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 —

a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per 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,
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 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).

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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.

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-vis those which are imposed upon fixed income or salaried individual taxpayers. 4He 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

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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

4
property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As
clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and
corporations placed in similar situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories.
To repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is
practically no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other
hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be
just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards
professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of the assailed
provision; 31 (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation
and taxable net income of professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

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

Teehankee, J., concurs in the result.

Plana, J., took no part.

Separate Opinions

AQUINO, J., concurring:

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

ABAD SANTOS, J., dissenting:

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

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G.R. No. 85318 June 3, 1991
COMMART (PHILS.) INC., JESUS, CORAZON, ALBERTO, AND BERNARD all surnamed MAGLUTAC, petitioners,
vs.
SECURITIES & EXCHANGE COMMISSION and ALICE MAGLUTAC, respondents.
Monsod, Tamargo & Associates for petitioners.
Panganiban, Benitez, Barinaga & Bautista Law Offices for private respondent.

PARAS, J.:

Petitioners, in the instant petition for review on certiorari, seek the reversal of the en banc Order of the respondent Securities & Exchange Commission dated September 12, 1988
denying the petition for certiorari (SEC-EB No. 115-117) filed by the petitioners herein and ordering that the original complaint (SEC Case No. 2673) be remanded to the
Securities Investigation and Clearing Department for further proceeding, for having been rendered in grave abuse of discretion amounting to lack of or in excess of jurisdiction and
in contravention of existing laws and jurisprudence.

Commart (Phils.), Inc., (Command for short) is a corporation organized by two brothers, Jesus and Mariano Maglutac, to engage in the brokerage business for the importation of
fertilizers and other products/commodities.

Jesus T. Maglutac (Jesus for short) ran the company as president, chairman of the board, and chairman of the executive committee, while Mariano T. Maglutac (Mariano for short)
served as executive vice-president and vice-chairman of the executive committee until April 1984.

Sometime in June 1984, the two brothers agreed to go their separate ways, with Mariano being persuaded to sell to Jesus his shareholdings in Commart amounting to 25% of the
outstanding capital stock. As part of the deal, a "Cooperative Agreement" was signed, between Commart (represented by Jesus) and Mariano, in which, among others, Commart
ceded to Mariano or to an "acceptable entity" he may create, a portion of its business, with a pledge of mutual cooperation for a certain period so as to enable Mariano to get his
own corporation off the ground, so to speak.

Mariano's wife, Alice M. Maglutac (private respondent herein) who has been for years a stockholder and director of Commart, did not dispose of her shareholdings, and thus
continued as such even after the sale of Mariano's equity.

As broker and indentor, Commart's principal income came from commissions paid to it in U.S. dollars by foreign suppliers of fertilizers and other commodities imported by
Planters Products, Inc. and other local importers.

Shortly after the sale of his equity in Commart to Jesus, Mariano allegedly discovered that for several years, Jesus and his wife Corazon (who was herself a director) had been
siphoning and diverting to their private bank accounts in the United States and in Hongkong gargantuan amounts sliced off from commissions due Commart from some foreign
suppliers. Consequently, on August 22, 1989, spouses Mariano and Alice Maglutac filed a complaint (SEC Case No. 2673) with the Securities & Exchange Commission (SEC for
short) against Jesus T. Maglutac, Victor Cipriano, Clemente Ramos, Carolina de los Reyes, Corazon Maglutac, Alberto Maglutac and Bernardo Maglutac (Jesus as Chairman) and
the rest as members of the Board of Directors of Commart).

In their Complaint, Mariano and Alice Maglutac alleged, among others, that "Jesus T. Maglutac, by means of secret arrangements with foreign suppliers, embodied in and
evidenced by, correspondences and other documents discovered just recently, has been diverting into his private bank accounts and converting to his own personal benefit and
advantage substantial portions of the commission income of the corporation, to the prejudice of the corporation, its stockholders and its creditors." (Petition, Annex B, p. 2; Rollo,
p. 20) Thus, complainants prayed, among others, that judgment be rendered as follows ––

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 (a) Ordering respondents Jesus T. Maglutac, Corazon Maglutac, and Victor Cipriano to account for and to turn over or deliver to the Corporation the sum of
US$2,539,918.97, or its equivalent in Philippine currency, with legal interest thereon from the respective dates of misappropriation or, at the very least, from date of filing
of this suit, together with such other and further sums as may be proved to have likewise been misappropriated by them;

(b) Ordering all the respondents, as members of the Board of Directors, to take such remedial steps as would protect the corporation from further depredation of its funds
and property;

(c) Declaring rescinded or annulled the disposition of complainant Mariano T. Maglutac's shares of stock to respondent Jesus T. Maglutac and ordering the restoration to
the former of all his executive positions with all the rights and privileges thereunto appertaining; or, in the alternative, ordering that said complainant be paid the
equivalent of one-fourth of the actual market value of COMMART's present assets including goodwill, taking into consideration also the total sums misappropriated by
respondents Jesus T. Maglutac, Corazon Maglutac, and Victor Cipriano which rightfully belonged to COMMART; and

(d) Ordering respondents to pay complainants attorney's fees equivalent to twenty (20%) per cent of the total amounts awarded and recovered, plus such further sums as
may be proved to have been incurred as and by way of litigation expenses. (pp. 24-25, Rollo)

In response to the aforementioned Complaint, two Motions to Dismiss were filed. The records reveal that:

(a) On October 17, 1984, Albert and Bernard Maglutac moved to dismiss on the ground that Mariano Maglutac has no capacity to sue and the complaint states no cause of
action against them.

(b) On October 20, 1984, Jesus & Corazon Maglutac likewise moved to dismiss on the ground that respondent Commission does not have jurisdiction over the nature of
the suit.

These motions were opposed by complainants Alice and Mariano Maglutac. While said incidents were pending, complainants filed an Amended Complaint hereby Commart was
impleaded as party complainant and praying that Commart be placed under receivership and the properties of Jesus & Corazon Maglutac and Victor Cipriano be attached. It is
alleged in the Amended Complaint that complainant Commart is the corporation in whose behalf and for whose benefit this derivative suit is brought; that complainant Alice M.
Maglutac is a minority stockholder in good standing of Commart while her husband complainant Mariano T. Maglutac was, likewise, until June 25, 1984 or thereabouts, a
stockholder of Commart.

Motions to dismiss said Amended Complaint were also filed by present petitioners and were also duly opposed by complainants Mariano and his wife.

On May 10, 1985 Commart filed a Manifestation/Notice of Dismissal, manifesting that "it withdraws and dismisses the action taken in its behalf by complainants Mariano T.
Maglutac and Alice M. Maglutac against all respondents." (Petition, Annex E, p. 3; Rollo, pp. 42-44)

This was opposed by complainants on the ground, among other doctrines, that in a derivative suit the corporation is not allowed to be an active participant and has no control over
the suit against the real defendants; that the suing shareholder has the right of control.

On May 27, 1985, the Hearing Panel issued an Order denying all the motions to dismiss as well as the so called manifestation/notice of dismissal on the finding inter alia that ––

Respondents maintain that the present action is basically one for annulment/rescission of sale with alternative prayer for reinstatement of employment status; that the
action is not a derivative suit considering that the nature of the action is one for annulment and the fact that complainant Mariano T. Maglutac being a non-stockholder is
not qualified to institute a derivative suit; that the action does not in any way make mention of an actionable wrong against respondents Albert and Bernard Maglutac,
Clemente Ramos and Carolina de los Reyes.
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 By way of opposition, complainants alleged that the instant action should be characterized as a minority stockholders' derivative suit; that complainant Alice Maglutac is
not merely a nominal party but a real party in interest; that Mariano T. Maglutac's rights as a stockholder have been injured through the machinations and maneuvering of
respondent Jesus Maglutac; that the prayer for rescission or annulment of contract is merely the logical consequence of the exercise of jurisdiction by this Commission.

Respondents' contention that the Commission has no jurisdiction over the subject matter or the nature of the action is devoid of merit. It is a cardinal principle in legal
procedure that what determined the subject matter or the nature of the action are the facts a complaint as constituting the cause of action. A perusal of the complaint, as
well as, the amended complaint would show that the action is one for "mismanagement", for the complainants alleged, inter alia, that ". . . respondent Jesus T. Maglutac,
by means of secret arrangements with foreign suppliers embodied in, and evidenced by, correspondences and other documents discovered just recently, has been diverting
into his private bank accounts and to his own personal benefit and advantage substantial portions of the commission income of the corporation, to the prejudice of the
corporation, its stockholders and its creditors and enumerated immediately thereafter the alleged specific acts of mismanagement. Viewed therefrom, the Commission has
jurisdiction. (pp. 127-128, Rollo)

On June 18, 1985 Commart filed a motion for reconsideration and on August 29, 1985, Jesus and Corazon Maglutac also filed a similar motion to have the Order of May 27, 1985
reconsidered and set aside. These motions were duly opposed by Mariano and Alice Maglutac.

Acting on the Motion for Reconsideration, the Hearing Panel issued on November 12, 1985, an Order modifying its previous order "by dismissing this case insofar as Mariano T.
Maglutac is concerned" but affirming the said order "in all other respects." (Annex F to Petition, pp. 46, 49, Rollo)

Not satisfied with such modification present petitioners as respondents in SEC Case No. 2673 went to the SEC en banc on a petition for certiorari, prohibition and mandamus with
prayer for preliminary injunction. They contend –– (a) that the Hearing Panel acted with grave abuse of discretion in not dismissing the case for failure of Alice Maglutac to
exhaust intra-corporate remedies, and (b) that grave abuse was likewise committed in not dismissing the case on the ground that the complaint did not show clearly that Alice
Maglutac was a stockholder at the time the questioned transaction occurred.

On September 12, 1988, the Commission en banc issued an Order denying the aforesaid petition and remanding the case to the Securities Investigation and Clearing Department
for further proceedings. It ruled (a) that exhaustion of intra-corporate remedy before filing suit "may be dispensed with where it is clear that it is unavailable or futile" as was the
case here. (p. 2, Order of Sept. 12, 1988, Annex A to Petition) citing Everett v. Asia Banking Corp., 49 Phil. 512, and Republic Bank v. Cuaderno, 19 SCRA 671, and (b) that the
mere allegation in the complaint that complainant is still a stockholder of Commart "is sufficient to vest jurisdiction to this Commission" but complainant must prove at the time of
reception of evidence that she was also a stockholder at the time the acts complained of occurred. (Id., p. 3)

Although complainant Alice Maglutac failed to exhaust an intra-corporate remedy before filing this case, the said condition precedent may be dispensed with where it is
clear that it is unavailable or futile. Thus it was held that:

Where the board of directors in a corporation is under the complete control of the principal defendants in the case and it is obvious that a demand upon the board
of directors to institute an action and prosecute the same effectively would be useless, the action may be brought by one or more of the stockholders without such
demand (Everett v. Asia Banking Corp., 49 Phil. 512; Republic Bank v. Cuaderno, et al., No. L-22399, March 30, 1967).

A stockholder can file a derivative suit provided there is an allegation in the complaint that she is such at the time the acts complained of occurred, and at the time the suit
is brought (Hawes v. Oakland, 14 Otto [104 U.S.], 450,456; S.C. 5972, 13 Fletcher 345, cited in Alvendia, The Law of Private Corporations in the Philippines, First Ed.,
p. 361). The requirement that said facts be pleaded is merely procedural although the necessity of the existence of these facts in order to give rise to the right of action is
substantive (Pascual v. Del Saz Orozco, 19 Phil. 97). And equity considerations warrant the liberal interpretation of the rules of procedure to the end that technicalities
should not stand in the way of equitable relief (Vol. I, Francisco, Civil Procedure, 2nd ed., p. 157, 1973 ed.) Mere allegation therefore that complainant is still a
stockholder of Commart is sufficient to vest jurisdiction to this Commission. Complainant must however prove at the time of reception of evidence that she was also a
stockholder at the time the acts complained of occurred. (pp. 10-11, Memorandum by public respondent)

8
Hence, this petition.

The petitioners invoke two grounds for reversal of the Order under review thereby raising these two issues, to wit:

1. Did the Securities and Exchange Commission err and/or commit "grave abuse of discretion" in denying the petition for certiorari and remanding the case for further
proceedings despite the so-called "notice of dismissal" filed by Commart?

2. Did the Securities and Exchange Commission err and/or commit "grave abuse of discretion" in its handling of the "conflict of interest issue?" (Petition, p. 6; Rollo, p.
81)

We find the petition devoid of merit.

The complaint in SEC Case No. 2673, particularly paragraphs 2 to 9 under First Cause of Action, readily shows that it avers the diversion of corporate income into the private bank
accounts of petitioner Jesus T. Maglutac and his wife. Likewise, the principal relief prayed for in the complaint is the recovery of a sum of money in favor of the corporation. This
being the case, the complaint is definitely a derivative suit. Consequently, the SEC correctly held that the case was a minority stockholder's derivative suit and correctly sustained
the hearing panel's denial — insofar as Alice Maglutac was concerned — of the motions to dismiss it.

A derivative suit has been the principal defense of the minority shareholder against abuses by the majority.1âwphi1 It is a remedy designed by equity for those situations where the
management, through fraud, neglect of duty, or other cause, declines to take the proper and necessary steps to assert the corporation's rights. Indeed, to grant to Commart the right
of withdrawing or dismissing the suit, at the instance of majority stockholders and directors who themselves are the persons alleged to have committed breaches of trust against the
interest of the corporation, would be to emasculate the right of minority stockholders to seek redress for the corporation. To consider the Notice of Dismissal filed by Commart as
quashing the complaint filed by Alice Maglutac in favor of the corporation would be to defeat the very nature and function of a derivative suit and render the right to institute the
action illusory.

In any case, the suit is for the benefit of Commart itself, for a judgment in favor of the complainants will necessarily mean recovery by the corporation of the US$2.5 million
alleged to have been diverted from its coffers to the private bank accounts of its top managers and directors. Thus, the prayer in the Amended Complaint is for judgment ordering
respondents Jesus and Corazon Maglutac, as well as Victor Cipriano, "to account for and to turn over or deliver to the Corporation" the aforesaid sum, with legal interest, and
"ordering all the respondent, as members of the Board of Directors to take such remedial steps as would protect the corporation from further depredation of the funds and
property." (pars. [a] & [b], Annex 2, Comment)

On the "conflict of interest" issue, petitioners allege that private respondent Alice Maglutac "is a majority stockholder of M.M. International Sales, a business rival/competitor of
Commart and holds only less than one percent (1%) of the entire shareholdings of Commart." According to petitioners, this being the case it is easier to believe that this so called
derivative suit was filed because it is to the best interest of the company where she has a bigger and substantial interest, which in this case is M.M. International Sales, Inc.

In disposing of this contention respondent SEC ruled that jurisdiction cannot be made to depend upon the pleas and defenses set up by a defendant in a motion to dismiss or
answer, otherwise jurisdiction should become dependent almost entirely upon the defendant (citing Cardenas v. Camus, infra.) But it left the door open to a further consideration of
the issue by stating that complainant's ownership of majority stocks of a rival corporation could not at this stage of the proceedings, defeat complainant's claims:

Jurisdiction of the court cannot be made to depend upon the pleas or defenses pleaded by the defendant in his motion to dismiss or answer, for were we to be governed by
such rule, the question of jurisdiction would depend almost entirely upon the defendant (Cardenas v. Camus, 5 SCRA 639). Respondents' assertion in their motion to
dismiss of complainant's ownership of the majority stocks of a rival corporation, could not at this stage of the proceedings, defeat complainant's claim. (pp. 83-84, Rollo)

9
In other words, no real prejudice has been inflicted upon petitioners' right to be heard on this matter raised by them, since the same can still be looked into during the hearing of a
derivative suit on the merits. There was, therefore, neither error nor grave abuse of discretion in the decision of the Securities & Exchange Commission not to dismiss the case but
to remand it instead to the Hearing Panel for further proceedings.

WHEREFORE, for lack of merit, this Petition is DISMISSED. Costs against petitioners.

SO ORDERED.

G.R. No. 75713 October 2, 1989

PHILIPPINE COCONUT PRODUCERS FEDERATION, INC., (COCOFED), MARIA CLARA L. LOBREGAT, BIENVENIDO A. MARQUEZ, SR., MANUEL J.
LASERNA, JR., DOMINGO P. ESPINA, CELESTINO B. SABATE, JOSE A. GOMEZ, EDUARDO U. ESCUETA, MANUEL V. DEL ROSARIO, SULPICIO G.
GRANADA, INAKI R. MENDEZONA, JOSE R. ELEAZER, JR., JOSE REYNALDO V. MORENTE, ELADIO I. CHATTO, COCONUT INVESTMENT COMPANY,
INC., SERGIO R. RIGODON, SPOUSES MANUEL AND CONCEPCION UTZURRUM, represented by MANUEL M. UTZURRUM, JR., MAXIMO M. PEREZ,
RAUL ANTONIO Z. UNSON, JUSTO C. RUBI, RODOLFO Z. SALVACION, PAZ F. ABILA, JESUS 0. SALVAN, TEODORICO R. RANERA, CRISPULO M.
PIONILLA, ROSARIO P. MERTO, ISABEL R. ALVAREZ, GREGORIO L. ANTENOR, EDILBERTO CONTRERAS, REYNALDO R. LADLAD, VENANCIO R.
PINON, LUIS A. NEGRE, ANASTACIO S. NIERE, FRANCISCO R. BINABAY, JAMITO A. DAPULA, ROSENDO M. ABARRENTOS, RAUL M. ALEGRE,
AGUSTIN C. IBAL, ROGELIO A. DELA CRUZ, GREGORIO V. MERCADO, and All other coconut farmers similarly situated, petitioners,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, HON. JOVITO R. SALONGA, HON. RAMON DIAZ, HON. RAUL DAZA, HON. MARY
CONCEPCION BAUTISTA and HON. QUINTIN DOROMAL, respondents, THE PHILIPPINE COCONUT AUTHORITY, intervenor.
Jose D. Valmores, Reynaldo A. Ruiz, Manuel J. Laserna, Jr. and Ramon C. Malinao for petitioners.
Agcaoili and Associates for movant.

NARVASA, J.:

The petition for certiorari and prohibition with preliminary injunction at bar seeks the annulment of the sequestration and other orders issued by the Presidential Commission on
Good Government PCGG) 1 against petitioner Philippine Coconut Producers Federation, Inc. (COCOFED) and various other industrial and commercial enterprises set up
ostensibly for purposes concerned with the development of the coconut industry and the welfare of those involved in or served by it. These agencies or enterprises were organized
and financed with revenues derived from coconut levies imposed under a succession of laws of the late dictatorship and are alleged to have been thereafter used as conduits to
perpetrate "the most stupendous malversation of public funds in the annals of our history," as the PCGG puts it, 2 with deposed President Ferdinand Marcos and his cronies as the
suspected authors and chief beneficiaries of the resulting "coconut industry monopoly.

The action is denominated a class suit of the COCOFED, a private national association of coconut producers which by legal mandate receives allocations from the coconut levy
funds to finance its operating expenses and projects; the Coconut Investment Company (CIC), the first government corporation created to administer the coconut levy funds (as
will later be explained in some detail); and individual petitioners Maria Clara Lobregat and some 37 other persons, all claiming to be either coconut farmers, coconut workers or
stockholders of the sequestered companies, bringing suit for themselves and in representation of "the more than one million coconut farmers who are similarly situated" upon a
claim of private interest in the sequestered assets and properties.

The COCONUT LEVY FUNDS:

The sequestration of the corporations and the other acts complained of were undertaken by the PCGG preparatory to the filing of suit in the Sandiganbayan against Marcos and his
associates for the illicit conversion of the coconut levy funds, purportedly channeled through the COCOFED and the other sequestered businesses, into private pelf. These funds
fall into four general classes, viz.: (a) the Coconut Investment Fund created under R.A. 6260 (effective June 19, 1971); (b) the Coconut Consumers Stabilization Fund created

10
under PD 276 (effective August 20, 1973); (c) the Coconut Industry Development Fund created under PD 582 (effective November 14,1974); and (d) the Coconut Industry
Stabilization Fund created under P.D. 1841 (effective October 2, 1981).

The Coconut Investment Fund (CIF):

The Coconut Investment Fund, or CIF, was put up in 1971 by R.A. 6260 which declared it to be the national policy to accelerate the development of the coconut industry through
the provision of adequate medium and long term financing for capital investment in the industry. 3 A levy of P 0.55 was imposed on the first domestic sale of every 100 kilograms
of copra or equivalent coconut product, 4 fifty centavos (P 0. 50) of which accrued to the CIF. The Philippine Coconut Administration (or PHILCOA), 5 received three centavos (P
0.03) 6 of the five remaining, and the balance was placed "at the disposition of the recognized national association of coconut producers with the largest x x membership" 7- which
association was declared by PHILCOA 8 to be petitioner COCOFED.

The CIF was to be used exclusively to pay for the Philippine Government's subscription to the capital stock 9 of the Coconut Investment Company (CIC), a corporation with a
capitalization of P 100,000,000.00 created by the statute to administer the Fund, as has already been stated, and to invest its capital in financing "agricultural, industrial or other
productive (coconut) enterprises" qualified under the terms of the statute to apply for loans with the CIC. 10 The State was to initially subscribe to CIC's capital stock "for and on
behalf of the coconut farmers," to whom such shares were supposed to be transferred "upon full payment (with the collections on the levy) of the authorized capital stock x x or
upon termination of a ten-year period from the start of the collection of the levy x x, whichever comes first." 11 The scheme, in short, called for the use of the CIF-funds collected
mainly from coconut farmers-to pay for the CIC shares of stock to be subscribed by the Government and held by it until the levy was lifted, whereupon the Government was to
"convert" the receipts issued to the farmers (as evidence of payment of the levy) "into shares of stock"-this time in the farmers' names in the new, private corporation to be formed
by them at such time, conformably with the provisions of the law. 12

The levy imposed by R.A. 6260 was collected from 1972 to 1982.

The Coconut Consumers Stabilization Fund (CCSF)

P.D. 276 established a second fund on August 20,1973, barely a year after the creation of the CIF. The decree imposed a "Stabilization Fund Levy" of fifteen pesos (P 15.00) on
the first sale of every 100 kilograms of copra resecada or equivalent product. 13 The revenues were to be credited to the Coconut Stabilization Fund (CCSF) 14 Which was to be
used to subsidize the sale of coconut-based products at prices set by the Price Control Council, in order to stabilize the price of edible oil and other coconut oil-based products for
the benefit of consumers 15 The levy was to be collected for only one year. 16 The CCSF however became a permanent fund under PD 414. 17

The Coconut Industry Development Fund (CIDF):

On November 14, 1974, PD 582 was promulgated setting up yet another "permanent fund ... (this time to) finance the establishment, operation and maintenance of a hybrid
coconut seednut farm ... (and the implementation of) a nationwide coconut replanting program" "using precocious high-yielding hybrid seednuts x x to (be) distribute(d), ... free, to
coconut farmers." 18 The fund was denominated the Coconut Industry Development Fund, or the CIDF. Its initial capital of P100 million was to be paid from the CCSF, and in
addition to this, the PCA was directed to thereafter remit to the fund "an amount equal to at least twenty centavos (PO.20) per kilogram of copra resecada or its equivalent out of
its current collections of the coconut consumers stabilization levy." 19 The CIDF was assured of continued contribution from the permanent levy in the same amount deemed to be
"automatically imposed" in the event of the lifting of the Stabilization Fund Levy. 20

The Coconut Industry Investment Fund (CIIF)

The various laws relating to the coconut industry were codified in 1976; promulgated on October 21 of that year was PD 961 or the "Coconut Industry Code," which later came to
be known as the "Revised Coconut Industry Code" upon its amendment by PD 1468, effective June 11, 1978. The Code provided for the continued enforcement of the Stabilization
Fund Levy imposed by PD 276 and for the use of the CCSF and the CIDF for substantially the same purposes specified by the enactments ordaining their creation.

11
A new provision was however inserted in the Code, authorizing the use of the balance of the CIDF not needed to finance the replanting program and other authorized projects, for
the acquisition of "shares of stock in corporations organized for the purpose of engaging in the establishment and operation of industries, .. commercial activities and other allied
business undertakings relating to coconut and other palm oil indust(ries)." 21 From this fund thus created, the Coconut Industry Investment Fund or the CIIF, were purchased the
shares of stock in what have come to be known as the "CIIF companies the sequestered corporations into which said CIIF (Coconut Industry Investment Fund) was heavily
invested after its creation.

