NATIONAL POWER CORPORATION, petitioner, vs. CITY OF CABANATUAN, respondent.

DECISION
PUNO, J.:

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2%
monthly interest. Respondent alleged that petitioners exemption from local taxes has been repealed by
section 193 of Rep. Act No. 7160, which reads as follows:

This is a petition for review of the Decision and the Resolution of the Court of Appeals dated March 12,
2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay
franchise tax to respondent City of Cabanatuan.

Sec. 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hereby withdrawn upon the effectivity of this Code.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120,
as amended. It is tasked to undertake the development of hydroelectric generations of power and the
production of electricity from nuclear, geothermal and other sources, as well as, the transmission of
electric power on a nationwide basis. Concomitant to its mandated duty, petitioner has, among others, the
power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for
the purpose of developing hydraulic power and supplying such power to the inhabitants.

On January 25, 1996, the trial court issued an Order dismissing the case. It ruled that the tax exemption
privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons:
(1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a
general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not
favored; and (3) local governments have no power to tax instrumentalities of the national government.
Pertinent portion of the Order reads:

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992. Pursuant to section 37 of Ordinance No. 165-92, the respondent
assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latters
gross receipts for the preceding year.

The question of whether a particular law has been repealed or not by a subsequent law is a matter of
legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions
which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended
to be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law,
identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of
R.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to
be repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know
the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a
well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the
legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite
the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, refused to
pay the tax assessment. It argued that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all
forms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and
Other Charges by Government and Governmental Instrumentalities.- The Corporation shall be non-profit
and shall devote all its return from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby
exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or
administrative proceedings in which it may be a party, restrictions and duties to the Republic of the
Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its
provinces, cities, municipalities and other government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of
foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and sale of electric power.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco
vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:
Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. xxx Being an instrumentality of the government, PAGCOR
should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by mere local government.
Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and
its shares of stocks owned by the National Government, is beyond the taxing power of the Local
Government. Corollary to this, it should be noted here that in the NPC Charters declaration of Policy,
Congress declared that: xxx (2) the total electrification of the Philippines through the development of
power from all services to meet the needs of industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be pursued coordinately and supported by
all instrumentalities and agencies of the government, including its financial institutions. (underscoring

supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to
that which is provided for in its charter or other statute. Any grant of taxing power is to be construed
strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could
not impose the subject tax on the defendant.
On appeal, the Court of Appeals reversed the trial courts Order on the ground that section 193, in relation
to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. It
ordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41
representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year
thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax
due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeals Decision.
This was denied by the appellate court, viz:
The Court finds no merit in NPCs motion for reconsideration. Its arguments reiterated therein that the
taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private
persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is
a general law may not impliedly repeal the NPC Charter which is a special lawfinds the answer in
Section 193 of the LGC to the effect that 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 xxx are hereby withdrawn. The repeal is direct and unequivocal, not implied.

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92
and impose an annual tax on businesses enjoying a franchise, pursuant to section 151 in relation to
section 137 of the LGC, viz:
Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%)
of the capital investment. In the succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein. (emphasis supplied)
xxx
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the
taxes, fees, and charges which the province or municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly urbanized and independent component cities shall
accrue to them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the taxing
power of the respondent city government to private entities that are engaged in trade or occupation for
profit.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED.
In this petition for review, petitioner raises the following issues:
A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NONPROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER
THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131
APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPCS EXEMPTION FROM
ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL
GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A
GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF
POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL
GOVERNMENT CODE.

Section 131 (m) of the LGC defines a franchise as a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security and
safety. From the phraseology of this provision, the petitioner claims that the word private modifies the
terms persons and corporations. Hence, when the LGC uses the term franchise, petitioner submits
that it should refer specifically to franchises granted to private natural persons and to private corporations.
Ergo, its charter should not be considered a franchise for the purpose of imposing the franchise tax in
question.
On the other hand, section 131 (d) of the LGC defines business as trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit. Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a non-profit
organization. In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.
Petitioner also alleges that it is an instrumentality of the National Government, and as such, may not be
taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and

Gaming Corporation where this Court held that local governments have no power to tax
instrumentalities of the National Government, viz:

subordinate to petitioners exemption from taxation; police power being the most pervasive, the least
limitable and most demanding of all powers, including the power of taxation.

Local governments have no power to tax instrumentalities of the National Government.

The petition is without merit.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of the Government. Being an instrumentality of
the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation
might be burdened, impeded or subjected to control by a mere local government.

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure.
A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of the people.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the supremacy of the National Government over local governments.
Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even seriously burden it from accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p.
140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as a tool
regulation ( U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the power to destroy (Mc Culloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it.
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of governmentowned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be
amended or modified impliedly by the local government code which is a general law. Consequently,
petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the
passage of the LGC, viz:
It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and
as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be
conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It
is a basic rule in statutory construction that the enactment of a later legislation which is a general law
cannot be construed to have repealed a special law. Where there is a conflict between a general law and a
special statute, the special statute should prevail since it evinces the legislative intent more clearly than the
general statute.
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is

In recent years, the increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare and similar objectives. Taxation
assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to
tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to
levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz:
Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to
levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to
the Local Governments.
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
countrys highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also dampened the spirit of initiative, innovation
and imaginative resilience in matters of local development on the part of local government leaders. The
only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic
services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this
goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code
that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this
grant of taxing powers, viz:
Section 3. The Congress shall enact a local government code which shall provide for a more responsive
and accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to
the organization and operation of the local units.
To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of
1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio
Charter of 1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967 and the Local
Government Code of 1983. Despite these initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the same problems that hamper their
capabilities to participate effectively in the national development efforts, among which are: (a) inadequate
tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and

