G.R. No.

203514

COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
ST. LUKE’S MEDICAL CENTER, INC., Respondent

DECISION

DEL CASTILLO, J.:

The doctrine of stare decisis dictates that "absent any powerful countervailing considerations,
like cases ought to be decided alike."1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the May 9,
2012 Decision3 and the September 17, 2012 Resolution4 of the Court of Tax Appeals (CTA) in
CTA EB Case No. 716.

Factual Antecedents

On December 14, 2007, respondent St. Luke’s Medical Center, Inc. (SLMC) received from the
Large Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau
of Internal Revenue (BIR) Audit Results/Assessment Notice Nos. QA-07-0000965 and QA-07-
000097,6 assessing respondent SLMC deficiency income tax under Section 27(B)7 of the 1997
National Internal Revenue Code (NIRC), as amended, for taxable year 2005 in the amount of
₱78,617,434.54 and for taxable year 2006 in the amount of ₱57,119,867.33.

On January 14, 2008, SLMC filed with petitioner Commissioner of Internal Revenue (CIR) an
administrative protest8 assailing the assessments. SLMC claimed that as a non-stock, non-profit
charitable and social welfare organization under Section 30(E) and (G)9 of the 1997 NIRC, as
amended, it is exempt from paying income tax.

On April 25, 2008, SLMC received petitioner CIR's Final Decision on the Disputed
Assessment10 dated April 9, 2008 increasing the deficiency income for the taxable year 2005 tax
to ₱82,419,522.21 and for the taxable year 2006 to ₱60,259,885.94, computed as follows:

For Taxable Year 2005:

ASSESSMENT NO. QA-07-000096

PARTICULARS AMOUNT
Sales/Revenues/Receipts/Fees ?3,623,511,616.00
Less: Cost of Sales/Services 2,643,049, 769.00
Gross Income From Operation 980,461,847.00
Add: Non-Operating & Other Income -
 Total Gross Income 980,461,847.00
Less: Deductions 481,266,883 .00
Net Income Subject to Tax 499, 194,964.00
XTaxRate 10%
Tax Due 49,919,496.40
Less: Tax Credits -
Deficiency Income Tax 49,919,496.40
Add: Increments
25% Surcharge 12,479,874.10
20% Interest Per Annum (4115/06-4/15/08) 19,995,151.71
Compromise Penalty for Late Payment 25,000.00
Total increments 32,500,025.81
Total Amount Due ?82,419,522.21

For Taxable Year 2006:

ASSESSMENT NO. QA-07-000097

PARTICULARS [AMOUNT]
Sales/Revenues/Receipts/Fees ?3,8 l 5,922,240.00
Less: Cost of Sales/Services 2,760,518,437.00
Gross Income From Operation 1,055,403,803.00
Add: Non-Operating & Other Income -
Total Gross Income 1,055,403,803.00
Less: Deductions 640,147,719.00
Net Income Subject to Tax 415,256,084.00
XTaxRate 10%
Tax.Due 41,525,608.40
Less: Tax Credits -
Deficiency Income Tax 41,525,608.40
Add: Increments -
25% Surcharge 10,381,402.10
 20% Interest Per Annum (4/15/07-4/15/08) 8,327,875.44
Compromise Penalty for Late Payment 25,000.00
Total increments 18,734,277.54
Total Amount Due ?60,259,885.9411

Aggrieved, SLMC elevated the matter to the CTA via a Petition for Review,12 docketed as CTA
Case No. 7789.

Ruling of the Court of Tax Appeals Division

On August 26, 2010, the CTA Division rendered a Decision13 finding SLMC not liable for
deficiency income tax under Section 27(B) of the 1997 NIRC, as amended, since it is exempt
from paying income tax under Section 30(E) and (G) of the same Code. Thus:

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED.

Accordingly, Audit Results/Assessment Notice Nos. QA-07-000096 and QA-07-000097,
assessing petitioner for alleged deficiency income taxes for the taxable years 2005 and 2006,
respectively, are hereby CANCELLED and SET ASIDE.

SO ORDERED.14

CIR moved for reconsideration but the CTA Division denied the same in its December 28, 2010
Resolution.15

This prompted CIR to file a Petition for Review16 before the CTA En Banc.

Ruling of the Court of Tax Appeals En Banc

On May 9, 2012, the CTA En Banc affirmed the cancellation and setting aside of the Audit
Results/Assessment Notices issued against SLMC. It sustained the findings of the CTA Division
that SLMC complies with all the requisites under Section 30(E) and (G) of the 1997 NIRC and
thus, entitled to the tax exemption provided therein.17

On September 17, 2012, the CTA En Banc denied CIR's Motion for Reconsideration.

Issue

Hence, CIR filed the instant Petition under Rule 45 of the Rules of Court contending that the
CTA erred in exempting SLMC from the payment of income tax.

Meanwhile, on September 26, 2012, the Court rendered a Decision in G.R. Nos. 195909 and
195960, entitled Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.,18 finding
SLMC not entitled to the tax exemption under Section 30(E) and (G) of the NIRC of 1997 as it
does not operate exclusively for charitable or social welfare purposes insofar as its revenues from
paying patients are concerned. Thus, the Court disposed of the case in this manner:

WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. 195909is
PARTLY GRANTED. The Decision of the Court of Tax Appeals En Banc dated 19 November
2010 and its Resolution dated 1 March 2011 in CTA Case No. 6746 are MODIFIED. St. Luke's
Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 based on the
10% preferential income tax rate under Section 27(B) of the National Internal Revenue Code.
However, it is not liable for surcharges and interest on such deficiency income tax under
Sections 248 and 249 of the National Internal Revenue Code. All other parts of the Decision and
Resolution of the Court of Tax Appeals are AFFIRMED.

The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for violating
Section I, Rule 45 of the Rules of Court.

SO ORDERED.19

Considering the foregoing, SLMC then filed a Manifestation and Motion20 informing the Court
that on April 30, 2013, it paid the BIR the amount of basic taxes due for taxable years 1998,
2000-2002, and 2004-2007, as evidenced by the payment confirmation21 from the BIR, and that
it did not pay any surcharge, interest, and compromise penalty in accordance with the above-
mentioned Decision of the Court. In view of the payment it made, SLMC moved for the
dismissal of the instant case on the ground of mootness.

CIR opposed the motion claiming that the payment confirmation submitted by SLMC is not a
competent proof of payment as it is a mere photocopy and does not even indicate the
quarter/sand/or year/s said payment covers.22

In reply,23 SLMC submitted a copy of the Certification24 issued by the Large Taxpayers
Service of the BIR dated May 27, 2013, certifying that, "[a]s far as the basic deficiency income
tax for taxable years 2000, 2001, 2002, 2004, 2005, 2006, 2007 are concen1ed, this Office
considers the cases closed due to the payment made on April 30, 2013." SLMC likewise
submitted a letter25 from the BIR dated November 26, 2013 with attached Certification of
Payment26 and application for abatement,27 which it earlier submitted to the Court in a related
case, G.R. No. 200688, entitled Commissioner of Internal Revenue v. St. Luke's Medical Center,
Inc.28

Thereafter, the parties submitted their respective memorandum.

CIR 's Arguments

CIR argues that under the doctrine of stare decisis SLMC is subject to 10% income tax under
Section 27(B) of the 1997 NIRC.29 It likewise asserts that SLMC is liable to pay compromise
penalty pursuant to Section 248(A)30 of the 1997 NIRC for failing to file its quarterly income
tax returns.31
As to the alleged payment of the basic tax, CIR contends that this does not render the instant case
moot as the payment confirmation submitted by SLMC is not a competent proof of payment of
its tax liabilities.32

SLMC's Arguments

SLMC, on the other hand, begs the indulgence of the Court to revisit its ruling in G.R. Nos.
195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.)33
positing that earning a profit by a charitable, benevolent hospital or educational institution does
not result in the withdrawal of its tax exempt privilege.34 SLMC further claims that the income
it derives from operating a hospital is not income from "activities conducted for profit."35 Also,
it maintains that in accordance with the ruling of the Court in G.R. Nos. 195909 and 195960
(Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.),36 it is not liable for
compromise penalties.37

In any case, SLMC insists that the instant case should be dismissed in view of its payment of the
basic taxes due for taxable years 1998, 2000-2002, and 2004-2007 to the BIR on April 30,
2013.38

Our Ruling

SLMC is liable for income tax under

Section 27(B) of the 1997 NIRC insofar
as its revenues from paying patients are
concerned

The issue of whether SLMC is liable for income tax under Section 27(B) of the 1997 NIRC
insofar as its revenues from paying patients are concerned has been settled in G.R. Nos. 195909
and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.),39 where the
Court ruled that:

x x x We hold that Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and
Section 30(E) and (G) on the other hand, can be construed together without the removal of such
tax exemption. The effect of the introduction of Section 27(B) is to subject the taxable income of
two specific institutions, namely, proprietary non-profit educational institutions and proprietary
non-profit hospitals, among the institutions covered by Section 30, to the 10% preferential rate
under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of
Section 30 in relation to Section 27(A)(l).

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals. The only
qualifications for hospitals are that they must be proprietary and non-profit. 'Proprietary' means
private, following the definition of a 'proprietary educational institution' as 'any private school
maintained and administered by private individuals or groups' with a government permit. 'Non-
profit' means no net income or asset accrues to or benefits any member or specific person, with
all the net income or asset devoted to the institution's purposes and all its activities conducted not
for profit.

'Non-profit' does not necessarily mean 'charitable.' In Collector of Internal Revenue v. Club
Filipino, Inc. de Cebu, this Court considered as non-profit a sports club organized for recreation
and entertainment of its stockholders and members. The club was primarily funded by
membership fees and dues. If it had profits, they were used for overhead expenses and improving
its golf course. The club was non-profit because of its purpose and there was no evidence that it
was engaged in a profit-making enterprise.

The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it was not charitable. Tue
Court defined 'charity' in Lung Center of the Philippines v. Quezon City as 'a gift, to be applied
consistently with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by assisting them to
establish themselves in life or [by] otherwise lessening the burden of government.' A nonprofit
club for the benefit of its members fails this test. An organization may be considered as non-
profit if it does not distribute any part of its income to stockholders or members. However,
despite its being a tax exempt institution, any income such institution earns from activities
conducted for profit is taxable, as expressly provided in the last paragraph of Section 30.

To be a charitable institution, however, an organization must meet the substantive test of charity
in Lung Center. The issue in Lung Center concerns exemption from real property tax and not
income tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a
gift to an indefinite number of persons which lessens the burden of government. In other words,
charitable institutions provide for free goods and services to the public which would otherwise
fall on the shoulders of government. Thus, as a matter of efficiency, the government forgoes
taxes which should have been spent to address public needs, because certain private entities
already assume a part of the burden. This is the rationale for the tax exemption of charitable
institutions. The loss of taxes by the government is compensated by its relief from doing public
works which would have been funded by appropriations from the Treasury.

Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements
for a tax exemption are specified by the law granting it. The power of Congress to tax implies the
power to exempt from tax. Congress can create tax exemptions, subject to the constitutional
provision that '[n]o law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of Congress.' The requirements for a tax exemption are strictly
construed against the taxpayer because an exemption restricts the collection of taxes necessary
for the existence of the government.

The Court in Lung Center declared that the Lung Center of the Philippines is a charitable
institution for the purpose of exemption from real property taxes. This ruling uses the same
premise as Hospital de San Juan and Jesus Sacred Heart College which says that receiving
income from paying patients does not destroy the charitable nature of a hospital.

As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether outpatient,
or confined in the hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating the institution.

For real property taxes, the incidental generation of income is permissible because the test of
exemption is the use of the property. The Constitution provides that '[c]haritable institutions,
churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and
all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation.' The test of exemption is not
strictly a requirement on the intrinsic nature or character of the institution. The test requires that
the institution use property in a certain way, i.e., for a charitable purpose. Thus, the Court held
that the Lung Center of the Philippines did not lose its charitable character when it used a portion
of its lot for commercial purposes. The effect of failing to meet the use requirement is simply to
remove from the tax exemption that portion of the property not devoted to charity.