The Coconut Industry Stabilization Fund (CISF): (Formerly CCSF)

The collection of the CCSF and the CIDF was suspended for a time in virtue of PD 1699. 22 However, on October 2, 1981, PD 1841 was issued reviving the levies and renaming
the CCSF the Coconut Industry Stabilization Fund, or the CISF, to which accrued the new collections. The impost was in the amount of P50.00 for every 100 kilos of copra
resecada or equivalent product delivered to exporters and other copra users. The funds collected were to be apportioned among the CIDF, 23 the COCOFED, 24 the PCA, 25 and the
"bank acquired for the benefit of the coconut farmers under PD 755" referring to the United Coconut Planters Bank or the UCPB. 26

The AGENCIES INVOLVED:

As may be observed, three agencies played key roles in the collection, management, investment and use of the coconut levy funds: (a) the Philippine Coconut Authority (PCA),
formerly the Philippine Coconut Administration or the PHILCOA; (b) the COCOFED; and (c) the UCPB. Charged with the duty to "receive and administer the funds provided by
law," 27 the Philippine Coconut Authority or the PCA was created on June 30, 1973 by P.D. 232 to replace and assume the functions of (1) the Philippine Coconut Administration
or PHILCOA (which had been established in 1954), (2) the Coconut Coordinating Council (CCC), and (3) the Philippine Coconut Research Institute(PHILCORIN). By virtue of
the Decree, the PCA took over the collection of the CIF Levy under RA 6260 in 1973, while subsequent statutes, to wit, PD 276 (in relation to PD 414), PD 582, and PD 1841,
empowered it specifically to manage the CCSF, the CIDF, and the CISF, from the time of their creation. Under the laws just mentioned, the PCA, as the government arm that
"formulate(s) x x (the) general program of development for the coconut x x and palm oil indust(ries)" 28 is allotted a share in the funds kept in its trust. Its governing board is
composed of members coming from the public and private sectors, among them representatives of COCOFED. 29

The Philippine Coconut Producers Federation, Inc. or the COCOFED, as the private national association of coconut producers certified in 1971 by the PHILCOA as having the
largest membership among such producers, 30 receives substantial portions of the coconut funds to finance its operating expenses and socio-economic projects. R.A. 6260 entrusted
it with the task of maintaining "continuing liaison with the different sectors of the industry, the government and its own mass base." 31 Its president sits on the governing board of
the PCA and on the Philippine Coconut Consumers Stabilization Committee, the agency assisting the PCA in the administration of the CCSF. It is also represented in the Board of
Directors of the CIC and of two (2) CIIF companies COCOMARK (the COCOFED Marketing Corporation) and COCOLIFE (the United Coconut Planters' Life Insurance Co.).

The United Coconut Planters Bank (or the UCPB) is a commercial bank acquired "for the benefit of the coconut farmers" 32 with the use of the Coconut Consumers Stabilization
Fund (CCSF) in virtue of P.D. 755, promulgated on July 29,1975. The Decree authorized the Bank to provide the intended beneficiaries with "readily available credit facilities at
preferential rates." 33 It also authorized the distribution of the Bank's shares of stock, free, to the coconut farmers; and some 1,405,366 purported recipients have been listed as
UCPB stockholders as of April 10, 1986. 34

The UCPB was thereafter empowered by PD 1468 to "(make) investments for the benefit of the coconut farmers" 35using that part of the CIDF referred to as the CIIF. Thus were
organized the "CIIF companies" subject of the sequestration orders herein assailed. 36 As in the case of the shares of stock in the UCPB, the law provided for the "equitable
distribution" to the coconut farmers, free, of the investments made in the CIIF companies. 37 Among the corporations in which the UCPB has come to have substantial
shareholdings are the COCOFED Marketing Corporation (COCOMARK), United Coconut Planters' Life Insurance (COCOLIFE) GRANEX, ILICOCO, Southern Island Oil Mill,
Legaspi Oil of Davao City and of Cagayan de Oro City, Anchor Insurance Brokerage, Inc., Southern Luzon Coconut Oil Mills, and San Pablo Oil Manufacturing Co., Inc. Some of
these corporations in turn acquired UCPB shares of stock as well as shareholdings in the San Miguel Corporation.

The SEQUESTRATION PROCEEDINGS:

12
On March 19, 1986, the Presidential Commission on Good Government (PCGG) sequestered CIIF companies GRANEX, ILICOCO, Southern Island Oil Mill, Legaspi Oil of
Davao City, and Legaspi Oil of Cagayan de Oro City. Also sequestered shortly thereafter, on April 21, 1986, were Anchor Insurance Brokerage, Inc., Southern Luzon Coconut Oil
Mills and the San Pablo Oil Manufacturing Co., Inc. Shares of stock in the UCPB registered in the names of these and other CIIF companies, and later those issued to 1,405,366
purported coconut farmers-stockholders were likewise sequestered, as were the 33.1 million shares of stock held by fourteen (14) CIIF companies in the San Miguel Corporation.

Next placed under sequestration on July 8,1986 was the COCOFED. Its bank accounts as well as those of CIIF companies COCOLIFE and COCOMARK, of COCOFED president
Maria Clara Lobregat, and of COCOFED directors Inaki Mendezona and Eladio Chatto, were frozen. On May 30, 1988, PCGG appointed a 15-man Board of Directors for
COCOFED, replacing the incumbents. Management teams for the CIC and COCOMARK were deputized the day after, relieving Maria Clara Lobregat and Manuel Agcaoili as
president and vice-president, respectively, of both corporations, and Vicente Valmores as corporate secretary of the CIC. Various other orders pertaining to the CIC, the CIIF
companies, COCOFED, and the UCPB were also afterwards issued and implemented, with a view to conserving their assets pending the government's investigation into the
suspected plunder of the coconut levy funds by former President Ferdinand Marcos and his associates and cronies.

PETITIONERS' SUBMITTALS

The instant petition was filed on September 3, 1986 to assail the foregoing directives and acts. The petitioners posit that:

1) the PCGG has no jurisdiction over the sequestered properties as the powersconferred upon it by Executive Orders Numbered 1, 2 and 14 extend only to ill-
gotten wealth of "former President Ferdinand E. Marcos and/or his wife, Imelda Romualdez Marcos" or "their close relatives, subordinates, business associates,
dummies, agents, or nominees," 38 and not to the private properties of the coconut farmers and the petitioners, who do not fall under any of the classes of persons
specified under the Orders;

2) the sequestered properties are not ill-gotten wealth of the petitioners whose ownership of the shares of stock in the COCOFED, the CIIF companies, and the
UCPB resulted from lawful disbursements of the coconut levy fund; and

3) the sequestration of the petitioners' private properties is a gross abuse of prosecutorial discretion on the part of PCGG and, corollarily, rendered enforcement of
E.O.'s 1, 2 and 14 as against them unconstitutional and violative of the Bill of Rights.

PCA INTERVENTION

A petition-in-intervention presented by the PCA was admitted by the Court by Resolution dated May 24, 1988.

THE PCGG POSITION

The Solicitor General, for the PCGG, submits that the funds collected from the coconut levy are public funds which no amount of pronouncements to the contrary-by decree or any
other presidential issuance can convert into private money; that in the light of the report of the Commission on Audit of its examination of the funds made after the unceremonious
deposal of President Marcos, to the effect that the funds were misappropriated and squandered by the latter, his cronies and the leaders of the coconut industry, it is the duty of
PCGG to recover the same and, pending recovery proceedings, to make use of its power of sequestration and other remedies conferred by Executive Orders 1, 2 and 14. In his
view, the so-called "more than one million coconut farmers" do not own the coconut levy funds or the assets acquired therewith.

1. The question of the validity of PCGG sequestration and freeze orders as provisional measures to collect and conserve the assets believed to be ill-gotten wealth
has been laid to rest in BASECO vs. PCGG (150 SCRA 181) where this Court held that such orders are not confiscatory but only preservative in character, not
designed to effect a confiscation of, but only to conserve properties believed to be ill-gotten wealth of the ex-president, his family and associates, and to prevent
their concealment, dissipation, or transfer, pending the determination of their true ownership.
13
 Nor may it be gainsaid that pending the institution of the suits for the recovery of such ill-gotten wealth as the evidence at hand may reveal, there is an obvious
and imperative need for preliminary provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties
subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same.

xxx

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. (at p.
208)

The PCGG exercised the powers conferred upon it by Executive Orders Numbered 1, 2 and 14 on the basis of evidence in its possession which it deemed sufficient to show, prima
facie, that former President Marcos, Mr. Eduardo Cojuangco, Jr., the COCOFED and its national leaders, collaborated with each other to perpetrate the "systematic plunder" of the
funds generated by the coconut levy. That preliminary determination finds support in the documents and evidence relative thereto. Reports, for example, from the Commission on
Audit (COA) which audited the funds after the February 1986 Revolution tend to show that:

(1) of the funds allocated to COCOFED, some P20 million were delivered to Mrs. Imelda R. Marcos for the Imelda Romualdez Marcos Scholarship Program of
which no accounting has been made;

(2) COCOFED purchased an aircraft at a total cost of P 11,849,071.29;

(3) a COCOFED disbursement of P 23 million for the account of the Census Committee which undertook the survey of coconut farmers to determine other
farmers entitled to the unissued shares of UCPB, was under-reimbursed by P 3,584,826.36;

(4) cash advances in hundreds of thousands of pesos granted by COCOMARK to COCOFED officials Jose Reynaldo Morente, Inaki Mendezona, Bienvenido
Marquez and Maria Clara Lobregat were unliquidated;

(5) COCOMARK made disbursements for cash advances for travel and transportation expenses to its directors who are also directors of COCOFED without
supporting documents.

The investigation by the PCGG of the funds supposed to havebeen invested in the UCPB on behalf of the coconut farmers, also reveal that UCPB shares appearing in the UCPB
books as issued to 1,405,366 coconut farmers are not in fact owned by the said persons because a large number of them sold their stock to national and local officials of
COCOFED at the latter's initiative; and documents found in Malacanang in the wake of the February 1986 people's revolution tend to show that Eduardo Cojuangco, Jr., apart from
owning his own shares in UCPB, also "fronted" for the shares of Mr. Marcos in that bank.

As to the coconut levy funds invested in the CIIF companies for the benefit of coconut farmers, COA findings adverted to by the PCGG disclose that said funds were invested in
companies most of which were or became vehicles to effectuate their misuse. The United Coconut Oil Mills, Inc. (UNICOM), a CIIF funded company, for example, appears to
have spent millions of pesos to acquire non-operating and unprofitable coconut oil mills owned by persons close to the Marcoses that P840 million of the CIDF were siphoned off
to Agricultural Investors, Inc., a corporation owned and controlled by Eduardo Cojuangco, Jr., which has a paid-up capital of only P100,000; and that P41.9 million worth of
seednuts equivalent to 24.48% of the total purchases of UCPB using CIDF from 1979 to 1982 had not been accounted for. Reports were also cited showing that only 75.52% of the
total seednuts purchased had been distributed to the participants of the replanting program. The PCGG also claims to have in its possession evidence of other instances of misuse or
misappropriation of the coconut levy funds attributable to the petitioners.

The petitioners deny the PCGG's postulations and assertions.

14
It is of course not for this Court to pass upon the factual issues thus raised. That function pertains to the Sandiganbayan in the first instance. For purposes of this proceeding, all
that the Court needs to determine is whether or not there is prima facie justification for the sequestration ordered by the PCGG. The Court is satisfied that there is. The cited
incidents, given the public character of the coconut levy funds, place petitioners COCOFED and its leaders and officials, at least prima facie, squarely within the purview of
Executive Orders Nos. 1, 2 and 14, as construed and applied in BASECO, to wit:

1. that ill-gotten properties (were) amassed by the leaders and supporters of the previous regime;

a. more particularly, that (i)ll-gotten wealth was accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, x x located in the Philippines or abroad, x x (and) business enterprises and entities (came to be) owned or controlled by them, during x x (the Marcos)
administration, directly or through nominees, by taking undue advantage of their public office and using their powers, authority, influence, connections or
relationships

b. otherwise stated, that 'there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or
indirectly, through or as a result of the improper or illegal use of funds or properties owned by the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship,
resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines';

c. that 'said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in various countries of the world' ... 39

2. The petitioners' claim that the assets acquired with the coconut levy funds are privately owned by the coconut farmers is founded on certain provisions of law,
to wit:

Sec. 7. Incorporation as a private entity under Act Numbered One Thousand Four Hundred Fifty-Nine, as amended. -Upon full payment of the authorized capital
stock, as evidenced by receipts issued for levies paid, or upon termination of a ten-year period from the start of the collection of the levy as provided in Section
eight hereof, whichever comes first, the shares of stock held by the Philippine Government for and in behalf of the coconut farmers shall be transferred, in
accordance with such rules, regulations and procedures as the Company shall prescribe and promulgate, to and in the name of the coconut farmers who shall then
incorporate as a private entity under Act Numbered One Thousand Four Hundred Fifty-Nine, as amended.... (Sec. 7, Republic Act 6260)

and

The Coconut Consumers Stabilization Fund and the Coconut Industry Development Fund as well as all disbursements of said Funds for the benefit of the coconut
farmers x x shall not be construed or interpreted .. as special and/or fiduciary funds, or as part of the general funds of the national government within the
contemplation of P.D. 711; nor as subsidy, donation, levy government funded investment, or government share within the contemplation of PD 898, the intention
being that said fund and the disbursements thereof as herein authorized for the benefit of the coconut farmers shall be owned by them in their private capacities
.... (Section 5, Article III, P.D. 1468)

The proposition is open to question, to say the least. Indeed, the Solicitor General suggests quite strongly that the laws operating or purporting to convert the coconut levy funds
into private funds, are a transgression of the basic limitations for the licit exercise of the state's taxing and police powers, and that certain provisions of said laws are merely clever
strategems to keep away government audit in order to facilitate misappropriation of the funds in question.

15
The utilization and proper management of the coconut levy funds, raised as they were by the State's police and taxing powers, are certainly the concern of the Government. It
cannot be denied that it was the welfare of the entire nation that provided the prime moving factor for the imposition of the levy. It cannot be denied that the coconut industry is
one of the major industries supporting the national economy. It is, therefore, the State's concern to make it a strong and secure source not only of the livelihood of a significant
segment of the population but also of export earnings the sustained growth of which is one of the imperatives of economic stability. The coconut levy funds are clearly affected
with public interest. Until it is demonstrated satisfactorily that they have legitimately become private funds, they must prima facie and by reason of the circumstances in which
they were raised and accumulated be accounted subject to the measures prescribed in E.O. Nos. 1, 2, and 14 to prevent their concealment, dissipation, etc., which measures include
the sequestration and other orders of the PCGG complained of.

3. The incidents concerning the voting of the sequestered shares, the COCOFED elections, and the replacement of directors, being matters incidental to the
sequestration, should be addressed to the Sandiganbayan in accordance with the doctrine laid down in PCGG vs. Pena, 159 SCRA 556, reiterated in G.R. No.
74910, Andres Soriano III vs. Hon. Manuel Yuzon; G.R. No. 75075, Eduardo Cojuangco, Jr. vs. Securities and Exchange Commission; G.R. No. 75094, Clifton
Ganay vs. Presidential Commission on Good Government; G.R. No. 76397, Board of Directors of San Miguel Corporation vs. Securities and Exchange
Commission; G.R. No. 79459, Eduardo Cojuangco, Jr. vs. Hon. Pedro N. Laggui; G.R. No. 79520, Neptunia Corporation, Ltd. vs. Presidential Commission on
Good Government, August 10, 1988.

In view of the foregoing, the petition and the petition-in-intervention are hereby DISMISSED. Costs against petitioners.

SO ORDERED.

G.R. No. 168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA;
and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND
SERGIO R. OSMEÑA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER
OF THE BUREAU OF INTERNAL REVENUE, Respondent.
x-------------------------x

G.R. No. 168461

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO; PETRON DEALERS’ ASSOCIATION represented by its
President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO
ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the name and style of
"SHELL GATE – N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of "ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing
business under the name and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the name and style of "RED FIELD SHELL
SERVICE STATION"; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and style of "R&R
PETRON STATION"; PETER M. UNGSON doing business under the name and style of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE
doing business under the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business

16
under the name and style of "LEONA’S GASOLINE STATION and SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and style of "FIRST
CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE CENTER"; RHEAMAR A. RAMOS doing
business under the name and style of "RJRAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT SERVICE
CENTER"; MOTORISTS’ HEART CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HARVARD
CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;
ROMEO MANUEL doing business under the name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III doing business under the name and style
of "TRUE SERVICE STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR
G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO,
Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as Executive Secretary,Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG,
in his capacity as the OIC Commissioner of the Bureau of Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of the Bureau of
Customs, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

The expenses of government, having for their object the interest of all, should be borne by everyone, and the more man enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses.

-Anne Robert Jacques Turgot (1727-1781)

French statesman and economist

Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments for health workers, and wider coverage for full value-added tax
benefits … these are the reasons why Republic Act No. 9337 (R.A. No. 9337) 1 was enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional power
of review, cannot probe. The petitioners in these cases, however, question not only the wisdom of the law, but also perceived constitutional infirmities in its passage.

17
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence, R.A.
No. 9337 is not unconstitutional.

LEGISLATIVE HISTORY

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill No. 1950.

House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and Means approved the bill, in substitution of House Bill No. 1468,
which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On January 27, 2005, the
House of Representatives approved the bill on second and third reading.

House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras.
Its "mother bill" is House Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The President also certified it as urgent on February 8,
2005. The House of Representatives approved the bill on second and third reading on February 28, 2005.

Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into
consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens.
Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on March 11, 2005, and was approved by the Senate on second and third reading on
April 13, 2005.

On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a committee conference on the disagreeing provisions of the proposed bills.

Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in
full free and conference," recommended the approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing thereto the next day,
May 11, 2005.

On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the President, who signed the same into law on May 24, 2005. Thus, came
R.A. No. 9337.

July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date came, the Court issued a temporary restraining order, effective immediately and continuing until further
orders, enjoining respondents from enforcing and implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance
of the temporary restraining order on July 1, 2005, to wit:

J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background. You know when the law took effect on July 1, 2005, the Court
issued a TRO at about 5 o’clock in the afternoon. But before that, there was a lot of complaints aired on television and on radio. Some people in a gas station were complaining that
the gas prices went up by 10%. Some people were complaining that their electric bill will go up by 10%. Other times people riding in domestic air carrier were complaining that
the prices that they’ll have to pay would have to go up by 10%. While all that was being aired, per your presentation and per our own understanding of the law, that’s not true. It’s
not true that the e-vat law necessarily increased prices by 10% uniformly isn’t it?

ATTY. BANIQUED : No, Your Honor.

18
J. PANGANIBAN : It is not?

ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum companies some subsidy . . . interrupted

J. PANGANIBAN : That’s correct . . .

ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted

J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise Tax and the import duties. That is why, it is not correct to say that
the VAT as to petroleum dealers increased prices by 10%.

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-Vat tax. If you consider the excise tax and the import duties, the
Net Tax would probably be in the neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that different industries, different products, different
services are hit differently. So it’s not correct to say that all prices must go up by 10%.

ATTY. BANIQUED : You’re right, Your Honor.

J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was
also removed as a mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best 7%, correct?

ATTY. BANIQUED : I guess so, Your Honor, yes.

J. PANGANIBAN : There are other products that the people were complaining on that first day, were being increased arbitrarily by 10%. And that’s one reason among many
others this Court had to issue TRO because of the confusion in the implementation. That’s why we added as an issue in this case, even if it’s tangentially taken up by the pleadings
of the parties, the confusion in the implementation of the E-vat. Our people were subjected to the mercy of that confusion of an across the board increase of 10%, which you
yourself now admit and I think even the Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should be 6% depending on these mitigating
measures and the location and situation of each product, of each service, of each company, isn’t it?

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of all these and we wish the government will take time to clarify all these by
means of a more detailed implementing rules, in case the law is upheld by this Court. . . . 6

The Court also directed the parties to file their respective Memoranda.

G.R. No. 168056

19
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005. They question the constitutionality of Sections
4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods
and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after
any of the following conditions have been satisfied, to wit:

. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the
1987 Philippine Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.

Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that it amounts to an undue delegation of legislative
power, petitioners also contend that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause embodied in Article
III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate
would be returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from
year to year; and (3) the increase in the VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year,
should only be based on fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral Conference Committee is a violation of the "no-amendment rule" upon
last reading of a bill laid down in Article VI, Section 26(2) of the Constitution.

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:

1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be amortized over a 60-month period, if the acquisition, excluding
the VAT components, exceeds One Million Pesos (P1, 000,000.00);

2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax; and

3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a
5% final withholding tax on gross payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of services and
use or lease of properties) of the NIRC.

20
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and confiscatory.

Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property without due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax partakes
the nature of a property that may not be confiscated, appropriated, or limited without due process of law. Petitioners further contend that like any other property or property right,
the input tax credit may be transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added even if there is no profit or value-added.

Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article III, Section 1 of the Constitution, as the limitation on
the creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is not based on real
and substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses with higher
input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the petitioners make.

G.R. No. 168463

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition for certiorari on June 30, 2005. They question the constitutionality of
R.A. No. 9337 on the following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article VI, Section 28(2) of the Constitution;

2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and

3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950,
violates Article VI, Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground that the
limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax collection and
revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these establishments to pass on the tax to the consumers is
inequitable, in violation of Article VI, Section 28(1) of the Constitution.

RESPONDENTS’ COMMENT

The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

21
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of revenue measures and the power
of the Senate concomitant thereto, have already been settled. With regard to the issue of undue delegation of legislative power to the President, respondents contend that the law is
complete and leaves no discretion to the President but to increase the rate to 12% once any of the two conditions provided therein arise.

Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the creditable input tax, the 60-month amortization on the purchase or
importation of capital goods exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the
constitutional principle on progressive taxation, among others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A reform in the value-added system of taxation is the core revenue
measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth.

ISSUES

The Court defined the issues, as follows:

PROCEDURAL ISSUE

Whether R.A. No. 9337 violates the following provisions of the Constitution:

a. Article VI, Section 24, and

b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate
the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article III, Section 1

RULING OF THE COURT

As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious
notion of its nature.
22
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services.8 Being an indirect tax on expenditure, the seller
of goods or services may pass on the amount of tax paid to the buyer, 9 with the seller acting merely as a tax collector.10 The burden of VAT is intended to fall on the immediate
buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else.11 Examples are
individual and corporate income taxes, transfer taxes, and residence taxes. 12

In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax computed under
the "cost deduction method" and was payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the "cost deduction method" and
"tax credit method" was used to determine the value-added tax payable.13 Under the "tax credit method," an entity can credit against or subtract from the VAT charged on its sales
or outputs the VAT paid on its purchases, inputs and imports. 14

It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10%
on all sales using the "tax credit method." 15

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16 R.A. No. 8241 or the Improved VAT Law, 17 R.A. No. 8424 or the Tax Reform Act of 1997, 18 and
finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.

The Court will now discuss the issues in logical sequence.

PROCEDURAL ISSUE

I. Whether R.A. No. 9337 violates the following provisions of the Constitution:

a. Article VI, Section 24, and

b. Article VI, Section 26(2)

A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its authority by:

1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;

2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;

3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and

4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the value-added tax.

Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.

23
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f the power
did not exist, it would be utterly impracticable to transact the business of the nation, either at all, or at least with decency, deliberation, and order."19 Thus, Article VI,
Section 16 (3) of the Constitution provides that "each House may determine the rules of its proceedings." Pursuant to this inherent constitutional power to promulgate and
implement its own rules of procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference Committee.

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:

Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the amendment to any bill or joint resolution, the differences may be settled by the
conference committees of both chambers.

In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the House Bill. If the differences with the Senate are so substantial
that they materially impair the House Bill, the panel shall report such fact to the House for the latter’s appropriate action.

Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the subject measure.

The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes on a bill on third and final reading.

Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet within ten (10) days after their composition. The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.

Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or amendments to the subject measure, and shall be signed by a
majority of the members of each House panel, voting separately.

A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with the explanatory statement of the conference committee shall be
attached to the report.

The creation of such conference committee was apparently in response to a problem, not addressed by any constitutional provision, where the two houses of Congress find
themselves in disagreement over changes or amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the legislative branch is to
formulate and implement its own rules of proceedings and to discipline its members, may the Court then delve into the details of how Congress complies with its internal rules or
how it conducts its business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the rules of both houses creating the bicameral
conference committee are unconstitutional, but whether the bicameral conference committee has strictly complied with the rules of both houses, thereby remaining within
the jurisdiction conferred upon it by Congress.

In the recent case of Fariñas vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus, declining
therein petitioners’ plea for the Court to go behind the enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of bicameral conference committees, the
lack of records of said committees’ proceedings, the alleged violation of said committees of the rules of both houses, and the disappearance or deletion of one of the provisions in
the compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election
Act.

24
Striking down such argument, the Court held thus:

Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and the certification of the Secretaries of both Houses of Congress that
it was passed are conclusive of its due enactment. A review of cases reveals the Court’s consistent adherence to the rule. The Court finds no reason to deviate from the salutary
rule in this case where the irregularities alleged by the petitioners mostly involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference
Committee by the House. This Court is not the proper forum for the enforcement of these internal rules of Congress, whether House or Senate. Parliamentary rules are
merely procedural and with their observance the courts have no concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved
in its favor.The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:

But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire into allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the absence of showing that there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules adopted by deliberative bodies are subject to revocation, modification or waiver
at the pleasure of the body adopting them.’ And it has been said that "Parliamentary rules are merely procedural, and with their observance, the courts have no concern.
They may be waived or disregarded by the legislative body." Consequently, "mere failure to conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to a particular measure."21 (Emphasis supplied)

The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities committed by the conference committee in introducing changes or
deleting provisions in the House and Senate bills. Akin to the Fariñas case,22 the present petitions also raise an issue regarding the actions taken by the conference committee on
matters regarding Congress’ compliance with its own internal rules. As stated earlier, one of the most basic and inherent power of the legislature is the power to formulate rules for
its proceedings and the discipline of its members. Congress is the best judge of how it should conduct its own business expeditiously and in the most orderly manner. It is also the
sole

concern of Congress to instill discipline among the members of its conference committee if it believes that said members violated any of its rules of proceedings. Even the
expanded jurisdiction of this Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings
of a co-equal branch of government.

Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,23 the Court already made the pronouncement that "[i]f a change is
desired in the practice [of the Bicameral Conference Committee] it must be sought in Congress since this question is not covered by any constitutional provision but is
only an internal rule of each house." 24 To date, Congress has not seen it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices
of the bicameral conference committee to be very useful for purposes of prompt and efficient legislative action.

Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral conference committees, the Court deems it necessary to dwell on the
issue. The Court observes that there was a necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate
Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements were as follows:

House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every sale of goods or Provides for 12% VAT in general on sales of goods or Provides for a single rate of 10% VAT on sale of
properties (amending Sec. 106 of NIRC); 12% properties and reduced rates for sale of certain locally goods or properties (amending Sec. 106 of NIRC),
VAT on importation of goods (amending Sec. 107 manufactured goods and petroleum products and raw 10% VAT on sale of services including sale of
of NIRC); and 12% VAT on sale of services and materials to be used in the manufacture thereof (amending electricity by generation companies, transmission and
use or lease of properties (amending Sec. 108 of Sec. 106 of NIRC); 12% VAT on importation of goods distribution companies, and use or lease of properties
NIRC) and reduced rates for certain imported products including (amending Sec. 108 of NIRC)

25

With regard to the "no pass-on" provision
No similar provision
petroleum products (amending Sec. 107 of NIRC); and
12% VAT on sale of services and use or lease of
properties and a reduced rate for certain services including
power generation (amending Sec. 108 of NIRC)
Provides that the VAT imposed on power generation and Provides that the VAT imposed on sales of electricity
on the sale of petroleum products shall be absorbed by by generation companies and services of
generation companies or sellers, respectively, and shall not transmission companies and distribution companies,
be passed on to consumers as well as those of franchise grantees of electric
utilities shall not apply to residential

end-users. VAT shall be absorbed by generation,

transmission, and distribution companies.

With regard to 70% limit on input tax credit

Provides that the input tax credit for capital goods
on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of
such capital goods; the input tax credit for goods
and services other than capital goods shall not
exceed 5% of the total amount of such goods and
services; and for persons engaged in retail trading
of goods, the allowable input tax credit shall not
exceed 11% of the total amount of goods
purchased.
No similar provision Provides that the input tax credit for capital goods on
which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of
such capital goods; the input tax credit for goods and
services other than capital goods shall not exceed
90% of the output VAT.

With regard to amendments to be made to NIRC provisions regarding income and excise taxes
No similar provision No similar provision Provided for amendments to several NIRC
provisions regarding corporate income,
percentage, franchise and excise taxes

The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on
electricity generation, transmission and distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT imposed on electricity
generation, transmission and distribution companies and the VAT imposed on sale of petroleum products should not be passed on to consumers, as proposed in the House bill; (3)
in what manner input tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be amended.

There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the Bicameral Conference Committee was mandated by the rules of both
houses of Congress to act on the same by settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing provisions by making the
following changes:

1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference Committee Report that the Bicameral Conference Committee tried to
bridge the gap in the difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed by the House, by striking a

26
compromise whereby the present 10% VAT rate would be retained until certain conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product
(GDP) of the previous year exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year exceeds 1½%, when the President, upon recommendation
of the Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and distribution companies should not be passed on to consumers or
whether both the VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum products may be passed on to
consumers, the Bicameral Conference Committee chose to settle such disagreement by altogether deleting from its Report any no pass-on provision.

3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference Committee decided to adopt the position of the House by
putting a limitation on the amount of input tax that may be credited against the output tax, although it crafted its own language as to the amount of the limitation on input tax
credits and the manner of computing the same by providing thus:

(A) Creditable Input Tax. – . . .

Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such shorter period: . . .

(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, . . .

4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage and excise taxes, the conference committee decided to include
such amendments and basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.

Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral Conference Committee is mandated to settle the differences between the
disagreeing provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize." 25 To reconcile or harmonize disagreeing provisions,
the Bicameral Conference Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would

be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.

In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and harmonize the disagreeing
provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced by the original provisions.

The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained until such time that certain conditions arise when the
12% VAT wanted by the House shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses of Congress.
Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed on taxpayers.

The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman
of the Senate Panel, explained the reason for deleting the no pass-on provision in this wise:
27
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should be a beneficiary of legislative grace, neither should any sector be
discriminated on. The VAT is an indirect tax. It is a pass on-tax. And let’s keep it plain and simple. Let’s not confuse the bill and put a no pass-on provision. Two-thirds of the
world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, let’s keep
the VAT simple.26 (Emphasis supplied)

Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the support of either House." 27

With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee came to a compromise on the percentage rate of the limitation or cap
on such input tax credit, but again, the change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a cap on input tax that may be

credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one of the major objectives was to "plug a glaring loophole in the tax
policy and administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax credit, we are capping
a major leakage that has placed our collection efforts at an apparent disadvantage." 28

As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. 1950, since said provisions were among those referred to it, the
conference committee had to act on the same and it basically adopted the version of the Senate.

Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred

to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the long-standing
legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House. Thus, in the Tolentino case, it was held
that:

. . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the Senate bill. If the committee
can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an "amendment in the nature
of a substitute," so long as such amendment is germane to the subject of the bills before the committee. After all, its report was not final but needed the approval of both houses of
Congress to become valid as an act of the legislative department. The charge that in this case the Conference Committee acted as a third legislative chamber is thus without
any basis.31 (Emphasis supplied)

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"

Article VI, Sec. 26 (2) of the Constitution, states:

No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal.

Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or delete provisions in the House bill and the Senate bill after these had passed
three readings is in effect a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its ruling in
the Tolentino case that:

28
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone three readings in each of the two houses. If that be the case, there would be
no end to negotiation since each house may seek modification of the compromise bill. . . .

Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either house of Congress, not to the conference committee
report.32 (Emphasis supplied)

The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each house of Congress with regard to bills initiated in each of said
respective houses, before said bill is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a way as to proscribe any further
changes to a bill after one house has voted on it would lead to absurdity as this would mean that the other house of Congress would be deprived of its constitutional power to
amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited.

C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue Bills

Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income taxes and percentage, excise taxes. Petitioners refer to the
following provisions, to wit:

Section 27 Rates of Income Tax on Domestic Corporation

28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They aver that House Bill No. 3555 proposed amendments only
regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus,
the other sections of the NIRC which the Senate amended but which amendments were not found in the House bills are not intended to be amended by the House of
Representatives. Hence, they argue that since the proposed amendments did not originate from the House, such amendments are a violation of Article VI, Section 24 of the
Constitution.

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

29
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments.

In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for amending provisions of the NIRC dealing mainly with the
value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the
value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions not dealing directly with the value- added tax,
which is the only kind of tax being amended in the House bills, still within the purview of the constitutional provision authorizing the Senate to propose or concur with
amendments to a revenue bill that originated from the House?

The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:

. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what is
important to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute – and not only the bill which initiated the legislative
process culminating in the enactment of the law – must substantially be the same as the House bill would be to deny the Senate’s power not only to "concur with
amendments" but also to "propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior to
the Senate

…Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which are required by the Constitution
to originate in the House.

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on the theory that, elected as they are from the districts, the members of the House can be expected to be more
sensitive to the local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of such laws.33 (Emphasis supplied)

Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its

constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, excise and
franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the
Senate to the House revenue bill.

Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House bills are still in furtherance of the intent of the House in
initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later substituted by House Bill No.
3555, stated:

One of the challenges faced by the present administration is the urgent and daunting task of solving the country’s serious financial problems. To do this, government expenditures
must be strictly monitored and controlled and revenues must be significantly increased. This may be easier said than done, but our fiscal authorities are still optimistic the
government will be operating on a balanced budget by the year 2009. In fact, several measures that will result to significant expenditure savings have been identified by the
administration. It is supported with a credible package of revenue measures that include measures to improve tax administration and control the leakages in revenues
from income taxes and the value-added tax (VAT). (Emphasis supplied)

Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:

30
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of our agenda must be the restoration of the health of our fiscal system.

In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by the year 2009, we need to seize windows of opportunities which
might seem poignant in the beginning, but in the long run prove effective and beneficial to the overall status of our economy. One such opportunity is a review of existing
tax rates, evaluating the relevance given our present conditions.34 (Emphasis supplied)

Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government

to supplement our country’s serious financial problems, and improve tax administration and control of the leakages in revenues from income taxes and value-added taxes. As these
house bills were transmitted to the Senate, the latter, approaching the measures from the point of national perspective, can introduce amendments within the purposes of those bills.
It can provide for ways that would soften the impact of the VAT measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth quoting:

All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional revenues annually even while by mitigating prices of power, services and
petroleum products.

However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve goods and services. The rest of the tab – P10.5 billion- will be
picked by corporations.

What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the latter bear all the pain? Why should the fiscal salvation be only
on the burden of the consumer?

The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the
rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.

Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that will be in effect for 1,200 days, while we put our fiscal house in
order. This fiscal medicine will have an expiry date.

For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We would like to assure them that not because there is a light at the
end of the tunnel, this government will keep on making the tunnel long.

The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share the burden.35

As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in the tax on income of corporations are germane to the purpose of the
house bills which is to raise revenues for the government.

Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT system, as these sections would cushion the effects of VAT
on consumers. Considering that certain goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer would be burdened
more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen.
Recto said:

However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen the effect of a VAT on this product.

31
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.

And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.

What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the right. Rather, these sprang from our concern of softening the
impact of VAT, so that the people can cushion the blow of higher prices they will have to pay as a result of VAT. 36

The other sections amended by the Senate pertained to matters of tax administration which are necessary for the implementation of the changes in the VAT system.

To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house bills, which is to supplement our country’s fiscal deficit, among
others. Thus, the Senate acted within its power to propose those amendments.

SUBSTANTIVE ISSUES

I. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article VI, Section 28(2)

A. No Undue Delegation of Legislative Power

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue
delegation of the legislative power to tax.

The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties. –

(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: provided, that the
President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

32
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:

SEC. 107. Value-Added Tax on Importation of Goods. –

(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the
Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based
on the landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%) after any of the following conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –

(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or

(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). (Emphasis supplied)

Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by Congress of its exclusive power to tax because such
delegation is not within the purview of Section 28 (2), Article VI of the Constitution, which provides:

The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the government.

They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services, which cannot be included within the
purview of tariffs under the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government and usually imposed on goods
or merchandise imported or exported.

Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative power to tax is contrary to republicanism. They insist that
accountability, responsibility and transparency should dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They also argue that
the law also effectively nullified the President’s power of control, which includes the authority to set aside and nullify the acts of her subordinates like the Secretary of Finance, by
mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.

33
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions provided by the law to bring about either or both the conditions
precedent.

On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12% rate would be subject to the whim of the Secretary of Finance,
an unelected bureaucrat, contrary to the principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to give a favorable
recommendation and he may not even give his recommendation. Moreover, they allege that no guiding standards are provided in the law on what basis and as to how he will make
his recommendation. They claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter
ego of the latter, such that, ultimately, it is the President who decides whether to impose the increased tax rate or not.

A brief discourse on the principle of non-delegation of powers is instructive.

The principle of separation of powers ordains that each of the three great branches of government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere.37 A logical

corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas delegata non delegari potest which means
"what has been delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a right but a duty to be performed
by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. 39

With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power shall be vested in the Congress of the Philippines which shall
consist of a Senate and a House of Representatives." The powers which Congress is prohibited from delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has been described as the authority to make a complete law – complete as to the time when it shall take
effect and as to whom it shall be applicable – and to determine the expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in holding a
statute unconstitutional as a delegation of legislative power, it must appear that the power involved is purely legislative in nature – that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its delegation.

Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or exceptions:

(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;

(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;

(3) Delegation to the people at large;

(4) Delegation to local governments; and

(5) Delegation to administrative bodies.

In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy
to be executed, carried out, or implemented by the delegate;41 and (b) fixes a standard — the limits of which are sufficiently determinate and determinable — to which the delegate
must conform in the performance of his functions.42 A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative command is to be effected. 43 Both tests are intended to prevent a total transference of legislative
authority to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative.44

34
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of delegation of power in this wise:

In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether the statute was complete in all its terms and provisions when it
left the hands of the legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature.

‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and
conferring an 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.’

It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the legislature. It is true that laws may be made effective on certain
contingencies, as by proclamation of the executive or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme Court of the United States ruled
that the legislature may delegate a power not legislative which it may itself rightfully exercise. The power to ascertain facts is such a power which may be delegated. There is
nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a mental process common to all
branches of the government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority on account of the complexity
arising from social and economic forces at work in this modern industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations finds
restatement in Prof. Willoughby's treatise on the Constitution of the United States in the following language — speaking of declaration of legislative power to administrative
agencies: The principle which permits the legislature to provide that the administrative agent may determine when the circumstances are such as require the application
of a law is defended upon the ground that at the time this authority is granted, the rule of public policy, which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to do, determines that, under given circumstances, certain executive or administrative action is to be taken,
and that, under other circumstances, different or no action at all is to be taken. What is thus left to the administrative official is not the legislative determination of what
public policy demands, but simply the ascertainment of what the facts of the case require to be done according to the terms of the law by which he is governed. The
efficiency of an Act as a declaration of legislative will must, of course, come from Congress, but the ascertainment of the contingency upon which the Act shall take effect
may be left to such agencies as it may designate. The legislature, then, may provide that a law shall take effect upon the happening of future specified contingencies
leaving to some other person or body the power to determine when the specified contingency has arisen. (Emphasis supplied).46

In Edu vs. Ericta,47 the Court reiterated:

What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the test is the completeness of the statute in all its terms and provisions
when it leaves the hands of the legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be directed to the scope and definiteness
of the measure enacted. The legislative does not abdicate its functions when it describes what job must be done, who is to do it, and what is the scope of his authority. For a
complex economy, that may be the only way in which the legislative process can go forward. A distinction has rightfully been made between delegation of power to make the
laws which necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of authority or discretion as to its execution to
be exercised under and in pursuance of the law, to which no valid objection can be made. The Constitution is thus not to be regarded as denying the legislature the necessary
resources of flexibility and practicability. (Emphasis supplied). 48

Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the happening of contingencies, on which the operation of
a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority.49 While the power to tax cannot be
delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence
of facts on which its operation depends.50

The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function, but is simply ancillary to
legislation. Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity which the legislature may perform through its members, or
which it may delegate to others to perform. Intelligent legislation on the complicated problems of modern society is impossible in the absence of accurate information on the part

35
of the legislators, and any reasonable method of securing such information is proper.51 The Constitution as a continuously operative charter of government does not require that
Congress find for itself

every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to application of legislative
policy to particular facts and circumstances impossible for Congress itself properly to investigate.52

In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which reads as follows:

That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase
rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the
word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed.54

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot
be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to
impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a person or body other than the legislature itself.

The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively nullified the President’s power of control over the Secretary of
Finance by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also subscribe to the position of
petitioners

Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the recommendation of the Secretary of Finance." Neither does the Court find
persuasive the submission of petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by the President since the former is a
mere alter ego of the latter.

When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the assistant and agent of the Chief
Executive. The multifarious executive and administrative functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries
of such departments, such as the Department of Finance, performed and promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief
Executive, presumptively the acts of the Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of the President." 55

36
In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take effect. 56 The Secretary of Finance becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather
and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary
of Finance and to substitute the judgment of the former for that of the latter.

Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1½%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such
information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative power but only of
the discretion as to the execution of a law. This is constitutionally permissible.57 Congress does not abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.58

As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to tax is contrary to the principle of republicanism, the
same deserves scant consideration. Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came
from Congress and the task of the President is to simply execute the legislative policy. That Congress chose to do so in such a manner is not within the province of the Court to
inquire into, its task being to interpret the law.59

The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the conditions to bring about either or both the conditions precedent
does not deserve any merit as this argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all. The Court
deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances instead of realities, justice and law will be short-lived.

B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden

Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden on the people. Petitioners also argue that the 12% increase,
dependent on any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to the original 10% if the rates
are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year.

Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein are satisfied, the President shall increase the VAT rate to 12%.
The provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the VAT
collection goes below the 24/5 of the GDP of the previous year or that the national government deficit as a percentage of GDP of the previous year does not exceed 1½%.

Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for. Rewriting the law is a forbidden
ground that only Congress may tread upon.60

Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none, petitioners’ argument is, at best, purely speculative. There is
no basis for petitioners’ fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6
are no longer present. The rule is that where the provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law
must be taken as it is, devoid of judicial addition or subtraction.61

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Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous
year, should be based on fiscal adequacy.

Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another condition, i.e., the national government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent (1 ½%).

Respondents explained the philosophy behind these alternative conditions:

1. VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax collection. Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.

2. Nat’l Gov’t Deficit/GDP >1.5%

The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government has reached a relatively sound position or is towards the direction
of a balanced budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio is more
than 1.5%, there is indeed a need to increase the VAT rate. 62

That the first condition amounts to an incentive to the President to increase the VAT collection does not render it unconstitutional so long as there is a public purpose for which the
law was passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.

The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his Canons of Taxation (1776), as:

IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of
the state.63

It simply means that sources of revenues must be adequate to meet government expenditures and their variations. 64

The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral Conference Committee hearing, then Finance Secretary Purisima
bluntly depicted the country’s gloomy state of economic affairs, thus:

First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent of our revenue is used for debt service. So, for every peso of
revenue that we currently raise, 90 goes to debt service. That’s interest plus amortization of our debt. So clearly, this is not a sustainable situation. That’s the first fact.

The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow money from that international financial markets. Our debt to GDP is
approximately equal to our GDP. Again, that shows you that this is not a sustainable situation.

The third thing that I’d like to point out is the environment that we are presently operating in is not as benign as what it used to be the past five years.

What do I mean by that?

38
In the past five years, we’ve been lucky because we were operating in a period of basically global growth and low interest rates. The past few months, we have seen an inching up,
in fact, a rapid increase in the interest rates in the leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be challenged. In fact,
ultimately, the question is our ability to access the financial markets.

When the President made her speech in July last year, the environment was not as bad as it is now, at least based on the forecast of most financial institutions. So, we were
assuming that raising 80 billion would put us in a position where we can then convince them to improve our ability to borrow at lower rates. But conditions have changed on us
because the interest rates have gone up. In fact, just within this room, we tried to access the market for a billion dollars because for this year alone, the Philippines will have to
borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying to access last week and the
market was not as favorable and up to now we have not accessed and we might pull back because the conditions are not very good.

So given this situation, we at the Department of Finance believe that we really need to front-end our deficit reduction. Because it is deficit that is causing the increase of the debt
and we are in what we call a debt spiral. The more debt you have, the more deficit you have because interest and debt service eats and eats more of your revenue. We need to get
out of this debt spiral. And the only way, I think, we can get out of this debt spiral is really have a front-end adjustment in our revenue base.65

The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient to answer the state’s economic
dilemma is not for the Court to judge. In the Fariñas case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom of Section 14 of R.A. No.
9006 (The Fair Election Act), pronouncing that:

. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the political branches of the government. It is not for this Court to look
into the wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory, whether it is the best
means to achieve the desired results, whether, in short, the legislative discretion within its prescribed limits should be exercised in a particular manner are matters for the judgment
of the legislature, and the serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66

In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given that it is not for the judiciary to "pass upon questions of wisdom,
justice or expediency of legislation." 67

II. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
violate the following provisions of the Constitution:

a. Article VI, Section 28(1), and

b. Article III, Section 1

A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337,
amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against deprivation of life,
liberty of property without due process of law, as embodied in Article III, Section 1 of the Constitution.

Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.

The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.68
39
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may be credited against the output tax. It states, in part:
"[P]rovided, that the input tax inclusive of the input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the
output VAT: …"

Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the importation of goods or local
purchase of good and services, including lease or use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on
the sale or lease of taxable goods or properties or services by any person registered or required to register under the law.

Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a portion of the input tax that has already been paid
cannot now be credited against the output tax.

Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70% remains uncredited. However, to the
extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable.

More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains creditable in the succeeding quarter/s. This is explicitly allowed by Section
110(B), which provides that "if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In addition, Section 112(B) allows a
VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been applied against the
output taxes. Such unused input tax may be used in payment of his other internal revenue taxes.

The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded through a tax
credit certificate under Section 112(B).

Therefore, petitioners’ argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax. According to petitioner, the limitation on the
creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and revenue should
be for public purposes and expenditures

As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax due to the person when he sells
goods. In computing the VAT payable, three possible scenarios may arise:

First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he paid and passed on by the suppliers, then no payment is required;

Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the Bureau of Internal Revenue (BIR);69 and

Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayer’s option. 70

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only up to the extent of 70% of the output tax. In layman’s
term, the value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes that is due to him on a taxable
transaction. There is no retention of any tax collection because the person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such
40
input tax to the BIR. The party directly liable for the payment of the tax is the seller. 71 What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as
evidenced by receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law.

The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered person’s entitlement to the creditable input tax is a
mere statutory privilege.

The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state may change or take away
rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of such rights.72

Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the taxes payable, although it becomes part of the cost, which
is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax paid on
purchase or importation of goods and services by VAT-registered persons against the output tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No.
7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424). 75 The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law
can remove, or in this case, limit.

Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:

SEC. 110. Tax Credits. –

(A) Creditable Input Tax. – …

Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such a shorter period: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable
to the purchaser, lessee or license upon payment of the compensation, rental, royalty or fee.

The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase or importation of capital goods with acquisition cost of P1 Million
pesos, exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input tax. Petitioners’ argument is without basis because the taxpayer is not
permanently deprived of his privilege to credit the input tax.

It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to the government.76 In the same
breath, Congress also justified its move by saying that the provision was designed to raise an annual revenue of 22.6 billion.77 The legislature also dispelled the fear that the
provision will fend off foreign investments, saying that foreign investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5% non-
creditable VAT, foreign investments were not deterred. 78 Again, for whatever is the purpose of the 60-month amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.

With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 12 of R.A. No. 9337, which amended Section
114 of the NIRC, reads:

41
SEC. 114. Return and Payment of Value-added Tax. –

(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the
payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.

Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. The government in this case is constituted as a
withholding agent with respect to their payments for goods and services.

Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for
services supplied by contractors other than by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on payment for the lease
or use of properties or property rights to nonresident owners. Under the present Section 114(C), these different rates, except for the 10% on lease or property rights payment to
nonresidents, were deleted, and a uniform rate of 5% is applied.

The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable, means full. Thus, it is provided in Section 114(C): "final value-
added tax at the rate of five percent (5%)."

In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final withholding tax on income was explained, to wit:

SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as full and final payment of the
income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold
the tax or in case of underwithholding, the deficiency tax shall be collected from the payor/withholding agent. …

(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax
due of the payee on said income. … Taxes withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.

As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate, which constitutes as full payment of the tax payable on the
transaction. This represents the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual input VAT
directly or attributable to the taxable transaction.79

The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable transactions with the government.80 This is supported by
the fact that under the old provision, the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to wit:

SEC. 114. Return and Payment of Value-added Tax. –

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(C) Withholding of Creditable Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added
tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and
six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For
this purpose, the payor or person in control of the payment shall be considered as the withholding agent.

The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made. (Emphasis supplied)

As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to treat transactions with the government differently. Since it has not
been shown that the class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers,
are not the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the government.

Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005
issued by the BIR, provides that should the actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual input tax be less than
5%, the difference is treated as income.81

Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or value-added even if there is no profit or value-added.

Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust where premises are what ifs, arguments, theoretical and
facts, uncertain. Any disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying nothing."

What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not take an astute businessman to know that it is a matter of exception
that a business will sell goods or services without profit or value-added. It cannot be overstressed that a business is created precisely for profit.

The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or
other classes in the same place and in like circumstances." 83

The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule,
the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.84

Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests in capital equipment, or has several transactions with the
government, is not based on real and substantial differences to meet a valid classification.

The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the kind of property, the rates to be levied or the amounts to
be raised, the methods of assessment, valuation and collection. Petitioners’ alleged distinctions are based on variables that bear different consequences. While the implementation
of the law may yield varying end results depending on one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the
affairs of business.

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The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as determined according to a valid classification. By classification is meant the grouping of persons or things similar
to each other in certain particulars and different from all others in these same particulars. 85

Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House
Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to petitioners, supports their
stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say that these are still proposed legislations. Until Congress amends the law, and absent any
unequivocal basis for its unconstitutionality, the 70% limitation stays.

