III. THE LOWER COURT ERRED IN RULING THAT THE
POWER TO INVESTIGATE AND TO PROSECUTE
VIOLATIONS OF FOOD LAWS IS ENTRUSTED TO THE
FOOD AND DRUG INSPECTION, THE FOOD AND DRUG
ADMINISTRATION, THE SECRETARY OF HEALTH AND
THE SECRETARY OF JUSTICE, AND THAT THE FAIR
TRADE BOARD IS WITHOUT JURISDICTION TO
INVESTIGATE AND PROSECUTE ALLEGED
MISBRANDING, MISLABELLING AND/OR MISLEADING
ADVERTISEMENT OF FILLED MILK PRODUCTS. (pp, 4-5,
Rollo).
The lower court did not err in ruling that Section 169 of the Tax Code has
been repealed by implication. Section 169 was enacted in 1939, together with
Section 141 (which imposed a Specific tax on skimmed milk) and Section 177
(which penalized the sale of skimmed milk without payment of the specific tax
and without the legend required by Section 169). However, Section 141 was
expressly repealed by Section 1 of Republic Act No. 344, and Section 177, by
Section 1 of Republic Act No. 463. By the express repeal of Sections 141 and
177, Section 169 became a merely declaratory provision, without a tax
purpose, or a penal sanction.
Moreover, it seems apparent that Section 169 of the Tax Code does not apply
to filled milk. The use of the specific and qualifying terms "skimmed milk" in
the headnote and "condensed skimmed milk" in the text of the cited section,
would restrict the scope of the general clause "all milk, in whatever form, from
which the fatty pat has been removed totally or in part." In other words, the
general clause is restricted by the specific term "skimmed milk" under the
familiar rule of ejusdem generis that general and unlimited terms are
restrained and limited by the particular terms they follow in the statute.
Skimmed milk is different from filled milk. According to the "Definitions,
Standards of Purity, Rules and Regulations of the Board of Food Inspection,"
skimmed milk is milk in whatever form from which the fatty part has been
removed. Filled milk, on the other hand, is any milk, whether or not
condensed, evaporated concentrated, powdered, dried, dessicated, to which
has been added or which has been blended or compounded with any fat or oil
other than milk fat so that the resulting product is an imitation or semblance of
milk cream or skim milk." The difference, therefore, between skimmed milk
and filled milk is that in the former, the fatty part has been removed while in
the latter, the fatty part is likewise removed but is substituted with refined
coconut oil or corn oil or both. It cannot then be readily or safely assumed that
Section 169 applies both to skimmed milk and filled milk.
The Board of Food Inspection way back in 1961 rendered an opinion that filled
milk does not come within the purview of Section 169, it being a product
distinct from those specified in the said Section since the removed fat portion
of the milk has been replaced with coconut oil and Vitamins A and D as
fortifying substances (p. 58, Rollo). This opinion bolsters the Court's stand as
to its interpretation of the scope of Section 169. Opinions and rulings of
officials of the government called upon to execute or implement administrative
laws command much respect and weight. (Asturias Sugar Central Inc. vs.
Commissioner of Customs, G. R. No. L-19337, September 30, 1969, 29
SCRA 617; Tan, et. al. vs. The Municipality of Pagbilao et. al., L-14264, April
30, 1963, 7 SCRA 887; Grapilon vs. Municipal Council of Carigara L-12347,
May 30, 1961, 2 SCRA 103).
This Court is, likewise, induced to the belief that filled milk is suitable for
nourishment for infants of all ages. The Petitioners themselves admitted that:
"the filled milk products of the petitioners (now private respondents) are safe,
nutritious, wholesome and suitable for feeding infants of all ages" (p. 44,
Rollo) and that "up to the present, Filipino infants fed since birth with filled milk
have not suffered any defects, illness or disease attributable to their having
been fed with filled milk." (p. 45, Rollo).
There would seem, therefore, to be no dispute that filled milk is suitable for
feeding infants of all ages. Being so, the declaration required by Section 169
of the Tax Code that filled milk is not suitable for nourishment for infants less
than one year of age would, in effect, constitute a deprivation of property
without due. process of law.