The Constitution exempts charitable institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the
Constitution. Section 30(E) of the NIRC defines the corporation or association that is exempt
from income tax. On the other hand, Section 28(3), Article VI of the Constitution does not define
a charitable institution, but requires that the institution 'actually, directly and exclusively' use the
property for a charitable purpose.

Section 30(E) of the NIRC provides that a charitable institution must be:

(1) A non-stock corporation or association;

(2) Organized exclusively for charitable purposes;

(3) Operated exclusively for charitable purposes; and

(4) No part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.

Thus, both the organization and operations of the charitable institution must be devoted
'exclusively' for charitable purposes. The organization of the institution refers to its corporate
form, as shown by its articles of incorporation, by-laws and other constitutive documents.
Section 30(E) of the NIRC specifically requires that the corporation or association be non-stock,
which is defined by the Corporation Code as 'one where no part of its income is distributable as
dividends to its members, trustees, or officers' and that any profit 'obtain[ed] as an incident to its
operations shall, whenever necessary or proper, be used for the furtherance of the purpose or
purposes for which the corporation was organized.' However, under Lung Center, any profit by a
charitable institution must not only be plowed back 'whenever necessary or proper,' but must be
'devoted or used altogether to the charitable object which it is intended to achieve.'
The operations of the charitable institution generally refer to its regular activities. Section 30(E)
of the NIRC requires that these operations be exclusive to charity. There is also a specific
requirement that 'no part of [the] net income or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person.' The use of lands, buildings and improvements
of the institution is but a part of its operations.

There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke's from paying taxes. This only
refers to the organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable
institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28(3),
Article VI of the Constitution requires that a charitable institution use the property 'actually,
directly and exclusively' for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be 'organized and operated exclusively' for
charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be 'operated exclusively' for social welfare.

However, the last paragraph of Section 30 of the NIRC qualifies the words 'organized and
operated exclusively' by providing that:

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.

In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution
conducts 'any' activity for profit, such activity is not tax exempt even as its not-for-profit
activities remain tax exempt. This paragraph qualifies the requirements in Section 30(E) that the
'[n]on-stock corporation or association [must be] organized and operated exclusively for . . .
charitable . . . purposes . . . . ' It likewise qualifies the requirement in Section 30(G) that the civic
organization must be 'operated exclusively' for the promotion of social welfare.

Thus, even if the charitable institution must be 'organized and operated exclusively' for charitable
purposes, it is nevertheless allowed to engage in 'activities conducted for profit' without losing its
tax exempt status for its not-for-profit activities. The only consequence is that the 'income of
whatever kind and character' of a charitable institution 'from any of its activities conducted for
profit, regardless of the disposition made of such income, shall be subject to tax.' Prior to the
introduction of Section 27(B), the tax rate on such income from for-profit activities was the
ordinary corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate
is now 10%.

In 1998, St. Luke's had total revenues of ₱l,730,367,965 from services to paying patients. It
cannot be disputed that a hospital which receives approximately ₱l.73 billion from paying
patients is not an institution 'operated exclusively' for charitable purposes. Clearly, revenues
from paying patients are income received from 'activities conducted for profit.' Indeed, St. Luke's
admits that it derived profits from its paying patients. St. Luke's declared ₱l,730,367,965 as
'Revenues from Services to Patients' in contrast to its 'Free Services' expenditure of
₱218,187,498. In its Comment in G.R. No. 195909, St. Luke's showed the following 'calculation'
to support its claim that 65.20% of its 'income after expenses was allocated to free or charitable
services' in 1998.

x x xx

In Lung Center, this Court declared:

'[e]xclusive' is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and 'exclusively' is defined, 'in a manner to exclude; as enjoying a
privilege exclusively.' . . . The words 'dominant use' or 'principal use' cannot be substituted for
the words 'used exclusively' without doing violence to the Constitution and thelaw. Solely is
synonymous with exclusively.

The Court cannot expand the meaning of the words 'operated exclusively' without violating the
NIRC. Services to paying patients are activities conducted for profit. They cannot be considered
any other way. There is a 'purpose to make profit over and above the cost' of services. The ₱l.73
billion total revenues from paying patients is not even incidental to St. Luke's charity expenditure
of ₱2l8,187,498 for non-paying patients.

St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of its operating income
in 1998. However, if a part of the remaining 34.80% of the operating income is reinvested in
property, equipment or facilities used for services to paying and non-paying patients, then it
cannot be said that the income is 'devoted or used altogether to the charitable object which it is
intended to achieve.' The income is plowed back to the corporation not entirely for charitable
purposes, but for profit as well. In any case, the last paragraph of Section 30 of the NIRC
expressly qualifies that income from activities for profit is taxable 'regardless of the disposition
made of such income.'

Jesus Sacred Heart College declared that there is no official legislative record explaining the
phrase 'any activity conducted for profit.' However, it quoted a deposition of Senator Mariano
Jesus Cuenco, who was a member of the Committee of Conference for the Senate, which
introduced the phrase 'or from any activity conducted for profit.'

P. Cuando ha hablado de la Universidad de Santo Tomas que tiene un hospital, no cree V d que
es una actividad esencial dicho hospital para el funcionamiento def colegio de medicina

de dicha universidad?

x x x x x x xxx

R. Si el hospital se limita a recibir enformos pobres, mi contestacion seria afirmativa; pero

considerando que el hospital tiene cuartos de pago, y a los mismos generalmente van enfermos
de buena posicion social economica, lo que se paga por estos enfermos debe estar sujeto a
'income tax', y es una de las razones que hemos tenido para insertar las palabras o frase 'or
from any activity conducted for profit.'
The question was whether having a hospital is essential to an educational institution like the
College of Medicine of the University of Santo Tomas.1awp++i1 Senator Cuenco answered that
if the hospital has paid rooms generally occupied by people of good economic standing, then it
should be subject to income tax. He said that this was one of the reasons Congress inserted the
phrase 'or any activity conducted for profit.'

The question in Jesus Sacred Heart College involves an educational institution. However, it is
applicable to charitable institutions because Senator Cuenco's response shows an intent to focus
on the activities of charitable institutions. Activities for profit should not escape the reach of
taxation. Being a non-stock and non-profit corporation does not, by this reason alone, completely
exempt an institution from tax. An institution cannot use its corporate form to prevent its
profitable activities from being taxed.

The Court finds that St. Luke's is a corporation that is not 'operated exclusively' for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is
based not only on a strict interpretation of a provision granting tax exemption, but also on the
clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an
institution be 'operated exclusively' for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not lose its tax
exemption if it earns income from its for-profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate pursuant to Section 27(B).

A tax exemption is effectively a social subsidy granted by the State because an exempt
institution is spared from sharing in the expenses of government and yet benefits from them. Tax
exemptions for charitable institutions should therefore be lin1ited to institutions beneficial to the
public and those which improve social welfare. A profit-making entity should not be allowed to
exploit this subsidy to the detriment of the government and other taxpayers.

St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-
profit activities.

St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
However, St. Luke's has good reasons to rely on the letter dated 6 June 1990 by the BIR, which
opined that St. Luke's is 'a corporation for purely charitable and social welfare purposes' and thus
exempt from income tax. In Michael J Lhuillier, Inc. v. Commissioner of Internal Revenue, the
Court said that 'good faith and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are sufficient justification
to delete the imposition of surcharges and interest.'40

A careful review of the pleadings reveals that there is no countervailing consideration for the
Court to revisit its aforequoted ruling in G.R. Nos. 195909 and 195960 (Commissioner of
Internal Revenue v. St. Luke's Medical Center, Inc.). Thus, under the doctrine of stare decisis,
which states that "[o]nce a case has been decided in one way, any other case involving exactly
the same point at issue x x x should be decided in the same manner,"41 the Court finds that
SLMC is subject to 10% income tax insofar as its revenues from paying patients are concerned.

To be clear, for an institution to be completely exempt from income tax, Section 30(E) and (G)
of the 1997 NIRC requires said institution to operate exclusively for charitable or social welfare
purpose. But in case an exempt institution under Section 30(E) or (G) of the said Code earns
income from its for-profit activities, it will not lose its tax exemption. However, its income from
for-profit activities will be subject to income tax at the preferential 10% rate pursuant to Section
27(B) thereof.

SLMC is not liable for Compromise

Penalty.

As to whether SLMC is liable for compromise penalty under Section 248(A) of the 1997 NIRC
for its alleged failure to file its quarterly income tax returns, this has also been resolved in G.R
Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center,
Inc.),42 where the imposition of surcharges and interest under Sections 24843 and 24944 of the
1997 NIRC were deleted on the basis of good faith and honest belief on the part of SLMC that it
is not subject to tax. Thus, following the ruling of the Court in the said case, SLMC is not liable
to pay compromise penalty under Section 248(A) of the 1997 NIRC.

The Petition is rendered moot by the

payment made by SLMC on April 30,
2013.

However, in view of the payment of the basic taxes made by SLMC on April 30, 2013, the
instant Petition has become moot.1avvphi1

While the Court agrees with the CIR that the payment confirmation from the BIR presented by
SLMC is not a competent proof of payment as it does not indicate the specific taxable period the
said payment covers, the Court finds that the Certification issued by the Large Taxpayers Service
of the BIR dated May 27, 2013, and the letter from the BIR dated November 26, 2013 with
attached Certification of Payment and application for abatement are sufficient to prove payment
especially since CIR never questioned the authenticity of these documents. In fact, in a related
case, G.R. No. 200688, entitled Commissioner of Internal Revenue v. St. Luke's Medical Center,
lnc.,45 the Court dismissed the petition based on a letter issued by CIR confirming SLMC's
payment of taxes, which is the same letter submitted by SLMC in the instant case.

In fine, the Court resolves to dismiss the instant Petition as the same has been rendered moot by
the payment made by SLMC of the basic taxes for the taxable years 2005 and 2006, in the
amounts of ₱49,919,496.40 and ₱4 l,525,608.40, respectively.46

WHEREFORE, the Petition is hereby DISMISSED.

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115525 October 30, 1995

JUAN T. DAVID, petitioner,

vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-
CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,

vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
BUREAU OF CUSTOMS, respondents.

G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY
AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and THE
COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner,

vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 October 30, 1995

COOPERATIVE UNION OF THE PHILIPPINES, petitioner,

vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in his
capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 October 30, 1995

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner of Internal
Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents.
 RESOLUTION

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all,
have been filed by the several petitioners in these cases, with the exception of the Philippine Educational Publishers Association, Inc. and
the Association of Philippine Booksellers, petitioners in G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc., petitioner in G.R.
No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each
filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines
(PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716
did not "originate exclusively" in the House of Representatives as required by Art. VI, §24 of the Constitution. Although they admit that H. No.
11197 was filed in the House of Representatives where it passed three readings and that afterward it was sent to the Senate where after first
reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did not pass it on second and third
readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino
adds that what the Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of the
House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill by enacting its
own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its own version of revenue bills,
which, in consolidation with House bills earlier passed, became the enrolled bills. These were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5) YEARS TO TEN
YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the
President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the House on January 29, 1992,
and S. No. 1920, which was approved by the Senate on February 3, 1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO ATHLETE WINNING A
MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which
was approved by the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of House and Senate bills.
These are the following, with indications of the dates on which the laws were approved by the President and dates the separate bills of the
two chambers of Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE PERTINENT
SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE PAYMENT OF THE
VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT
REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992

 Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE PLACE FOR
PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24, 1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS, INSTRUMENTALITIES OR

AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT
AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT
FOR THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED
BY CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE DIVIDENDS

UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE DOCUMENTARY STAMP
TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23,
1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING, AMENDING
FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW
SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose amendments to bills
required to originate in the House, passed its own version of a House revenue measure. It is noteworthy that, in the particular case of S. No.
1630, petitioners Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of form. Petitioner has
not shown what substantial difference it would make if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead
enacted as a substitute measure, "taking into Consideration . . . H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX

AMENDMENTS

xxx xxx xxx

§68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is submitted in writing.

Any of said amendments may be withdrawn before a vote is taken thereon.

§69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a bill (rider)
shall be entertained.

xxx xxx xxx

§70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject distinct from that
proposed in the original bill or resolution. (emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power than the U.S.
Senate because of textual differences between constitutional provisions giving them the power to propose or concur with amendments.

Art. I, §7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with
amendments as on other Bills.