B. Uniformity and Equitability of Taxation

Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts
provided that the rate is uniform on the same class everywhere with all people at all times.86

In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain sales and transaction.

Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on
purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to
classify subjects of taxation, and only demands uniformity within the particular class. 87

R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual
sales or receipts not exceeding P1,500,000.00.88Also, basic marine and agricultural food products in their original state are still not subject to the tax,89 thus ensuring that prices at
the grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so that the
costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.

It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those with high profit margins. Congress was not oblivious to this.
Thus, to equalize the weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions
with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.

Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. Excise taxes on petroleum products 91 and natural
gas92 were reduced. Percentage tax on domestic carriers was removed. 93 Power producers are now exempt from paying franchise tax. 94

44
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden of taxation. Domestic, foreign, and non-resident corporations are
now subject to a 35% income tax rate, from a previous 32%. 95 Intercorporate dividends of non-resident foreign corporations are still subject to 15% final withholding tax but the
tax credit allowed on the corporation’s domicile was increased to 20%. 96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes
anymore.97 Even the sale by an artist of his works or services performed for the production of such works was not spared.

All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No.
9337 is equitable.

C. Progressivity of Taxation

Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller business with higher input tax-output tax ratio that will suffer
the consequences.

Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from Adam Smith’s Canons of Taxation, and it states:

I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the
revenue which they respectively enjoy under the protection of the state.

Taxation is progressive when its rate goes up depending on the resources of the person affected. 98

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT system inasmuch as the
VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In

other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit margin marked by a business,
such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger
the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system
of taxation." The Court stated in the Tolentino case, thus:

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall ‘evolve a progressive
system of taxation.’ The constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be
minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1) of the
1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers'
ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending
§102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC) 99

CONCLUSION

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It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to resuscitate an economy in distress. The Court is neither blind
nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court cannot strike down
a law as unconstitutional simply because of its yokes.

Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should stand ready to afford relief. There are undoubtedly many wrongs
the judicature may not correct, for instance, those involving political questions. . . .

Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the independence of
the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the guardian of the others and that, for official wrong-doing, each may be brought to
account, either by impeachment, trial or by the ballot box. 100

The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered, there is no raison d'être for the unconstitutionality of R.A. No. 9337.

WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.

There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the temporary restraining order issued by the Court on July 1, 2005
is LIFTED upon finality of herein decision.

SO ORDERED.

G.R. No. 168584 October 15, 2007

REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF FINANCE, THE HONORABLE COMMISSIONER OF BUREAU OF
INTERNAL REVENUE, THE HONORABLE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF CUSTOMS OF THE PORT OF SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial Region, Olongapo City, INDIGO DISTRIBUTION CORP., herein represented by
ARIEL G. CONSOLACION, W STAR TRADING AND WAREHOUSING CORP., herein represented by HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS.,
CORP., herein represented by ANA LISA RAMAT, BRANDED WAREHOUSE, INC., herein represented by MARY AILEEN S. GOZUN, ALTASIA INC., herein
represented by ALAN HARROW, TAINAN TRADE (TAIWAN), INC., herein represented by ELENA RANULLO, SUBIC PARK N’ SHOP, herein represented by
NORMA MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL PHILS., herein represented by MA. CHARINA FE C. RODOLFO, DUTY FREE
SUPERSTORE (DFS), herein represented by RAJESH R. SADHWANI, CHJIMES TRADING INC., herein represented by ANGELO MARK M. PICARDAL,
PREMIER FREEPORT, INC., herein represented by ROMMEL P. GABALDON, FUTURE TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S.
VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP., herein represented by JULIUS MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC.,
herein represented by ISIDRO M. MUÑOZ,respondents.

DECISION

CARPIO MORALES, J.:

Petitioners seek via petition for certiorari and prohibition to annul (1) the May 4, 2005 Order 1 issued by public respondent Judge Ramon S. Caguioa of the Regional Trial Court
(RTC), Branch 74, Olongapo City, granting private respondents’ application for the issuance of a writ of preliminary injunction and (2) the Writ of Preliminary Injunction2that was
issued pursuant to such Order, which stayed the implementation of Republic Act (R.A.) No. 9334, AN ACT INCREASING THE EXCISE TAX RATES IMPOSED ON

46
ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE PURPOSE SECTIONS 131, 141, 142, 143, 144, 145 AND 288 OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED.

Petitioners likewise seek to enjoin, restrain and inhibit public respondent from enforcing the impugned issuances and from further proceeding with the trial of Civil Case No. 102-
0-05.

The relevant facts are as follows:

In 1992, Congress enacted Republic Act (R.A) No. 7227 3 or the Bases Conversion and Development Act of 1992 which, among other things, created the Subic Special Economic
and Freeport Zone (SBF4) and the Subic Bay Metropolitan Authority (SBMA).

R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and
around the zone and to attract and promote productive foreign investments."5 In line with this vision, Section 12 of the law provided:

(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital
within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital
and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;

(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special
Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be
remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area,
and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the
Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities
contiguous to be base areas.

In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the
latter;

(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and future shall be allowed and maintained in the Subic Special
Economic Zone;

(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and other financial institutions within the Subic Special Economic
Zone;

(f) Banking and finance shall be liberalized with the establishment of foreign currency depository units of local commercial banks and offshore banking units of foreign
banks with minimum Central Bank regulation;

(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be less than Two hundred fifty thousand dollars ($250,000), his/her
spouse and dependent children under twenty-one (21) years of age, shall be granted permanent resident status within the Subic Special Economic Zone. They shall have
freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special authorization from the Bureau of Immigration and Deportation.
The Subic Bay Metropolitan Authority referred to in Section 13 of this Act may also issue working visas renewal every two (2) years to foreign executives and other
aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone possesses, as certified by the Department of Labor and Employment.
47
 The names of aliens granted permanent residence status and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration and
Deportation within thirty (30) days after issuance thereof;

x x x x. (Emphasis supplied)

Pursuant to the law, private respondents Indigo Distribution Corporation, W Star Trading and Warehousing Corporation, Freedom Brands Philippines Corporation, Branded
Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park ‘N Shop, Incorporated, Trading Gateways International Philipines, Inc., Duty Free Superstore (DFS) Inc.,
Chijmes Trading, Inc., Premier Freeport, Inc., Future Trade Subic Freeport, Inc., Grand Comtrade Int’l., Corp., and First Platinum International, Inc., which are all domestic
corporations doing business at the SBF, applied for and were granted Certificates of Registration and Tax Exemption6 by the SBMA.

These certificates allowed them to engage in the business either of trading, retailing or wholesaling, import and export, warehousing, distribution and/or transshipment of general
merchandise, including alcohol and tobacco products, and uniformly granted them tax exemptions for such importations as contained in the following provision of their respective
Certificates:

ARTICLE IV. The Company shall be entitled to tax and duty-free importation of raw materials, capital equipment, and household and personal items for use
solely within the Subic Bay Freeport Zonepursuant to Sections 12(b) and 12(c) of the Act and Sections 43, 45, 46 and 49 of the Implementing Rules. All importations
by the Company are exempt from inspection by the Societe Generale de Surveillance if such importations are delivered immediately to and for use solely within the Subic
Bay Freeport Zone. (Emphasis supplied)

Congress subsequently passed R.A. No. 9334, however, effective on January 1, 2005, 7 Section 6 of which provides:

Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as amended, is hereby amended to read as follows:

Sec. 131. Payment of Excise Taxes on Imported Articles. –

(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the
Department of Finance and before the release of such articles from the customshouse or by the person who is found in possession of articles which are exempt from excise
taxes other than those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from tax which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and
internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and
wines into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon.
This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly chartered or legislated freeports of the
Subic Economic Freeport Zone, created under Republic Act No. 7227; x x x and such other freeports as may hereafter be established or created by law: Provided,
further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like
the Duty Free Philippines (DFP), shall be exempted from all applicable duties only: x x x Provided, finally, That the removal and transfer of tax and duty-free goods,
products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits, fermented liquors and wines, from one Freeport to another
Freeport, shall not be deemed an introduction into the Philippine customs territory. x x x. (Emphasis and underscoring supplied)

48
On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a Memorandum8 declaring that effective January 1, 2005, all importations of cigars, cigarettes,
distilled spirits, fermented liquors and wines into the SBF, including those intended to be transshipped to other free ports in the Philippines, shall be treated as ordinary
importations subject to all applicable taxes, duties and charges, including excise taxes.

Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR) Commissioner Guillermo L. Parayno, Jr. requested then Customs Commissioner George M. Jereos to
immediately collect the excise tax due on imported alcohol and tobacco products brought to the Duty Free Philippines (DFP) and Freeport zones.9

Accordingly, the Collector of Customs of the port of Subic directed the SBMA Administrator to require payment of all appropriate duties and taxes on all importations of cigars
and cigarettes, distilled spirits, fermented liquors and wines; and for all transactions involving the said items to be covered from then on by a consumption entry and no longer by a
warehousing entry.10

On February 7, 2005, SBMA issued a Memorandum11 directing the departments concerned to require locators/importers in the SBF to pay the corresponding duties and taxes on
their importations of cigars, cigarettes, liquors and wines before said items are cleared and released from the freeport. However, certain SBF locators which were "exclusively
engaged in the transshipment of cigarette products for foreign destinations" were allowed by the SBMA to process their import documents subject to their submission of an
Undertaking with the Bureau of Customs.12

On February 15, 2005, private respondents wrote the offices of respondent Collector of Customs and the SBMA Administrator requesting for a reconsideration of the directives on
the imposition of duties and taxes, particularly excise taxes, on their shipments of cigars, cigarettes, wines and liquors. 13 Despite these letters, however, they were not allowed to
file any warehousing entry for their shipments.

Thus, private respondent enterprises, through their representatives, brought before the RTC of Olongapo City a special civil action for declaratory relief14 to have certain provisions
of R.A. No. 9334 declared as unconstitutional, which case was docketed as Civil Case No. 102-0-05.

In the main, private respondents submitted that (1) R.A. No. 9334 should not be interpreted as altering, modifying or amending the provisions of R.A. No. 7227 because repeals by
implication are not favored; (2) a general law like R.A. No. 9334 cannot amend R.A. No. 7727, which is a special law; and (3) the assailed law violates the one bill-one subject rule
embodied in Section 26(1), Article VI15 of the Constitution as well as the constitutional proscription against the impairment of the obligation of contracts.16

Alleging that great and irreparable loss and injury would befall them as a consequence of the imposition of taxes on alcohol and tobacco products brought into the SBF, private
respondents prayed for the issuance of a writ of preliminary injunction and/or Temporary Restraining Order (TRO) and preliminary mandatory injunction to enjoin the directives of
herein petitioners.

Petitioners duly opposed the private respondents’ prayer for the issuance of a writ of preliminary injunction and/or TRO, arguing that (1) tax exemptions are not presumed and
even when granted, are strictly construed against the grantee; (2) an increase in business expense is not the injury contemplated by law, it being a case of damnum absque injuria;
and (3) the drawback mechanism established in the law clearly negates the possibility of the feared injury. 17

Petitioners moreover pointed out that courts are enjoined from issuing a writ of injunction and/or TRO on the grounds of an alleged nullity of a law, ordinance or administrative
regulation or circular or in a manner that would effectively dispose of the main case. Taxes, they stressed, are the lifeblood of the government and their prompt and certain
availability is an imperious need. They maintained that greater injury would be inflicted on the public should the writ be granted.

On May 4, 2005, the court a quo granted private respondents’ application for the issuance of a writ of preliminary injunction, after it found that the essential requisites for the
issuance of a preliminary injunction were present.

49
As investors duly licensed to operate inside the SBF, the trial court declared that private respondents were entitled to enjoy the benefits of tax incentives under R.A. No. 7227,
particularly the exemption from local and national taxes under Section 12(c); the aforecited provision of R.A. No. 7227, coupled with private respondents’ Certificates of
Registration and Tax Exemption from the SBMA, vested in them a clear and unmistakable right or right in esse that would be violated should R.A. No. 9334 be implemented; and
the invasion of such right is substantial and material as private respondents would be compelled to pay more than what they should by way of taxes to the national government.

The trial court thereafter ruled that the prima facie presumption of validity of R.A. No. 9334 had been overcome by private respondents, it holding that as a partial amendment of
the National Internal Revenue Code (NIRC) of 1997, 18 as amended, R.A. No. 9334 is a general law that could not prevail over a special statute like R.A. No. 7227 notwithstanding
the fact that the assailed law is of later effectivity.

The trial court went on to hold that the repealing provision of Section 10 of R.A. No. 9334 does not expressly mention the repeal of R. A. No. 7227, hence, its repeal can only be
an implied repeal, which is not favored; and since R.A. No. 9334 imposes new tax burdens, whatever doubts arising therefrom should be resolved against the taxing authority and
in favor of the taxpayer.

The trial court furthermore held that R.A. No. 9334 violates the terms and conditions of private respondents’ subsisting contracts with SBMA, which are embodied in their
Certificates of Registration and Exemptions in contravention of the constitutional guarantee against the impairment of contractual obligations; that greater damage would be
inflicted on private respondents if the writ of injunction is not issued as compared to the injury that the government and the general public would suffer from its issuance; and that
the damage that private respondents are bound to suffer once the assailed statute is implemented – including the loss of confidence of their foreign principals, loss of business
opportunity and unrealized income, and the danger of closing down their businesses due to uncertainty of continued viability – cannot be measured accurately by any standard.

With regard to the rule that injunction is improper to restrain the collection of taxes under Section 218 19 of the NIRC, the trial court held that what is sought to be enjoined is not
per se the collection of taxes, but the implementation of a statute that has been found preliminarily to be unconstitutional.

Additionally, the trial court pointed out that private respondents’ taxes have not yet been assessed, as they have not filed consumption entries on all their imported tobacco and
alcohol products, hence, their duty to pay the corresponding excise taxes and the concomitant right of the government to collect the same have not yet materialized.

On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing petitioners and the SBMA Administrator as well as all persons assisting or acting for and in their
behalf "1) to allow the operations of [private respondents] in accordance with R.A. No. 7227; 2) to allow [them] to file warehousing entries instead of consumption entries as
regards their importation of tobacco and alcohol products; and 3) to cease and desist from implementing the pertinent provisions of R.A. No. 9334 by not compelling [private
respondents] to immediately pay duties and taxes on said alcohol and tobacco products as a condition to their removal from the port area for transfer to the warehouses of [private
respondents]."20

The injunction bond was approved at One Million pesos (P1,000,000).21

Without moving for reconsideration, petitioners have come directly to this Court to question the May 4, 2005 Order and the Writ of Preliminary Injunction which, they submit,
were issued by public respondent with grave abuse of discretion amounting to lack or excess of jurisdiction.

In particular, petitioners contend that public respondent peremptorily and unjustly issued the injunctive writ despite the absence of the legal requisites for its issuance, resulting in
heavy government revenue losses.22 They emphatically argue that since the tax exemption previously enjoyed by private respondents has clearly been withdrawn by R.A. No.
9334, private respondents do not have any right in esse nor can they invoke legal injury to stymie the enforcement of R.A. No. 9334.

Furthermore, petitioners maintain that in issuing the injunctive writ, public respondent showed manifest bias and prejudice and prejudged the merits of the case in utter disregard of
the caveat issued by this Court in Searth Commodities Corporation, et al. v. Court of Appeals23 and Vera v. Arca.24

50
Regarding the P1 million injunction bond fixed by public respondent, petitioners argue that the same is grossly disproportionate to the damages that have been and continue to be
sustained by the Republic.

In their Reply25 to private respondents’ Comment, petitioners additionally plead public respondent’s bias and partiality in allowing the motions for intervention of a number of
corporations26 without notice to them and in disregard of their present pending petition for certiorari and prohibition before this Court. The injunction bond filed by private
respondent Indigo Distribution Corporation, they stress, is not even sufficient to cover all the original private respondents, much less, intervenor-corporations.

The petition is partly meritorious.

At the outset, it bears emphasis that only questions relating to the propriety of the issuance of the May 4, 2005 Order and the Writ of Preliminary Injunction are properly within the
scope of the present petition and shall be so addressed in order to determine if public respondent committed grave abuse of discretion. The arguments raised by private respondents
which pertain to the constitutionality of R.A. No. 9334 subject matter of the case pending litigation before the trial court have no bearing in resolving the present petition.

Section 3 of Rule 58 of the Revised Rules of Court provides:

SEC. 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is established.

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the
rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

For a writ of preliminary injunction to issue, the plaintiff must be able to establish that (1) there is a clear and unmistakable right to be protected, (2) the invasion of the right
sought to be protected is material and substantial, and (3) there is an urgent and paramount necessity for the writ to prevent serious damage. 27

Conversely, failure to establish either the existence of a clear and positive right which should be judicially protected through the writ of injunction, or of the acts or attempts to
commit any act which endangers or tends to endanger the existence of said right, or of the urgent need to prevent serious damage, is a sufficient ground for denying the preliminary
injunction.28

It is beyond cavil that R.A. No. 7227 granted private respondents exemption from local and national taxes, including excise taxes, on their importations of general merchandise, for
which reason they enjoyed tax-exempt status until the effectivity of R.A. No. 9334.

By subsequently enacting R.A. No. 9334, however, Congress expressed its intention to withdraw private respondents’ tax exemption privilege on their importations of cigars,
cigarettes, distilled spirits, fermented liquors and wines. Juxtaposed to show this intention are the respective provisions of Section 131 of the NIRC before and after its amendment
by R.A. No. 9334:

x x x x.

Sec. 131 of NIRC before R.A. No. 9334

51
 Sec. 131. Payment of Excise Taxes on Imported Articles. –

(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the
Department of Finance and before the release of such articles from the customs house or by the person who is found in possession of articles
which are exempt from excise taxes other than those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt from tax which are subsequently sold, transferred
or exchanged in the Philippines to non-exempt persons or entities, the purchasers or recipients shall be considered the importers thereof, and
shall be liable for the duty and internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits, fermented liquors and wines
into the Philippines, even if destined for tax and duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes
due thereon. Provided, however, That this shall not apply to cigars and cigarettes, fermented spirits and wines brought directly into the
duly chartered or legislated freeports of the Subic Economic Freeport Zone, created under Republic Act No. 7227; the Cagayan
Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created
under Republic Act No. 7903, and are not transshipped to any other port in the Philippines: Provided, further, That importations of cigars and
cigarettes, distilled spirits, fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the Duty Free
Philippines (DFP), shall be exempted from all applicable duties, charges, including excise tax due thereon; Provided still further, That such
articles directly imported by a government-owned and operated duty-free shop, like the Duty-Free Philippines, shall be labeled "tax and duty-
free" and "not for resale": Provided, still further, That if such articles brought into the duly chartered or legislated freeports under Republic
Acts Nos. 7227, 7922 and 7903 are subsequently introduced into the Philippine customs territory, then such articles shall, upon such
introduction, be deemed imported into the Philippines and shall be subject to all imposts and excise taxes provided herein and other statutes:
Provided, finally, That the removal and transfer of tax and duty-free goods, products, machinery, equipment and other similar articles, from
one freeport to another freeport, shall not be deemed an introduction into the Philippine customs territory.

x x x x.

(Emphasis and underscoring supplied)

To note, the old Section 131 of the NIRC expressly provided that all taxes, duties, charges, including excise taxes shall not apply to importations of cigars, cigarettes, fermented
spirits and wines brought directly into the duly chartered or legislated freeports of the SBF.

On the other hand, Section 131, as amended by R.A. No. 9334, now provides that such taxes, duties and charges, including excise taxes, shall apply to importation of cigars and
cigarettes, distilled spirits, fermented liquors and wines into the SBF.

Without necessarily passing upon the validity of the withdrawal of the tax exemption privileges of private respondents, it behooves this Court to state certain basic principles and
observations that should throw light on the propriety of the issuance of the writ of preliminary injunction in this case.

First. Every presumption must be indulged in favor of the constitutionality of a statute.29 The burden of proving the unconstitutionality of a law rests on the party assailing the
law.30 In passing upon the validity of an act of a co-equal and coordinate branch of the government, courts must ever be mindful of the time-honored principle that a statute is
presumed to be valid.

52
Second. There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful. Being a mere statutory privilege,31 a
tax exemption may be modified or withdrawn at will by the granting authority. 32

To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme. The power to impose taxes is one so unlimited in force and so
searching in extent, it is subject only to restrictions which rest on the discretion of the authority exercising it.33

Third. As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority.34 The burden of proof rests upon the party
claiming exemption to prove that it is in fact covered by the exemption so claimed. 35 In case of doubt, non-exemption is favored.36

Fourth. A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or repeal. 37 Flowing from the basic precept of constitutional law
that no law is irrepealable, Congress, in the legitimate exercise of its lawmaking powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant the same
under Section 28(4) of Article VI38 of the Constitution. There is no gainsaying therefore that Congress can amend Section 131 of the NIRC in a manner it sees fit, as it did when it
passed R.A. No. 9334.

Fifth. The rights granted under the Certificates of Registration and Tax Exemption of private respondents are not absolute and unconditional as to constitute rights in esse – those
clearly founded on or granted by law or is enforceable as a matter of law. 39

These certificates granting private respondents a "permit to operate" their respective businesses are in the nature of licenses, which the bulk of jurisprudence considers as neither a
property nor a property right.40 The licensee takes his license subject to such conditions as the grantor sees fit to impose, including its revocation at pleasure.41 A license can thus
be revoked at any time since it does not confer an absolute right. 42

While the tax exemption contained in the Certificates of Registration of private respondents may have been part of the inducement for carrying on their businesses in the SBF, this
exemption, nevertheless, is far from being contractual in nature in the sense that the non-impairment clause of the Constitution can rightly be invoked. 43

Sixth. Whatever right may have been acquired on the basis of the Certificates of Registration and Tax Exemption must yield to the State’s valid exercise of police power. 44 It is
well to remember that taxes may be made the implement of the police power.45

It is not difficult to recognize that public welfare and necessity underlie the enactment of R.A. No. 9334. As petitioners point out, the now assailed provision was passed to curb the
pernicious practice of some unscrupulous business enterprises inside the SBF of using their tax exemption privileges for smuggling purposes. Smuggling in whatever form is bad
enough; it is worse when the same is allegedly perpetrated, condoned or facilitated by enterprises hiding behind the cloak of their tax exemption privileges.

Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction which would in effect dispose of the main case without trial.46 This rule is intended to preclude a
prejudgment of the main case and a reversal of the rule on the burden of proof since by issuing the injunctive writ, the court would assume the proposition that petitioners are
inceptively duty bound to prove.47

Eighth. A court may issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough, in the
mind of the judge, to overcome the presumption of validity, in addition to a showing of a clear legal right to the remedy sought.48

Thus, it is not enough that petitioners make out a case of unconstitutionality or invalidity to overcome the prima faciepresumption of validity of a statute; they must also be able to
show a clear legal right that ought to be protected by the court. The issuance of the writ is therefore not proper when the complainant’s right is doubtful or disputed.49

Ninth. The feared injurious effects of the imposition of duties, charges and taxes on imported cigars, cigarettes, distilled spirits, fermented liquors and wines on private
respondents’ businesses cannot possibly outweigh the dire consequences that the non-collection of taxes, not to mention the unabated smuggling inside the SBF, would wreak on
53
the government. Whatever damage would befall private respondents must perforce take a back seat to the pressing need to curb smuggling and raise revenues for governmental
functions.

All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower court, this Court may and should intervene in a clear case of abuse.50

One such case of grave abuse obtained in this case when public respondent issued his Order of May 4, 2005 and the Writ of Preliminary Injunction on May 11, 200551 despite the
absence of a clear and unquestioned legal right of private respondents.

In holding that the presumption of constitutionality and validity of R.A. No. 9334 was overcome by private respondents for the reasons public respondent cited in his May 4, 2005
Order, he disregarded the fact that as a condition sine qua non to the issuance of a writ of preliminary injunction, private respondents needed also to show a clear legal right that
ought to be protected. That requirement is not satisfied in this case.

To stress, the possibility of irreparable damage without proof of an actual existing right would not justify an injunctive relief.52

Besides, private respondents are not altogether lacking an appropriate relief under the law. As petitioners point out in their Petition53 before this Court, private respondents may
avail themselves of a tax refund or tax credit should R.A. No. 9334 be finally declared invalid.

Indeed, Sections 20454 and 22955 of the NIRC provide for the recovery of erroneously or illegally collected taxes which would be the nature of the excise taxes paid by private
respondents should Section 6 of R.A. No. 9334 be declared unconstitutional or invalid.

It may not be amiss to add that private respondents can also opt not to import, or to import less of, those items which no longer enjoy tax exemption under R.A. No. 9334 to avoid
the payment of taxes thereon.

The Court finds that public respondent had also ventured into the delicate area which courts are cautioned from taking when deciding applications for the issuance of the writ of
preliminary injunction. Having ruled preliminarily against the prima facie validity of R.A. No. 9334, he assumed in effect the proposition that private respondents in their petition
for declaratory relief were duty bound to prove, thereby shifting to petitioners the burden of proving that R.A. No. 9334 is not unconstitutional or invalid.