Section 169 is being enforced only against respondent manufacturers of filled
milk product and not as against manufacturers, distributors or sellers of
condensed skimmed milk such as SIMILAC, SMA, BREMIL, ENFAMIL,
OLAC, in which, as admitted by the petitioner, the fatty part has been
removed and substituted with vegetable or corn oil. The enforcement of
Section 169 against the private respondents only but not against other
persons similarly situated as the private respondents amounts to an
unconstitutional denial of the equal pro petition of the laws, for the law, equally
enforced, would similarly offend against the Constitution. Yick Wo vs.
Hopkins, 118 U.S. 356,30 L. ed. 220).
As stated in the early part of this decision, with the repeal of Sections 141 and
177 of the Tax Code, Section 169 has lost its tax purpose. Since Section 169
is devoid of any tax purpose, petitioner Commissioner necessarily lost his
authority to enforce the same. This was so held by his predecessor
immediately after Sections 141 and 177 were repealed in General Circular No.
V-85 as stated in paragraph IX of the Partial Stipulation of facts entered into
by the parties, to wit:
... As the act of sewing skimmed milk without first paying the
specific tax thereon is no longer unlawful and the
enforcement of the requirement in regard to the placing of the
proper legend on its immediate containers is a subject which
does not come within the jurisdiction of the Bureau of Internal
Revenue, the penal provisions of Section 177 of the said
Code having been repealed by Republic Act No. 463. (p. 102,
Rollo).
Petitioner's contention that he still has jurisdiction to enforce Section 169 by
virtue of Section 3 of the Tax Code which provides that the Bureau of Internal
Revenue shall also "give effect to and administer the supervisory and police
power conferred to it by this Code or other laws" is untenable. The Bureau of
Internal Revenue may claim police power only when necessary in the
enforcement of its principal powers and duties consisting of the "collection of
all national internal revenue taxes, fees and charges, and the enforcement of
all forfeitures, penalties and fines connected therewith." The enforcement of
Section 169 entails the promotion of the health of the nation and is thus
unconnected with any tax purpose. This is the exclusive function of the Food
and Drug Administration of the Department of Health as provided for in
Republic Act No. 3720. In particular, Republic Act No. 3720 provides:
Section 9. ... It shall be the duty of the Board (Food and Drug
Inspection), conformably with the rules and regulations, to
hold hearings and conduct investigations relative to matters
touching the Administration of this Act, to investigate
processes of food, drug and cosmetic manufacture and to
subject reports to the Food and Drug Administrator,
recommending food and drug standards for adoption. Said
Board shall also perform such additional functions, properly
within the scope of the administration thereof, as maybe
assigned to it by the Food and Drug Administrator. The
decisions of the Board shall be advisory to the Food and Drug
Administrator.
Section 26. ...
xxx xxx xxx
(f) Nothing in this Act shall be construed as requiring the Food
and Drug Administrator to certify for prosecution pursuant to
subparagraph (e) hereof, minor violations of this Act
whenever he believes that public interest will be adequately
served by a suitable written notice or warning.
The aforequoted provisions of law clearly show that petitioners, Commissioner
of Internal Revenue and the Fair Trade Board, are without jurisdiction to
investigate and to prosecute alleged misbranding, mislabeling and/or
misleading advertisements of filled milk. The jurisdiction on the matters cited
is vested upon the Board of Food and Drug inspection and the Food and Drug
Administrator, with the Secretary of Health and the Secretary of Justice, also
intervening in case criminal prosecution has to be instituted. To hold that the
petitioners have also jurisdiction as would be the result were their instant
petition granted, would only cause overlapping of powers and functions likely
to produce confusion and conflict of official action which is neither practical
nor desirable.
WHEREFORE, the decision appealed from is hereby affirmed en toto. No
costs.

(c) Hearing authorized or required by this Act shall be SO ORDERED.

conducted by the Board of Food and Drug Inspection which
shall submit recommendation to the Food and Drug Teehankee, (Chairman), Fernandez, Melencio-Herrera, JJ., concur.
Administrator.

(d) When it appears to the Food and Drug Administrator from

the reports of the Food and Drug Laboratory that any article
of food or any drug or cosmetic secured pursuant to Section
28 of this Act is adulterated or branded he shall cause notice
thereof to be given to the person or persons concerned and
such person or persons shall be given an opportunity to
subject evidence impeaching the correctness of the finding or
charge in question.