Art. VI, §24 of our Constitution reads:

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.

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other Bills" in the American
version, according to petitioners, shows the intention of the framers of our Constitution to restrict the Senate's power to propose amendments
to revenue bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and "the words 'as in any other
bills' (sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but the relics of an
unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral
National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the procedure for
lawmaking by the Senate and the House of Representatives. The work of proposing amendments to the Constitution was done by the
National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by the
Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon,
the bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the
event that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote of two-thirds of all the members
of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the President
for corresponding action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything after the first
sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution No. 38, as amended by Resolution
No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the people and ratified by
them in the elections held on June 18, 1940.

This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present Constitution was derived. It explains why
the word "exclusively" was added to the American text from which the framers of the Philippine Constitution borrowed and why the phrase
"as on other Bills" was not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments must be
understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House
of Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed and sent over to it
by the House, however, the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two
chambers of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following commentaries:

The power of the Senate to propose or concur with amendments is apparently without restriction. It would seem that by
virtue of this power, the Senate can practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the United States Congress
contained provisions for the imposition of an inheritance tax . This was changed by the Senate into a corporation tax.
The amending authority of the Senate was declared by the United States Supreme Court to be sufficiently broad to
enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].

(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))

The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more numerous
in membership and therefore also more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with amendments to
the bills initiated by the House of Representatives. Thus, in one case, a bill introduced in the U.S. House of
Representatives was changed by the Senate to make a proposed inheritance tax a corporation tax. It is also accepted
practice for the Senate to introduce what is known as an amendment by substitution, which may entirely replace the bill
initiated in the House of Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or
concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner
Tolentino states in a high school text, a committee to which a bill is referred may do any of the following:

(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its
language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee
bill; or (4) to make no report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the number of the
House bill and its other parts up to the enacting clause must be preserved although the text of the Senate amendment may be incorporated
in place of the original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a
substitute measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is an independent and
distinct bill. Hence their repeated references to its certification that it was passed by the Senate "in substitution of S.B. No. 1129, taking into
consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between the reference to S. No.
1129 and the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate
and that it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the corresponding provisions of
H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition
of petitioner Tolentino, while showing differences between the two bills, at the same time indicates that the provisions of the Senate bill were
precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of the House bill, H.
No. 11197 in its original form did not have to pass the Senate on second and three readings. It was enough that after it was passed on first
reading it was referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of
Representatives before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill and Senate bill, which
became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference committee, the question was raised
whether the two bills could be the subject of such conference, considering that the bill from one house had not been passed by the other and
vice versa. As Congressman Duran put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the House but not
passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never passed in the House, can
the two bills be the subject of a conference, and can a law be enacted from these two bills? I understand that the
Senate bill in this particular instance does not refer to investments in government securities, whereas the bill in the
House, which was introduced by the Speaker, covers two subject matters: not only investigation of deposits in banks
but also investigation of investments in government securities. Now, since the two bills differ in their subject matter, I
believe that no law can be enacted.

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this where a conference
should be had. If the House bill had been approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the conference committee had to be
created, and we are now considering the report of that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated measures also accounts
for the petitioners' (Kilosbayan's and PAL's) contention that because the President separately certified to the need for the immediate
enactment of these measures, his certification was ineffectual and void. The certification had to be made of the version of the same revenue
bill which at the moment was being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President to certify as
many bills as are presented in a house of Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on March 22, 1994 the Senate was
considering S. No. 1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H. No.
9210 for immediate enactment because it was the one which at that time was being considered by the House. This bill was later substituted,
together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase "except when the
President certifies to the necessity of its immediate enactment, etc." in Art. VI, §26 (2) qualifies not only the requirement that "printed copies
[of a bill] in its final form [must be] distributed to the members three days before its passage" but also the requirement that before a bill can
become a law it must have passed "three readings on separate days." There is not only textual support for such construction but historical
basis as well.

Art. VI, §21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its final form
furnished its Members at least three calendar days prior to its passage, except when the President shall have certified
to the necessity of its immediate enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and
the question upon its passage shall be taken immediately thereafter, and the yeas and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):

(2) No bill 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 the Members three days before its passage, except when the Prime Minister
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.

This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the present Constitution, thus:

(2) 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.

The exception is based on the prudential consideration that if in all cases three readings on separate days are required and a bill has to be
printed in final form before it can be passed, the need for a law may be rendered academic by the occurrence of the very emergency or
public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the Philippines where budget
deficit is a chronic condition. Even if this were the case, an enormous budget deficit does not make the need for R.A. No. 7716 any less
urgent or the situation calling for its enactment any less an emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an urgent need for
consideration of S. No. 1630, because they responded to the call of the President by voting on the bill on second and third readings on the
same day. While the judicial department is not bound by the Senate's acceptance of the President's certification, the respect due coequal
departments of the government in matters committed to them by the Constitution and the absence of a clear showing of grave abuse of
discretion caution a stay of the judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed for six days. Only its
distribution in advance in its final printed form was actually dispensed with by holding the voting on second and third readings on the same
day (March 24, 1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second reading and its approval
on March 24, 1994 elapsed before it was finally voted on by the Senate on third reading.

The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of Congress of what they
must vote on and (2) to give them notice that a measure is progressing through the enacting process, thus enabling them and others
interested in the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY
CONSTRUCTION §10.04, p. 282 (1972)). These purposes were substantially achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for Brotherhood, Integrity
and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of full public disclosure and the people's right to know (Art. II, §28
and Art. III, §7) the Conference Committee met for two days in executive session with only the conferees present.

As pointed out in our main decision, even in the United States it was customary to hold such sessions with only the conferees and their staffs
in attendance and it was only in 1975 when a new rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing open hearings for conference committees.

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members were present. These were
staff members of the Senators and Congressmen, however, who may be presumed to be their confidential men, not stenographers as in this
case who on the last two days of the conference were excluded. There is no showing that the conferees themselves did not take notes of
their proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations involving state interests,
conferees keep notes of their meetings. Above all, the public's right to know was fully served because the Conference Committee in this case
submitted a report showing the changes made on the differing versions of the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed, sufficiently explicit
statement of the changes in or other amendments." These changes are shown in the bill attached to the Conference Committee Report. The
members of both houses could thus ascertain what changes had been made in the original bills without the need of a statement detailing the
changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of 1955) was reported by the
Conference Committee. Congressman Bengzon raised a point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of the conference committee regarding
House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the Rules of this House which provides
specifically that the conference report must be accompanied by a detailed statement of the effects of the amendment
on the bill of the House. This conference committee report is not accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:

MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of order raised by the
gentleman from Pangasinan.

There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this provision applies
to those cases where only portions of the bill have been amended. In this case before us an entire bill is presented;
therefore, it can be easily seen from the reading of the bill what the provisions are. Besides, this procedure has been
an established practice.

After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the Rules, and
the reason for the requirement in the provision cited by the gentleman from Pangasinan is when there are only certain
words or phrases inserted in or deleted from the provisions of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their relation to the bill. In that case, it is necessary to make a
detailed statement on how those words and phrases will affect the bill as a whole; but when the entire bill itself is
 copied verbatim in the conference report, that is not necessary. So when the reason for the Rule does not exist, the
Rule does not exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was upheld by viva voce and
when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)

Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane to the subject of
the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice
Cruz, the jurisdiction of the conference committee is not limited to resolving differences between the Senate and the House. It may propose
an entirely new provision. What is important is that its report is subsequently approved by the respective houses of Congress. This Court
ruled that it would not entertain allegations that, because new provisions had been added by the conference committee, there was thereby a
violation of the constitutional injunction that "upon the last reading of a bill, no amendment thereto shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that an amendment was made upon the
last reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its final form were not distributed
among the members of each House. Both the enrolled bill and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by such official assurances
from a coordinate department of the government, to which we owe, at the very least, a becoming courtesy.

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a 1979 study:

Conference committees may be of two types: free or instructed. These committees may be given instructions by their
parent bodies or they may be left without instructions. Normally the conference committees are without instructions,
and this is why they are often critically referred to as "the little legislatures." Once bills have been sent to them, the
conferees have almost unlimited authority to change the clauses of the bills and in fact sometimes introduce new
measures that were not in the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it this way: "I killed a bill on export
incentives for my interest group [copra] in the conference committee but I could not have done so anywhere else." The
conference committee submits a report to both houses, and usually it is accepted. If the report is not accepted, then the
committee is discharged and new members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A COMPARATIVE
ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that conference committees here
are no different from their counterparts in the United States whose vast powers we noted in Philippine Judges Association v. Prado, supra. At
all events, under Art. VI, §16(3) each house has the power "to determine the rules of its proceedings," including those of its committees. Any
meaningful change in the method and procedures of Congress or its committees must therefore be sought in that body itself.

V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, §26 (1) of the Constitution which provides
that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." PAL contends that the
amendment of its franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.

Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes, duties, royalties,
registration, license and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed or collected by
any municipal, city, provincial or national authority or government agency, now or in the future."

PAL was exempted from the payment of the VAT along with other entities by §103 of the National Internal Revenue Code, which provides as
follows:

§103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to which the Philippines is a
signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending §103, as follows:
 §103. Exempt transactions. — The following shall be exempt from the value-added tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529,
972, 1491, 1590. . . .

The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which stands in the way of accomplishing the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No. 1590. It is
unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title that the law seeks to amend
the pertinent provisions of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a
law that is required to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred to
§103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A. No. 7354 is entitled AN
ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES,
PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It contained a provision
repealing all franking privileges. It was contended that the withdrawal of franking privileges was not expressed in the title of the law. In
holding that there was sufficient description of the subject of the law in its title, including the repeal of franking privileges, this Court held:

To require every end and means necessary for the accomplishment of the general objectives of the statute to be
expressed in its title would not only be unreasonable but would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:

The details of a legislative act need not be specifically stated in its title, but matter germane to the
subject as expressed in the title, and adopted to the accomplishment of the object in view, may
properly be included in the act. Thus, it is proper to create in the same act the machinery by
which the act is to be enforced, to prescribe the penalties for its infraction, and to remove
obstacles in the way of its execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have special mention in the title.
(Southern Pac. Co. v. Bartine, 170 Fed. 725)

(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from the taxing power
of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging
to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A.
No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is
unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take back the
privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the
exercise of its sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago
been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax in Grosjean v. American Press Co.,
297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers
whose weekly circulation was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large
papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was
found to be discriminatory because although it could have been made liable for the sales tax or, in lieu thereof, for the use tax on the
privilege of using, storing or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes. It was,
however, later made to pay a special use tax on the cost of paper and ink which made these items "the only items subject to the use tax that
were component of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests that the
goal of regulation is not related to suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear that
even a law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No. 7716.
Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises registered with the Export
Processing Zone Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort
to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit oriented, continue to
enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to encourage
agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton
seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods
or services to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the
Philippines) or for professional use, like professional instruments and implements, by persons coming to the Philippines
to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products
subject to excise tax and services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-
employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

The PPI asserts that it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation
on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion the following statement in Murdock v.
Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not
so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected
by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike.
Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are
in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling
goods, is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the latter's sale of
religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of
a preacher. It is quite another thing to exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance
requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the
sale of bibles by the American Bible Society without restraining the free exercise of its right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is
imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely
for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay
income tax or subject it to general regulation is not to violate its freedom under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are used to subsidize
the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales would be to increase the price, while
reducing the volume of sale. Granting that to be the case, the resulting burden on the exercise of religious freedom is so incidental as to
make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible burden on the
right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by §7 of R.A. No. 7716, although fixed in
amount, is really just to pay for the expenses of registration and enforcement of provisions such as those relating to accounting in §108 of the
NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the payment of this fee because
it also sells some copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is assessed
this tax by the Commissioner of Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA asserts that R.A. No. 7716
(1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3) violates the rule
that taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real property by installment
or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by the plaintiffs, but
none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation,
within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person
and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense."
(La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of
the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the
rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio
R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum,
and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property
for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the
middle class, who are equally homeless, should likewise be exempted.