approve development projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals
with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were
prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires,
mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to
impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates
but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates
to the respective sanggunian.
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation. Although as
a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the
LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz:
Section 133. Common Limitations on the Taxing Powers of the Local Government Units.- Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxx
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units. (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and
Gaming Corporation relied upon by the petitioner to support its claim no longer applies. To emphasize,
the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local
government units to tax instrumentalities of the National Government was in effect. However, as this
Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,
nothing prevents Congress from decreeing that even instrumentalities or agencies of the government
performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its
prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the
specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national
government, was subject to real property tax, viz:
Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid
down in section 133, the taxing power of local governments cannot extend to the levy of inter alia, taxes,
fees and charges of any kind on the national government, its agencies and instrumentalities, and local
government units; however, pursuant to section 232, provinces, cities and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, real property owned by
the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted for consideration or otherwise, to a taxable person as provided in the item (a) of the first
paragraph of section 12.
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city
government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does not
belong to citizens of the country generally as a matter of common right. In its specific sense, a franchise
may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to
the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter
pursuant to a special law creating the corporation. The right under a primary or general franchise is vested
in the individuals who compose the corporation and not in the corporation itself. On the other hand, the
latter refers to the right or privileges conferred upon an existing corporation such as the right to use the
streets of a municipality to lay pipes of tracks, erect poles or string wires. The rights under a secondary or
special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its property, except such special or secondary
franchises as are charged with a public use.
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or
special franchise. This is to avoid any confusion when the word franchise is used in the context of
taxation. As commonly used, a franchise tax is a tax on the privilege of transacting business in the state
and exercising corporate franchises granted by the state. It is not levied on the corporation simply for
existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges
granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to
do business and exercise its franchise. It is within this context that the phrase tax on businesses
enjoying a franchise in section 137 of the LGC should be interpreted and understood. Verily, to
determine whether the petitioner is covered by the franchise tax in question, the following requisites
should concur: (1) that petitioner has a franchise in the sense of a secondary or special franchise; and (2)
that it is exercising its rights or privileges under this franchise within the territory of the respondent city
government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioners primary and secondary franchises. It serves as the petitioners charter, defining its
composition, capitalization, the appointment and the specific duties of its corporate officers, and its
corporate life span. As its secondary franchise, Commonwealth Act No. 120, as amended, vests the
petitioner the following powers which are not available to ordinary corporations, viz:
xxx
(e) To conduct investigations and surveys for the development of water power in any part of the
Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the
purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and
from persons owning or interested in waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in
streams or water channels intersecting or connecting therewith or contiguous to its works or any part
thereof: Provided, That just compensation shall be paid to any person or persons whose property is,
directly or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains,
transmission lines, power stations and substations, and other works for the purpose of developing
hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such
power to the inhabitants thereof; to acquire, construct, install, maintain, operate, and improve gas, oil, or
steam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants for

the production of electric power; to establish, develop, operate, maintain and administer power and
lighting systems for the transmission and utilization of its power generation; to sell electric power in bulk
to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions,
(3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions xxx;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of
property incident to, or necessary, convenient or proper to carry out the purposes for which the
Corporation was created: Provided, That in case a right of way is necessary for its transmission lines,
easement of right of way shall only be sought: Provided, however, That in case the property itself shall be
acquired by purchase, the cost thereof shall be the fair market value at the time of the taking of such
property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,
highway or railway of private and public ownership, as the location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for
instituting condemnation proceedings by the national, provincial and municipal governments;

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a
privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the
individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity
from the National Government. It can sue and be sued under its own name, and can exercise all the powers
of a corporation under the Corporation Code.
To be sure, the ownership by the National Government of its entire capital stock does not necessarily
imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 classifies
government-owned or controlled corporations (GOCCs) into those performing governmental functions
and those performing proprietary functions, viz:
A government-owned or controlled corporation is a stock or a non-stock corporation, whether
performing governmental or proprietary functions, which is directly chartered by special law or if
organized under the general corporation law is owned or controlled by the government directly, or
indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock xxx. (emphases supplied)

xxx
(m) To cooperate with, and to coordinate its operations with those of the National Electrification
Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants
and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the
Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the
Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation,
forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to
existing private rights, the needs of waterworks systems, and the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent
environmental pollution and promote the conservation, development and maximum utilization of natural
resources xxx
With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity.
This monopoly was strengthened with the issuance of Pres. Decree No. 40, nationalizing the electric
power industry. Although Exec. Order No. 215 thereafter allowed private sector participation in the
generation of electricity, the transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city governments
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended.
From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in
1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government, and its charter characterized it as a non-profit
organization.

Governmental functions are those pertaining to the administration of government, and as such, are treated
as absolute obligation on the part of the state to perform while proprietary functions are those that are
undertaken only by way of advancing the general interest of society, and are merely optional on the
government. Included in the class of GOCCs performing proprietary functions are business-like entities
such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social
Security System (SSS), the Government Service Insurance System (GSIS), and the National Water
Sewerage Authority (NAWASA), among others.
Petitioner was created to undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric
power on a nationwide basis. Pursuant to this mandate, petitioner generates power and sells electricity in
bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are
purely private and commercial undertakings, albeit imbued with public interest. The public interest
involved in its activities, however, does not distract from the true nature of the petitioner as a commercial
enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad
companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant
among others; all of which are declared by this Court as ministrant or proprietary functions of government
aimed at advancing the general interest of society.
A closer reading of its charter reveals that even the legislature treats the character of the petitioners
enterprise as a business, although it limits petitioners profits to twelve percent (12%), viz:
(n) When essential to the proper administration of its corporate affairs or necessary for the proper
transaction of its business or to carry out the purposes for which it was organized, to contract
indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary
of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business
and purposes for which it was organized, or which, from time to time, may be declared by the Board to
be necessary, useful, incidental or auxiliary to accomplish the said purpose xxx.(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits. The main difference is that the petitioner is mandated to devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion while other franchise holders
have the option to distribute their profits to its stockholders by declaring dividends. We do not see why
this fact can be a source of difference in tax treatment. In both instances, the taxable entity is the
corporation, which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioners contention that its tax exemptions under its charter subsist
despite the passage of the LGC.

or other special law is all-encompassing and clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit
hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import
is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction
that the express mention of one person, thing, act, or consequence excludes all others as expressed in the
familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to the
contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist
clearly and categorically, and supported by clear legal provisions. In the case at bar, the petitioners sole
refuge is section 13 of Rep. Act No. 6395 exempting from, among others, all income taxes, franchise
taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities. However, section 193 of the LGC withdrew, subject to
limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations.
Contrary to the contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all
statutes granting tax exemptions from local taxes. It reads:

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local
government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming receipts realized within its territorial
jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or
charter is clearly manifested by the language used on (sic) Sections 137 and 193 categorically
withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been used. (emphases supplied).

Sec. 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. (emphases supplied)

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance No. 16592 which imposes an annual franchise tax notwithstanding any exemption granted by law or other special
law, the respondent city government clearly did not intend to exempt the petitioner from the coverage
thereof.

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.
Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and nonprofit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore
incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption
from local taxes.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As
this Court observed in the Mactan case, the original reasons for the withdrawal of tax exemption
privileges granted to government-owned or controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises. With the added burden of devolution, it is even more imperative for government
entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges
due from them.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose
franchise tax notwithstanding any exemption granted by any law or other special law. This
particular provision of the LGC does not admit any exception. In City Government of San Pablo,
Laguna v. Reyes, MERALCOs exemption from the payment of franchise taxes was brought as an issue
before this Court. The same issue was involved in the subsequent case of Manila Electric Company v.
Province of Laguna. Ruling in favor of the local government in both instances, we ruled that the
franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws,
viz:

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.
SO ORDERED.
G.R. No. 168557

It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support
their position that MERALCOs tax exemption has been withdrawn. The explicit language of section 137
which authorizes the province to impose franchise tax notwithstanding any exemption granted by any law

February 16, 2007

FELS
ENERGY,
vs.
THE PROVINCE OF BATANGAS and

INC.,

Petitioner,

its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and
authority to represent it in any conference regarding the real property assessment of the Provincial
Assessor.

THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessors decision to
assess real property taxes on the power barges. However, the motion was denied on September 22, 1995,
and the Provincial Assessor advised NPC to pay the assessment. 8 This prompted NPC to file a petition
with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the
declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be
taxable, the Provincial Assessor be directed to make the necessary corrections. 9

x----------------------------------------------------x
G.R. No. 170628

February 16, 2007

NATIONAL
POWER
CORPORATION,
Petitioner,
vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS
represented by its Provincial Assessor, Respondents.
DECISION
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were
filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The
first is a petition for review on certiorari assailing the August 25, 2004 Decision 1 of the Court of Appeals
(CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition for
review on certiorari, challenges the February 9, 2005 Decision 3 and November 23, 2005 Resolution 4 of the
CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel
engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy
Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties,
fees, charges and other levies imposed by the National Government of the Republic of the Philippines or
any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the
basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction
permit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and
assessments, rates and other charges in respect of the Power Barges.6

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for
purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the
Department of Finance (DOF) had rendered an opinion 10 dated May 20, 1996, where it is clearly stated
that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount
of P56,184,088.40, for the year 1994.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as movable or personal
property, are nevertheless considered real property for taxation purposes because they are installed at a
specific location with a character of permanency. The LBAA also pointed out that the owner of the
bargesFELS, a private corporationis the one being taxed, not NPC. A mere agreement making NPC
responsible for the payment of all real estate taxes and assessments will not justify the exemption of
FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA
also ruled that the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by
Distraint13 over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as
of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed
a Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further restrained
by the CBAA from enforcing the disputed assessment during the pendency of the appeal.

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially
opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

On November 15, 1996, the CBAA issued an Order 14 lifting the levy and distraint on the properties of
FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment
which the Board would issue.

On August 7, 1995, FELS received an assessment of real property taxes on the power barges from
Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those
due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of

Meantime, the NPC filed a Motion for Intervention 15 dated August 7, 1998 in the proceedings before the
CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the
payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be
unfavorable to them). The bonds were duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision 17 finding the power barges exempt from real property
tax. The dispositive portion reads:

12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No.
67491, since it is the ponente of the latter petition who should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the
appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of
prescription. The decretal portion of the decision reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is
hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered
to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in
the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly.

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated
July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED.

SO ORDERED.18

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the
appellate courts decision in CA-G.R. SP No. 67490.

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they
are actually, directly and exclusively used by it, the power barges are covered by the exemptions under
Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription
did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of
R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS
and NPC.
In a complete volte face, the CBAA issued a Resolution 20 on July 31, 2001 reversing its earlier decision.
The fallo of the resolution reads:
WHEREFORE, premises considered, it is the resolution of this Board that:

SO ORDERED.24

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R.
No. 165113, assailing the appellate courts decision in CA-G.R. SP No. 67490. The petition was, however,
denied in this Courts Resolution25 of November 8, 2004, for NPCs failure to sufficiently show that the
CA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration,
which the Court denied with finality in a Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to
question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to
appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the
right to question the assessment, the right of the Provincial Government to collect the tax was already
absolute.

(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.
SO ORDERED.

21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial
Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490.
Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490
praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution 23 dated February

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5,
2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution 27 dated
November 23, 2005.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack
of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the
following issues:
A.
Whether power barges, which are floating and movable, are personal properties and therefore, not subject
to real property tax.
B.
Assuming that the subject power barges are real properties, whether they are exempt from real estate tax
under Section 234 of the Local Government Code ("LGC").

C.

Petitioners contentions are bereft of merit.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be
NPC which should be made to pay the same under the law.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:

D.
Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to
depreciation just like any other personal properties.
E.
Whether the right of the petitioner to question the patently null and void real property tax assessment on
the petitioners personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628),
indicating the following errors committed by the CA:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA
WAS FILED OUT OF TIME.
II
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES
ARE NOT SUBJECT TO REAL PROPERTY TAXES.
III
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON
THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of
the two cases in a Resolution31 dated March 8, 2006.1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their
respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted
their respective memoranda. Considering that taxesthe lifeblood of our economyare involved in the
present controversy, the Court was prompted to dispense with the said pleadings, with the end view of
advancing the interests of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS
argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of
the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for
appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration.

SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment
of his property may, within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995,
contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt
hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the
form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or
documents submitted in support of the appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a
motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or
municipal assessor in the assessment of the property. It follows then that the determination made by the
respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its
power to assess properties for taxation purposes subject to appeal before the LBAA. 33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No.
67491. The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman, 34
where we ruled that under Section 226 of R.A. No 7160, 35 the last action of the local assessor on a
particular assessment shall be the notice of assessment; it is this last action which gives the owner of the
property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the
remedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Court
in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before
the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of
assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a
remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of
appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may
be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In
the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can
conveniently take place. Such occasion for mischief must be prevented and excised from our system. 36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful
possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to

entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may
bring his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making
the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in
SP 67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the
taxes due with respect to the taxpayers property becomes absolute upon the expiration of the period to
appeal.38 It also bears stressing that the taxpayers failure to question the assessment in the LBAA renders
the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from
questioning the correctness of the assessment, or from invoking any defense that would reopen the
question of its liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been filed out of
time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the
rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and
failure in this regard renders the decision final and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res
judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination
on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant
petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a
party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate
in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of
forum shopping, petitioner claims that no forum shopping could have been committed since the elements
of litis pendentia or res judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two grounds
embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to
the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship on the
individual of being vexed twice for the same cause nemo debet bis vexari et eadem causa. A conflicting
doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the
regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility
and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the merits, without fraud or collusion, by a
court of competent jurisdiction acting upon a matter within its authority is conclusive on the rights of the
parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial
tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.
xxx

Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their
privies to litigate anew a question once it has been considered and decided with finality. Litigations must
end and terminate sometime and somewhere. The effective and efficient administration of justice requires
that once a judgment has become final, the prevailing party should not be deprived of the fruits of the
verdict by subsequent suits on the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the former
judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the
parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second
actions, identity of parties, subject matter and causes of action. The application of the doctrine of res
judicata does not require absolute identity of parties but merely substantial identity of parties. There is
substantial identity of parties when there is community of interest or privity of interest between a party in
the first and a party in the second case even if the first case did not implead the latter.43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real
property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No.
165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the
earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No.
67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner
FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties"
as to warrant the application of res judicata. FELSs argument that it is not bound by the erroneous petition
filed by NPC is thus unavailing.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a
result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in
another forum other than by appeal or special civil action or certiorari. There is also forum shopping when
a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one
or the other court would make a favorable disposition. 44
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present
in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners
engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in
G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision
from one of the tribunals which allowed them to pursue their cases.
It must be stressed that an important factor in determining the existence of forum shopping is the vexation
caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same
reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue
simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of
court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial
procedure, and adds to the congestion of the heavily burdened dockets of the courts. 46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent
the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment
rendered in the pending case, regardless of which party is successful, would amount to res judicata in the
other.47

Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a
discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of
petitioners, we shall shed light on the merits of the case.