(e) When a violation of any provisions of this Act comes to the

knowledge of the Food and Drug Administrator of such
character that a criminal prosecution ought to be instituted
against the offender, he shall certify the facts to the Secretary
of Justice through the Secretary of Health, together with the
chemists' report, the findings of the Board of Food and Drug
Inspection, or other documentary evidence on which the
charge is based.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 11572 September 22, 1916
FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-
appellants,
vs.
VENANCIO CONCEPCION, as Acting Collector of Internal
Revenue, defendant-appellee.
Aitken and De Selms for appellants.
Attorney-General Avanceña for appellee.
TRENT, J.:
Section 100 of Act No. 2339, passed February 27, 1914, effective July 1,
1914, imposed an annual tax of P4 per square meter upon "electric signs,
billboards, and spaces used for posting or displaying temporary signs, and all
signs displayed on premises not occupied by buildings." This section was
subsequently amended by Act No. 2432, effective January 1, 1915, by
reducing the tax on such signs, billboards, etc., to P2 per square meter or
fraction thereof. Section 26 of Act No. 2432 was in turn amended by Act No.
2445, but this amendment does not in any way affect the questions involved in
the case under consideration. The taxes imposed by Act No. 2432, as
amended, were ratified by the Congress of the United States on March 4,
1915. The ratifying clause reads as follows:
The internal-revenue taxes imposed by the Philippine Legislature
under the law enacted by that body on December twenty-third,
nineteen hundred and fourteen (Act No. 2432), as amended by the
law enacted by it on January sixteenth, nineteen hundred and fifteen
(Act No. 2445), are hereby legalized and ratified, and the collection of
all such taxes heretofore or hereafter is hereby legalized, ratified and
confirmed as fully to all intents and purposes as if the same had by
prior Act of Congress been specifically authorized and directed.
Francis A. Churchill and Stewart Tait, copartners doing business under the
firm name and style of the Mercantile Advertising Agency, owners of a sign or
billboard containing an area of 52 square meters constructed on private
property in the city of Manila and exposed to public view, were taxes thereon
P104. The tax was paid under protest and the plaintiffs having exhausted all
their administrative remedies instituted the present action under section 140 of
Act No. 2339 against the Collector of Internal Revenue to recover back the
amount thus paid. From a judgment dismissing the complaint upon the merits,
with costs, the plaintiffs appealed.
It is now urged that the trial court erred:
(1) In not holding that the tax as imposed by virtue of Act No. 2339, as
amended by Act No. 2432, as amended by Act No. 2445, constitutes
deprivation of property without compensation or due process of law,
because it is confiscatory and unjustly discriminatory and (2) in not
holding that the said tax is void for lack of uniformity, because it is not
graded according to value; because the classification on which it is
based on any reasonable ground; and furthermore, because it
constitutes double taxation.
We will first inquire whether the tax in question is confiscatory as to the
business of the plaintiff Upon this point the lower court, in accepting the
testimony of the plaintiff, Churchill, to the effect that "the billboard in question
cost P300 to construct, that its annual gross earning power is P268, and that
the annual tax is P104," found "that for a five years' period the gross income
from the billboard would be P1,340, and that the expenditures for original
construction and taxes would amount to P820, leaving a balance of P520,"
held that "unless the tax equals or exceeds the gross income, the court would
hardly be justified in declaring the tax confiscatory." These findings of fact and
conclusions of law are attacked upon the ground that the court failed to take
into-consideration the pertinent facts that the annual depreciation of the
billboard is 20 per cent; that at the end of five years the capital of P300 would
be completely lost; that the plaintiffs are entitled to receive a reasonable rate
of interest on this capital; and that there should be charged against the
billboard its proportion of the overhead charges such as labor, management,
maintenance, rental of office premises, rental or purchase of ground space for
board, repair, paints, oils, etc., resulting in an actual loss per year on the
business, instead of an apparent profit of P520 for five years, or P44 for one
year. If these contentions rested upon a sound basis it might be said that the
tax is, in a sense, confiscatory; but they do not, as we will attempt to show
from the evidence of record.