The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under
§103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the
"homeless poor" and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to
rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the 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.'" (Lutz v. Araneta, 98 Phil. 148,
153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, §28(1) which provides that "The rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that
the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra;
Sison, Jr. v. Ancheta, supra)

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of
the tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA
383 (1988) on grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in
violation of Art. VI, §28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .

The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt,
at the constant rate of 0% or 10%.
 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.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc. (CUP), while
petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a progressive system of taxation because
the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.

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).

Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:

(a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton
seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods
or services to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of citizens returning to the
Philippines) and or professional use, like professional instruments and implements, by persons coming to the
Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products
subject to excise tax and services subject to percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-
employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)

On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of
mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade
or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time,
hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers,
services of franchise grantees of telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at retail but at
wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact of actuality. There is no factual
foundation to show in the concrete the application of the law to actual contracts and exemplify its effect on property rights. For the fact is that
petitioner's members have not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.
 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 on its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine 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.

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of adjudication would result
in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give rise to such a case. A test case, provided it is
an actual case and not an abstract or hypothetical one, may thus be presented.

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different
from the giving of advisory opinion that does not really settle legal issues.

We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that "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." This duty can only arise if an
actual case or controversy is before us. Under Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, §1, ¶2 can
plausibly mean is that in the exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by
any branch or instrumentality of the government.

Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a court to hear and decide cases pending
between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive power. This power cannot be directly appropriated until it is apportioned among several courts
either by the Constitution, as in the case of Art. VIII, §5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the
Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906))
Without an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.

VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines (CUP), after briefly
surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales taxes but
in 1984, because of the crisis which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No.
2008 again granted cooperatives exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93
revoked the exemption; and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the government adverse to
the interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy of
strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII:

§1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and agrarian
reform, through industries that make full and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations,
shall be encouraged to broaden the base of their ownership.

§15. The Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social
justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by withdrawing their
exemption from income and sales taxes under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to withdraw the exemptions and
preferential treatments theretofore granted to private business enterprises in general, in view of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, §2 had restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by
E.O. No. 93, §1, but then again cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax incentives
applied to all, including government and private entities. In the second place, the Constitution does not really require that cooperatives be
granted tax exemptions in order to promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's
policy toward cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to
this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be granted tax
exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and there is no discrimination to
cooperatives, no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such theory is contrary to
the Constitution under which only the following are exempt from taxation: charitable institutions, churches and parsonages, by reason of Art.
VI, §28 (3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the law because
electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives (farmers cooperatives,
producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that there is greater need to provide
cheaper electric power to as many people as possible, especially those living in the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is unreasonable.

We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the conclusion that the law suffers
from none of the infirmities attributed to it by petitioners and that its enactment by the other branches of the government does not constitute a
grave abuse of discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of
the people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators, that
those who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto power over
legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted.

SO ORDERED.
G.R. No. 191667 April 17, 2013

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EDUARDO M. CACAYURAN, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari1 is the March 26, 2010 Decision2 of the Court
of Appeals (CA) in CA-G.R. CV. No. 89732 which affirmed with modification the April 10,
2007 Decision3 of the Regional Trial Court (RTC) of Agoo, La Union, Branch 31, declaring inter
alia the nullity of the loan agreements entered into by petitioner Land Bank of the Philippines
(Land Bank) and the Municipality of Agoo, La Union (Municipality).

The Facts

From 2005 to 2006, the Municipality’s Sangguniang Bayan (SB) passed certain resolutions to
implement a multi-phased plan (Redevelopment Plan) to redevelop the Agoo Public Plaza (Agoo
Plaza) where the Imelda Garden and Jose Rizal Monument were situated.

To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-20054 on April 19,
2005, authorizing then Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank
and incidental thereto, mortgage a 2,323.75 square meter lot situated at the southeastern portion
of the Agoo Plaza (Plaza Lot) as collateral. To serve as additional security, it further authorized
the assignment of a portion of its internal revenue allotment (IRA) and the monthly income from
the proposed project in favor of Land Bank.5 The foregoing terms were confirmed, approved and
ratified on October 4, 2005 through Resolution No. 139-2005.6 Consequently, on November 21,
2005, Land Bank extended a ₱4,000,000.00 loan in favor of the Municipality (First Loan),7 the
proceeds of which were used to construct ten (10) kiosks at the northern and southern portions of
the Imelda Garden. After completion, these kiosks were rented out.8

On March 7, 2006, the SB passed Resolution No. 58-2006,9 approving the construction of a
commercial center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance the
project, Mayor Eriguel was again authorized to obtain a loan from Land Bank, posting as well
the same securities as that of the First Loan. All previous representations and warranties of
Mayor Eriguel related to the negotiation and obtention of the new loan10 were ratified on
September 5, 2006 through Resolution No. 128-2006.11 In consequence, Land Bank granted a
second loan in favor of the Municipality on October 20, 2006 in the principal amount of
₱28,000,000.00 (Second Loan).12

Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the
Agoo Plaza was vehemently objected to by some residents of the Municipality. Led by
respondent Eduardo Cacayuran (Cacayuran), these residents claimed that the conversion of the
Agoo Plaza into a commercial center, as funded by the proceeds from the First and Second
Loans (Subject Loans), were "highly irregular, violative of the law, and detrimental to public
interests, and will result to wanton desecration of the said historical and public park."13 The
foregoing was embodied in a Manifesto,14 launched through a signature campaign conducted by
the residents and Cacayuran.

In addition, Cacayuran wrote a letter15 dated December 8, 2006 addressed to Mayor Eriguel,
Vice Mayor Antonio Eslao (Vice Mayor Eslao), and the members of the SB namely, Violeta
Laroya-Balbin, Jaime Boado, Jr., Rogelio De Vera, James Dy, Crisogono Colubong, Ricardo
Fronda, Josephus Komiya, Erwina Eriguel, Felizardo Villanueva, and Gerard Mamuyac
(Implicated Officers), expressing the growing public clamor against the conversion of the Agoo
Plaza into a commercial center. He then requested the foregoing officers to furnish him certified
copies of various documents related to the aforementioned conversion including, among others,
the resolutions approving the Redevelopment Plan as well as the loan agreements for the sake of
public information and transparency.

Unable to get any response, Cacayuran, invoking his right as a taxpayer, filed a Complaint16
against the Implicated Officers and Land Bank, assailing, among others, the validity of the
Subject Loans on the ground that the Plaza Lot used as collateral thereof is property of public
dominion and therefore, beyond the commerce of man.17

Upon denial of the Motion to Dismiss dated December 27, 2006,18 the Implicated Officers and
Land Bank filed their respective Answers.

For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying
the Agoo Plaza. It further asserted that Cacayuran did not have a cause of action against it since
he was not privy to any of the Subject Loans.19

During the pendency of the proceedings, the construction of the commercial center was
completed and the said structure later became known as the Agoo’s People Center (APC).

On May 8, 2007, the SB passed Municipal Ordinance No. 02-2007,20 declaring the area where
the APC stood as patrimonial property of the Municipality.

The Ruling of the RTC

In its Decision dated April 10, 2007,21 the RTC ruled in favor of Cacayuran, declaring the nullity
of the Subject Loans.22 It found that the resolutions approving the said loans were passed in a
highly irregular manner and thus, ultra vires; as such, the Municipality is not bound by the
same.23 Moreover, it found that the Plaza Lot is proscribed from collateralization given its nature
as property for public use.24

Aggrieved, Land Bank filed its Notice of Appeal on April 23, 2007.25 On the other hand, the
Implicated Officers’ appeal was deemed abandoned and dismissed for their failure to file an
appellants’ brief despite due notice.26 In this regard, only Land Bank’s appeal was given due
course by the CA.
Ruling of the CA

In its Decision dated March 26, 2010,27 the CA affirmed with modification the RTC’s ruling,
excluding Vice Mayor Eslao from any personal liability arising from the Subject Loans.28

It held, among others, that: (1) Cacayuran had locus standi to file his complaint, considering that
(a) he was born, raised and a bona fide resident of the Municipality; and (b) the issue at hand
involved public interest of transcendental importance;29 (2) Resolution Nos. 68-2005, 139-2005,
58-2006, 128-2006 and all other related resolutions (Subject Resolutions) were invalidly passed
due to the SB’s non-compliance with certain sections of Republic Act No. 7160, otherwise
known as the "Local Government Code of 1991" (LGC); (3) the Plaza Lot, which served as
collateral for the Subject Loans, is property of public dominion and thus, cannot be appropriated
either by the State or by private persons;30 and (4) the Subject Loans are ultra vires because they
were transacted without proper authority and their collateralization constituted improper
disbursement of public funds.

Dissatisfied, Land Bank filed the instant petition.

Issues Before the Court

The following issues have been raised for the Court’s resolution: (1) whether Cacayuran has
standing to sue; (2) whether the Subject Resolutions were validly passed; and (3) whether the
Subject Loans are ultra vires.

The Court’s Ruling

The petition lacks merit.

A. Cacayuran’s standing to sue

Land Bank claims that Cacayuran did not have any standing to contest the construction of the
APC as it was funded through the proceeds coming from the Subject Loans and not from public
funds. Besides, Cacayuran was not even a party to any of the Subject Loans and is thus,
precluded from questioning the same.

The argument is untenable.

It is hornbook principle that a taxpayer is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being deflected to any improper purpose, or that
there is wastage of public funds through the enforcement of an invalid or unconstitutional law. A
person suing as a taxpayer, however, must show that the act complained of directly involves the
illegal disbursement of public funds derived from taxation. In other words, for a taxpayer’s suit
to prosper, two requisites must be met namely, (1) public funds derived from taxation are
disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some
irregularity is committed; and (2) the petitioner is directly affected by the alleged act.31
Records reveal that the foregoing requisites are present in the instant case.

First, although the construction of the APC would be primarily sourced from the proceeds of the
Subject Loans, which Land Bank insists are not taxpayer’s money, there is no denying that
public funds derived from taxation are bound to be expended as the Municipality assigned a
portion of its IRA as a security for the foregoing loans. Needless to state, the Municipality’s
IRA, which serves as the local government unit’s just share in the national taxes,32 is in the
nature of public funds derived from taxation. The Court believes, however, that although these
funds may be posted as a security, its collateralization should only be deemed effective during
the incumbency of the public officers who approved the same, else those who succeed them be
effectively deprived of its use.

In any event, it is observed that the proceeds from the Subject Loans had already been converted
into public funds by the Municipality’s receipt thereof. Funds coming from private sources
become impressed with the characteristics of public funds when they are under official custody.33

Accordingly, the first requisite has been clearly met.

Second, as a resident-taxpayer of the Municipality, Cacayuran is directly affected by the

conversion of the Agoo Plaza which was funded by the proceeds of the Subject Loans. It is well-
settled that public plazas are properties for public use34 and therefore, belongs to the public
dominion.35 As such, it can be used by anybody and no one can exercise over it the rights of a
private owner.36 In this light, Cacayuran had a direct interest in ensuring that the Agoo Plaza
would not be exploited for commercial purposes through the APC’s construction. Moreover,
Cacayuran need not be privy to the Subject Loans in order to proffer his objections thereto. In
Mamba v. Lara, it has been held that a taxpayer need not be a party to the contract to challenge
its validity; as long as taxes are involved, people have a right to question contracts entered into
by the government.37

Therefore, as the above-stated requisites obtain in this case, Cacayuran has standing to file the
instant suit.

B. Validity of the Subject Resolutions

Land Bank avers that the Subject Resolutions provided ample authority for Mayor Eriguel to
contract the Subject Loans. It posits that Section 444(b)(1)(vi) of the LGC merely requires that
the municipal mayor be authorized by the SB concerned and that such authorization need not be
embodied in an ordinance.38

A careful perusal of Section 444(b)(1)(vi) of the LGC shows that while the authorization of the
municipal mayor need not be in the form of an ordinance, the obligation which the said local
executive is authorized to enter into must be made pursuant to a law or ordinance, viz:

Sec. 444. The Chief Executive: Powers, Duties, Functions and Compensation. -

xxxx
(b) For efficient, effective and economical governance the purpose of which is the general
welfare of the municipality and its inhabitants pursuant to Section 16 of this Code, the municipal
mayor shall:

xxxx

(vi) Upon authorization by the sangguniang bayan, represent the municipality in all its business
transactions and sign on its behalf all bonds, contracts, and obligations, and such other
documents made pursuant to law or ordinance; (Emphasis and underscoring supplied)

In the present case, while Mayor Eriguel’s authorization to contract the Subject Loans was not
contained – as it need not be contained – in the form of an ordinance, the said loans and even the
Redevelopment Plan itself were not approved pursuant to any law or ordinance but through mere
resolutions. The distinction between ordinances and resolutions is well-perceived. While
ordinances are laws and possess a general and permanent character, resolutions are merely
declarations of the sentiment or opinion of a lawmaking body on a specific matter and are
temporary in nature.39 As opposed to ordinances, "no rights can be conferred by and be inferred
from a resolution."40 In this accord, it cannot be denied that the SB violated Section 444(b)(1)(vi)
of the LGC altogether.