In the same vein, the Court finds public respondent to have overstepped his discretion when he arbitrarily fixed the injunction bond of the SBF enterprises at only P1million.

The alleged sparseness of the testimony of Indigo Corporation’s representative 56 on the injury to be suffered by private respondents may be excused because evidence for a
preliminary injunction need not be conclusive or complete. Nonetheless, considering the number of private respondent enterprises and the volume of their businesses, the
injunction bond is undoubtedly not sufficient to answer for the damages that the government was bound to suffer as a consequence of the suspension of the implementation of the
assailed provisions of R.A. No. 9334.

Rule 58, Section 4(b) provides that a bond is executed in favor of the party enjoined to answer for all damages which it may sustain by reason of the injunction. The purpose of the
injunction bond is to protect the defendant against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was not entitled to it, and the bond is
usually conditioned accordingly.57

Recalling this Court’s pronouncements in Olalia v. Hizon58 that:

54
 x x x [T]here is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case,
than the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be
granted only when the court is fully satisfied that the law permits it and the emergency demands it,

it cannot be overemphasized that any injunction that restrains the collection of taxes, which is the inevitable result of the suspension of the implementation of the assailed Section 6
of R.A. No. 9334, is a limitation upon the right of the government to its lifeline and wherewithal.

The power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.59 That the
enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government has been repeatedly observed. Taxes being the lifeblood of the
government that should be collected without unnecessary hindrance,60 every precaution must be taken not to unduly suppress it.

Whether this Court must issue the writ of prohibition, suffice it to stress that being possessed of the power to act on the petition for declaratory relief, public respondent can
proceed to determine the merits of the main case. To halt the proceedings at this point may be acting too prematurely and would not be in keeping with the policy that courts must
decide controversies on the merits.

Moreover, lacking the requisite proof of public respondent’s alleged partiality, this Court has no ground to prohibit him from proceeding with the case for declaratory relief. For
these reasons, prohibition does not lie.

WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify and set aside the Order of May 4, 2005 as well as the Writ of Preliminary Injunction issued
by respondent Judge Caguioa on May 11, 2005 is GRANTED. The assailed Order and Writ of Preliminary Injunction are hereby declared NULL AND VOID and
accordingly SET ASIDE. The writ of prohibition prayed for is, however, DENIED.

SO ORDERED.

G.R. No. L-60126 September 25, 1985

CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.
Quasha, De Guzman Makalintal & Barot for petitioner.

AQUINO, J.:

This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to P75,149.73 for the more than seven-month period of the year 1969 in
addition to franchise tax.

The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of
all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted" (Sec. 3).

55
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax all corporate taxpayers not specifically exempt under paragraph
(c) (1) of said section and section 27 of the Tax Code notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were
subjected to income tax in addition to franchise tax.

However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish electricity to the
municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the tax
exemption in its original charter or neutralized the modification made by Republic Act No. 5431 more than a year before.

By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter dated February 15, 1973 required the petitioner to pay
deficiency income taxes for 1968-to 1971. The petitioner contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for 1968
and 1969.

The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held the petitioner liable only for the income tax for the period from January 1 to August
3, 1969 or before the passage of Republic Act No. 6020 which reiterated its tax exemption. The petitioner appealed to this Court.

It contends that the Tax Court erred (1) in not holding that the franchise tax paid by the petitioner is a commutative tax which already includes the income tax; (2) in holding that
Republic Act No. 5431 as amended, altered or repealed petitioner's franchise; (3) in holding that petitioner's franchise is a contract which can be impaired by an implied repeal and
(4) in not holding that section 24(d) of the Tax Code should be construed strictly against the Government.

We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided
for in section 3 of its franchise.

The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution;
Sec. 5, Art. XIV, 1973 Constitution),

Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the Constitution and to the terms and conditions established in Act No.
3636 whose section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress.

Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate taxpayers not expressly exempted therein and in section 27 of the Code,
had the effect of withdrawing petitioner's exemption from income tax.

The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax
exemption. Hence, the petitioner is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431.

It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been paying income tax in addition to the franchise tax.

However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at the outset was not certain as to petitioner's income tax
liability. It had reason not to pay income tax because of the tax exemption in its franchise.

For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of Internal
Revenue and Court of Tax Appeals, G. R. No. 59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, 125 Phil. 1024; C.M.
Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71 SCRA 511.)

56
WHEREFORE, the judgment of the Tax Court is affirmed with the modification that the petitioner is liable only for the tax proper and that it should not pay the delinquency
penalties. No costs.

SO ORDERED.

G.R. No. 180006 September 28, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
FORTUNE TOBACCO CORPORATION, Respondent.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of Court by petitioner Commissioner of Internal Revenue (CIR), assailing the decision dated
July 12, 20071 and the resolution dated October 4, 2007,2 both issued by the Court of Tax Appeals (CTA) en banc in CTA E.B. No. 228.

BACKGROUND FACTS

Under our tax laws, manufacturers of cigarettes are subject to pay excise taxes on their products. Prior to January 1, 1997, the excises taxes on these products were in the form of
ad valorem taxes, pursuant to Section 142 of the 1977 National Internal Revenue Code (1977 Tax Code).

Beginning January 1, 1997, Republic Act No. (RA) 8240 3 took effect and a shift from ad valorem to specific taxes was made. Section 142(c) of the 1977 Tax Code, as amended by
RA 8240, reads in part:

Sec. 142. Cigars and cigarettes. — x x x.

(c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per
pack;

(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00)
per pack, the tax shall be Eight pesos (P8.00) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos (P5.00) per pack;

(4) If the net retail price (excluding the excise tax and the [value]-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack.

xxxx

57
The specific tax from any brand of cigarettes within the next three (3) years of effectivity of this Act shall not be lower than the tax [which] is due from each brand on October 1,
1996: Provided, however, That in cases where the specific tax rates imposed in paragraphs (1), (2), (3) and (4) hereinabove will result in an increase in excise tax of more than
seventy percent (70%), for a brand of cigarette, the increase shall take effect in two tranches: fifty percent (50%) of the increase shall be effective in 1997 and one hundred percent
(100%) of the increase shall be effective in 1998.

xxxx

The rates of specific tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000. [emphases ours]

To implement RA 8240 and pursuant to its rule-making powers, the CIR issued Revenue Regulation No. (RR) 1-97 whose Section 3(c) and (d) echoed the above-quoted portion of
Section 142 of the 1977 Tax Code, as amended.4

The 1977 Tax Code was later repealed by RA 8424, or the National Internal Revenue Code of 1997 (1997 Tax Code), and Section 142, as amended by RA 8240, was renumbered
as Section 145.

This time, to implement the 12% increase in specific taxes mandated under Section 145 of the 1997 Tax Code and again pursuant to its rule-making powers, the CIR issued RR 17-
99, which reads:

Section 1. New Rates of Specific Tax. The specific tax rates imposed under the following sections are hereby increased by twelve percent (12%) and the new rates to be levied,
assessed, and collected are as follows:

Section Description of Articles Present Specific Tax Rates New Specific Tax Rates
(Prior to January 1, 2000) (Effective January 1, 2000)

145 CIGARS and CIGARETTES

B) Cigarettes Packed by Machine

(1) Net Retail Price (excluding VAT & P12.00/pack P13.44/pack

Excise) exceeds P10.00 per pack

(2) Net Retail Price (excluding VAT & P8.00/pack P8.96/pack

Excise) is P6.51 up to P10.00 per pack

(3) Net Retail Price (excluding VAT & P5.00/pack P5.60/pack

Excise) is P5.00 to P6.50 per pack

(4) Net Retail Price (excluding VAT & P1.00/pack P1.12/pack

Excise) is below P5.00 per pack

Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be
lower than the excise tax that is actually being paid prior to January 1, 2000. [emphasis ours]

58
THE FACTS OF THE CASE

Pursuant to these laws, respondent Fortune Tobacco Corporation (Fortune Tobacco) paid in advance excise taxes for the year 2003 in the amount of P11.15 billion, and for the
period covering January 1 to May 31, 2004 in the amount of P4.90 billion.5

In June 2004, Fortune Tobacco filed an administrative claim for tax refund with the CIR for erroneously and/or illegally collected taxes in the amount of P491 million.6 Without
waiting for the CIR’s action on its claim, Fortune Tobacco filed with the CTA a judicial claim for tax refund. 7

In its decision dated May 26, 2006, the CTA First Division ruled in favor of Fortune Tobacco and granted its claim for refund.8 The CTA First Division’s ruling was upheld on
appeal by the CTA en banc in its decision dated July 12, 2007. 9 The CIR’s motion for reconsideration of the CTA en banc’s decision was denied in a resolution dated October 4,
2007.10

THE ISSUE

Fortune Tobacco’s claim for refund of overpaid excise taxes is based primarily on what it considers as an "unauthorized administrative legislation" on the part of the CIR.
Specifically, it assails the proviso in Section 1 of RR 17-99 that requires the payment of the "excise tax actually being paid prior to January 1, 2000" if this amount is higher than
the new specific tax rate, i.e., the rates of specific taxes imposed in 1997 for each category of cigarette, plus 12%. It claimed that by including the proviso, the CIR went beyond the
language of the law and usurped Congress’ power. As mentioned, the CTA sided with Fortune Tobacco and allowed the latter to claim the refund.

The CIR disagrees with the CTA’s ruling and assails it before this Court through the present petition for review on certiorari. The CIR posits that the inclusion of the proviso in
Section 1 of RR 17-99 was made to carry into effect the law’s intent and is well within the scope of his delegated legislative authority. 11 He claims that the CTA’s strict
interpretation of the law ignored Congress’ intent "to increase the collection of excise taxes by increasing specific tax rates on ‘sin’ products."12 He cites portions of the Senate’s
deliberation on House Bill No. 7198 (the precursor of RA 8240) that conveyed the legislative intent to increase the excise taxes being paid.13

The CIR points out that Section 145(c) of the 1997 Tax Code categorically declares that "[t]he excise tax from any brand of cigarettes within the [three-year transition period from
January 1, 1997 to December 31, 1999] shall not be lower than the tax, which is due from each brand on October 1, 1996." He posits that there is no plausible reason why the new
specific tax rates due beginning January 1, 2000 should not be subject to the same rule as those due during the transition period. To the CIR, the adoption of the "higher tax rule"
during the transition period unmistakably shows the intent of Congress not to lessen the excise tax collection. Thus, the CTA should have construed the ambiguity or omission in
Section 145(c) in a manner that would uphold the law’s policy and intent.

Fortune Tobacco argues otherwise. To it, Section 145(c) of the 1997 Tax Code read and interpreted as it is written; it imposes a 12% increase on the rates of excise taxes provided
under sub-paragraphs (1), (2), (3), and (4) only; it does not say that the tax due during the transition period shall continue to be collected if the amount is higher than the new
specific tax rates. It contends that the "higher tax rule" applies only to the three-year transition period to offset the burden caused by the shift from ad valorem to specific taxes.

THE COURT’S RULING

Except for the tax period and the amounts involved, 14 the case at bar presents the same issue that the Court already resolved in 2008 in CIR v. Fortune Tobacco Corporation. 15 In
the 2008 Fortune Tobacco case, the Court upheld the tax refund claims of Fortune Tobacco after finding invalid the proviso in Section 1 of RR 17-99. We ruled:

Section 145 states that during the transition period, i.e., within the next three (3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be
lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and unmistakably, Section 145 mandates a new rate of excise tax for cigarettes packed by

59
machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected
prior to this date.

By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation No.
17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax under
paragraph C, sub-paragraph (1)-(4), as increased by 12% – a situation not supported by the plain wording of Section 145 of the Tax Code. 16

Following the principle of stare decisis,17 our ruling in the present case should no longer come as a surprise. The proviso in Section 1 of RR 17-99 clearly went beyond the terms of
the law it was supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid excise taxes collected pursuant to this provision.

The amount involved in the present case and the CIR’s firm insistence of its arguments nonetheless compel us to take a second look at the issue, but our findings ultimately lead us
to the same conclusion. Indeed, we find more reasons to disagree with the CIR’s construction of the law than those stated in our 2008 Fortune Tobacco ruling, which was largely
based on the application of the rules of statutory construction.

Raising government revenue is not the sole objective of RA 8240

That RA 8240 (incorporated as Section 145 of the 1997 Tax Code) was enacted to raise government revenues is a given fact, but this is not the sole and only objective of the
law.18 Congressional deliberations show that the shift from ad valorem to specific taxes introduced by the law was also intended to curb the corruption that became endemic to the
imposition of ad valorem taxes.19 Since ad valorem taxes were based on the value of the goods, the prices of the goods were often manipulated to yield lesser taxes. The imposition
of specific taxes, which are based on the volume of goods produced, would prevent price manipulation and also cure the unequal tax treatment created by the skewed valuation of
similar goods.

Rule of uniformity of taxation violated by the proviso in Section 1, RR 17-99

The Constitution requires that taxation should be uniform and equitable. 20 Uniformity in taxation requires that all subjects or objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities.21 This requirement, however, is unwittingly violated when the proviso in Section 1 of RR 17-99 is applied in certain cases. To illustrate this
point, we consider three brands of cigarettes, all classified as lower-priced cigarettes under Section 145(c)(4) of the 1997 Tax Code, since their net retail price is below P5.00 per
pack:

(A) (C) (D) (E)

Net Retail (B)
Ad Valorem Tax Specific Tax Due New Specific Tax New Specific Tax
Brand22 Price per Specific Tax under
Due prior to Jan Jan 1997 to Dec imposing 12% increase Due by Jan 2000
pack Section 145(C)(4)
1997 1999 by Jan 2000 per RR 17-99

Camel KS 4.71 5.50 1.00/pack 5.50 1.12/pack 5.50

Champion M 4.56 3.30 1.00/pack 3.30 1.12/pack 3.30

100

Union 4.64 1.09 1.00/pack 1.09 1.12/pack 1.12

American
Blend

60
Although the brands all belong to the same category, the proviso in Section 1, RR 17-99 authorized the imposition of different (and grossly disproportionate) tax rates (see column
[D]). It effectively extended the qualification stated in the third paragraph of Section 145(c) of the 1997 Tax Code that was supposed to apply only during the transition period:

The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on
October 1, 1996[.]

In the process, the CIR also perpetuated the unequal tax treatment of similar goods that was supposed to be cured by the shift from ad valorem to specific taxes.

The omission in the law in fact reveals the legislative intent not to adopt the "higher tax rule"

The CIR claims that the proviso in Section 1 of RR 17-99 was patterned after the third paragraph of Section 145(c) of the 1997 Tax Code. Since the law’s intent was to increase
revenue, it found no reason not to apply the same "higher tax rule" to excise taxes due after the transition period despite the absence of a similar text in the wording of Section
145(c). What the CIR misses in his argument is that he applied the rule not only for cigarettes, but also for cigars, distilled spirits, wines and fermented liquors:

Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be
lower than the excise tax that is actually being paid prior to January 1, 2000.

When the pertinent provisions of the 1997 Tax Code imposing excise taxes on these products are read, however, there is nothing similar to the third paragraph of Section 145(c)
that can be found in the provisions imposing excise taxes on distilled spirits (Section 141 23 ) and wines (Section 14224 ). In fact, the rule will also not apply to cigars as these
products fall under Section 145(a).25

Evidently, the 1997 Tax Code’s provisions on excise taxes have omitted the adoption of certain tax measures. To our mind, these omissions are telling indications of the intent of
Congress not to adopt the omitted tax measures; they are not simply unintended lapses in the law’s wording that, as the CIR claims, are nevertheless covered by the spirit of the
law. Had the intention of Congress been solely to increase revenue collection, a provision similar to the third paragraph of Section 145(c) would have been incorporated in Sections
141 and 142 of the 1997 Tax Code. This, however, is not the case.

We note that Congress was not unaware that the "higher tax rule" is a proviso that should ideally apply to the increase after the transition period (as the CIR embodied in the
proviso in Section 1 of RR 17-99). During the deliberations for the law amending Section 145 of the 1997 Tax Code (RA 9334), Rep. Jesli Lapuz adverted to the "higher tax rule"
after December 31, 1999 when he stated:

This bill serves as a catch-up measure as government attempts to collect additional revenues due it since 2001. Modifications are necessary indeed to capture the loss proceeds and
prevent further erosion in revenue base. x x x. As it is, it plugs a major loophole in the ambiguity of the law as evidenced by recent disputes resulting in the government being
ordered by the courts to refund taxpayers.1âwphi1 This bill clarifies that the excise tax due on the products shall not be lower than the tax due as of the date immediately prior to
the effectivity of the act or the excise tax due as of December 31, 1999. 26

This remark notwithstanding, the final version of the bill that became RA 9334 contained no provision similar to the proviso in Section 1 of RR 17-99 that imposed the tax due as
of December 31, 1999 if this tax is higher than the new specific tax rates. Thus, it appears that despite its awareness of the need to protect the increase of excise taxes to increase
government revenue, Congress ultimately decided against adopting the "higher tax rule.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision dated July 12, 2007 and the resolution dated October 4, 2007 of the Court of Tax Appeals in CTA
E.B. No. 228 are AFFIRMED. No pronouncement as to costs.

SO ORDERED.
61
G.R. No. 163583 August 20, 2008
BRITISH AMERICAN TOBACCO, petitioner,
vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the
Bureau of Internal Revenue, respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPORATION, and JT InTERNATIONAL, S.A., respondents-in-intervention.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the validity of: (1) Section 145 of the National Internal Revenue Code (NIRC), as recodified by Republic Act (RA) 8424; (2) RA 9334, which
further amended Section 145 of the NIRC on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003.
Petitioner argues that the said provisions are violative of the equal protection and uniformity clauses of the Constitution.

RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other Purposes," took effect on January 1, 1997. In the same year,
Congress passed RA 8424 or The Tax Reform Act of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of the NIRC.

Paragraph (c) of Section 145 provides for four tiers of tax rates based on the net retail price per pack of cigarettes. To determine the applicable tax rates of existing cigarette
brands, a survey of the net retail prices per pack of cigarettes was conducted as of October 1, 1996, the results of which were embodied in Annex "D" of the NIRC as the duly
registered, existing or active brands of cigarettes.

Paragraph (c) of Section 145, 1 states –

SEC. 145. Cigars and cigarettes. –

(c) Cigarettes packed by machine. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Thirteen pesos and forty-four
centavos (P13.44) per pack;

(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (10.00)
per pack, the tax shall be Eight pesos and ninety-six centavos (P8.96) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos and sixty centavos (P5.60) per pack;

(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso and twelve centavos
(P1.12) per pack.

Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this Act shall be taxed under the highest classification of any
variant of that brand.

62
 New brands shall be classified according to their current net retail price.

For the above purpose, net retail price shall mean the price at which the cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro
Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and the value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D" of this Act, shall remain in
force until revised by Congress. (Emphasis supplied)

As such, new brands of cigarettes shall be taxed according to their current net retail price while existing or "old" brands shall be taxed based on their net retail price as of
October 1, 1996.

To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,2 which classified the existing brands of cigarettes as those duly registered or
active brands prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the
appropriate survey to determine their current net retail price is conducted. Pertinent portion of the regulations reads –

SECTION 2. Definition of Terms.

3. Duly registered or existing brand of cigarettes – shall include duly registered, existing or active brands of cigarettes, prior to January 1, 1997.

6. New Brands – shall mean brands duly registered after January 1, 1997 and shall include duly registered, inactive brands of cigarette not sold in commercial quantity
before January 1, 1997.

Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.

B. New Brand

New brands shall be classified according to their current net retail price. In the meantime that the current net retail price has not yet been established, the suggested net
retail price shall be used to determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail outlets in Metro Manila (for
brands of cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro Manila) at
which the cigarette is sold on retail in reams/cartons, three (3) months after the initial removal of the new brand to determine the actual net retail price excluding the
excise tax and value added tax which shall then be the basis in determining the specific tax classification. In case the current net retail price is higher than the suggested
net retail price, the former shall prevail. Any difference in specific tax due shall be assessed and collected inclusive of increments as provided for by the National Internal
Revenue Code, as amended.

In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a
suggested retail price of P9.90 per pack.3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.

On February 17, 2003, Revenue Regulations No. 9-2003,4 amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the
current net retail price of new brands and variants thereof for the purpose of establishing and updating their tax classification, thus:

63
 For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through
the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding
any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an
appropriate Revenue Regulations.

Pursuant thereto, Revenue Memorandum Order No. 6-20035 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail prices of
new brands of cigarettes and alcohol products.

Subsequently, Revenue Regulations No. 22-20036 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after
January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold
at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. 7 Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable
tax rate of P13.44 per pack inasmuch as Lucky Strike’s average net retail price is above P10.00 per pack.

Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, Branch 61, a petition for injunction with prayer for the issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin the implementation of Section 145 of the NIRC,
Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation
of the equal protection and uniformity provisions of the Constitution.

Respondent Commissioner of Internal Revenue filed an Opposition8 to the application for the issuance of a TRO. On September 4, 2003, the trial court denied the application for
TRO, holding that the courts have no authority to restrain the collection of taxes. 9 Meanwhile, respondent Secretary of Finance filed a Motion to Dismiss, 10 contending that the
petition is premature for lack of an actual controversy or urgent necessity to justify judicial intervention.

In an Order dated March 4, 2004, the trial court denied the motion to dismiss and issued a writ of preliminary injunction to enjoin the implementation of Revenue Regulations Nos.
1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003.11 Respondents filed a Motion for Reconsideration12 and Supplemental Motion for Reconsideration.13 At the
hearing on the said motions, petitioner and respondent Commissioner of Internal Revenue stipulated that the only issue in this case is the constitutionality of the assailed law, order,
and regulations.14

On May 12, 2004, the trial court rendered a decision15 upholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003. The trial court also lifted the writ of preliminary injunction. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the instant Petition is hereby DISMISSED for lack of merit. The Writ of Preliminary Injunction previously issued is hereby lifted
and dissolved.

SO ORDERED.16

Petitioner brought the instant petition for review directly with this Court on a pure question of law.

While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol And Tobacco Products, Amending For The Purpose Sections 131, 141,
143, 144, 145 and 288 of the NIRC of 1997, As Amended), took effect on January 1, 2005. The statute, among others,–

(1) increased the excise tax rates provided in paragraph (c) of Section 145;

64
(2) mandated that new brands of cigarettes shall initially be classified according to their suggested net retail price, until such time that their correct tax bracket is finally determined
under a specified period and, after which, their classification shall remain in force until revised by Congress;

(3) retained Annex "D" as tax base of those surveyed as of October 1, 1996 including the classification of brands for the same products which, although not set forth in said Annex
"D," were registered on or before January 1, 1997 and were being commercially produced and marketed on or after October 1, 1996, and which continue to be commercially
produced and marketed after the effectivity of this Act. Said classification shall remain in force until revised by Congress; and

(4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 1997 17 to December 31, 2003, such that said cigarettes shall remain in the
classification under which the BIR has determined them to belong as of December 31, 2003, until revised by Congress.

Pertinent portions, of RA 9334, provides:

SEC. 145. Cigars and Cigarettes. –

(C) Cigarettes Packed by Machine. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be:

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and

Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.

(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax
shall be:

Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;

Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;

Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and

Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.

(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack,
the tax shall be:

Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;

65
Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be:

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;

Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the
manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with
regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand
against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified.
After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price
as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however,
That brands of cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the
classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and
brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress.

Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau of Internal Revenue itself, or the National
Statistics Office when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax.
For brands which are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in
the region excluding the amount intended to cover the applicable excise tax and value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of
brands for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or
after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by
Congress. (Emphasis added)

66
Under RA 9334, the excise tax due on petitioner’s products was increased to P25.00 per pack. In the implementation thereof, respondent Commissioner assessed petitioner’s
importation of 911,000 packs of Lucky Strike cigarettes at the increased tax rate of P25.00 per pack, rendering it liable for taxes in the total sum of P22,775,000.00. 18

Hence, petitioner filed a Motion to Admit Attached Supplement19 and a Supplement20 to the petition for review, assailing the constitutionality of RA 9334 insofar as it retained
Annex "D" and praying for a downward classification of Lucky Strike products at the bracket taxable at P8.96 per pack. Petitioner contended that the continued use of Annex "D"
as the tax base of existing brands of cigarettes gives undue protection to said brands which are still taxed based on their price as of October 1996 notwithstanding that they are now
sold at the same or even at a higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as Marlboro and Philip Morris which, like Lucky Strike, are sold at
or more than P22.00 per pack, are taxed at the rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06 per pack.

In its Comment to the supplemental petition, respondents, through the Office of the Solicitor General (OSG), argued that the passage of RA 9334, specifically the provision
imposing a legislative freeze on the classification of cigarettes introduced into the market between January 2, 1997 and December 31, 2003, rendered the instant petition academic.
The OSG claims that the provision in Section 145, as amended by RA 9334, prohibiting the reclassification of cigarettes introduced during said period, "cured’ the perceived defect
of Section 145 considering that, like the cigarettes under Annex "D," petitioner’s brands and other brands introduced between January 2, 1997 and December 31, 2003, shall
remain in the classification under which the BIR has placed them and only Congress has the power to reclassify them.