The plaintiff Churchill testified in part as follows:
 Q. In your opinion, Mr. Churchill, state what you would think of Act No. 2339, as amended by Act No. 2432, and in turn amended by Act No.
the rates that are charged by you for advertising purposes in 2445."
connection with this board; could they be raised? —
It will thus be seen that the contention that the rates charged for advertising
A. No. cannot be raised is purely hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit
Q. Why? — that a number of other persons have voluntarily and without protest paid the
tax herein complained of. Under these circumstances, can it be held as a
matter of fact that the tax is confiscatory or that, as a matter of law, the tax is
A. The business wouldn't allow it; the business wouldn't afford
unconstitutional? Is the exercise of the taxing power of the Legislature
it; and otherwise it would mean bankruptcy to try to increase it.
dependent upon and restricted by the opinion of two interested witnesses?
There can be but one answer to these questions, especially in view of the fact
Q. Who couldn't afford it? Explain it fully Mr. Churchill? — that others are paying the tax and presumably making a reasonable profit
from their business.
A. The merchants couldn't afford to pay more. On cross-
examination: In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U. S., 339), a
question similar to the one now under consideration was raised and decided
Q. It is a fact, it is not, Mr. Churchill, that since the passage of by the Supreme Court of the United States. The principal contention made in
Act No. 2339 you have never made any attempt to raise the that case was that an Act of the Legislature of Michigan fixing the amount per
advertising rates? — mile to be charged by railways for the transportation of a passenger was
unconstitutional, on the ground that the rate so fixed was confiscatory. It was
A. It would be impossible to raise them. agreed in the pleadings that the total earnings and income of the company
from all sources for a given year were less than the expenses for the same
Q. My question is: You have never made any attempt to raise period. In addition to this agreed statement of facts, two witnesses were
them? — called, one the traffic manager and the other the treasurer of the company.
Their testimony was to the effect that in view of the competition prevailing at
Chicago for through business, it was impossible to increase the freight rates
A. We have talked it over with the merchants and talked over
then charged by the company because it would throw the volume of business
the price on the event of a tax being put at a reasonable amount,
into the hands of competing roads. In overruling the contention of the
about putting up some increase.
company that the act in question was unconstitutional on the ground that the
rate fixed thereby was confiscatory, the court said:
Q. But you have never made an actual attempt to increase
your rates? —
Surely, before the courts are called upon to adjudge an act of the
legislature fixing the maximum passenger rates for railroad
A. I would consider that an actual attempt. companies to be unconstitutional, on the ground that its enforcement
would prevent the stockholders from receiving any dividends on their
Q. You have never fixed the rate higher than it is now? — investments, or the bondholders any interest on their loans, they
should be fully advised as to what is done with the receipts and
A. No; no. earnings of the company; for if so advised, it might clearly appear that
a prudent and honest management would, within the rates prescribed,
It was agreed that Tait, the other plaintiff, would testify to the same effect. The secure to the bondholders their interest, and to the stockholders
parties, plaintiffs and defendant, further agreed "that a number of persons reasonable dividends. While the protection of vested rights of property
have voluntarily and without protest paid the taxes imposed by section 100 of is a supreme duty of the courts, it has not come to this, that the
legislative power rests subservient to the discretion of any railroad
 corporation which may, by exorbitant and unreasonable salaries, or in
some other improper way, transfer its earnings into what it is pleased
to call `operating expenses.'
It is further alleged that the tax in question is unconstitutional because "the
law herein complained of was enacted for the sole purpose of destroying
billboards and advertising business depending on the use of signs or
billboards." If it be conceded that the Legislature has the power to impose a
tax upon signs, signboards, and billboards, then "the judicial cannot
prescribed to the legislative department of the Government limitation upon the
exercise of its acknowledge powers." (Veazie Bank vs. Fenno, 8 Wall., 533,
548.) That the Philippine Legislature has the power to impose such taxes, we
think there can be no serious doubt, because "the power to impose taxes is
one so unlimited in force and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restrictions whatever, except such
as rest in the discretion of the authority which exercises it. It reaches to every
trade or occupation; to every object of industry, use, or enjoyment; to every
species of possession; and it imposes a burden which, in case of failure to
discharge it, may be followed by seizure and sale or confiscation of property.
No attribute of sovereignty is more pervading, and at no point does the power
of the government affect more constantly and intimately all the relations of life
than through the exactions made under it." (Cooley's Constitutional
Limitations, 6th Edition, p. 587.)