Noticeably, the passage of the Subject Resolutions was also tainted with other irregularities, such
as (1) the SB’s failure to submit the Subject Resolutions to the Sangguniang Panlalawigan of La
Union for its review contrary to Section 56 of the LGC;41 and (2) the lack of publication and
posting in contravention of Section 59 of the LGC.42

In fine, Land Bank cannot rely on the Subject Resolutions as basis to validate the Subject Loans.

C. Ultra vires nature of the Subject

Loans

Neither can Land Bank claim that the Subject Loans do not constitute ultra vires acts of the
officers who approved the same.

Generally, an ultra vires act is one committed outside the object for which a corporation is
created as defined by the law of its organization and therefore beyond the powers conferred upon
it by law.43 There are two (2) types of ultra vires acts. As held in Middletown Policemen's
Benevolent Association v. Township of Middletown:44

There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation
and the irregular exercise of a basic power under the legislative grant in matters not in
themselves jurisdictional. The former are ultra vires in the primary sense and void; the latter,
ultra vires only in a secondary sense which does not preclude ratification or the application of the
doctrine of estoppel in the interest of equity and essential justice. (Emphasis and underscoring
supplied)
In other words, an act which is outside of the municipality’s jurisdiction is considered as a void
ultra vires act, while an act attended only by an irregularity but remains within the municipality’s
power is considered as an ultra vires act subject to ratification and/or validation. To the former
belongs municipal contracts which (a) are entered into beyond the express, implied or inherent
powers of the local government unit; and (b) do not comply with the substantive requirements of
law e.g., when expenditure of public funds is to be made, there must be an actual appropriation
and certificate of availability of funds; while to the latter belongs those which (a) are entered into
by the improper department, board, officer of agent; and (b)do not comply with the formal
requirements of a written contract e.g., the Statute of Frauds.45

Applying these principles to the case at bar, it is clear that the Subject Loans belong to the first
class of ultra vires acts deemed as void.

Records disclose that the said loans were executed by the Municipality for the purpose of
funding the conversion of the Agoo Plaza into a commercial center pursuant to the
Redevelopment Plan. However, the conversion of the said plaza is beyond the Municipality’s
jurisdiction considering the property’s nature as one for public use and thereby, forming part of
the public dominion. Accordingly, it cannot be the object of appropriation either by the State or
by private persons.46 Nor can it be the subject of lease or any other contractual undertaking.47 In
Villanueva v. Castañeda, Jr.,48 citing Espiritu v. Municipal Council of Pozorrubio,49 the Court
pronounced that:

x x x Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed
of or even leased by the municipality to private parties.1âwphi1

In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is
contrary to law, morals, good customs, public order or public policy is considered void50 and as
such, creates no rights or obligations or any juridical relations.51 Consequently, given the
unlawful purpose behind the Subject Loans which is to fund the commercialization of the Agoo
Plaza pursuant to the Redevelopment Plan, they are considered as ultra vires in the primary sense
thus, rendering them void and in effect, non-binding on the Municipality.

At this juncture, it is equally observed that the land on which the Agoo Plaza is situated cannot
be converted into patrimonial property – as the SB tried to when it passed Municipal Ordinance
No. 02-200752 – absent any express grant by the national government.53 As public land used for
public use, the foregoing lot rightfully belongs to and is subject to the administration and control
of the Republic of the Philippines.54 Hence, without the said grant, the Municipality has no right
to claim it as patrimonial property.

Nevertheless, while the Subject Loans cannot bind the Municipality for being ultra vires, the
officers who authorized the passage of the Subject Resolutions are personally liable. Case law
states that public officials can be held personally accountable for acts claimed to have been
performed in connection with official duties where they have acted ultra vires,55 as in this case.
WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010 Decision of the Court
of Appeals in CA-G.R. CV. No. 89732 is hereby AFFIRMED.

SO ORDERED.
G.R. No. 166006 March 14, 2008

PLANTERS PRODUCTS, INC., Petitioner,

vs.
FERTIPHIL CORPORATION, Respondent.

DECISION

REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of
Appeals (CA) affirming with modification that of the RTC in Makati City,2 finding petitioner
Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the
levies it paid under Letter of Instruction (LOI) No. 1465.

The Facts

Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws.3 They are both engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI
No. 1465 which provided, among others, for the imposition of a capital recovery component
(CRC) on the domestic sale of all grades of fertilizers in the Philippines.4 The LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than ₱10 per bag. This capital contribution
shall be collected until adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the Philippines.5 (Underscoring
supplied)

Pursuant to the LOI, Fertiphil paid ₱10 for every bag of fertilizer it sold in the domestic market
to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the
Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid ₱6,689,144 to FPA
from July 8, 1985 to January 24, 1986.6

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the ₱10 levy. With
the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI
No. 1465, but PPI refused to accede to the demand.7

Fertiphil filed a complaint for collection and damages8 against FPA and PPI with the RTC in
Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law.9
Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used the
proceeds to maintain its monopoly of the fertilizer industry.

In its Answer,10 FPA, through the Solicitor General, countered that the issuance of LOI No. 1465
was a valid exercise of the police power of the State in ensuring the stability of the fertilizer
industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI
because the burden imposed by the levy fell on the ultimate consumer, not the seller.

RTC Disposition

On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant Planters Product, Inc., ordering the latter to pay the former:

1) the sum of ₱6,698,144.00 with interest at 12% from the time of judicial demand;

2) the sum of ₱100,000 as attorney’s fees;

3) the cost of suit.

SO ORDERED.11

Ruling that the imposition of the ₱10 CRC was an exercise of the State’s inherent power of
taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be
levied for public purpose, viz.:

It is apparent that the imposition of ₱10 per fertilizer bag sold in the country by LOI 1465 is
purportedly in the exercise of the power of taxation. It is a settled principle that the power of
taxation by the state is plenary. Comprehensive and supreme, the principal check upon its abuse
resting in the responsibility of the members of the legislature to their constituents. However,
there are two kinds of limitations on the power of taxation: the inherent limitations and the
constitutional limitations.

One of the inherent limitations is that a tax may be levied only for public purposes:

The power to tax can be resorted to only for a constitutionally valid public purpose. By the same
token, taxes may not be levied for purely private purposes, for building up of private fortunes, or
for the redress of private wrongs. They cannot be levied for the improvement of private property,
or for the benefit, and promotion of private enterprises, except where the aid is incident to the
public benefit. It is well-settled principle of constitutional law that no general tax can be levied
except for the purpose of raising money which is to be expended for public use. Funds cannot be
exacted under the guise of taxation to promote a purpose that is not of public interest. Without
such limitation, the power to tax could be exercised or employed as an authority to destroy the
economy of the people. A tax, however, is not held void on the ground of want of public interest
unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of ₱6,698,144.00 to the Fertilizer and Pesticide
Authority pursuant to the ₱10 per bag of fertilizer sold imposition under LOI 1465 which, in
turn, remitted the amount to the defendant Planters Products, Inc. thru the latter’s depository
bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil
Corporation, which is a private domestic corporation, became poorer by the amount of
₱6,698,144.00 and the defendant, Planters Product, Inc., another private domestic corporation,
became richer by the amount of ₱6,698,144.00.

Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is

quite evident that LOI 1465 insofar as it imposes the amount of ₱10 per fertilizer bag sold in the
country and orders that the said amount should go to the defendant Planters Product, Inc. is
unlawful because it violates the mandate that a tax can be levied only for a public purpose and
not to benefit, aid and promote a private enterprise such as Planters Product, Inc.12

PPI moved for reconsideration but its motion was denied.13 PPI then filed a notice of appeal with
the RTC but it failed to pay the requisite appeal docket fee. In a separate but related proceeding,
this Court14 allowed the appeal of PPI and remanded the case to the CA for proper disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of the
RTC, with the following fallo:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED,
subject to the MODIFICATION that the award of attorney’s fees is hereby DELETED.15

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was
the constitutionality of LOI No. 1465, thus:

The question then is whether it was proper for the trial court to exercise its power to judicially
determine the constitutionality of the subject statute in the instant case.

As a rule, where the controversy can be settled on other grounds, the courts will not resolve the
constitutionality of a law (Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is
to avoid ruling on constitutional questions and to presume that the acts of political departments
are valid, absent a clear and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the following requisites
are obtaining in a controversy before it: First, there must be before the court an actual case
calling for the exercise of judicial review. Second, the question must be ripe for adjudication.
Third, the person challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity; and lastly, the
issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines
v. Zamora, 338 SCRA 81 [2000]).

Indisputably, the present case was primarily instituted for collection and damages. However, a
perusal of the complaint also reveals that the instant action is founded on the claim that the levy
imposed was an unlawful and unconstitutional special assessment. Consequently, the requisite
that the constitutionality of the law in question be the very lis mota of the case is present, making
it proper for the trial court to rule on the constitutionality of LOI 1465.16

The CA held that even on the assumption that LOI No. 1465 was issued under the police power
of the state, it is still unconstitutional because it did not promote public welfare. The CA
explained:

In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said
law was an invalid exercise of the State’s power of taxation inasmuch as it violated the inherent
and constitutional prescription that taxes be levied only for public purposes. It reasoned out that
the amount collected under the levy was remitted to the depository bank of PPI, which the latter
used to advance its private interest.

On the other hand, appellant submits that the subject statute’s passage was a valid exercise of
police power. In addition, it disputes the court a quo’s findings arguing that the collections under
LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by
law to hold in trust for millions of farmers, the stock ownership of PPI.

Of the three fundamental powers of the State, the exercise of police power has been
characterized as the most essential, insistent and the least limitable of powers, extending as it
does to all the great public needs. It may be exercised as long as the activity or the property
sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani A.
Cruz, p. 38, 1995 Edition).

Vast as the power is, however, it must be exercised within the limits set by the Constitution,
which requires the concurrence of a lawful subject and a lawful method. Thus, our courts have
laid down the test to determine the validity of a police measure as follows: (1) the interests of the
public generally, as distinguished from those of a particular class, requires its exercise; and (2)
the means employed are reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals (National Development Company v. Philippine Veterans
Bank, 192 SCRA 257 [1990]).

It is upon applying this established tests that We sustain the trial court’s holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
government’s commitment to support the successful rehabilitation and continued viability of PPI,
a private corporation, is an unmistakable attempt to mask the subject statute’s impartiality. There
is no way to treat the self-interest of a favored entity, like PPI, as identical with the general
interest of the country’s farmers or even the Filipino people in general. Well to stress,
substantive due process exacts fairness and equal protection disallows distinction where none is
needed. When a statute’s public purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an arbitrary exercise of government
power. To rule in favor of appellant would contravene the general principle that revenues derived
from taxes cannot be used for purely private purposes or for the exclusive benefit of private
individuals.17

The CA did not accept PPI’s claim that the levy imposed under LOI No. 1465 was for the benefit
of Planters Foundation, Inc., a foundation created to hold in trust the stock ownership of PPI. The
CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of
farmers, the stock ownership of PFI on the strength of Letter of Undertaking (LOU) issued by
then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in
an Opinion dated October 12, 1987, to wit:

"2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to
include in its fertilizer pricing formula a capital recovery component, the proceeds of which will
be used initially for the purpose of funding the unpaid portion of the outstanding capital stock of
Planters presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid
capital is estimated at approximately ₱206 million (subject to validation by Planters and Planters
Foundation) (such unpaid portion of the outstanding capital stock of Planters being hereafter
referred to as the ‘Unpaid Capital’), and subsequently for such capital increases as may be
required for the continuing viability of Planters.