On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed a Motion for Leave to Intervene with attached Comment-in-Intervention.21 This was followed by
the Motions for Leave to Intervene of Fortune Tobacco Corporation, 22 Mighty Corporation, 23 and JT International, S.A., with their respective Comments-in-Intervention. The
Intervenors claim that they are parties-in-interest who stand to be affected by the ruling of the Court on the constitutionality of Section 145 of the NIRC and its Annex "D" because
they are manufacturers of cigarette brands which are included in the said Annex. Hence, their intervention is proper since the protection of their interest cannot be addressed in a
separate proceeding.

According to the Intervenors, no inequality exists because cigarettes classified by the BIR based on their net retail price as of December 31, 2003 now enjoy the same status
quo provision that prevents the BIR from reclassifying cigarettes included in Annex "D." It added that the Court has no power to pass upon the wisdom of the legislature in
retaining Annex "D" in RA 9334; and that the nullification of said Annex would bring about tremendous loss of revenue to the government, chaos in the collection of taxes, illicit
trade of cigarettes, and cause decline in cigarette demand to the detriment of the farmers who depend on the tobacco industry.

Intervenor Fortune Tobacco further contends that petitioner is estopped from questioning the constitutionality of Section 145 and its implementing rules and regulations because it
entered into the cigarette industry fully aware of the existing tax system and its consequences. Petitioner imported cigarettes into the country knowing that its suggested retail price,
which will be the initial basis of its tax classification, will be confirmed and validated through a survey by the BIR to determine the correct tax that would be levied on its
cigarettes.

Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been brought by petitioner before the Court of Tax Appeals (CTA) and not
the RTC because it is the CTA which has exclusive appellate jurisdiction over decisions of the BIR in tax disputes.

On August 7, 2006, the OSG manifested that it interposes no objection to the motions for intervention. 24 Therefore, considering the substantial interest of the intervenors, and in the
higher interest of justice, the Court admits their intervention.

Before going into the substantive issues of this case, we must first address the matter of jurisdiction, in light of Fortune Tobacco’s contention that petitioner should have brought its
petition before the Court of Tax Appeals rather than the regional trial court.

The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states, in pertinent part:

Sec. 7. Jurisdiction. — The CTA shall exercise:

67
 a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; xxx. 25

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged.
Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function,
the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.26

In Drilon v. Lim,27 it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the
judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional
trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right
to question in his defense the constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of
Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases
in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or
regulation is in question.

The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its
implementing rules and regulations. In fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of
whether the assailed law and its implementing rules and regulations contravene the Constitution is within the jurisdiction of regular courts. The Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including
the regional trial courts.28 Petitioner, therefore, properly filed the subject case before the RTC.

We come now to the issue of whether petitioner is estopped from assailing the authority of the Commissioner of Internal Revenue. Fortune Tobacco raises this objection by
pointing out that when petitioner requested the Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a "new brand" rather than a variant of an existing brand,
and thus subject to a lower specific tax rate, petitioner executed an undertaking to comply with the procedures under existing regulations for the assessment of deficiency internal
revenue taxes.

Fortune Tobacco argues that petitioner, after invoking the authority of the Commissioner of Internal Revenue, cannot later on turn around when the ruling is adverse to it.

Estoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and representations, to the prejudice of others who have relied on
them.29 The principle is codified in Article 1431 of the Civil Code, which provides:

68
Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court, viz:

Sec. 2. Conclusive presumptions. — The following are instances of conclusive presumptions:

(a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it.

The elements of estoppel are: first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way,
either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the
actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given
or that a reasonable person in the actor's position would expect or foresee such action. 30

In the early case of Kalalo v. Luz,31 the elements of estoppel, as related to the party to be estopped, are: (1) conduct amounting to false representation or concealment of material
facts; or at least calculated to convey the impression that the facts are other than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least
expectation that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts.

We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of the BIR, which at that time it considered as valid, petitioner did
not commit any false misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to the operation of
Section 145(C), and only later on filing the subject case praying for the declaration of its unconstitutionality when the circumstances change and the law results in what it perceives
to be unlawful discrimination. The mere fact that a law has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for considering
petitioner estopped from assailing its validity. For courts will pass upon a constitutional question only when presented before it in bona fide cases for determination, and the fact
that the question has not been raised before is not a valid reason for refusing to allow it to be raised later. 32

Now to the substantive issues.

To place this case in its proper context, we deem it necessary to first discuss how the assailed law operates in order to identify, with precision, the specific provisions which,
according to petitioner, have created a grossly discriminatory classification scheme between old and new brands. The pertinent portions of RA 8240, as amended by RA 9334, are
reproduced below for ready reference:

SEC. 145. Cigars and Cigarettes. –

(C) Cigarettes Packed by Machine. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

(1) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be:

Effective on January 1, 2005, Two pesos (P2.00) per pack;

Effective on January 1, 2007, Two pesos and twenty-three centavos (P2.23) per pack;

Effective on January 1, 2009, Two pesos and forty-seven centavos (P2.47) per pack; and

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 Effective on January 1, 2011, Two pesos and seventy-two centavos (P2.72) per pack.

(2) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax
shall be:

Effective on January 1, 2005, Six pesos and thirty-five centavos (P6.35) per pack;

Effective on January 1, 2007, Six pesos and seventy-four centavos (P6.74) per pack;

Effective on January 1, 2009, Seven pesos and fourteen centavos (P7.14) per pack; and

Effective on January 1, 2011, Seven pesos and fifty-six centavos (P7.56) per pack.

(3) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack,
the tax shall be:

Effective on January 1, 2005, Ten pesos and thirty-five centavos (10.35) per pack;

Effective on January 1, 2007, Ten pesos and eighty-eight centavos (P10.88) per pack;

Effective on January 1, 2009, Eleven pesos and forty-three centavos (P11.43) per pack; and

Effective on January 1, 2011, Twelve pesos (P12.00) per pack.

(4) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be:

Effective on January 1, 2005, Twenty-five pesos (P25.00) per pack;

Effective on January 1, 2007, Twenty-six pesos and six centavos (P26.06) per pack;

Effective on January 1, 2009, Twenty-seven pesos and sixteen centavos (P27.16) per pack; and

Effective on January 1, 2011, Twenty-eight pesos and thirty centavos (P28.30) per pack.

New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240.

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the
manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with
regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand

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 against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified.
After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price
as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however,
That brands of cigarettes introduced in the domestic market between January 1, 1997 [should be January 2, 1997] and December 31, 2003 shall remain in the classification
under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between
January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress.

Net retail price, as determined by the Bureau of Internal Revenue through a price survey to be conducted by the Bureau of Internal Revenue itself, or the National
Statistics Office when deputized for the purpose by the Bureau of Internal Revenue, shall mean the price at which the cigarette is sold in retail in at least twenty (20) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax.
For brands which are marketed only outside Metro Manila, the "net retail price" shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in
the region excluding the amount intended to cover the applicable excise tax and value-added tax.

The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex "D", including the classification of brands
for the same products which, although not set forth in said Annex "D", were registered and were being commercially produced and marketed on or after October 1, 1996,
and which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force until revised by Congress.

As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,33medium-priced,34 high-priced,35 and premium-priced36 tax brackets. When a brand is
introduced in the market, the current net retail price is determined through the aforequoted specified procedure. The current net retail price is then used to classify under which tax
bracket the brand belongs in order to finally determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after
a brand is classified based on its current net retail price, the classification is frozen and only Congress can thereafter reclassify the same. From a practical point of view, Annex "D"
is merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands under Annex "D" were also classified based on their current net retail price,
the only difference being that they were the first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on
January 1, 1997.37

Due to this legislative classification scheme, it is possible that over time the net retail price of a previously classified brand, whether it be a brand under Annex "D" or a new brand
classified after the effectivity of RA 8240 on January 1, 1997, would increase (due to inflation, increase of production costs, manufacturer’s decision to increase its prices, etc.) to
a point that its net retail price pierces the tax bracket to which it was previously classified.38 Consequently, even if its present day net retail price would make it fall under a higher
tax bracket, the previously classified brand would continue to be subject to the excise tax rate under the lower tax bracket by virtue of the legislative classification freeze.

Petitioner claims that this is what happened in 2004 to the Marlboro and Philip Morris brands, which were permanently classified under Annex "D." As of October 1, 1996,
Marlboro had net retail prices ranging from P6.78 to P6.84 while Philip Morris had net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA 8240, 39 Marlboro and Philip
Morris were classified under the high-priced tax bracket and subjected to an excise tax rate of P8.96 per pack. Petitioner then presented evidence showing that after the lapse of
about seven years or sometime in 2004, Marlboro’s and Philip Morris’ net retail prices per pack both increased to about P15.59.40 This meant that they would fall under the
premium-priced tax bracket, with a higher excise tax rate of P13.44 per pack, 41 had they been classified based on their 2004 net retail prices. However, due to the legislative
classification freeze, they continued to be classified under the high-priced tax bracket with a lower excise tax rate. Petitioner thereafter deplores the fact that its Lucky Strike Filter,
Lucky Strike Lights, and Lucky Strike Menthol Lights cigarettes, introduced in the market sometime in 2001 and validated by a BIR survey in 2003, were found to have net retail
prices of P11.53, P11.59 and P10.34, 42 respectively, which are lower than those of Marlboro and Philip Morris. However, since petitioner’s cigarettes were newly introduced
brands in the market, they were taxed based on their current net retail prices and, thus, fall under the premium-priced tax bracket with a higher excise tax rate of P13.44 per pack.
This unequal tax treatment between Marlboro and Philip Morris, on the one hand, and Lucky Strike, on the other, is the crux of petitioner’s contention that the legislative
classification freeze violates the equal protection and uniformity of taxation clauses of the Constitution.

It is apparent that, contrary to its assertions, petitioner is not only questioning the undue favoritism accorded to brands under Annex "D," but the entire mechanism and philosophy
of the law which freezes the tax classification of a cigarette brand based on its current net retail price. Stated differently, the alleged discrimination arising from the legislative
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classification freeze between the brands under Annex "D" and petitioner’s newly introduced brands arose only because the former were classified based on their "current" net retail
price as of October 1, 1996 and petitioner’s newly introduced brands were classified based on their "current" net retail price as of 2003. Without this corresponding freezing of the
classification of petitioner’s newly introduced brands based on their current net retail price, it would be impossible to establish that a disparate tax treatment occurred between the
Annex "D" brands and petitioner’s newly introduced brands.

This clarification is significant because, under these circumstances, a declaration of unconstitutionality would necessarily entail nullifying the whole mechanism of the law and not
just Annex "D." Consequently, if the assailed law is declared unconstitutional on equal protection grounds, the entire method by which a brand of cigarette is classified would have
to be invalidated. As a result, no method to classify brands under Annex "D" as well as new brands would be left behind and the whole Section 145 of the NIRC, as amended,
would become inoperative.43

To simplify the succeeding discussions, we shall refer to the whole mechanism and philosophy of the assailed law which freezes the tax classification of a cigarette brand based on
its current net retail price and which, thus, produced different classes of brands based on the time of their introduction in the market (starting with the brands in Annex "D" since
they were the first brands so classified as of October 1, 1996) as the classification freeze provision.44

As thus formulated, the central issue is whether or not the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.

In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice Fernando, explained the applicable standard in deciding equal protection and uniformity of taxation challenges:

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
police power or the power of eminent domain is to demonstrate "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
circumstances, which if not identical are analogous. If law be looks 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." 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's 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, addressed 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." 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, 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.'"

Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shall be uniform and equitable." This requirement is
met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every place where the
subject may be found." He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." 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, . . . 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." 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." 46 (Emphasis supplied)

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In consonance thereto, we have held that "in our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the ‘rational basis’ test, coupled
with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution." 47 Within
the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a fundamental right, the rational-basis test thus finds
application. Under this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest.48 The classifications
must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation.49 Since every law has in its favor the presumption
of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without rational
basis.50 The presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against
particular persons and classes, and that there is no conceivable basis which might support it. 51

A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws. The classification is considered valid and reasonable
provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it
applies equally to all those belonging to the same class.52

The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for reasons of practicality and expediency. That is, since a new brand
was not yet in existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price,
similar to what was used to classify the brands under Annex "D" as of October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced by RA
9334, the freezing of the tax classifications now expressly applies not just to Annex "D" brands but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997
and any new brand that will be introduced in the future. 53 (However, as will be discussed later, the intent to apply the freezing mechanism to newer brands was already in place
even prior to the amendments introduced by RA 9334 to RA 8240.) This does not explain, however, why the classification is "frozen" after its determination based on current net
retail price and how this is germane to the purpose of the assailed law. An examination of the legislative history of RA 8240 provides interesting answers to this question.

RA 8240 was the first of three parts in the Comprehensive Tax Reform Package then being pushed by the Ramos Administration. It was enacted with the following objectives
stated in the Sponsorship Speech of Senator Juan Ponce Enrile (Senator Enrile), viz:

First, to evolve a tax structure which will promote fair competition among the players in the industries concerned and generate buoyant and stable revenue for the
government.

Second, to ensure that the tax burden is equitably distributed not only amongst the industries affected but equally amongst the various levels of our society that are
involved in various markets that are going to be affected by the excise tax on distilled spirits, fermented liquor, cigars and cigarettes.

In the case of firms engaged in the industries producing the products that we are about to tax, this means relating the tax burden to their market share, not only in terms of
quantity, Mr. President, but in terms of value.

In case of consumers, this will mean evolving a multi-tiered rate structure so that low-priced products are subject to lower tax rates and higher-priced products are subject
to higher tax rates.

Third, to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax
avoidance scheme, if not outright tax evasion.54

In the initial stages of the crafting of the assailed law, the Department of Finance (DOF) recommended to Congress a shift from the then existing ad valorem taxation system to a
specific taxation system with respect to sin products, including cigarettes. The DOF noted that the ad valoremtaxation system was a source of massive tax leakages because the
taxpayer was able to evade paying the correct amount of taxes through the undervaluation of the price of cigarettes using various marketing arms and dummy corporations. In order
to address this problem, the DOF proposed a specific taxation system where the cigarettes would be taxed based on volume or on a per pack basis which was believed to be less

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susceptible to price manipulation. The reason was that the BIR would only need to monitor the sales volume of cigarettes, from which it could easily compute the corresponding
tax liability of cigarette manufacturers. Thus, the DOF suggested the use of a three-tiered system which operates in substantially the same manner as the four-tiered system under
RA 8240 as earlier discussed. The proposal of the DOF was embodied in House Bill (H.B.) No. 6060, the pertinent portions of which states—

SEC. 142. Cigars and cigarettes.—

(c) Cigarettes packed by machine.— There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

(1) If the manufacturer’s or importer’s wholesale price (net of excise tax and value-added tax) per pack exceeds four pesos and twenty centavos (P4.20), the tax shall be
seven pesos and fifty centavos (P7.50);

(2) If the manufacturer’s or importer’s wholesale price (net of excise tax and value-added tax) per pack exceeds three pesos and ninety centavos (P3.90) but does not
exceed four pesos and twenty centavos (P4.20), the tax shall be five pesos and fifty centavos (P5.50): provided, that after two (2) years from the effectivity of this Act,
cigarettes otherwise subject to tax under this subparagraph shall be taxed under subparagraph (1) above.

(3) If the manufacturer’s or importer’s wholesale price (net of excise tax and value-added tax) per pack does not exceeds three pesos and ninety centavos (P3.90), the tax
rate shall be one peso (P1.00).

Variants of existing brands and new brands of cigarettes packed by machine to be introduced in the domestic market after the effectivity of this Act, shall be taxed under
paragraph (c)(1) hereof.

The rates of specific tax on cigars and cigarettes under paragraphs (a), (b), and (c) hereof, including the price levels for purposes of classifying cigarettes packed
by machine, shall be revised upward two (2) years after the effectivity of this Act and every two years thereafter by the Commissioner of Internal Revenue,
subject to the approval of the Secretary of Finance, taking into account the movement of the consumer price index for cigars and cigarettes as established by the
National Statistics Office: provided, that the increase in taxes and/or price levels shall be equal to the present change in such consumer price index for the two-
year period: provided, further, that the President, upon the recommendation of the Secretary of Finance, may suspend or defer the adjustment in price levels and
tax rates when the interest of the national economy and general welfare so require, such as the need to obviate unemployment, and economic and social
dislocation: provided, finally, that the revised price levels and tax rates authorized herein shall in all cases be rounded off to the nearest centavo and shall be in
force and effect on the date of publication thereof in a newspaper of general circulation. x x x (Emphasis supplied)

What is of particular interest with respect to the proposal of the DOF is that it contained a provision for the periodic adjustment of the excise tax rates and tax brackets, and a
corresponding periodic resurvey and reclassification of cigarette brands based on the increase in the consumer price index as determined by the Commissioner of Internal Revenue
subject to certain guidelines. The evident intent was to prevent inflation from eroding the value of the excise taxes that would be collected from cigarettes over time by adjusting
the tax rate and tax brackets based on the increase in the consumer price index. Further, under this proposal, old brands as well as new brands introduced thereafter would be
subjected to a resurvey and reclassification based on their respective values at the end of every two years in order to align them with the adjustment of the excise tax rate and tax
brackets due to the movement in the consumer price index. 55

Of course, we now know that the DOF proposal, insofar as the periodic adjustment of tax rates and tax brackets, and the periodic resurvey and reclassification of cigarette brands
are concerned, did not gain approval from Congress. The House and Senate pushed through with their own versions of the excise tax system on beers and cigarettes both
denominated as H.B. No. 7198. For convenience, we shall refer to the bill deliberated upon by the House as the House Version and that of the Senate as the Senate Version.

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The House’s Committee on Ways and Means, then chaired by Congressman Exequiel B. Javier (Congressman Javier), roundly rejected the DOF proposal. Instead, in its
Committee Report submitted to the plenary, it proposed a different excise tax system which used a specific tax as a basic tax with an ad valorem comparator. Further, it deleted the
proposal to have a periodic adjustment of tax rates and the tax brackets as well as periodic resurvey and reclassification of cigarette brands, to wit:

The rigidity of the specific tax system calls for the need for frequent congressional intervention to adjust the tax rates to inflation and to keep pace with the expanding
needs of government for more revenues. The DOF admits this flaw inherent in the tax system it proposed. Hence, to obviate the need for remedial legislation, the DOF is
asking Congress to grant to the Commissioner the power to revise, one, the specific tax rates: and two, the price levels of beer and cigarettes. What the DOF is asking, Mr.
Speaker, is for Congress to delegate to the Commissioner of Internal Revenue the power to fix the tax rates and classify the subjects of taxation based on their price levels
for purposes of fixing the tax rates. While we sympathize with the predicament of the DOF, it is not for Congress to abdicate such power. The power sought to be
delegated to be exercised by the Commissioner of Internal Revenue is a legislative power vested by the Constitution in Congress pursuant to Section 1, Article VI of the
Constitution. Where the power is vested, there it must remain— in Congress, a body of representatives elected by the people. Congress may not delegate such power,
much less abdicate it.

Moreover, the grant of such power, if at all constitutionally permissible, to the Commissioner of Internal Revenue is fraught with ethical implications. The debates on how
much revenue will be raised, how much money will be taken from the pockets of taxpayers, will inexorably shift from the democratic Halls of Congress to the secret and
non-transparent corridors of unelected agencies of government, the Department of Finance and the Bureau of Internal Revenue, which are not accountable to our people.
We cannot countenance the shift for ethical reasons, lest we be accused of betraying the trust reposed on this Chamber by the people. x x x

A final point on this proposal, Mr. Speaker, is the exercise of the taxing power of the Commissioner of Internal Revenue which will be triggered by inflation rates based
on the consumer price index. Simply stated, Mr. Speaker, the specific tax rates will be fixed by the Commissioner depending on the price levels of beers and cigarettes as
determined by the consumers’ price index. This is a novel idea, if not necessarily weird in the field of taxation. What if the brewer or the cigarette manufacturer sells at a
price below the consumers’ price index? Will it be taxed on the basis of the consumer’s price index which is over and above its wholesale or retail price as the case may
be? This is a weird form of exaction where the tax is based not on what the brewer or manufacturer actually realized but on an imaginary wholesale or retail price. This
amounts to a taxation based on presumptive price levels and renders the specific tax a presumptive tax. We hope, the DOF and the BIR will also honor a presumptive tax
payment.

Moreover, specific tax rates based on price levels tied to consumer’s price index as proposed by the DOF engenders anti-trust concerns. The proposal if enacted into law
will serve as a barrier to the entry of new players in the beer and cigarette industries which are presently dominated by shared monopolies. A new player in these
industries will be denied business flexibility to fix its price levels to promote its product and penetrate the market as the price levels are dictated by the consumer price
index. The proposed tax regime, Mr. Speaker, will merely enhance the stranglehold of the oligopolies in the beer and cigarette industries, thus, reversing the government’s
policy of dismantling monopolies and combinations in restraint of trade.56

For its part, the Senate’s Committee on Ways and Means, then chaired by Senator Juan Ponce Enrile (Senator Enrile), developed its own version of the excise tax system on
cigarettes. The Senate Version consisted of a four-tiered system and, interestingly enough, contained a periodic excise tax rate and tax bracket adjustment as well as a periodic
resurvey and reclassification of brands provision ("periodic adjustment and reclassification provision," for brevity) to be conducted by the DOF in coordination with the BIR and
the National Statistics Office based on the increase in the consumer price index— similar to the one proposed by the DOF, viz:

SEC. 4 Section 142 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

"SEC. 142. Cigars and cigarettes. –

(c) Cigarettes packed by machine. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

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 (1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) per pack, the tax shall be Eight pesos (P8.00) per
pack;
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) up to Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five
pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack.
Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity of this Act shall be taxed under the highest classification of any
variant of that brand.

The rates of specific tax on cigars and cigarettes under subparagraph (a), (b) and (c) hereof, including the net retail prices for purposes of classification, shall be
adjusted on the sixth of January three years after the effectivity of this Act and every three years thereafter. The adjustment shall be in accordance with the
inflation rate measured by the average increase in the consumer price index over the three-year period. The adjusted tax rates and net price levels shall be in
force on the eighth of January.

Within the period hereinabove mentioned, the Secretary of Finance shall direct the conduct of a survey of retail prices of each brand of cigarettes in
coordination with the Bureau of Internal Revenue and the National Statistics Office.

For purposes of this Section, net retail price shall mean the price at which the cigarette is sold on retail in 20 major supermarkets in Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro
Manila, the net retail price shall mean the price at which the cigarette is sold in five major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and the value-added tax.

The classification of each brand of cigarettes in the initial year of implementation of this Act shall be based on its average net retail price as of October 1, 1996.
The said classification by brand shall remain in force until January 7, 2000.

New brands shall be classified according to their current net retail price.57 (Emphasis supplied)

During the period of interpellations, the late Senator Raul S. Roco (Senator Roco) expressed doubts as to the legality and wisdom of putting a periodic adjustment and
reclassification provision:

Senator Enrile: This will be the first time that a tax burden will be allowed to be automatically adjusted upwards based on a system of indexing tied up with the
Consumers Price Index (CPI). Although I must add that we have adopted a similar system in adjusting the personal tax exemption from income tax of our individual
taxpayers.

Senator Roco: They are not exactly the same, Mr. President. But even then, we do note that this the first time we are trying to put an automatic adjustment. My concern is,
why do we propose now this automatic adjustment? What is the reason that impels the committee? Maybe we can be enlightened and maybe we shall embrace it
forthwith. But what is the reason?

Senator Enrile: Mr. President, we will recall that in the House of Representatives, it has adopted a tax proposal on these products based on a specific tax as a basic tax
with an ad valoremcomparator. The Committee on Ways and Means of the Senate has not seen it fit to adopt this system, but it recognized the possibility that there may
be an occasion where the price movement in the country might unwarrantedly move upwards, in which case, if we peg the government to a specific tax rate of P6.30,
P9.30 and P12.30 for beer, since we are talking of beer, 58 the government might lose in the process.

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In order to consider the interest of the government in this, Mr. President, and in order to obviate the possibility that some of these products categorized under the different
tiers with different specific tax rates from moving upwards and piercing their own tiers and thereby expose themselves to an incremental tax of higher magnitude, it was
felt that we should adopt a system where, in spite of any escalation in the price of these products in the future, the tax rates could be adjusted upwards so that none of these
products would leave their own tier. That was the basic principle under which we crafted this portion of the tax proposal.

Senator Roco: Mr. President, we certainly share the judgment of the distinguished gentleman as regards the comparator provision in the House of Representatives and we
appreciate the reasons given. But we are under the impression that the House also, aside from the comparator, has an adjustment clause that is fixed. It has fixed rates for
the adjustment. So that one of the basic differences between the Senate proposed version now and the House version is that, the House of Representatives has manifested
its will and judgment as regards the tax to which we will adjust, whereas the Senate version relegates fundamentally that judgment to the Department of Finance.

Senator Enrile: That is correct, Mr. President, because we felt that in imposing a fixed adjustment, we might be fixing an amount that is either too high or too low. We
cannot foresee the economic trends in this country over a period of two years, three years, let alone ten years. So we felt that a mechanism ought to be adopted in order to
serve the interest of the government, the interest of the producers, and the interest of the consuming public.