In McCray vs. U.S. (195 U.S., 27), the court, in ruling adversely to the
contention that a federal tax on oleomargarine artificially colored was void
because the real purpose of Congress was not to raise revenue but to tax out
of existence a substance not harmful of itself and one which might be lawfully
manufactured and sold, said:
Whilst, as a result of our written constitution, it is axiomatic that the
judicial department of the government is charged with the solemn duty
of enforcing the Constitution, and therefore, in cases property
presented, of determining whether a given manifestation of authority
has exceeded the power conferred by that instrument, no instance is
afforded from the foundation of the government where an act which
was within a power conferred, was declared to be repugnant to the
Constitution, because it appeared to the judicial mind that the
particular exertion of constitutional power was either unwise or unjust.
To announce such a principle would amount to declaring that, in our
constitutional system, the judiciary was not only charged with the duty
of upholding the Constitution, but also with the responsibility of
correcting every possible abuse arising from the exercise by the other
departments of their conceded authority. So to hold would be to
overthrow the entire distinction between the legislative, judicial, and
executive departments of the government, upon which our system is
founded, and would be a mere act of judicial usurpation.
If a case were presented where the abuse of the taxing power of the local
legislature was to extreme as to make it plain to the judicial mind that the
power had been exercised for the sole purpose of destroying rights which
could not be rightfully destroyed consistently with the principles of freedom
and justice upon which the Philippine Government rests, then it would be the
duty of the courts to say that such an arbitrary act was not merely an abuse of
the power, but was the exercise of an authority not conferred. (McCray vs.
U.S., supra.) But the instant case is not one of that character, for the reason
that the tax herein complained of falls far short of being confiscatory.
Consequently, it cannot be held that the Legislature has gone beyond the
power conferred upon it by the Philippine Bill in so far as the amount of the tax
is concerned.
Is the tax void for lack of uniformity or because it is not graded according to
value or constitutes double taxation, or because the classification upon which
it is based is mere arbitrary selection and not based on any reasonable
grounds? The only limitation, in so far as these questions are concerned,
placed upon the Philippine Legislature in the exercise of its taxing power is
that found in section 5 of the Philippine Bill, wherein it is declared "that the
rule of taxation in said Islands shall be uniform."
Uniformity in taxation — says Black on Constitutional Law, page 292
— means that all taxable articles or kinds of property, of the same
class, shall be taxed at the same rate. It does not mean that lands,
chattels, securities, incomes, occupations, franchises, privileges,
necessities, and luxuries, shall all be assessed at the same rate.
Different articles may be taxed at different amounts, provided the rate
is uniform on the same class everywhere, with all people, and at all
times.
A tax is uniform when it operates with the same force and effect in every place
where the subject of it is found (State Railroad Tax Cases, 92 U.S., 575.) The
words "uniform throughout the United States," as required of a tax by the
Constitution, do not signify an intrinsic, but simply a geographical, uniformity,
and such uniformity is therefore the only uniformity which is prescribed by the
Constitution. (Patton vs. Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is
uniform, within the constitutional requirement, when it operates with the same
force and effect in every place where the subject of it is found. (Edye vs.
Robertson, 112 U.S., 580; 28 L. Ed., 798.) "Uniformity," as applied to the
constitutional provision that all taxes shall be uniform, means that all property
belonging to the same class shall be taxed alike. (Adams vs. Mississippi State
Bank, 23 South, 395, citing Mississippi Mills vs Cook, 56 Miss., 40.) The
statute under consideration imposes a tax of P2 per square meter or fraction
thereof upon every electric sign, bill-board, etc., wherever found in the
Philippine Islands. Or in other words, "the rule of taxation" upon such signs is
uniform throughout the Islands. The rule, which we have just quoted from the
Philippine Bill, does not require taxes to be graded according to the value of
the subject or subjects upon which they are imposed, especially those levied
as privilege or occupation taxes. We can hardly see wherein the tax in
question constitutes double taxation. The fact that the land upon which the
billboards are located is taxed at so much per unit and the billboards at so
much per square meter does not constitute "double taxation." Double taxation,
within the true meaning of that expression, does not necessarily affect its
validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it is not for the
judiciary to say that the classification upon which the tax is based "is mere
arbitrary selection and not based upon any reasonable grounds." The
Legislature selected signs and billboards as a subject for taxation and it must
be presumed that it, in so doing, acted with a full knowledge of the situation.

For the foregoing reasons, the judgment appealed from is affirmed, with costs
against the appellants. So ordered.

Torres, Johnson, Carson, and Araullo, JJ., concur.