The capital recovery component shall be in the minimum amount of ₱10 per bag, which will be
added to the price of all domestic sales of fertilizer in the Philippines by any importer and/or
fertilizer mother company. In this connection, the Republic hereby acknowledges that the
advances by Planters to Planters Foundation which were applied to the payment of the Planters
shares now held in trust by Planters Foundation, have been assigned to, among others, the
Creditors. Accordingly, the Republic, through FPA, hereby agrees to deposit the proceeds of the
capital recovery component in the special trust account designated in the notice dated April 2,
1985, addressed by counsel for the Creditors to Planters Foundation. Such proceeds shall be
deposited by FPA on or before the 15th day of each month.

The capital recovery component shall continue to be charged and collected until payment in full
of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts which may be outstanding from
time to time of the Unpaid Capital and/or the Subsidy Receivables and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the ‘carrying
cost’ shall be at such rate as will represent the full and reasonable cost to Planters of servicing its
debts, taking into account both its peso and foreign currency-denominated obligations."
(Records, pp. 42-43)
Appellant’s proposition is open to question, to say the least. The LOU issued by then Prime
Minister Virata taken together with the Justice Secretary’s Opinion does not preponderantly
demonstrate that the collections made were held in trust in favor of millions of farmers.
Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this
Court is constrained to rely on what is explicitly provided in LOI 1465 – that one of the primary
aims in imposing the levy is to support the successful rehabilitation and continued viability of
PPI.18

PPI moved for reconsideration but its motion was denied.19 It then filed the present petition with
this Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED

AND BE DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION
AND DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS
MOTA OF THE CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON
OR ENTITY WHICH HAS NO STANDING TO DO SO.

II

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

III

THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS

REMITTED TO THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS
PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED
DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF "OPERATIVE
FACT" PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.

IV

THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO

APPLICATION IN THE INSTANT CASE.20 (Underscoring supplied)

Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to
resolve constitutional issues.

Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere
procedural technicality which may be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465
because it does not have a "personal and substantial interest in the case or will sustain direct
injury as a result of its enforcement."21 It asserts that Fertiphil did not suffer any damage from
the CRC imposition because "incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company."22

We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has
been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires
a litigant to have a material interest in the outcome of a case. In private suits, locus standi
requires a litigant to be a "real party in interest," which is defined as "the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."23

In public suits, this Court recognizes the difficulty of applying the doctrine especially when
plaintiff asserts a public right on behalf of the general public because of conflicting public policy
issues. 24 On one end, there is the right of the ordinary citizen to petition the courts to be freed
from unlawful government intrusion and illegal official action. At the other end, there is the
public policy precluding excessive judicial interference in official acts, which may unnecessarily
hinder the delivery of basic public services.

In this jurisdiction, We have adopted the "direct injury test" to determine locus standi in public
suits. In People v. Vera,25 it was held that a person who impugns the validity of a statute must
have "a personal and substantial interest in the case such that he has sustained, or will sustain
direct injury as a result." The "direct injury test" in public suits is similar to the "real party in
interest" rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure.26

Recognizing that a strict application of the "direct injury" test may hamper public interest, this
Court relaxed the requirement in cases of "transcendental importance" or with "far reaching
implications." Being a mere procedural technicality, it has also been held that locus standi may
be waived in the public interest.27

Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil
has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No.
1465. It was required, and it did pay, the ₱10 levy imposed for every bag of fertilizer sold on the
domestic market. It may be true that Fertiphil has passed some or all of the levy to the ultimate
consumer, but that does not disqualify it from attacking the constitutionality of the LOI or from
seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility
of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury to
Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to
factor in its product the levy. The levy certainly rendered the fertilizer products of Fertiphil and
other domestic sellers much more expensive. The harm to their business consists not only in
fewer clients because of the increased price, but also in adopting alternative corporate strategies
to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered
all or part of the levy just to be competitive in the market. The harm occasioned on the business
of Fertiphil is sufficient injury for purposes of locus standi.

Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently
adopted by this Court on locus standi must apply. The issues raised by Fertiphil are of paramount
public importance. It involves not only the constitutionality of a tax law but, more importantly,
the use of taxes for public purpose. Former President Marcos issued LOI No. 1465 with the
intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI
is expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made
dependent and conditional upon PPI becoming financially viable. The LOI provided that "the
capital contribution shall be collected until adequate capital is raised to make PPI viable."

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our
constitutional duty to squarely resolve the issue as the final arbiter of all justiciable
controversies. The doctrine of standing, being a mere procedural technicality, should be waived,
if at all, to adequately thresh out an important constitutional issue.

RTC may resolve constitutional issues; the constitutional issue was adequately raised in the
complaint; it is the lis mota of the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts
that the constitutionality of the LOI cannot be collaterally attacked in a complaint for
collection.28 Alternatively, the resolution of the constitutional issue is not necessary for a
determination of the complaint for collection.29

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It
claims that the constitutionality of LOI No. 1465 is the very lis mota of the case because the trial
court cannot determine its claim without resolving the issue.30

It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential
decree or an executive order. This is clear from Section 5, Article VIII of the 1987 Constitution,
which provides:

SECTION 5. The Supreme Court shall have the following powers:

xxxx

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in:
(a) 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. (Underscoring supplied)

In Mirasol v. Court of Appeals,31 this Court recognized the power of the RTC to resolve
constitutional issues, thus:

On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to
consider the constitutionality of a statute, presidential decree, or executive order. 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 not only
in this Court, but in all Regional Trial Courts.32

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,33 this Court
reiterated:

There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court alone for even the regional trial
courts can take cognizance of actions assailing a specific rule or set of rules promulgated by
administrative bodies. 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.34

Judicial review of official acts on the ground of unconstitutionality may be sought or availed of
through any of the actions cognizable by courts of justice, not necessarily in a suit for declaratory
relief. Such review may be had in criminal actions, as in People v. Ferrer35 involving the
constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as in Krivenko
v. Register of Deeds36 involving the constitutionality of laws prohibiting aliens from acquiring
public lands. The constitutional issue, however, (a) must be properly raised and presented in the
case, and (b) its resolution is necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.37

Contrary to PPI’s claim, the constitutionality of LOI No. 1465 was properly and adequately
raised in the complaint for collection filed with the RTC. The pertinent portions of the complaint
allege:

6. The CRC of ₱10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in
the Philippines, is unlawful, unjust, uncalled for, unreasonable, inequitable and oppressive
because:

xxxx

(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the
expense and disadvantage of the other fertilizer importers/distributors who were themselves in
tight business situation and were then exerting all efforts and maximizing management and
marketing skills to remain viable;

xxxx

(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having
been presumptuously masqueraded as "the" fertilizer industry itself, was the sole and anointed
beneficiary;

7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is
tantamount to illegal exaction amounting to a denial of due process since the persons of entities
which had to bear the burden of paying the CRC derived no benefit therefrom; that on the
contrary it was used by PPI in trying to regain its former despicable monopoly of the fertilizer
industry to the detriment of other distributors and importers.38 (Underscoring supplied)

The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection.
Fertiphil filed the complaint to compel PPI to refund the levies paid under the statute on the
ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional
law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay the levy.
Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the
civil code principle against unjust enrichment. The refund is a mere consequence of the law
being declared unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does
not declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers the
refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.

The ₱10 levy under LOI No. 1465 is an exercise of the power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of
taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer supply
and distribution in the country and for benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.

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

Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare,39 while the power of taxation is the power to levy taxes to be used for public purpose.
The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The "lawful subjects" and "lawful means" tests are used to determine the
validity of a law enacted under the police power.40 The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its
taxation power. While it is true that the power of taxation can be used as an implement of police
power,41 the primary purpose of the levy is revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is
properly called a tax.42

In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition of a vehicle registration fee is
not an exercise by the State of its police power, but of its taxation power, thus:

It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the
Land Transportation and Traffic Code that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. x x x Fees may be properly regarded as taxes even though
they also serve as an instrument of regulation.

Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration
fees. The same provision appears as Section 59(b) in the Land Transportation Code. It is patent
therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on
the registration, operation or ownership of a motor vehicle as a "tax or fee." x x x Simply put, if
the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448
need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees" such as the special
permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very
minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes
like the motor vehicle registration fee and chauffeurs’ license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as provided for in the last proviso of Sec.
61.44 (Underscoring supplied)

The ₱10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy,
no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag
of fertilizer by as much as five percent.45 A plain reading of the LOI also supports the conclusion
that the levy was for revenue generation. The LOI expressly provided that the levy was imposed
"until adequate capital is raised to make PPI viable."

Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional because it was not
for a public purpose. The levy was imposed to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private purposes or for the exclusive benefit of
private persons.46 The reason for this is simple. The power to tax exists for the general welfare;
hence, implicit in its power is the limitation that it should be used only for a public purpose. It
would be a robbery for the State to tax its citizens and use the funds generated for a private
purpose. As an old United States case bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other to bestow it upon favored
individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery
because it is done under the forms of law and is called taxation."47

The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may now be
used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

While the categories of what may constitute a public purpose are continually expanding in light
of the expansion of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law
is only a mask to exact funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of "public purpose."

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We
agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public
purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company.
The purpose is explicit from Clause 3 of the law, thus:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than ₱10 per bag. This capital contribution
shall be collected until adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the Philippines.48 (Underscoring
supplied)

It is a basic rule of statutory construction that the text of a statute should be given a literal
meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise
capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They
were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI.
We find it utterly repulsive that a tax law would expressly name a private company as the
ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony
capitalism.

Second, the LOI provides that the imposition of the ₱10 levy was conditional and dependent
upon PPI becoming financially "viable." This suggests that the levy was actually imposed to
benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially
"viable." Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is
made indefinite. They are required to continuously pay the levy until adequate capital is raised
for PPI.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI.49 This
proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to
give undue benefit and advantage to PPI.

Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding50 dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI
was in deep financial problem because of its huge corporate debts. There were pending petitions
for rehabilitation against PPI before the Securities and Exchange Commission. The government
guaranteed payment of PPI’s debts to its foreign creditors. To fund the payment, President
Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding read:

Republic of the Philippines

Office of the Prime Minister
Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONS

LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE "CREDITORS")
OF PLANTERS PRODUCTS, INC. ("PLANTERS")

Gentlemen:

This has reference to Planters which is the principal importer and distributor of fertilizer,
pesticides and agricultural chemicals in the Philippines. As regards Planters, the Philippine
Government confirms its awareness of the following: (1) that Planters has outstanding
obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently pending with the Securities
and Exchange Commission of the Philippines a petition filed at Planters’ own behest for the
suspension of payment of all its obligations, and a separate petition filed by Manufacturers
Hanover Trust Company, Manila Offshore Branch for the appointment of a rehabilitation
receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the "Republic") confirms that
it considers and continues to consider Planters as a major fertilizer distributor. Accordingly, for
and in consideration of your expressed willingness to consider and participate in the effort to
rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the
successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and
obligates itself to the creditors and Planters, as follows:
 xxxx

2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include
in its fertilizer pricing formula a capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. ("Planters Foundation"), which unpaid capital
is estimated at approximately ₱206 million (subject to validation by Planters and Planters
Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter
referred to as the "Unpaid Capital"), and subsequently for such capital increases as may be
required for the continuing viability of Planters.

xxxx

The capital recovery component shall continue to be charged and collected until payment in full
of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts which may be outstanding from
time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the "carrying
cost" shall be at such rate as will represent the full and reasonable cost to Planters of servicing its
debts, taking into account both its peso and foreign currency-denominated obligations.

REPUBLIC OF THE PHILIPPINES

By:

(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance51

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the
corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the
stability of the fertilizer industry in the country. The letter of understanding and the plain text of
the LOI clearly indicate that the levy was exacted for the benefit of a private corporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465
was not for a public purpose. LOI No. 1465 failed to comply with the public purpose
requirement for tax laws.