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; x x x

As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject
to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was
dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise. 48
Besides, factual findings of administrative bodies, which have acquired expertise in their field, are
generally binding and conclusive upon the Court; we will not assume to interfere with the sensible
exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left
in doubt, it is a sound policy to leave the assessment undisturbed. 49 We find no reason to depart from this
rule in this case.

Indeed, the law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this
provision because Section 5.5, Article 5 of the Agreement provides:

50

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al., a power
company brought an action to review property tax assessment. On the citys motion to dismiss, the
Supreme Court of New York held that the barges on which were mounted gas turbine power plants
designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant
barges, and the accessory equipment mounted on the barges were subject to real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though
floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are
considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an industry
or work which may be carried on in a building or on a piece of land and which tend directly to meet the
needs of said industry or work.51
Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234
(c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a
government- owned and controlled corporation engaged in the supply, generation, and transmission of
electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner
FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11,
Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings,
machinery and equipment on the Site used in connection with the Power Barges which have been supplied
by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of
converting Fuel of NAPOCOR into electricity.52
It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
xxx

OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the
necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges to
convert such Fuel into electricity in accordance with Part A of Article 7.53
It is a basic rule that obligations arising from a contract have the force of law between the parties. Not
being contrary to law, morals, good customs, public order or public policy, the parties to the contract are
bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. 55
The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged
must justify it by words too plain to be mistaken and too categorical to be misinterpreted. 56 Thus, applying
the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved
in favor of provincial corporations, we hold that FELS is considered a taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible
for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege
granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does
not bind a third person not privy thereto, in this case, the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local
governments deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in
its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the constituency who are to
pay for it.57 The right of local government units to collect taxes due must always be upheld to avoid severe
tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local
governments58 and the objective of the Local Government Code that they enjoy genuine and meaningful
local autonomy to empower them to achieve their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals. 59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the needed revenues
to finance and support myriad activities of the local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity
of the people.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.
SO ORDERED.
The Case

However, due to respondents inaction on the motion, on February 2, 1999, PSPC filed a petition for
review before the CTA, docketed as CTA Case No. 5728.
Before us is a Petition for Review on Certiorari under Rule 45 assailing the April 28, 2006
Decision of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 64, which upheld respondents

On July 23, 1999, the CTA rendered a Decision in CTA Case No. 5728 ruling, inter alia, that

assessment against petitioner for deficiency excise taxes for the taxable years 1992 and 1994 to 1997.

the use by PSPC of the TCCs was legal and valid, and that respondents attempt to collect alleged

Said En Banc decision reversed and set aside the August 2, 2004 Decision and January 20, 2005

delinquent taxes and penalties from PSPC without an assessment constitutes denial of due process. The

Resolution of the CTA Division in CTA Case No. 6003 entitled Pilipinas Shell Petroleum Corporation v.

dispositive portion of the July 23, 1999 CTA Decision reads:

Commissioner of Internal Revenue, which ordered the withdrawal of the April 22, 1998 collection letter of
respondent and enjoined him from collecting said deficiency excise taxes.

[T]he instant petition for review is GRANTED. The collection letter issued by the
Respondent dated April 22, 1998 is considered withdrawn and he is ENJOINED from any attempts to

The Facts

collect from petitioner the specific tax, surcharge and interest subject of this petition.
Petitioner Pilipinas Shell Petroleum Corporation (PSPC) is the Philippine subsidiary of the

international petroleum giant Shell, and is engaged in the importation, refining and sale of petroleum
products in the country.
From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates
(TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center (Center) from other Board of Investment (BOI)-registered companies.
The Center is a composite body run by four government agencies, namely: the DOF, Bureau of Internal
Revenue (BIR), Bureau of Customs (BOC), and BOI.

Respondent elevated the July 23, 1999 CTA Decision in CTA Case No. 5728 to the Court of
Appeals (CA) through a petition for review docketed as CA-G.R. SP No. 55329. This case was
subsequently consolidated with the similarly situated case of Petron Corporation under CA-G.R. SP No.
55330. To date, these consolidated cases are still pending resolution before the CA.
Meanwhile, in late 1999, and despite the pendency of CA-G.R. SP No. 55329, the Center sent
several letters to PSPC dated August 31, 1999, September 1, 1999, and October 18, 1999. The first
required PSPC to submit copies of pertinent sales invoices and delivery receipts covering sale transactions
of PSPC products to the TCC assignors/transferors purportedly in connection with an ongoing post audit.
The second letter similarly required submission of the same documents covering PSPC Industrial Fuel Oil
(IFO) deliveries to Spintex International, Inc. The third letter is in reply to the September 29, 1999 letter

Through the Center, PSPC acquired for value various Center-issued TCCs which were
correspondingly transferred to it by other BOI-registered companies through Center-approved Deeds of

sent by PSPC requesting a list of the serial numbers of the TCCs assigned or transferred to it by various
BOI-registered companies, either assignors or transferors.

Assignments. Subsequently, when PSPC signified its intent to use the TCCs to pay part of its excise tax
liabilities, said payments were duly approved by the Center through the issuance of Tax Debit Memoranda
(TDM), and the BIR likewise accepted as payments the TCCs by issuing its own TDM covering said
TCCs, and the corresponding Authorities to Accept Payment for Excise Taxes (ATAPETs).

In its letter dated October 29, 1999 and received by the Center on November 3, 1999, PSPC
emphasized that the required submission of these documents had no legal basis, for the applicable rules
and regulations on the matter only require that both the assignor and assignee of TCCs be BOI-registered
entities. On November 3, 1999, the Center informed PSPC of the cancellation of the first batch of TCCs

However, on April 22, 1998, the BIR sent a collection letter to PSPC for alleged deficiency
excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997, inclusive of

transferred to PSPC and the TDM covering PSPCs use of these TCCs as well as the corresponding TCC
assignments. PSPCs motion for reconsideration was not acted upon.

delinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC is not a
qualified transferee of the TCCs it acquired from other BOI-registered companies. These alleged excise
tax deficiencies covered by the collection letter were already paid by PSPC with TCCs acquired through,
and issued and duly authorized by the Center, and duly covered by TDMs of both the Center and BIR,
with the latter also issuing the corresponding ATAPETs.
PSPC protested the April 22, 1998 collection letter, but the protest was denied by the BIR
through the Regional Director of Revenue Region No. 8. PSPC filed its motion for reconsideration.

On November 22, 1999, PSPC received the November 15, 1999 assessment letter from
respondent for excise tax deficiencies, surcharges, and interest based on the first batch of cancelled TCCs
and TDM covering PSPCs use of the TCCs. All these cancelled TDM and TCCs were also part of the
subject matter in CTA Case No. 5728, now pending before the CA in CA-G.R. SP No. 55329.
PSPC protested the assessment letter, but the protest was denied by the BIR, constraining it to
file another petition for review before the CTA, docketed as CTA Case No. 6003.

Parenthetically, on March 30, 2004, Republic Act No. (RA) 9282 was promulgated amending

Anent the affidavits of former Officers or General Managers of transferors attesting that no

RA 1125, expanding the jurisdiction of the CTA and enlarging its membership. It became effective on

IFO deliveries were made by PSPC, the CTA Division ruled that such cannot be given probative value as

April 23, 2004 after its due publication. Thus, CTA Case No. 6003 was heard and decided by a CTA

the affiants were not presented during trial of the case. However, the CTA Division said that the

Division.