Senator Roco: This is where, Mr. President, my policy difficulties start. Under the Constitution— I think it is Article VI, Section 24, and it was the distinguished chairman
of the Committee on Ways and Means who made this Chamber very conscious of this provision— revenue measures and tariff measures shall originate exclusively from
the House of Representatives.

The reason for this, Mr. President, is, there is a long history why the House of Representatives must originate judgments on tax. The House members represent specific
districts. They represent specific constituencies, and the whole history of parliamentarism, the whole history of Congress as an institution is founded on the proposition
that the direct representatives of the people must speak about taxes.

Mr. President, while the Senate can concur and can introduce amendments, the proposed change here is radical. This is the policy difficulty that I wish to clarify with the
gentleman because the judgment call now on the amount of tax to be imposed is not coming from Congress. It is shifted to the Department of Finance. True, the Secretary
of Finance may have been the best finance officer two years ago and now the best finance officer in Asia, but that does not make him qualified to replace the judgment
call of the House of Representatives. That is my first difficulty.

Senator Enrile: Mr. President, precisely the law, in effect, authorizes this rate beforehand. The computation of the rate is the only thing that was left to the Department of
Finance as a tax implementor of Congress. This is not unusual because we have already, as I said, adopted a system similar to this. If we adjust the personal exemption of
an individual taxpayer, we are in effect adjusting the applicable tax rate to him.

Senator Roco: But the point I was trying to demonstrate, Mr. President, is that we depart precisely from the mandate of the Constitution that judgment on revenue must
emanate from Congress. Here, it is shifted to the Department of Finance for no visible or patent reason insofar as I could understand. The only difference is, who will
make the judgment? Should it be Congress?

Senator Enrile: Mr. President, forgive me for answering sooner than I should. My understanding of the Constitution is that all revenue measures must emanate from the
House. That is all the Constitution says.

Now, it does not say that the judgment call must belong to the House. The judgment call can belong both to the House and to the Senate. We can change whatever
proposal the House did. Precisely, we are now crafting a measure, and we are saying that this is the rate subject to an adjustment which we also provide. We are not giving
any unusual power to the Secretary of Finance because we tell him, "This is the formula that you must adopt in arriving at the adjustment so that you do not have to come
back to us."59

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Apart from his doubts as to the legality of the delegation of taxing power to the DOF and BIR, Senator Roco also voiced out his concern about the possible abuse and corruption
that will arise from the periodic adjustment and reclassification provision. Continuing—

Senator Roco: Mr. President, if that is the argument, that the distinguished gentleman has a different legal interpretation, we will then now examine the choice. Because
his legal interpretation is different from mine, then the issues becomes: Is it more advantageous that this judgment be exercised by the House? Should we not concur
or modify in terms of the exercise by the House of its power or are we better off giving this judgment call to the Department of Finance?

Let me now submit, Mr. President, that in so doing, it is more advantageous to fix the rate so that even if we modify the rates identified by Congress, it is better
and less susceptible to abuse.

For instance, Mr. President, would the gentlemen wish to demonstrate to us how this will be done? On page 8, lines 5 to 9, there is a provision here as to when the
Secretary of Finance shall direct the conduct of survey of retail prices of each brand of fermented liquor in coordination with the Bureau of Internal Revenue and the
National Statistics Office.

These offices are not exactly noted, Mr. President, for having been sanctified by the Holy Spirit in their noble intentions. x x x60 (Emphasis supplied)

Pressing this point, Senator Roco continued his query:

Senator Roco: x x x [On page 8, lines 5 to 9] it says that during the two-year period, the Secretary of Finance shall direct the conduct of the survey. How? When? Which
retail prices and what brand shall he consider? When he coordinates with the Bureau of Internal Revenue, what is the Bureau of Internal Revenue supposed to be doing?
What is the National Statistics Office supposed to be doing, and under what guides and standards?

May the gentleman wish to demonstrate how this will be done? My point, Mr. President, is, by giving the Secretary of Finance, the BIR and the National Statistics
Office discretion over a two-year period will invite corruption and arbitrariness, which is more dangerous than letting the House of Representatives and this
Chamber set the adjustment rate. Why not set the adjustment rate? Why should Congress not exercise that judgment now? x x x

Senator Enrile: x x x

Senator Roco: x x x We respectfully submit that the Chairman consider choosing the judgment of this Chamber and the House of Representatives over a delegated
judgment of the Department of Finance.

Again, it is not to say that I do not trust the Department of Finance. It has won awards, and I also trust the undersecretary. But that is beside the point. Tomorrow, they
may not be there.61(Emphasis supplied)

This point was further dissected by the two senators. There was a genuine difference of opinion as to which system— one with a fixed excise tax rate and classification or the other
with a periodic adjustment of excise tax rate and reclassification— was less susceptible to abuse, as the following exchanges show:

Senator Enrile: Mr. President, considering the sensitivity of these products from the viewpoint of exerted pressures because of the understandable impact of this measure
on the pockets of the major players producing these products, the committee felt that perhaps to lessen such pressures, it is best that we now establish a norm where the
tax will be adjusted without incurring too much political controversy as has happened in the case of this proposal.

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 Senator Roco: But that is exactly the same reason we say we must rely upon Congress because Congress, if it is subjected to pressure, at least balances off because of
political factors.

When the Secretary of Finance is now subjected to pressure, are we saying that the Secretary of Finance and the Department of Finance is better-suited to withstand the
pressure? Or are we saying "Let the Finance Secretary decide whom to yield"?

I am saying that the temptation and the pressure on the Secretary of Finance is more dangerous and more corruption-friendly than ascertaining for ourselves now a fixed
rate of increase for a fixed period.

Senator Enrile: Mr. President, perhaps the gentleman may not agree with this representation, but in my humble opinion, this formulation is less susceptible to pressure
because there is a definite point of reference which is the consumer price index, and that consumer price index is not going to be used only for this purpose. The CPI is
used for a national purpose, and there is less possibility of tinkering with it.62

Further, Senator Roco, like Congressman Javier, expressed the view that the periodic adjustment and reclassification provision would create an anti-competitive atmosphere.
Again, Senators Roco and Enrile had genuine divergence of opinions on this matter, to wit:

Senator Roco: x x x On the marketing level, an adjustment clause may, in fact, be disadvantageous to both companies, whether it is the Lucio Tan companies or the San
Miguel companies. If we have to adjust our marketing position every two years based on the adjustment clause, the established company may survive, but the new ones
will have tremendous difficulty. Therefore, this provision tends to indicate an anticompetitive bias.

It is good for San Miguel and the Lucio Tan companies, but the new companies— assuming there may be new companies and we want to encourage them because of the
old point of liberalization— will be at a disadvantage under this situation. If this observation will find receptivity in the policy consideration of the distinguished
Gentleman, maybe we can also further, later on, seek amendments to this automatic adjustment clause in some manner.

Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness of this provision with respect to a new entrant, because a new entrant will not just come in
without studying the market. He is a lousy businessman if he will just come in without studying the market. If he comes in, he will determine at what retail price level he
will market his product, and he will be coming under any of the tiers depending upon his net retail price. Therefore, I do not see how this particular provision will affect a
new entrant.

Senator Roco: Be that as it may, Mr. President, we obviously will not resort to debate until this evening, and we will have to look for other ways of resolving the policy
options.

Let me just close that particular area of my interpellation, by summarizing the points we were hoping could be clarified.

1. That the automatic adjustment clause is at best questionable in law.

2. It is corruption-friendly in the sense that it shifts the discretion from the House of Representatives and this Chamber to the Secretary of Finance, no matter how
saintly he may be.
3. There is,— although the judgment call of the gentleman disagrees— to our view, an anticompetitive situation that is geared at… 63

After these lengthy exchanges, it appears that the views of Senator Enrile were sustained by the Senate Body because the Senate Version was passed on Third Reading without
substantially altering the periodic adjustment and reclassification provision.

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It was actually at the Bicameral Conference Committee level where the Senate Version underwent major changes. The Senate Panel prevailed upon the House Panel to abandon the
basic excise tax rate and ad valorem comparator as the means to determine the applicable excise tax rate. Thus, the Senate’s four-tiered system was retained with minor
adjustments as to the excise tax rate per tier. However, the House Panel prevailed upon the Senate Panel to delete the power of the DOF and BIR to periodically adjust the excise
tax rate and tax brackets, and periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index.

In lieu thereof, the classification of existing brands based on their average net retail price as of October 1, 1996 was "frozen" and a fixed across-the-board 12% increase in the
excise tax rate of each tier after three years from the effectivity of the Act was put in place. There is a dearth of discussion in the deliberations as to the applicability of the freezing
mechanism to new brands after their classification is determined based on their current net retail price. But a plain reading of the text of RA 8240, even before its amendment by
RA 9334, as well as the previously discussed deliberations would readily lead to the conclusion that the intent of Congress was to likewise apply the freezing mechanism to new
brands. Precisely, Congress rejected the proposal to allow the DOF and BIR to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and
reclassify cigarettes brands which would have encompassed old and new brands alike. Thus, it would be absurd for us to conclude that Congress intended to allow the periodic
reclassification of new brands by the BIR after their classification is determined based on their current net retail price. We shall return to this point when we tackle the second
issue.

In explaining the changes made at the Bicameral Conference Committee level, Senator Enrile, in his report to the Senate plenary, noted that the fixing of the excise tax rates was
done to avoid confusion.64 Congressman Javier, for his part, reported to the House plenary the reasons for fixing the excise tax rate and freezing the classification, thus:

Finally, this twin feature, Mr. Speaker, fixed specific tax rates and frozen classification, rejects the Senate version which seeks to abdicate the power of Congress to tax by
pegging the rates as well as the classification of sin products to consumer price index which practically vests in the Secretary of Finance the power to fix the rates
and to classify the products for tax purposes.65 (Emphasis supplied)

Congressman Javier later added that the frozen classification was intended to give stability to the industry as the BIR would be prevented from tinkering with the classification
since it would remain unchanged despite the increase in the net retail prices of the previously classified brands. 66 This would also assure the industry players that there would be no
new impositions as long as the law is unchanged.67

From the foregoing, it is quite evident that the classification freeze provision could hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor
older brands over newer brands. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to
periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such
delegation of power, and likewise, considered the ethical implications thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and
reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism is being foisted by
petitioner upon the classification freeze provision.

To our mind, the classification freeze provision was in the main the result of Congress’s earnest efforts to improve the efficiency and effectivity of the tax administration over sin
products while trying to balance the same with other state interests. In particular, the questioned provision addressed Congress’s administrative concerns regarding delegating too
much authority to the DOF and BIR as this will open the tax system to potential areas for abuse and corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address the problems of tax avoidance and tax evasion.

To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate Version, the periodic reclassification of brands would tempt the
cigarette manufacturers to manipulate their price levels or bribe the tax implementers in order to allow their brands to be classified at a lower tax bracket even if their net retail
prices have already migrated to a higher tax bracket after the adjustment of the tax brackets to the increase in the consumer price index. Presumably, this could be done when a
resurvey and reclassification is forthcoming. As briefly touched upon in the Congressional deliberations, the difference of the excise tax rate between the medium-priced and the
high-priced tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which sells around 100 million packs per year, this easily translates to
P336,000,000.68 The incentive for tax avoidance, if not outright tax evasion, would clearly be present. Then again, the tax implementers may use the power to periodically adjust
the tax rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the government to achieve its revenue targets for a given year.
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Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these potential areas of abuse and corruption from both the side of the taxpayer
and the government. Without doubt, the classification freeze provision was an integral part of this overall plan. This is in line with one of the avowed objectives of the assailed law
"to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if
not outright tax evasion."69 RA 9334 did not alter this classification freeze provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the
wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax administration, which moved Congress
to enact the classification freeze provision in RA 8240, were merely continued by RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for legislative
classification.70 In the case at bar, these administrative concerns in the measurement and collection of excise taxes on sin products are readily apparent as afore-discussed.

Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax administration of sin products, the legislative deliberations also
show that the classification freeze provision was intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the revenue inflow would
remain stable and the government would be able to predict with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales
volume over time. The reason for this is that the previously classified cigarette brands would be prevented from moving either upward or downward their tax brackets despite the
changes in their net retail prices in the future and, as a result, the amount of taxes due from them would remain predictable. The classification freeze provision would, thus, aid in
the revenue planning of the government.71

All in all, the classification freeze provision addressed Congress’s administrative concerns in the simplification of tax administration of sin products, elimination of potential areas
for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal protection
of the laws since the rational-basis test is amply satisfied.

Going now to the contention of petitioner that the classification freeze provision unduly favors older brands over newer brands, we must first contextualize the basis of this claim.
As previously discussed, the evidence presented by the petitioner merely showed that in 2004, Marlboro and Philip Morris, on the one hand, and Lucky Strike, on the other, would
have been taxed at the same rate had the classification freeze provision been not in place. But due to the operation of the classification freeze provision, Lucky Strike was taxed
higher. From here, petitioner generalizes that this differential tax treatment arising from the classification freeze provision adversely impacts the fairness of the playing field in the
industry, particularly, between older and newer brands. Thus, it is virtually impossible for new brands to enter the market.

Petitioner did not, however, clearly demonstrate the exact extent of such impact. It has not been shown that the net retail prices of other older brands previously classified under
this classification system have already pierced their tax brackets, and, if so, how this has affected the overall competition in the market. Further, it does not necessarily follow that
newer brands cannot compete against older brands because price is not the only factor in the market as there are other factors like consumer preference, brand loyalty, etc. In other
words, even if the newer brands are priced higher due to the differential tax treatment, it does not mean that they cannot compete in the market especially since cigarettes contain
addictive ingredients so that a consumer may be willing to pay a higher price for a particular brand solely due to its unique formulation. It may also be noted that in 2003, the BIR
surveyed 29 new brands72 that were introduced in the market after the effectivity of RA 8240 on January 1, 1997, thus negating the sweeping generalization of petitioner that
the classification freeze provision has become an insurmountable barrier to the entry of new brands. Verily, where there is a claim of breach of the due process and equal protection
clauses, considering that they are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.73

Be that as it may, petitioner’s evidence does suggest that, at least in 2004, Philip Morris and Marlboro, older brands, would have been taxed at the same rate as Lucky Strike, a
newer brand, due to certain conditions (i.e., the increase of the older brands’ net retail prices beyond the tax bracket to which they were previously classified after the lapse of some
time) were it not for the classification freeze provision. It may be conceded that this has adversely affected, to a certain extent, the ability of petitioner to competitively price its
newer brands vis-à-vis the subject older brands. Thus, to a limited extent, the assailed law seems to derogate one of its avowed objectives, i.e. promoting fair competition among
the players in the industry. Yet, will this occurrence, by itself, render the assailed law unconstitutional on equal protection grounds?

We answer in the negative.

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Whether Congress acted improvidently in derogating, to a limited extent, the state’s interest in promoting fair competition among the players in the industry, while pursuing other
state interests regarding the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue
generation, and ease of projection of revenues through the classification freeze provision, and whether the questioned provision is the best means to achieve these state interests,
necessarily go into the wisdom of the assailed law which we cannot inquire into, much less overrule. The classification freeze provision has not been shown to be precipitated by a
veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands over newer brands. On the contrary, we must reasonably assume, owing to the respect due a
co-equal branch of government and as revealed by the Congressional deliberations, that the enactment of the questioned provision was impelled by an earnest desire to improve the
efficiency and effectivity of the tax administration of sin products. For as long as the legislative classification is rationally related to furthering some legitimate state interest, as
here, the rational-basis test is satisfied and the constitutional challenge is perfunctorily defeated.

We do not sit in judgment as a supra-legislature to decide, after a law is passed by Congress, which state interest is superior over another, or which method is better suited to
achieve one, some or all of the state’s interests, or what these interests should be in the first place. This policy-determining power, by constitutional fiat, belongs to Congress as it
is its function to determine and balance these interests or choose which ones to pursue. Time and again we have ruled that the judiciary does not settle policy issues. The Court can
only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of
the people themselves as the repository of all state power. 74 Thus, the legislative classification under the classification freeze provision, after having been shown to be rationally
related to achieve certain legitimate state interests and done in good faith, must, perforce, end our inquiry.

Concededly, the finding that the assailed law seems to derogate, to a limited extent, one of its avowed objectives (i.e. promoting fair competition among the players in the industry)
would suggest that, by Congress’s own standards, the current excise tax system on sin products is imperfect. But, certainly, we cannot declare a statute unconstitutional merely
because it can be improved or that it does not tend to achieve all of its stated objectives. 75 This is especially true for tax legislation which simultaneously addresses and impacts
multiple state interests.76 Absent a clear showing of breach of constitutional limitations, Congress, owing to its vast experience and expertise in the field of taxation, must be given
sufficient leeway to formulate and experiment with different tax systems to address the complex issues and problems related to tax administration. Whatever imperfections that
may occur, the same should be addressed to the democratic process to refine and evolve a taxation system which ideally will achieve most, if not all, of the state’s objectives.

In fine, petitioner may have valid reasons to disagree with the policy decision of Congress and the method by which the latter sought to achieve the same. But its remedy is with
Congress and not this Court. As succinctly articulated in Vance v. Bradley:77

The Constitution presumes that, absent some reason to infer antipathy, even improvident decisions will eventually be rectified by the democratic process, and that judicial
intervention is generally unwarranted no matter how unwisely we may think a political branch has acted. Thus, we will not overturn such a statute unless the varying
treatment of different groups or persons is so unrelated to the achievement of any combination of legitimate purposes that we can only conclude that the legislature's
actions were irrational.78

We now tackle the second issue.

Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-2003, Revenue Regulations No. 22-2003 and Revenue Memorandum Order No.
6-2003, are invalid insofar as they empower the BIR to reclassify or update the classification of new brands of cigarettes based on their current net retail prices every two years or
earlier. It claims that RA 8240, even prior to its amendment by RA 9334, did not authorize the BIR to conduct said periodic resurvey and reclassification.

The questioned provisions are found in the following sections of the assailed issuances:

(1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, viz:

For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through
the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding

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 any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an
appropriate Revenue Regulations.

(2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed
by machine, viz:

II. POLICIES AND GUIDELINES

1. The conduct of survey covered by this Order, for purposes of determining the current retail prices of new brands of cigarettes and alcohol products introduced in the
market on or after January 1, 1997, shall be undertaken in the following instances:
b. For reclassification of new brands of said excisable products that were introduced in the market after January 1, 1997.

4. The determination of the current retail prices of new brands of the aforesaid excisable products shall be initiated as follows:
b. After the lapse of the prescribed two-year period or as the Commissioner may otherwise direct, the appropriate tax reclassification of these brands based on the current
net retail prices thereof shall be determined by a survey to be conducted upon a written directive by the Commissioner.

For this purpose, a memorandum order to the Assistant Commissioner, Large Taxpayers Service, Heads, Excise Tax Areas, and Regional Directors of all Revenue
Regions, except Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the Commissioner for the submission of the list of major supermarkets/retail outlets where the
above excisable products are being sold, as well as the list of selected revenue officers who shall be designated to conduct the said activity(ies).

6. The results of the survey conducted in Revenue Region Nos. 4 to 9 shall be submitted directly to the Chief, LT Assistance Division II (LTAD II), National Office for
consolidation. On the other hand, the results of the survey conducted in Revenue Regions other than Revenue Region Nos. 4 to 9, shall be submitted to the Office of the
Regional Director for regional consolidation. The consolidated regional survey, together with the accomplished survey forms shall be transmitted to the Chief, LTAD II
for national consolidation within three (3) days from date of actual receipt from the survey teams. The LTAD II shall be responsible for the evaluation and analysis of the
submitted survey forms and the preparation of the recommendation for the updating/revision of the tax classification of each brand of cigarettes and alcohol products. The
said recommendation, duly validated by the ACIR, LTS, shall be submitted to the Commissioner for final review within ten (10) days from the date of actual receipt of
complete reports from all the surveying Offices.

7. Upon final review by the Commissioner of the revised tax classification of the different new brands of cigarettes and alcohol products, the appropriate revenue
regulations shall be prepared and submitted for approval by the Secretary of Finance.

III. PROCEDURES

Large Taxpayers Assistance Division II

1. Perform the following preparatory procedures on the identification of brands to be surveyed, supermarkets/retail outlets where the survey shall be conducted, and the
personnel selected to conduct the survey.

b. On the tax reclassification of new brands

i. Submit a master list of registered brands covered by the survey pursuant to the provisions of Item II.2 of this Order containing the complete description of each brand,
existing net retail price and the corresponding tax rate thereof.

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 ii. Submit to the ACIR, LTS, a list of major supermarkets/retail outlets within the territorial jurisdiction of the concerned revenue regions where the survey will be
conducted to be used as basis in the issuance of Mission Orders. Ensure that the minimum number of establishments to be surveyed, as prescribed under existing revenue
laws and regulations, is complied with. In addition, the names and designations of revenue officers selected to conduct the survey shall be clearly indicated opposite the
names of the establishments to be surveyed.

There is merit to the contention.

In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue Regulations No. 1-97, dated December 13, 1996, which mandates a one-time
classification only.79Upon their launch, new brands shall be initially taxed based on their suggested net retail price. Thereafter, a survey shall be conducted within three (3) months
to determine their current net retail prices and, thus, fix their official tax classifications. However, the BIR made a turnaround by issuing Revenue Regulations No. 9-2003, dated
February 17, 2003, which partly amended Revenue Regulations No. 1-97, by authorizing the BIR to periodically reclassify new brands (i.e., every two years or earlier) based on
their current net retail prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-2003, dated March 11, 2003, prescribing the guidelines on the implementation of
Revenue Regulations No. 9-2003. This was patent error on the part of the BIR for being contrary to the plain text and legislative intent of RA 8240.

It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003
unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands
every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless
expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former.

More importantly, as previously discussed, the clear legislative intent was for new brands to benefit from the same freezing mechanism accorded to Annex "D" brands. To
reiterate, in enacting RA 8240, Congress categorically rejected the DOF proposal and Senate Version which would have empowered the DOF and BIR to periodically adjust the
excise tax rate and tax brackets, and to periodically resurvey and reclassify cigarette brands. (This resurvey and reclassification would have naturally encompassed both old and
new brands.) It would thus, be absurd for us to conclude that Congress intended to allow the periodic reclassification of new brands by the BIR after their classification is
determined based on their current net retail price while limiting the freezing of the classification to Annex "D" brands. Incidentally, Senator Ralph G. Recto expressed the
following views during the deliberations on RA 9334, which later amended RA 8240:

Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under R.A. 8240], when Congress did not index the brackets, and Congress did
not index the rates but only provided for a one rate increase in the year 2000, we shifted from ad valoremwhich was based on value to a system of specific which is based
on volume. Congress then, in effect, determined the classification based on the prices at that particular period of time and classified these products accordingly.

Of course, Congress then decided on what will happen to the new brands or variants of existing brands. To favor government, a variant would be classified as the highest
rate of tax for that particular brand. In case of a new brand, Mr. President, then the BIR should classify them. But I do not think it was the intention of Congress then to
give the BIR the authority to reclassify them every so often. I do not think it was the intention of Congress to allow the BIR to classify a new brand every two years, for
example, because it will be arbitrary for the BIR to do so. x x x 80(Emphasis supplied)

For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is concerned, must be seen merely as underscoring the legislative intent
already in place then, i.e. new brands as being covered by the freezing mechanism after their classification based on their current net retail prices.

Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will be recalled that petitioner introduced Lucky Strike in June 2001.
However, as admitted by petitioner itself, the BIR did not conduct the required market survey within three months from product launch. As a result, Lucky Strike was never
classified based on its actual current net retail price. Petitioner failed to timely seek redress to compel the BIR to conduct the requisite market survey in order to fix the tax
classification of Lucky Strike. In the meantime, Lucky Strike was taxed based on its suggested net retail price of P9.90 per pack, which is within the high-priced tax bracket. It was
only after the lapse of two years or in 2003 that the BIR conducted a market survey which was the first time that Lucky Strike’s actual current net retail price was surveyed and

84
found to be from P10.34 to P11.53 per pack, which is within the premium-priced tax bracket. The case of petitioner falls under a situation where there was no reclassification based
on its current net retail price which would have been invalid as previously explained. Thus, we cannot grant petitioner’s prayer for a downward reclassification of Lucky Strike
because it was never reclassified by the BIR based on its actual current net retail price.

It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003 which implemented the revised tax classifications of new brands based on
their current net retail prices through the market survey conducted pursuant to Revenue Regulations No. 9-2003. Annex "A" of Revenue Regulations No. 22-2003 lists the result of
the market survey and the corresponding recommended tax classification of the new brands therein aside from Lucky Strike. However, whether these other brands were illegally
reclassified based on their actual current net retail prices by the BIR must be determined on a case-to-case basis because it is possible that these brands were classified based on
their actual current net retail price for the first time in the year 2003 just like Lucky Strike. Thus, we shall not make any pronouncement as to the validity of the tax classifications
of the other brands listed therein.