The LOI is still unconstitutional even if enacted under the police power; it did not promote
public interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be
invalid for failing to comply with the test of "lawful subjects" and "lawful means." Jurisprudence
states the test as follows: (1) the interest of the public generally, as distinguished from those of
particular class, requires its exercise; and (2) the means employed are reasonably necessary for
the accomplishment of the purpose and not unduly oppressive upon individuals.52
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. We quote with
approval the CA ratiocination on this point, thus:

It is upon applying this established tests that We sustain the trial court’s holding LOI 1465
unconstitutional.1awphil To be sure, ensuring the continued supply and distribution of fertilizer
in the country is an undertaking imbued with public interest. However, the method by which LOI
1465 sought to achieve this is by no means a measure that will promote the public welfare. The
government’s commitment to support the successful rehabilitation and continued viability of PPI,
a private corporation, is an unmistakable attempt to mask the subject statute’s impartiality. There
is no way to treat the self-interest of a favored entity, like PPI, as identical with the general
interest of the country’s farmers or even the Filipino people in general. Well to stress,
substantive due process exacts fairness and equal protection disallows distinction where none is
needed. When a statute’s public purpose is spoiled by private interest, the use of police power
becomes a travesty which must be struck down for being an arbitrary exercise of government
power. To rule in favor of appellant would contravene the general principle that revenues derived
from taxes cannot be used for purely private purposes or for the exclusive benefit of private
individuals. (Underscoring supplied)

The general rule is that an unconstitutional law is void; the doctrine of operative fact is
inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared
unconstitutional. It banks on the doctrine of operative fact, which provides that an
unconstitutional law has an effect before being declared unconstitutional. PPI wants to retain the
levies paid under LOI No. 1465 even if it is subsequently declared to be unconstitutional.

We cannot agree. It is settled that no question, issue or argument will be entertained on appeal,
unless it has been raised in the court a quo.53 PPI did not raise the applicability of the doctrine of
operative fact with the RTC and the CA. It cannot belatedly raise the issue with Us in order to
extricate itself from the dire effects of an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is
void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It
is, in legal contemplation, inoperative as if it has not been passed.54 Being void, Fertiphil is not
required to pay the levy. All levies paid should be refunded in accordance with the general civil
code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil
Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall
not be excused by disuse or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be void
and the latter shall govern.
The doctrine of operative fact, as an exception to the general rule, only applies as a matter of
equity and fair play.55 It nullifies the effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of unconstitutionality is an operative fact and may
have consequences which cannot always be ignored. The past cannot always be erased by a new
judicial declaration.56

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden
on those who have relied on the invalid law. Thus, it was applied to a criminal case when a
declaration of unconstitutionality would put the accused in double jeopardy57 or would put in
limbo the acts done by a municipality in reliance upon a law creating it.58

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil
under LOI No. 1465. It unduly benefited from the levy. It was proven during the trial that the
levies paid were remitted and deposited to its bank account. Quite the reverse, it would be
inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the expense of
Fertiphil. Article 22 of the Civil Code explicitly provides that "every person who, through an act
of performance by another comes into possession of something at the expense of the latter
without just or legal ground shall return the same to him." We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by
Fertiphil.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28,
2003 is AFFIRMED.

SO ORDERED.
G.R. No. 189999 June 27, 2012

ANGELES UNIVERSITY FOUNDATION, Petitioner,

vs.
CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as Treasurer of Angeles
City and ENGR. DONATO N. DIZON, in his capacity as Acting Angeles City Building
Official, Respondents.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, which seeks to reverse and set aside the Decision1 dated July 28, 2009
and Resolution2 dated October 12, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
90591. The CA reversed the Decision3 dated September 21, 2007 of the Regional Trial Court of
Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the payment
of building permit and other fees and ordering respondents to refund the same with interest at the
legal rate.

The factual antecedents:

Petitioner Angeles University Foundation (AUF) is an educational institution established on May

25, 1962 and was converted into a non-stock, non-profit education foundation under the
provisions of Republic Act (R.A.) No. 60554 on December 4, 1975.

Sometime in August 2005, petitioner filed with the Office of the City Building Official an
application for a building permit for the construction of an 11-storey building of the Angeles
University Foundation Medical Center in its main campus located at MacArthur Highway,
Angeles City, Pampanga. Said office issued a Building Permit Fee Assessment in the amount of
P126,839.20. An Order of Payment was also issued by the City Planning and Development
Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as
Locational Clearance Fee.5

In separate letters dated November 15, 2005 addressed to respondents City Treasurer Juliet G.
Quinsaat and Acting City Building Official Donato N. Dizon, petitioner claimed that it is exempt
from the payment of the building permit and locational clearance fees, citing legal opinions
rendered by the Department of Justice (DOJ). Petitioner also reminded the respondents that they
have previously issued building permits acknowledging such exemption from payment of
building permit fees on the construction of petitioner’s 4-storey AUF Information Technology
Center building and the AUF Professional Schools building on July 27, 2000 and March 15,
2004, respectively.6

Respondent City Treasurer referred the matter to the Bureau of Local Government Finance
(BLGF) of the Department of Finance, which in turn endorsed the query to the DOJ. Then
Justice Secretary Raul M. Gonzalez, in his letter-reply dated December 6, 2005, cited previous
issuances of his office (Opinion No. 157, s. 1981 and Opinion No. 147, s. 1982) declaring
petitioner to be exempt from the payment of building permit fees. Under the 1st Indorsement
dated January 6, 2006, BLGF reiterated the aforesaid opinion of the DOJ stating further that "xxx
the Department of Finance, thru this Bureau, has no authority to review the resolution or the
decision of the DOJ."7

Petitioner wrote the respondents reiterating its request to reverse the disputed assessments and
invoking the DOJ legal opinions which have been affirmed by Secretary Gonzalez. Despite
petitioner’s plea, however, respondents refused to issue the building permits for the construction
of the AUF Medical Center in the main campus and renovation of a school building located at
Marisol Village. Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin but no
written response was received by petitioner.8

Consequently, petitioner paid under protest9 the following:

Medical Center (new construction)

Building Permit and Electrical Fee P 217,475.20

Locational Clearance Fee 283,741.64
Fire Code Fee 144,690.00
Total - P 645,906.84

School Building (renovation)

Building Permit and Electrical Fee P 37,857.20

Locational Clearance Fee 6,000.57
Fire Code Fee 5,967.74
Total - P 49,825.51

Petitioner likewise paid the following sums as required by the City Assessor’s Office:

Real Property Tax – Basic Fee P 86,531.10

SEF 43,274.54
Locational Clearance Fee 1,125.00
Total – P130,930.6410
[GRAND TOTAL - P 826,662.99]

By reason of the above payments, petitioner was issued the corresponding Building Permit,
Wiring Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006, petitioner
formally requested the respondents to refund the fees it paid under protest. Under letters dated
June 15, 2006 and August 7, 2006, respondent City Treasurer denied the claim for refund.11
On August 31, 2006, petitioner filed a Complaint12 before the trial court seeking the refund of
P826,662.99 plus interest at the rate of 12% per annum, and also praying for the award of
attorney’s fees in the amount of P300,000.00 and litigation expenses.

In its Answer,13 respondents asserted that the claim of petitioner cannot be granted because its
structures are not among those mentioned in Sec. 209 of the National Building Code as exempted
from the building permit fee. Respondents argued that R.A. No. 6055 should be considered
repealed on the basis of Sec. 2104 of the National Building Code. Since the disputed assessments
are regulatory in nature, they are not taxes from which petitioner is exempt. As to the real
property taxes imposed on petitioner’s property located in Marisol Village, respondents pointed
out that said premises will be used as a school dormitory which cannot be considered as a use
exclusively for educational activities.

Petitioner countered that the subject building permit are being collected on the basis of Art. 244
of the Implementing Rules and Regulations of the Local Government Code, which impositions
are really taxes considering that they are provided under the chapter on "Local Government
Taxation" in reference to the "revenue raising power" of local government units (LGUs).
Moreover, petitioner contended that, as held in Philippine Airlines, Inc. v. Edu,14 fees may be
regarded as taxes depending on the purpose of its exaction. In any case, petitioner pointed out
that the Local Government Code of 1991 provides in Sec. 193 that non-stock and non-profit
educational institutions like petitioner retained the tax exemptions or incentives which have been
granted to them. Under Sec. 8 of R.A. No. 6055 and applicable jurisprudence and DOJ rulings,
petitioner is clearly exempt from the payment of building permit fees.15

On September 21, 2007, the trial court rendered judgment in favor of the petitioner and against
the respondents. The dispositive portion of the trial court’s decision16 reads:

WHEREFORE, premises considered, judgment is rendered as follows:

a. Plaintiff is exempt from the payment of building permit and other fees Ordering the
Defendants to refund the total amount of Eight Hundred Twenty Six Thousand Six
Hundred Sixty Two Pesos and 99/100 Centavos (P826,662.99) plus legal interest thereon
at the rate of twelve percent (12%) per annum commencing on the date of extra-judicial
demand or June 14, 2006, until the aforesaid amount is fully paid.

b. Finding the Defendants liable for attorney’s fees in the amount of Seventy Thousand
Pesos (Php70,000.00), plus litigation expenses.

c. Ordering the Defendants to pay the costs of the suit.

SO ORDERED.17

Respondents appealed to the CA which reversed the trial court, holding that while petitioner is a
tax-free entity, it is not exempt from the payment of regulatory fees. The CA noted that under
R.A. No. 6055, petitioner was granted exemption only from income tax derived from its
educational activities and real property used exclusively for educational purposes. Regardless of
the repealing clause in the National Building Code, the CA held that petitioner is still not exempt
because a building permit cannot be considered as the other "charges" mentioned in Sec. 8 of
R.A. No. 6055 which refers to impositions in the nature of tax, import duties, assessments and
other collections for revenue purposes, following the ejusdem generisrule. The CA further stated
that petitioner has not shown that the fees collected were excessive and more than the cost of
surveillance, inspection and regulation. And while petitioner may be exempt from the payment
of real property tax, petitioner in this case merely alleged that "the subject property is to be used
actually, directly and exclusively for educational purposes," declaring merely that such premises
is intended to house the sports and other facilities of the university but by reason of the
occupancy of informal settlers on the area, it cannot yet utilize the same for its intended use.
Thus, the CA concluded that petitioner is not entitled to the refund of building permit and related
fees, as well as real property tax it paid under protest.

Petitioner filed a motion for reconsideration which was denied by the CA.

Hence, this petition raising the following grounds:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A

QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE
APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS
NECESSITATING THE HONORABLE COURT’S EXERCISE OF ITS POWER OF
SUPERVISION CONSIDERING THAT:

I. IN REVERSING THE TRIAL COURT’S DECISION DATED 21 SEPTEMBER 2007, THE

COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF EXEMPTION
GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL FOUNDATIONS BY
VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE AUTHORITY OF THE
COURT OF APPEALS TO DO.

A. INDEED, RA 6055 REMAINS VALID AND IS IN FULL FORCE AND

EFFECT. HENCE, THE COURT OF APPEALS ERRED WHEN IT RULED IN
THE QUESTIONED DECISION THAT NON-STOCK, NON-PROFIT
EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT.

B. THE COURT OF APPEALS’ APPLICATION OF THE PRINCIPLE OF

EJUSDEM GENERIS IN RULING IN THE QUESTIONED DECISION THAT
THE TERM "OTHER CHARGES IMPOSED BY THE GOVERNMENT"
UNDER SECTION 8 OF RA 6055 DOES NOT INCLUDE BUILDING PERMIT
AND OTHER RELATED FEES AND/OR CHARGES IS BASED ON ITS
ERRONEOUS AND UNWARRANTED ASSUMPTION THAT THE TAXES,
IMPORT DUTIES AND ASSESSMENTS AS PART OF THE PRIVILEGE OF
EXEMPTION GRANTED TO NON-STOCK, NON-PROFIT EDUCATIONAL
FOUNDATIONS ARE LIMITED TO COLLECTIONS FOR REVENUE
PURPOSES.
 C. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER
RELATED FEES AND/OR CHARGES ARE NOT INCLUDED IN THE TERM
"OTHER CHARGES IMPOSED BY THE GOVERNMENT" UNDER SECTION
8 OF RA 6055, ITS IMPOSITION IS GENERALLY A TAX MEASURE AND
THEREFORE, STILL COVERED UNDER THE PRIVILEGE OF
EXEMPTION.