November 15, 1999 assessment was not precluded by the prior CTA Case No. 5728 as the latter concerned
the validity of the transfer of the TCCs, while CTA Case No. 6003 involved alleged fraudulent

The Ruling of the Court of Tax Appeals Division

(CTA Case No. 6003)
On August 2, 2004, the CTA Division rendered a Decision granting the PSPCs petition for
review. The dispositive portion reads:
[T]he instant petition is hereby GRANTED. Accordingly, the assessment issued by the
respondent dated November 15, 1999 against petitioner is hereby CANCELLED and SET ASIDE.
In granting PSPCs petition for review, the CTA Division held that respondent failed to prove
with convincing evidence that the TCCs transferred to PSPC were fraudulently issued as respondents

procurement and transfer of the TCCs.

Respondent forthwith filed his motion for reconsideration of the above decision which was
rejected on January 20, 2005. And, pursuant to Section 11 of RA 9282, respondent appealed the above
decision through a petition for review before the CTA En Banc.
The Ruling of the Court of Tax Appeals En Banc
(CTA EB No. 64)
The CTA En Banc, however, rendered the assailed April 28, 2006 Decision setting aside the
August 2, 2004 Decision and the January 20, 2005 Resolution of the CTA Division. The fallo reads:

finding of alleged fraud was merely speculative. The CTA Division found that neither the respondent nor
the Center could state what sales figures were used as basis for the TCCs to issue, as they merely based
their conclusions on the audited financial statements of the transferors which did not clearly show the
actual export sales of transactions from which the TCCs were issued.
In the same vein, the CTA Division held that the machinery and equipment cannot be the basis
in concluding that transferor could not have produced the volume of products indicated in its BOI

WHEREFORE, premises considered, the Petition for Review is hereby

GRANTED. The assailed Decision and Resolution dated August 2, 2004 and
January 20, 2005, respectively, are hereby SET ASIDE and a new one entered
dismissing respondent Pilipinas Shell Petroleum Corporations Petition for Review
filed in C.T.A. Case No. 6003 for lack of merit. Accordingly, respondent is
ORDERED TO PAY the petitioner the amount of P570,577,401.61 as deficiency
excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge
and 20% interest, computed as follows:
Basic Tax
Add:
Surcharge (25%)
Interest (20%)
Total Tax Due

registration. It further ruled that the Center erroneously based its findings of fraud on two possibilities:
either the transferor did not declare its export sales or underdeclare them. Thus, no specific fraudulent acts
were identified or proven. The CTA Division concluded that the TCCs transferred to PSPC were not
fraudulently issued.
On the issue of whether a TCC transferee should be a supplier of either capital equipment,

SO ORDERED.

between the DOF and BOI executed on August 29, 1989 specifying such requirement was not
CTA Division found that only the October 5, 1982 MOA between the then Ministry of Finance (MOF) and
BOI was incorporated in the IRR of EO 226. It held that while the August 29, 1989 MOA indeed amended
the October 5, 1982 MOA still it was not incorporated in the IRR. Moreover, according to the CTA
Division, even if the August 29, 1989 MOA was elevated or incorporated in the IRR of EO 226, still, it is
ineffective and could not bind nor prejudice third parties as it was never published.

71,441,746.75
213,368,667.86
P570,577,401.61

In addition, respondent is hereby ORDERED TO PAY 20% delinquency interest

thereon per annum computed from December 4, 1999 until full payment thereof,
pursuant to Sections 248 and 249 of the NIRC of 1997.

materials, or supplies, the CTA Division ruled in the negative as the Memorandum of Agreement (MOA)
incorporated in the Implementing Rules and Regulations (IRR) of Executive Order No. (EO) 226. The

P285,766,987.00

The CTA En Banc resolved respondents appeal by holding that PSPC was liable to pay the
alleged excise tax deficiencies arising from the cancellation of the TDM issued against its TCCs which
were used to pay some of its excise tax liabilities for the years 1992 and 1994 to 1997. It ratiocinated in
this wise, to wit:

EIGHTY FIVE MILLION SEVEN HUNDRED SIXTY SIX THOUSAND NINE

HUNDRED EIGHTY SEVEN PESOS (P285,766,987.00), AS ALLEGED
DEFICIENCY EXCISE TAXES, FOR THE TAXABLE YEARS, 1992 AND 1994
TO 1997.

First, the finding of the DOF that the TCCs had no monetary value was undisputed.
Consequently, there was a non-payment of excise taxes corresponding to the value of the TCCs used for

II

payment. Since it was PSPC which acquired the subject TCCs from a third party and utilized the same to
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN
ISSUING THE QUESTIONED DECISION DATED 28 APRIL 2006
UPHOLDING THE CANCELLATION OF THE TAX CREDIT CERTIFICATES
UTILIZED BY PETITIONER PSPC IN PAYING ITS EXCISE TAX
LIABILITIES.

discharge its own obligations, then it must bear the loss.

Second, the TCCs carry a suspensive condition, that is, their issuance was subject to post audit
in order to determine if the holder is indeed qualified to use it. Thus, until final determination of the

III

holders right to the issuance of the TCCs, there is no obligation on the part of the DOF or BIR to

WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN

IMPOSING SURCHARGES AND INTERESTS ON THE ALLEGED
DEFICIENCY EXCISE TAX OF PETITIONER PSPC.

recognize the rights of the holder or assignee. And, considering that the subject TCCs were canceled after
the DOFs finding of fraud in its issuance, the assignees must bear the consequence of such cancellation.

IV

Third, PSPC was not an innocent purchaser for value of the TCCs as they contained liability

WHETHER OR NOT THE ASSESSMENT DATED 15 NOVEMBER 1999 IS

VOID CONSIDERING THAT IT FAILED TO COMPLY WITH THE
STATUTORY AS WELL AS REGULATORY REQUIREMENTS IN THE
ISSUANCE OF ASSESSMENTS.

clauses expressly stipulating that the transferees are solidarily liable with the transferors for any fraudulent
act or violation of pertinent laws, rules, or regulations relating to the transfer of the TCC.
Fourth, the BIR was not barred by estoppel as it is a settled rule that in the performance of its
governmental functions, the State cannot be estopped by the neglect of its agents and officers. Although

The Courts Ruling

the TCCs were confirmed to be valid in view of the TDM, the subsequent finding on post audit by the

The petition is meritorious.

Center declaring the TCCs to be fraudulently issued is entitled to the presumption of regularity. Thus, the
cancellation of the TCCs was legal and valid.

First Issue: Assessment of excise tax deficiencies

Fifth, the BIRs assessment did not prescribe considering that no payment took effect as the
subject TCCs were canceled upon post audit. Consequently, the filing of the tax return sans payment due
to the cancellation of the TCCs resulted in the falsity and/or omission in the filing of the tax return which
put them in the ambit of the applicability of the 10-year prescriptive period from the discovery of falsity,
fraud, or omission.