Finally, it must be noted that RA 9334 introduced changes in the manner by which the current net retail price of a new brand is determined and how its classification is
permanently fixed, to wit:

New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.

New brands shall mean a brand registered after the date of effectivity of R.A. No. 8240 [on January 1, 1997].

Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the
manufacture or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with
regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new
brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above,
shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail
price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of
cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and
brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. (Emphasis supplied)

Thus, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed modified by the above provisions from the date of effectivity of RA 9334
on January 1, 2005.

In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III
(Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine, are invalid insofar as they grant the BIR
the power to reclassify or update the classification of new brands every two years or earlier. Further, these provisions are deemed modified upon the effectivity of RA 9334 on
January 1, 2005 insofar as the manner of determining the permanent classification of new brands is concerned.

We now tackle the last issue.

Petitioner contends that RA 8240, as amended by RA 9334, and its implementing rules and regulations violate the General Agreement on Tariffs and Trade (GATT) of 1947, as
amended, specifically, Paragraph 2, Article III, Part II:

85
 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal
taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise
apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.

It claims that it is the duty of this Court to correct, in favor of the GATT, whatever inconsistency exists between the assailed law and the GATT in order to prevent triggering the
international dispute settlement mechanism under the GATT-WTO Agreement.

We disagree.

The classification freeze provision uniformly applies to all newly introduced brands in the market, whether imported or locally manufactured. It does not purport to single out
imported cigarettes in order to unduly favor locally produced ones. Further, petitioner’s evidence was anchored on the alleged unequal tax treatment between old and new brands
which involves a different frame of reference vis-à-vis local and imported products. Petitioner has, therefore, failed to clearly prove its case, both factually and legally, within the
parameters of the GATT.

At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze provision violates the GATT, the outcome would still be the same. The GATT
is a treaty duly ratified by the Philippine Senate and under Article VII, Section 21 81 of the Constitution, it merely acquired the status of a statute. 82 Applying the basic principles of
statutory construction in case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a later enactment by Congress
or as a special law dealing with the taxation of sin products. Thus, in Abbas v. Commission on Elections,83 we had occasion to explain:

Petitioners premise their arguments on the assumption that the Tripoli Agreement is part of the law of the land, being a binding international agreement. The Solicitor
General asserts that the Tripoli Agreement is neither a binding treaty, not having been entered into by the Republic of the Philippines with a sovereign state and ratified
according to the provisions of the 1973 or 1987 Constitutions, nor a binding international agreement.

We find it neither necessary nor determinative of the case to rule on the nature of the Tripoli Agreement and its binding effect on the Philippine Government whether
under public international or internal Philippine law. In the first place, it is now the Constitution itself that provides for the creation of an autonomous region in Muslim
Mindanao. The standard for any inquiry into the validity of R.A. No. 6734 would therefore be what is so provided in the Constitution. Thus, any conflict between the
provisions of R.A. No. 6734 and the provisions of the Tripoli Agreement will not have the effect of enjoining the implementation of the Organic Act. Assuming for the
sake of argument that the Tripoli Agreement is a binding treaty or international agreement, it would then constitute part of the law of the land. But as internal law it would
not be superior to R.A. No. 6734, an enactment of the Congress of the Philippines, rather it would be in the same class as the latter [SALONGA, PUBLIC
INTERNATIONAL LAW 320 (4th ed., 1974), citing Head Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at all, R.A. No. 6734
would be amendatory of the Tripoli Agreement, being a subsequent law. Only a determination by this Court that R.A. No. 6734 contravenes the Constitution would result
in the granting of the reliefs sought. (Emphasis supplied)

WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032,
is AFFIRMED with MODIFICATION. As modified, this Court declares that:

(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that

(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III
(Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, are INVALID insofar as they
grant the BIR the power to reclassify or update the classification of new brands every two years or earlier.

SO ORDERED.

86
G.R. No. L-46787 August 12, 1991
FLORO CEMENT CORPORATION, petitioner,
vs.
HON. BENJAMIN K. GOROSPE, Judge, CFI of Misamis Oriental, Branch I, and the MUNICIPALITY OF LUGAIT, respondents.
Scarlet V. Santos and Advocates Circle Lawyers for petitioner.

BIDIN, J.:p

This is a petition for review on certiorari seeking to set aside and reverse the decision * of the then Court of First Instance of Misamis Oriental in Civil Case No. 4867, entitled
"Municipality of Lugait, Misamis Oriental, (represented) by the Municipal Treasurer and Provincial Treasurer vs. Floro Cement Corporation", ordering defendant to pay unto
plaintiff the amount of P161,875.00 as manufacturer's and exporter's taxes plus surcharges for the period from January 1, 1974 to September 30, 1975 and that herein petitioner
Floro Cement Corporation be declared exempted from the coverage of Ordinances Nos. 5 and 10 of the Municipality of Lugait and that the taxes and fees it has paid pursuant to
said ordinances be refunded.

The facts of the case, as summarized in the decision of the trial court, are as follows:

The municipality of Lugait, province of Misamis Oriental, represented jointly in this action by its Municipal Treasurer and the Provincial Treasurer of the said
province, filed with this Court a verified complaint for collection of taxes against the defendant Floro Cement Corporation, a domestic corporation duly
organized and existing under the laws of the Republic of the Philippines with business establishment and office address at its compound in the aforementioned
municipality of Lugait. The taxes sought to be collected by the plaintiff specifically refers to "manufacturers" and' exporter's "taxes for the period from January 1,
1974 to September 30, 1975, inclusive, in the total amount of P161,875.00 plus 25% thereof as surcharge. Plaintiff alleged that the imposition and collection of
these taxes" is based on its Municipal Ordinance No. 5, otherwise known as the Municipal Revenue Code of 1974, which was passed pursuant to Presidential
Decree No. 231 dated June 28, 1973 and also Municipal Ordinance No. 10 passed on June 11, 1974 pursuant to Presidential Decree No. 426 dated March
30,1974, amending Presidential Decree No. 231.

In its answer to the complaint, the defendant set up the defense that it is not liable to pay manufacturer's and exporter's taxes alleging among others that the
plaintiffs power to levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on defendant has been limited or withdrawn by Section 52 of
Presidential Decree No. 463 which provides:

Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral Products.—Any law to the contrary notwithstanding, no province,
city, municipality, barrio or municipal district shall levy and collect taxes, fees, rentals, royalties or charges of any kind whatsoever on mines,
mining claims, mineral products, or on any operation, process or activity connected therewith.

Defendant also set up several special/affirmative defenses, namely: (1) that plaintiff has no legal capacity to sue; (2) that the complaint states no cause; (3) that
plaintiff has absolutely no cause of action against defendant; (4) that defendant was granted by the Secretary of Agriculture and Natural Resources a Certificate
of Qualification for Tax Exemption, CQTE No. 22, dated July 7, 1960, entitling defendant to exemption for a period of five (5) years from April 30,1969 to April
29, 1974 from payment of all taxes, except income tax, and which Certificate was amended on November 5, 1974 CQTE P.D. 463-22), entitling defendant to
exemption from all taxes, duties and fees except income tax, for five (5) years from the first date of actual commercial production of saleable mineral products
that is from May 17, 1974 to January 1, 1978; and (5) that Republic Act No. 3823, as implemented by Mines Administrative Order No. V-25, and P.D. No. 463
which are the basis for the exemption granted to defendant are special laws whereas, the municipal ordinance mentioned in the complaint which are based on
P.D. No. 231 and P.D No. 426, respectively, are general laws; and that it is axiomatic that a special law can not be amended and/or repealed by a general law
unless there is an express intent to repeal or abrogate the provisions of the special law.

87
After the issues were joined, the parties submitted a written stipulation of facts under date of May 21, 1976 the pertinent portion of which is quoted in full as
follows:

PLAINTIFF and DEFENDANT, by and through counsel, most respectfully submit the following stipulation of facts:

1. That plaintiff is a political subdivision of the Republic of the Philippines created pursuant to EXECUTIVE ORDER NO. 425, entitled
"CREATING THE MUNICIPALITY OF LUGAIT IN THE PROVINCE OF MISAMIS ORIENTAL", a xerox copy of said executive order is
attached hereto marked ANNEX "A" and made an integral part hereof;

2. That defendant is a corporation day organized and existing under and by virtue of the laws of the Philippines; with plant and office at Lugait,
Misamis Oriental, and is engaged in the manufacture and selling, including exporting, of cement, one of the essential ingredients of which is
limestone;

3. That defendant, as a mining operator of mineral land lands situated at Lugait, Misamis Oriental, was granted by the Secretary of Agriculture
and Natural Resources a Certificate of Qualification for Tax Exemption, CQTE No. 22, dated July 7, 1960, entitling defendant to exemption for
a period of five (5) years from April 30, 1969 to April 29, 1974, from the payment of all taxes, except income tax, a xerox copy of which is
attached marked ANNEX "A" to defendant's answer and made an integral part hereof;

4. That the Certificate of Qualification for Tax Exemption mentioned in the next preceding paragraph was amended on November 5, 1974,
when the Honorable Secretary of Natural Resources, Mr. Jose J. Leido Jr., upon recommendation of the Director of Mines, granted to
defendant a Certificate of Qualification for Tax Exemption, CQTE P.D. 463-22, which entitled defendant to exemption from all taxes, duties,
and fees, except income tax, for five (5) years from May 17, 1974 to January 1, 1978, a xerox copy of which is attached marked ANNEX "B"
to defendant's answer and made an integral part hereof, and that a copy of the Certificate of Qualification for Tax Exemption, CQTE P.D. 463-
22 was furnished the Municipal Treasurer of plaintiff on November 12, 1974, as shown by a xerox copy of the letter of the Assistant Director
of the Bureau of Mines, Mr. Francisco A. Comsti, a copy of which is attached hereto marked ANNEX "B" and made an integral part hereof;

5. That the Certificate of Qualification for Tax Exemption mentioned in the next preceding paragraph was issued pursuant to the provisions of
Sec. 52, P.D. No. 463, which reads as follows:

Sec. 52. Power to Levy Taxes on Mines, Mining Operations and Mineral Products.—Any law to the contrary
notwithstanding, no province, City, municipality, barrio or municipal district shall levy and collect taxes, fees, rentals,
royalties or charges of any kind whatsoever on mines, mining claims, mineral products, or on any operation, process, or
activity therewith.

6. That on or about July 3, 1974, plaintiff through its Municipal Mayor, wired the Secretary of Finance, opposing the application of defendant
for the extension of its exemption from all forms of taxation, including its application for extension of its exemption from realty taxes, which
opposition was not favorably acted upon by the said Secretary of Finance, as evidenced by a xerox copy of the letter of the Honorable Secretary
of Finance, Mr. Cesar Virata, attached hereto marked ANNEX "C" and made an integral part hereof;

7. That plaintiff pursuant to P.D.No. 231 promulgated on June 28, 1973, passed Municipal Ordinance No. 5, otherwise known as Municipal
Revenue Code of 1974, effective January 1, 1974, Section 3 of which is quoted in paragraph 2 of the complaint and made integral part hereof
by reference;

88
 8. That plaintiff pursuant to P.D.No. 426 promulgated on March 30,1974, Municipal Revenue Ordinance No. 10, effective fifteen (15) days
after its passage, of which Section 4, Title I is quoted in paragraph 3 of the complaint and made integral part hereof by reference;

9. That pursuant(to)Municipal Ordinances Nos. 5 and 10, mentioned in paragraphs 7 and 8 hereof, respectively, plaintiff demanded of
defendant the payment of the manufacturer's and exporter's taxes including surcharge for the period covering January 1, 1974 to September 30,
1975, broken down as shown in paragraph 5 of the complaint and made integral part hereof by reference; but defendant refused because of the
allegations found in paragraphs 1, 2, 3, 4, 5 and 6 hereof.

WHEREFORE, it is most respectfully prayed that the foregoing stipulation of facts be made the basis of the judgment of this Honorable Court,
after the parties hereto have submitted their respective memoranda.

Cagayan de Oro City, May 21,1976.

(CFI Decision, pp. 1-6; Rollo, pp. 54-59),

As aforementioned, the trial court rendered its decision on November 29, 1976, the dispositive portion of which reads, as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Floro Cement Corporation to pay unto plaintiff the amount of P161,875.00
as manufacturer's and exporter's taxes and surcharges for the period from January 1, 1974 to September 30, 1975, inclusive, and to pay the costs.

SO ORDERED.

Hence, this appeal.

The petition was given due course by the First Division of this Court on January 6, 1978 and both parties were required to submit their simultaneous memoranda. Respondent
complied on February 17,1978 while petitioner filed its memorandum on March 9,1978.

The principal issue in this case is whether or not Ordinances Nos. 5 and 10 of Lugait, Misamis Oriental apply to petitioner Floro Corporation notwithstanding the limitation on the
taxing power of local government as provided for in Sec. 52 of P.D. 231 and Sec. 52 of P.D. 463.

Petitioner Floro Cement Corporation holds that since Ordinances Nos. 5 and 10 were enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, said ordinances do not
apply to its business in view of the limitation on the taxing power of local government provided in Sec. 5m of P.D. No. 231, which reads:

Sec. 5. Common Limitations on the Taxing Powers of Local Governments. The exercise of taxing power of provinces, cities, municipalities and barrios shall not
extend to the imposition of the following:

(m) Taxes on mines, mining operations and mineral products and their by-products when sold domestically by the operator.

Floro Cement Corporation likewise contends that cement is a mineral product, relying on the case of Cebu Portland Cement Company vs. Commissioner of Internal Revenue, G.R.
No. L20563, October 29, 1968 (25 SCRA 789), and in the case of Philippine Pipes and Merchandising Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1858,
dated July 29, 1970 decided by the Court of Tax Appeals (Memorandum for the Petitioner, Rollo, pp. 89-90).

89
Petitioner further contends that the partial exemption aforementioned was rendered absolute by Sec. 52 of P.D. No. 463 promulgated on May 17, 1974, which expressly prohibits
the province, city municipality, barrio and municipal district from levying and collecting taxes, fees, rentals, royalties or charges of any kind whatsoever on mines, mining claims
and mineral products, any law to the contrary notwithstanding. Said prohibition includes any operation, process or activity connected with its production. The manufacture of
cement is a process inherently connected with the mining operation undertaken by petitioner Floro Cement Corporation (Ibid., pp. 92-93).

On other hand, while respondent municipality admits that petitioner Floro Cement Corporation undertakes exploration, development and exploitation of mineral products, the taxes
sought to be collected were not imposed on these activities in view of the mentioned prohibition under Sec. 52 of P.D. No. 463. Said taxes were levied on the corporation's
business of manufacturing and exporting cement. The business of manufacturing and exporting cement does not fall under exploration, development nor exploitation of mineral
resources as defined in Sec. 2 of P.D. No. 463, hence, it is outside the scope of application of Sec. 52 of said decree (Memorandum for Respondent, p. 10; Rollo, p. 85).

The municipality's power to levy taxes on manufacturers and exporters is provided in Article 2, Sec. 19 of P.D. No. 231, as amended by P.D. No. 426 which provides that "The
municipality may impose a tax on business except those for which fixed taxes are provided for in this Code:

(a) 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 following schedule:

(a-1) On retailers, independent wholesalers and distributors in accordance with the following schedule:

(Comment of the Respondent, Rollo, p. 72)

The petition is without merit.

On the question of whether or not cement is a mineral product, this Court has consistently held that it is not a mineral product but rather a manufactured product (Commissioner of
Internal Revenue vs. Cebu Portland Cement Company, 156 SCRA 535 [1987]; Commissioner of Internal Revenue vs. Philippine Pipes and Merchandising Corporation, 153 SCRA
113 [1987]; Commissioner of Internal Revenue vs. Republic Cement Corporation, 149 SCRA 487 [1987]). while cement is composed of 80'7c minerals, it is not merely an
admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite process-the crushing of minerals, grinding, mixing, calcining adding of retarder
or raw gypsum In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process (Commissioner of Internal
Revenue vs. Cebu Portland Cement Company, supra, reiterating the ruling in Commissioner of Internal Revenue vs. Republic Cement Corporation, 124 SCRA 46 [1983]). It
appears evident that the foregoing cases overruled the case of Cebu Portland Cement Company vs. Commissioner of Internal Revenue, 25 SCRA 789 [1969] which was cited by
petitioner.

On the exemption claimed by petitioner, 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 diminution 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. More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer (Luzon
Stevedoring Corporation vs. Court of Appeals, 163 SCRA 647 [1988]). He who claims an exemption must be able to point out some provision of law creating the right; it cannot
be allowed to exist upon a mere vague implication or inference. It must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the
claim (Manila Electric Company vs. Ver, 67 SCRA 351 [1975]). The petitioner failed to meet this requirement.

As held by the lower court, the exemption mentioned in Sec. 52 of P.D. No. 463 refers only to machineries, equipment, tools for production, etc., as provided in Sec. 53 of the
same decree. The manufacture and the export of cement does not fall under the said provision for it is not a mineral product (CFI Decision, Rollo, p. 62). It is not cement that is
mined only the mineral products composing the finished product (Commissioner of Internal Revenue vs. Republic Cement Corporation, supra).

90
Furthermore, by the parties' own stipulation of facts submitted before the court a quo, it is admitted that Floro Cement Corporation is engaged in the manufacturing and selling,
including exporting of cement (CFI Decision, Rollo, p. 57). As such, and since the taxes sought to be collected were levied on these activities pursuant to Sec. 19 of P.D. No. 231,
Ordinances Nos. 5 and 10, which were enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, properly apply to petitioner Floro Cement Corporation.

WHEREFORE, the petition is DENIED for lack of merit and the decision dated November 29, 1976 of the then Court of First Instance of Misamis Oriental is Affirmed.

SO ORDERED.

G.R. No. L-11274 March 29, 1916

RAFAELA DALMACIO, petitioner,
vs.
ALBERTO BARRETTO, THE DIRECTOR OF LANDS, and THE SHERIFF OF THE PROVINCE OF RIZAL,respondents.
Ramon Mañalac and Eugenio Testa for petitioner.
Attorney-General Avanceña for respondents.

TORRES, J.:

On October 15, 1915, counsel for Rafaela Dalmacio commenced these certiorari proceedings, praying that a judgment be rendered declaring the order of ejectment decreed by the
judge of the Court of First Instance of Rizal to be null and void, without prejudice to an order being issued to the sheriff of said province directing him to refrain from ejecting the
petitioner and her caretaker, Eugenio Testa, from the parcels of land she was occupying as lessee. Petitioner further prayed that said court be directed to furnish a transcript of the
evidence adduced in the proceedings aforementioned. In connection with this petition counsel alleged that since the time of the previous sovereignty plaintiff had been a lessee of
certain parcels of land situated on the Tala hacienda in the municipality of Caloocan, formerly owned by the friars; that this fact was recorded in the Bureau of Lands in 1905, on
account of plaintiff's being entitled to the benefits conferred by Act No. 1120 of the Philippine Commission; that at the time of the survey and parceling of the said estate by the
bureau aforementioned, it notified petitioner that the numbers 859 and 861 had been assigned to the parcels of land she was leasing. Petitioner further stated that on being advised
to sign the contract of sale of said lots Nos. 859 and 861 to her, she petitioned the Bureau of Lands to order the two lots she was occupying to be identified; that as a result thereof
it was ascertained that said lots were situated in different places and were other than the parcels occupied and leased by petitioner; that notwithstanding this the Director of Lands
insisted on selling to petitioner the lots Nos. 859 and 861, which were formerly uncultivated lands; that as these parcels were not those she had under lease, she refused to buy
them; but that the Director of Lands, arbitrarily, by himself and on his own responsibility, cancelled her contract of lease, notwithstanding her protest, wherefore she was obliged to
bring an action against said Director of Lands in the Court of First Instance of Rizal, to validate her right of preference to acquire the lands she was actually occupying, which
action had not yet been heard; that at this stage of the proceedings the Director of Lands in case No. 6563, brought in the Court of Land Registration and now pending in the court
of the Province of Rizal, sought to secure the ejectment of the caretaker and tenants-on-shares of the plaintiff from the lands she was occupying as lessee; that said petition was
granted by the court in open extra limitation of its powers, for plaintiff did not deny, but actually recognized the Government's ownership of said estate and of the parts thereof
which she held under lease, notwithstanding all of which her motion for a rehearing was denied.

The Attorney-General, in answer to the aforementioned complaint, alleges that it does not set forth facts sufficient to warrant the issuance of a writ of certiorari; that in order that
Supreme Court may review proceedings by writ of certiorari, it must be proven that the lower court acted in excess of its jurisdiction and that there is no appeal nor any other easy,
speedy and adequate remedy available; that if, as alleged, the Director of Lands obtained from the Court of Land Registration, in case No. 6563, title to said hacienda, of which the
lots occupied by the petitioner form a part, it is unquestionable that under section 3 of Act No. 1680 he is entitled to a writ of possession for said estate and the lots occupied by
petitioner, and that it is immaterial whether or not she has a preferred right to purchase the parcels from which she is to be ejected, because the Court of First Instance has a right to
order that the Director of Lands, against whom the petitioner has brought these proceedings now pending be placed in possession of said parcels.

In his brief counsel for the plaintiff maintained that no appeal lies from an order of ejectment issued in land registration proceedings and therefore the easiest and most expeditious
remedy is that of certiorari; that, in accordance with section 17 [section 3] of Act No. 1680, the Court of First Instance, at the request of the Director of Lands, may issue a writ of
possession against the objector who refused to comply with an order of the Land Court issued in a final judgment, which provisions, however, was not applicable to petitioner, who
91
could not be deprived of the possession of the lands leased by her, except by due process of law. In a supplementary brief the Attorney-General alleged that, a motion having been
filed to determine whether or not the Director of Lands was entitled to a writ of possession in said proceedings in the Court of Land Registration, the lower court denied the said
motion and no appeal from this ruling having been taken by the plaintiff it had therefore become res judicata. But petitioner alleged that the order dictated by the Court of First
Instance of Rizal in case No. 1265 is merely interlocutory and discretional; that consequently it is not appealable, and cannot become final until the litigation has been decided on
the merits.

While the proceedings brought by the plaintiff Rafaela Dalmacio in the Court of First Instance of Rizal against the Director of Lands to determine whether or not she has a
preferred right to acquire by purchase the two lots of land she has been occupying as lessee were pending, the said court could not, in justice and strict right in case No. 6563, heard
by the Court of Land Registration and now pending before him, order the ejectment of the plaintiff and her caretaker, from the two parcels leased by her, for, as such lessee, she
may have a preferential right over any other person to purchase them from the Government. Unless the plaintiff should fail to comply with the conditions prescribed by the laws
governing this matter, she has an indisputable right to be secured in her possession of the two parcels of land she occupies until such time as her action now pending against the
Director of Lands, relative to the said right of preference and the identify of the land she has been occupying as lessee, has been finally determined.

When, on petition of the Director of Lands and notwithstanding that the proceedings aforementioned were pending, the court decreed the dispossession and ejectment of the
plaintiff, in order that she vacate and leave free the two parcels of land she has been occupying as lessee, it unquestionably exceeded its jurisdiction, for, if the ejectment of the
plaintiff were carried into effect and she were thus prevented from continuing in her possession of the two parcels of land she holds under lease, it would be a pre-judgment of the
suit pending against the Director of Lands, because the decree of ejectment, in violation of the law that protects plaintiff's right as such lessee, determines that she has absolutely no
right to preference in the purchase of the and she occupies.

For the foregoing reasons, the order dictated by the Court of First Instance of Rizal on December 22, 1914, is held to be null, void and of no value or effect, in so far as it decrees
that the plaintiff Rafaela Dalmacio be ejected from the two parcels of land to which it refers, and the preliminary injunction issued by this court is hereby made final until the
action prosecuted by the plaintiff to secure the right of preference is finally decided. So ordered.

Johnson, Trent, and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., concurring:

I agree that, in view of all the circumstances disclosed by the record, the trial judge exceeded his jurisdiction, and that the writ of certiorari prayed for should issue.

G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.

LABRADOR, J.:

92
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the
court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal
revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by
the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled
"In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court
below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate
under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive
Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to
Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral
Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment
of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the
Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in
this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until
the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as
a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount
due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary
procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so
that said court may order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro,
G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the
court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to
all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be
made, the regulations contained in Rule 90, section 7, should be complied with.1äwphï1.ñët

Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the
debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and
may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under
the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all
the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid.

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Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the
Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above
circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as
fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent
amount, eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.

LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the
court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal
revenue taxes.

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by
the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled
"In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court
below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate
under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo
Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacañang to Executive
Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to
Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral
Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment
of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the
Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in
this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960)

94
 The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until
the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as
a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount
due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960)

The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary
procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so
that said court may order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro,
G.R. No. L-2360, Dec. 29, 1949, thus:

. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the
court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to
all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be
made, the regulations contained in Rule 90, section 7, should be complied with.1äwphï1.ñët

Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the
debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and
may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under
the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all
the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the
administrator to pay the amount due from the estate and required to be paid.

Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the
Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above
circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as
fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent
amount, eventhough the creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.

The petition is, therefore, dismissed, without costs.

95