II. THE COURT OF APPEALS’ DENIAL OF PETITIONER AUF’S EXEMPTION FROM

REAL PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND
QUESTIONED RESOLUTION IS CONTRARY TO APPLICABLE LAW AND
JURISPRUDENCE.18

Petitioner stresses that the tax exemption granted to educational stock corporations which have
converted into non-profit foundations was broadened to include any other charges imposed by
the Government as one of the incentives for such conversion. These incentives necessarily
included exemption from payment of building permit and related fees as otherwise there would
have been no incentives for educational foundations if the privilege were only limited to
exemption from taxation, which is already provided under the Constitution.

Petitioner further contends that this Court has consistently held in several cases that the primary
purpose of the exaction determines its nature. Thus, a charge of a fixed sum which bears no
relation to the cost of inspection and which is payable into the general revenue of the state is a
tax rather than an exercise of the police power. The standard set by law in the determination of
the amount that may be imposed as license fees is such that is commensurate with the cost of
regulation, inspection and licensing. But in this case, the amount representing the building permit
and related fees and/or charges is such an exorbitant amount as to warrant a valid imposition;
such amount exceeds the probable cost of regulation. Even with the alleged criteria submitted by
the respondents (e.g., character of occupancy or use of building/structure, cost of construction,
floor area and height), and the construction by petitioner of an 11-storey building, the costs of
inspection will not amount to P645,906.84, presumably for the salary of inspectors or employees,
the expenses of transportation for inspection and the preparation and reproduction of documents.
Petitioner thus concludes that the disputed fees are substantially and mainly for purposes of
revenue rather than regulation, so that even these fees cannot be deemed "charges" mentioned in
Sec. 8 of R.A. No. 6055, they should properly be treated as tax from which petitioner is exempt.

In their Comment, respondents maintain that petitioner is not exempt from the payment of
building permit and related fees since the only exemptions provided in the National Building
Code are public buildings and traditional indigenous family dwellings. Inclusio unius est
exclusio alterius. Because the law did not include petitioner’s buildings from those structures
exempt from the payment of building permit fee, it is therefore subject to the regulatory fees
imposed under the National Building Code.

Respondents assert that the CA correctly distinguished a building permit fee from those "other
charges" mentioned in Sec. 8 of R.A. No. 6055. As stated by petitioner itself, charges refer to
pecuniary liability, as rents, and fees against persons or property. Respondents point out that a
building permit is classified under the term "fee." A fee is generally imposed to cover the cost of
regulation as activity or privilege and is essentially derived from the exercise of police power; on
the other hand, impositions for services rendered by the local government units or for
conveniences furnished, are referred to as "service charges".

Respondents also disagreed with petitioner’s contention that the fees imposed and collected are
exorbitant and exceeded the probable expenses of regulation. These fees are based on
computations and assessments made by the responsible officials of the City Engineer’s Office in
accordance with the Schedule of Fees and criteria provided in the National Building Code. The
bases of assessment cited by petitioner (e.g. salary of employees, expenses of transportation and
preparation and reproduction of documents) refer to charges and fees on business and occupation
under Sec. 147 of the Local Government Code, which do not apply to building permit fees. The
parameters set by the National Building Code can be considered as complying with the
reasonable cost of regulation in the assessment and collection of building permit fees.
Respondents likewise contend that the presumption of regularity in the performance of official
duty applies in this case. Petitioner should have presented evidence to prove its allegations that
the amounts collected are exorbitant or unreasonable.

For resolution are the following issues: (1) whether petitioner is exempt from the payment of
building permit and related fees imposed under the National Building Code; and (2) whether the
parcel of land owned by petitioner which has been assessed for real property tax is likewise
exempt.

R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted
to non-stock, non-profit educational foundations. Section 8 of said law provides:

SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties,
assessments, and other charges imposed by the Government onall income derived from or
property, real or personal, used exclusively for the educational activities of the
Foundation.(Emphasis supplied.)

On February 19, 1977, Presidential Decree (P.D.) No. 1096 was issued adopting the National
Building Code of the Philippines. The said Code requires every person, firm or corporation,
including any agency or instrumentality of the government to obtain a building permit for any
construction, alteration or repair of any building or structure.19 Building permit refers to "a
document issued by the Building Official x x x to an owner/applicant to proceed with the
construction, installation, addition, alteration, renovation, conversion, repair, moving, demolition
or other work activity of a specific project/building/structure or portions thereof after the
accompanying principal plans, specifications and other pertinent documents with the duly
notarized application are found satisfactory and substantially conforming with the National
Building Code of the Philippines x x x and its Implementing Rules and Regulations (IRR)."20
Building permit fees refers to the basic permit fee and other charges imposed under the National
Building Code.

Exempted from the payment of building permit fees are: (1) public buildings and (2) traditional
indigenous family dwellings.21 Not being expressly included in the enumeration of structures to
which the building permit fees do not apply, petitioner’s claim for exemption rests solely on its
interpretation of the term "other charges imposed by the National Government" in the tax
exemption clause of R.A. No. 6055.

A "charge" is broadly defined as the "price of, or rate for, something," while the word "fee"
pertains to a "charge fixed by law for services of public officers or for use of a privilege under
control of government."22 As used in the Local Government Code of 1991 (R.A. No. 7160),
charges refers to pecuniary liability, as rents or fees against persons or property, while fee means
a charge fixed by law or ordinance for the regulation or inspection of a business or activity.23

That "charges" in its ordinary meaning appears to be a general term which could cover a specific
"fee" does not support petitioner’s position that building permit fees are among those "other
charges" from which it was expressly exempted. Note that the "other charges" mentioned in Sec.
8 of R.A. No. 6055 is qualified by the words "imposed by the Government on all x x x property
used exclusively for the educational activities of the foundation." Building permit fees are not
impositions on property but on the activity subject of government regulation. While it may be
argued that the fees relate to particular properties, i.e., buildings and structures, they are actually
imposed on certain activities the owner may conduct either to build such structures or to repair,
alter, renovate or demolish the same. This is evident from the following provisions of the
National Building Code:

Section 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health, property, and public
welfare, consistent with theprinciples of sound environmental management and control; and
tothis end, make it the purpose of this Code to provide for allbuildings and structures, a
framework of minimum standards and requirements to regulate and control their location, site,
design quality of materials, construction, use, occupancy, and maintenance.

Section 103. Scope and Application

(a) The provisions of this Code shall apply to the design,location, sitting, construction, alteration,
repair,conversion, use, occupancy, maintenance, moving, demolitionof, and addition to public
and private buildings andstructures, except traditional indigenous family dwellingsas defined
herein.

xxxx

Section 301. Building Permits

No person, firm or corporation, including any agency orinstrumentality of the government shall
erect, construct, alter, repair, move, convert or demolish any building or structure or causethe
same to be done without first obtaining a building permittherefor from the Building Official
assigned in the place where thesubject building is located or the building work is to be done.
(Italics supplied.)
That a building permit fee is a regulatory imposition is highlighted by the fact that in processing
an application for a building permit, the Building Official shall see to it that the applicant
satisfies and conforms with approved standard requirements on zoning and land use, lines and
grades, structural design, sanitary and sewerage, environmental health, electrical and mechanical
safety as well as with other rules and regulations implementing the National Building Code.24
Thus, ancillary permits such as electrical permit, sanitary permit and zoning clearance must also
be secured and the corresponding fees paid before a building permit may be issued. And as can
be gleaned from the implementing rules and regulations of the National Building Code,
clearances from various government authorities exercising and enforcing regulatory functions
affecting buildings/structures, like local government units, may be further required before a
building permit may be issued.25

Since building permit fees are not charges on property, they are not impositions from which
petitioner is exempt.

As to petitioner’s argument that the building permit fees collected by respondents are in reality
taxes because the primary purpose is to raise revenues for the local government unit, the same
does not hold water.

A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation
may be held to be a tax rather than an exercise of the police power.26 In this case, the Secretary
of Public Works and Highways who is mandated to prescribe and fix the amount of fees and
other charges that the Building Official shall collect in connection with the performance of
regulatory functions,27 has promulgated and issued the Implementing Rules and Regulations28
which provide for the bases of assessment of such fees, as follows:

1. Character of occupancy or use of building

2. Cost of construction " 10,000/sq.m (A,B,C,D,E,G,H,I), 8,000 (F), 6,000 (J)

3. Floor area

4. Height

Petitioner failed to demonstrate that the above bases of assessment were arbitrarily determined or
unrelated to the activity being regulated. Neither has petitioner adduced evidence to show that
the rates of building permit fees imposed and collected by the respondents were unreasonable or
in excess of the cost of regulation and inspection.

In Chevron Philippines, Inc. v. Bases Conversion Development Authority,29 this Court

explained:

In distinguishing tax and regulation as a form of police power, the determining factor is the
purpose of the implemented measure. If the purpose is primarily to raise revenue, then it will be
deemed a tax even though the measure results in some form of regulation. On the other hand, if
the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police
power of the state, even though incidentally, revenue is generated. Thus, in Gerochi v.
Department of Energy, the Court stated:

"The conservative and pivotal distinction between these two (2) powers rests in the purpose for
which the charge is made. If generation of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that
revenue is incidentally raised does not make the imposition a tax."30 (Emphasis supplied.)

Concededly, in the case of building permit fees imposed by the National Government under the
National Building Code, revenue is incidentally generated for the benefit of local government
units. Thus:

Section 208. Fees

Every Building Official shall keep a permanent record and accurate account of all fees and other
charges fixed and authorized by the Secretary to be collected and received under this Code.

Subject to existing budgetary, accounting and auditing rules and regulations, the Building
Official is hereby authorized to retain not more than twenty percent of his collection for the
operating expenses of his office.

The remaining eighty percent shall be deposited with the provincial, city or municipal treasurer
and shall accrue to the General Fund of the province, city or municipality concerned.

Petitioner’s reliance on Sec. 193 of the Local Government Code of 1991 is likewise misplaced.
Said provision states:

SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis
supplied.)

Considering that exemption from payment of regulatory fees was not among those "incentives"
granted to petitioner under R.A. No. 6055, there is no such incentive that is retained under the
Local Government Code of 1991. Consequently, no reversible error was committed by the CA in
ruling that petitioner is liable to pay the subject building permit and related fees.

Now, on petitioner’s claim that it is exempted from the payment of real property tax assessed
against its real property presently occupied by informal settlers.

Section 28(3), Article VI of the 1987 Constitution provides:

xxxx
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and
exclusively used for religious, charitable or educational purposes shall be exempt from taxation.

x x x x (Emphasis supplied.)

Section 234(b) of the Local Government Code of 1991 implements the foregoing constitutional
provision by declaring that --

SECTION 234. Exemptions from Real Property Tax.– The following are exempted from
payment of the real property tax:

xxxx

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-
profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;

x x x x (Emphasis supplied.)

In Lung Center of the Philippines v. Quezon City,31 this Court held that only portions of the
hospital actually, directly and exclusively used for charitable purposes are exempt from real
property taxes, while those portions leased to private entities and individuals are not exempt
from such taxes. We explained the condition for the tax exemption privilege of charitable and
educational institutions, as follows:

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as possessed and enjoyed
to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is
defined, "in a manner to exclude; as enjoying a privilege exclusively." If real property is used for
one or more commercial purposes, it is not exclusively used for the exempted purposes but is
subject to taxation. The words "dominant use" or "principal use" cannot be substituted for the
words "used exclusively" without doing violence to the Constitutions and the law. Solely is
synonymous with exclusively.1âwphi1

What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.32 (Emphasis and
underscoring supplied.)

Petitioner failed to discharge its burden to prove that its real property is actually, directly and
exclusively used for educational purposes. While there is no allegation or proof that petitioner
leases the land to its present occupants, still there is no compliance with the constitutional and
statutory requirement that said real property is actually, directly and exclusively used for
educational purposes. The respondents correctly assessed the land for real property taxes for the
taxable period during which the land is not being devoted solely to petitioner’s educational
activities. Accordingly, the CA did not err in ruling that petitioner is likewise not entitled to a
refund of the real property tax it paid under protest.

WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Resolution dated
October 12, 2009 of the Court of Appeals in CA-G.R. CV No. 90591 are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.