PSPC contends that respondent had no basis in issuing the November 15, 1999 assessment as
PSPC had no pending unpaid excise tax liabilities. PSPC argues that under the IRR of EO 226, it is
allowed to use TCCs transferred from other BOI-registered entities. On one hand, relative to the validity
of the transferred TCCs, PSPC asserts that the TCCs are not subject to a suspensive condition; that the
post-audit of a transferred TCC refers only to computational discrepancy; that the solidary liability of the
transferor and transferee refers to computational discrepancy resulting from the transfer and not from the

Finally, however, the CTA En Banc applied Aznar v. Court of Tax Appeals, where this Court
held that without proof that the taxpayer participated in the fraud, the 50% fraud surcharge is not imposed,
but the 25% late payment and the 20% interest per annum are applicable.

issuance of the TCC; that a post-audit cannot affect the validity and effectivity of a TCC after it has been
utilized by the transferee; and that the BIR duly acknowledged the use of the subject TCCs, accepting
them as payment for the excise tax liabilities of PSPC. On the other hand, PSPC maintains that if there
was indeed fraud in the issuance of the subject TCCs, of which it had no knowledge nor participation, the

Thus, PSPC filed this petition with the following issues:

Centers remedy is to go after the transferor for the value of the TCCs the Center may have erroneously
issued.

I
PSPC likewise assails the BIR assessment on prescription for having been issued beyond the
WHETHER OR NOT THE COURT OF TAX APPEALS GRAVELY ERRED IN
ORDERING PETITIONER PSPC TO PAY THE AMOUNT OF TWO HUNDRED

three-year prescriptive period under Sec. 203 of the National Internal Revenue Code (NIRC); and neither

can the BIR use the 10-year prescriptive period under Sec. 222(a) of the NIRC, as PSPC has neither failed
to file a return nor filed a false or fraudulent return with intent to evade taxes.

Respondent, on the other hand, counters that petitioner is liable for the tax liabilities adjudged
by the CTA En Banc since PSPC, as transferee of the subject TCCs, is bound by the liability clause found
at the dorsal side of the TCCs which subjects the genuineness, validity, and value of the TCCs to the
outcome of the post-audit to be conducted by the Center. He relies on the CTA En Bancs finding of the
presence of a suspensive condition in the issuance of the TCCs. Thus, according to him, with the finding
by the Center that the TCCs were fraudulently procured the subsequent cancellation of the TCCs resulted
in the non-payment by PSPC of its excise tax liabilities equivalent to the value of the canceled TCCs.
Respondent likewise posits that the Center erred in approving the transfer and issuance of the
TDM, and of the TDM and ATAPETs issued by the BIR in accepting the utilization by PSPC of the
subject TCCs, as payments for excise taxes cannot prejudice the BIR from assessing the tax deficiencies
of PSPC resulting from the non-payment of the deficiencies after due cancellation by the Center of the
subject TCCs and corresponding TDM.

To completely understand the matter presented before Us, it is worth

emphasizing that the statement on the subject certificate stating that it is issued
subject to post-audit is in the nature of a suspensive condition under Article 1181 of
the Civil Code, which is quoted hereunder for ready reference, to wit:
In conditional obligations, the acquisition of rights, as well
as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.
The above-quoted article speaks of obligations. These conditions affect
obligations in diametrically opposed ways. If the suspensive condition happens, the
obligation arises; in other words, if the condition does not happen, the obligation
does not come into existence. On the other hand, the resolutory condition
extinguishes rights and obligations already existing; in other words, the obligations
and rights already exist, but under the threat of extinction upon the happening of the
resolutory condition. (8 Manresa 130-131, cited on page 140, Civil Code of the
Philippines, Tolentino, 1962 ed., Vol. IV).
In adopting the foregoing provision of law, this Court rules that the
issuance of the tax credit certificate is subject to the condition that a post-audit will
subsequently be conducted in order to determine if the holder is indeed qualified for
its issuance. As stated earlier, the holder takes the same subject to the outcome of
the post-audit. Thus, unless and until there is a final determination of the holders
right to the issuance of the certificate, there exists no obligation on the part of the
DOF or the BIR to recognize the rights of then holder or transferee. x x x
xxxx

Respondent concludes that due to the fraudulent procurement of the subject TCCs, his right to
assess has not yet prescribed. He relies on the finding of the Center that the fraud was discovered only
after the post-audit was conducted; hence, Sec. 222(a) of the NIRC applies, reckoned from October 24,
1999 or the date of the post-audit report. In fine, he points that what is at issue is the resulting nonpayment of PSPCs excise tax liabilities from the cancellation of subject TCCs and not the amount of
deficiency taxes due from PSPC, as what was properly assessed on November 15, 1999 was the amount of
tax declared and found in PSPCs excise tax returns covered by the subject TCCs.
We find for PSPC.
The CTA En Banc upheld respondents theory by holding that the Center has the authority to
do a post-audit on the TCCs it issued; the TCCs are subject to the results of the post-audit since their
issuance is subject to a suspensive condition; the transferees of the TCCs are solidarily liable with the
transferors on the result of the post-audit; and the cancellation of the subject TCCs resulted in PSPC
having to bear the loss anchored on its solidary liability with the transferor of the subject TCCs.
We can neither sustain respondents theory nor that of the CTA En Banc.
First, in overturning the August 2, 2004 Decision of the CTA Division, the CTA En Banc
applied Article 1181 of the Civil Code in this manner:

The validity and propriety of the TCC to effectively constitute payment

of taxes to the government are still subject to the outcome of the post-audit. In other
words, when the issuing authority (DOF) finds, as in the case at bar, circumstances
which may warrant the cancellation of the certificate, the holder is inevitably bound
by the outcome by the virtue of the express provisions of the TCCs.
The CTA En Banc is incorrect.
Art.1181 tells us that the condition is suspensive when the acquisition of rights or
demandability of the obligation must await the occurrence of the condition. However, Art. 1181 does not
apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws,
rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the
applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions
No. 1355, EO 765, RP-US Military Agreement, Sec. 106(c) of the Tariff and Customs Code, Sec. 106 of
the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the
post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned
laws is it provided that a TCC is issued subject to a suspensive condition.
The CTA En Bancs holding of the presence of a suspensive condition is untenable as the
subject TCCs duly issued by the Center are immediately effective and valid. The suspensive condition as
ratiocinated by the CTA En Banc is one where the transfer contract was duly effected on the day it was

executed between the transferee and the transferor but the TCC cannot be enforced until after the postaudit has been conducted. In short, under the ruling of the CTA En Banc, even if the TCC has been
issued, the real and true application of the tax credit happens only after the post-audit confirms the TCCs

1.

validity and not before the confirmation; thus, the TCC can still be canceled even if it has already been

This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax
credit against taxes and duties until the amount is fully utilized, in
accordance with the pertinent tax and customs laws, rules and regulations.

ostensibly applied to specific internal revenue tax liabilities.

xxxx
We are not convinced.

4.

We cannot subscribe to the CTA En Bancs holding that the suspensive condition suspends the
effectivity of the TCCs as payment until after the post-audit. This strains the very nature of a TCC.

To acknowledge application of payment, the One-Stop-Shop Tax Credit

Center shall issue the corresponding Tax Debit Memo (TDM) to the
grantee.
The authorized Revenue Officer/Customs Collector to which
payment/utilization was made shall accomplish the Application of Tax Credit
portion at the back of the certificate and affix his signature on the column
provided. (Emphasis supplied.)

A tax credit is not specifically defined in our Tax Code, but Art. 21 of EO 226 defines a tax
The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or

credit as any of the credits against taxes and/or duties equal to those actually paid or would have been
paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his
representative, or the Board (of Investments), if so delegated by the Secretary of Finance. Tax credits
were granted under EO 226 as incentives to encourage investments in certain businesses. A tax credit
generally refers to an amount that may be subtracted directly from ones total tax liability. It is therefore
an allowance against the tax itself or a deduction from what is owed by a taxpayer to the government.
In RR 5-2000, a tax credit is defined as the amount due to a taxpayer resulting from an overpayment of a
tax liability or erroneous payment of a tax due.

settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC
dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be
absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no
contemplation of the situation wherein there is no post-audit. Does the payment made become effective if
no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or
regulation specifies a period when a post-audit should or could be conducted with a prescriptive period?
Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future
event for its effectivity. Our system of laws and procedures abhors ambiguity.

A TCC is
Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the
a certification, duly issued to the taxpayer named therein, by the Commissioner or
his duly authorized representative, reduced in a BIR Accountable Form in
accordance with the prescribed formalities, acknowledging that the granteetaxpayer named therein is legally entitled a tax credit, the money value of which
may be used in payment or in satisfaction of any of his internal revenue tax liability
(except those excluded), or may be converted as a cash refund, or may otherwise be
disposed of in the manner and in accordance with the limitations, if any, as may be
prescribed by the provisions of these Regulations.

very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be
honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if
these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the
exercise of said post-audit.
The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive
condition, and are thus valid and effective from their issuance. As such, in the present case, if the TCCs

From the above definitions, it is clear that a TCC is an undertaking by the government through
the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an
overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by
law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is
transferable in accordance with pertinent laws, rules, and regulations.

have already been applied as partial payment for the tax liability of PSPC, a post-audit of the TCCs cannot
simply annul them and the tax payment made through said TCCs. Payment has already been made and is
as valid and effective as the issued TCCs. The subsequent post-audit cannot void the TCCs and allow the
respondent to declare that utilizing canceled TCCs results in nonpayment on the part of PSPC. As will be
discussed, respondent and the Center expressly recognize the TCCs as valid payment of PSPCs tax
liability.

Therefore, the TCCs are immediately valid and effective after their issuance. As aptly pointed
out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and
Instructions found at the back of each TCC, which provide:

Second, the only conditions the TCCs are subjected to are those found on its face. And these
are:

equipment provider or a supplier of raw material and/or component supplier to the transferors. What the
1.

Post-audit and subsequent adjustment in the event of computational

discrepancy;

2.

A reduction for any outstanding account/obligation of herein claimant with the

BIR and/or BOC; and

3.

Revalidation with the Center in case the TCC is not utilized or applied within
one (1) year from date of issuance/date of last utilization.

law requires is that the transferee be a BOI-registered company similar to the BOI-registered transferors.

The IRR of EO 226, which incorporated the October 5, 1982 MOA between the MOF and BOI,
pertinently provides for the guidelines concerning the transferability of TCCs:

The above conditions clearly show that the post-audit contemplated in the TCCs does not
pertain to their genuineness or validity, but on computational discrepancies that may have resulted from
the transfer and utilization of the TCC.

[T]he MOF and the BOI, through their respective representatives, have
agreed on the following guidelines to govern the transferability of tax credit
certificates:

This is shown by a close reading of the first and second conditions above; the third condition
1)
All tax credit certificates issued to BOI-registered enterprises
under P.D. 1789 may be transferred under conditions provided herein;

is self explanatory. Since a tax credit partakes of what is owed by the State to a taxpayer, if the taxpayer
has an outstanding liability with the BIR or the BOC, the money value of the tax credit covered by the

2)

TCC is primarily applied to such internal revenue liabilities of the holder as provided under condition
number two. Elsewise put, the TCC issued to a claimant is applied first and foremost to any outstanding

The transferee should be a BOI-registered firm;

3)
The transferee may apply such tax credit certificates for payment
of taxes, duties, charges or fees directly due to the national government for as long
as it enjoys incentives under P.D. 1789. (Emphasis supplied.)

liability the claimant may have with the government. Thus, it may happen that upon post-audit, a TCC of
a taxpayer may be reduced for whatever liability the taxpayer may have with the BIR which remains
unpaid due to inadvertence or computational errors, and such reduction necessarily affects the balance of
the monetary value of the tax credit of the TCC.

The above requirement has not been amended or repealed during the unfolding of the instant
controversy. Thus, it is clear from the above proviso that it is only required that a TCC transferee be BOIregistered. In requiring PSPC to submit sales documents for its purported post-audit of the TCCs, the

For example, Company A has been granted a TCC in the amount of PhP 500,000 through its
export transactions, but it has an outstanding excise tax liability of PhP 250,000 which due to inadvertence

Center gravely abused its discretion as these are not required of the transferee PSPC by law and by the
rules.

was erroneously assessed and paid at PhP 225,000. On post-audit, with the finding of a deficiency of PhP
25,000, the utilization of the TCC is accordingly corrected and the tax credit remaining in the TCC

While the October 5, 1982 MOA appears to have been amended by the August 29, 1989 MOA

correspondingly reduced by PhP 25,000. This is a concrete example of a computational discrepancy which

between the DOF and BOI, such may not operate to prejudice transferees like PSPC. For one, the August

comes to light after a post-audit is conducted on the utilization of the TCC. The same holds true for a

29, 1989 MOA remains only an internal agreement as it has neither been elevated to the level of nor

transferees use of the TCC in paying its outstanding internal revenue tax liabilities.

incorporated as an amendment in the IRR of EO 226. As aptly put by the CTA Division:

Other examples of computational errors would include the utilization of a single TCC to settle
several internal revenue tax liabilities of the taxpayer or transferee, where errors committed in the
reduction of the credit tax running balance are discovered in the post-audit resulting in the adjustment of
the TCC utilization and remaining tax credit balance.
Third, the post-audit the Center conducted on the transferred TCCs, delving into their issuance
and validity on alleged violations by PSPC of the August 29, 1989 MOA between the DOF and BOI, is
completely misplaced. As may be recalled, the Center required PSPC to submit copies of pertinent sales
invoices and delivery receipts covering sale transactions of PSPC products to the TCC
assignors/transferors purportedly in connection with an ongoing post audit. As correctly protested by
PSPC but which was completely ignored by the Center, PSPC is not required by law to be a capital

If the 1989 MOA has validly amended the 1982 MOA, it would have
been incorporated either expressly or by reference in Rule VII of the Implementing
Rules and Regulations (IRRs) of E.O. 226. To date, said Rule VII has not been
repealed, amended or otherwise modified. It is noteworthy that the 1999 edition of
the official publication by the BOI of E.O. 226 and its IRRs (Exhibit R) which is the
latest version, as amended, has not mentioned expressly or by reference [sic] 1989
MOA. The MOA mentioned therein is still the 1982 MOA.
The 1982 MOA, although executed as a mere agreement between the
DOF and the BOI was elevated to the status of a rule and regulation applicable to
the general public by reason of its having been expressly incorporated in Rule VII
of the IRRs. On the other hand, the 1989 MOA which purportedly amended the
1982 MOA, remained a mere agreement between the DOF and the BOI because,
unlike the 1982 MOA, it was never incorporated either expressly or by reference to
any amendment or revision of the said IRRs. Thus, it cannot be the basis of any

invalidation of the transfers of TCCs to petitioner nor of any other sanction against
petitioner.
The above clause to our mind clearly provides only for the solidary liability relative to the
For another, even if the August 29, 1989 MOA has indeed amended the IRR, which it has not,
still, it is ineffective and cannot prejudice third parties for lack of publication as mandatorily required
under Chapter 2 of Book VII, EO 292, otherwise known as the Administrative Code of 1987, which
pertinently provides:

transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause that
provides for the liability of the transferee in the event that the validity of the TCC issued to the original
grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the
said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the
transferee by the original grantee. Any fraud or breach of law or rule relating to the issuance of the TCC

Section 3. Filing.(1) Every agency shall file with the University of

the Philippines Law Center three (3) certified copies of every rule adopted by it.
Rules in force on the date of effectivity of this Code which are not filed within three
(3) months from the date shall not thereafter be the basis of any sanction against any
party or person.
(2) The records officer of the agency, or his equivalent functionary, shall
carry out the requirements of this section under pain of disciplinary action.
(3) A permanent register of all rules shall be kept by the issuing agency
and shall be open to public inspection.
Section 4. Effectivity.In addition to other rule-making requirement
provided by law not inconsistent with this Book, each rule shall become effective
fifteen (15) days from the date of filing as above provided unless a different date is
fixed by law, or specified in the rule in cases of imminent danger to public health,
safety and welfare, the existence of which must be expressed in a statement
accompanying the rule. The agency shall take appropriate measures to make
emergency rules known to persons who may be affected by them.

by the Center to the transferor or the original grantee is the latters responsibility and liability. The
transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the
claimant or transferor in the procurement or issuance of the TCC from the Center. It is not only unjust
but well-nigh violative of the constitutional right not to be deprived of ones property without due process
of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith
and for value is utterly confiscatory, more so when surcharges and interests are likewise assessed.
A transferee in good faith and for value of a TCC who has relied on the Centers
representation of the genuineness and validity of the TCC transferred to it may not be legally required to
pay again the tax covered by the TCC which has been belatedly declared null and void, that is, after the
TCCs have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the
transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has
knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as
provided for by law.

Section 5. x x x x
(2) Every rule establishing an offense or defining an act which pursuant
to law, is punishable as a crime or subject to a penalty shall in all cases be published
in full text.

In the instant case, a close review of the factual milieu and the records reveals that PSPC is a
transferee in good faith and for value. No evidence was adduced that PSPC participated in any way in the
issuance of the subject TCCs to the corporations who in turn conveyed the same to PSPC. It has likewise

It is clear that the Center or DOF cannot compel PSPC to submit sales documents for the
purported post-audit, as PSPC has duly complied with the requirements of the law and rules to be a
qualified transferee of the subject TCCs.

been shown that PSPC was not involved in the processing for the approval of the transfers of the subject

Fourth, we likewise fail to see the liability clause at the dorsal portion of the TCCs to be a

Respondent, through the Center, made much of the alleged non-payment through non-delivery

suspensive condition relative to the result of the post-audit. Said liability clause indicates:

TCCs from the various BOI-registered transferors.

by PSPC of the IFOs it purportedly sold to the transferors covered by supply agreements which were
allegedly the basis of the Center for the approval of the transfers. Respondent points to the requirement

LIABILITY CLAUSE

under the August 29, 1989 MOA between the DOF and BOI, specifying the requirement that [t]he
transferee should be a BOI-registered firm which is a domestic capital equipment supplier, or a raw
material and/or component supplier of the transferor.

Both the TRANSFEROR and the TRANSFEREE shall be jointly and

severally liable for any fraudulent act or violation of the pertinent laws, rules and
regulations relating to the transfer of this TAX CREDIT CERTIFICATE.
(Emphasis supplied.)

As discussed above, the above amendment to the October 5, 1982 MOA between BOI and

Fifth, PSPC cannot be blamed for relying on the Centers approval for the transfers of the

MOF cannot prejudice any transferee, like PSPC, as it was neither incorporated nor elevated to the IRR of

subject TCCs and the Centers acceptance of the TCCs for the payment of its excise tax liabilities.

EO 226, and for lack of due publication. The pro-forma supply agreements allegedly executed by PSPC

Likewise, PSPC cannot be faulted in relying on the BIRs acceptance of the subject TCCs as payment for

and the transferors covering the sale of IFOs to the transferors have been specifically denied by PSPC.

its excise tax liabilities. This reliance is supported by the fact that the subject TCCs have passed through

Moreover, the above-quoted requirement is not required under the IRR of EO 226. Therefore, it is

stringent reviews starting from the claims of the transferors, their issuance by the Center, the Centers

incumbent for respondent to present said supply agreements to prove participation by PSPC in the

approval for their transfer to PSPC, the Centers acceptance of the TCCs to pay PSPCs excise tax

approval of the transfers of the subject TCCs. Respondent failed to do this.

liabilities through the issuance of the Centers TDM, and finally the acceptance by the BIR of the subject
TCCs as payment through the issuance of its own TDM and ATAPETs.

PSPC claims to be a transferee in good faith of the subject TCCs. It believed that its tax
obligations for 1992 and 1994 to 1997 had in fact been paid when it applied the subject TCCs, considering
that all the necessary authorizations and approvals attendant to the transfer and utilization of the TCCs

Therefore, PSPC cannot be prejudiced by the Centers turnaround in assailing the validity of
the subject TCCs which it issued in due course.

were present. It is undisputed that the transfers of the TCCs from the original holders to PSPC were duly
approved by the Center, which is composed of a number of government agencies, including the BIR.

Sixth, we are of the view that the subject TCCs cannot be canceled by the Center as these had

Such approval was annotated on the reverse side of the TCCs, and the Center even issued TDM which is

already been canceled after their application to PSPCs excise tax liabilities. PSPC contends they are

proof of its approval for PSPC to apply the TCCs as payment for the tax liabilities. The BIR issued its

already functus officio, not quite in the sense of being no longer effective, but in the sense that they have

own TDM, also signifying approval of the TCCs as payment for PSPCs tax liabilities. The BIR also

been used up. When the subject TCCs were accepted by the BIR through the latters issuance of TDM

issued ATAPETs covering the aforementioned BIR-issued TDM, further proving its acceptance of the

and the ATAPETs, the subject TCCs were duly canceled.

TCCs as valid tax payments, which formed part of PSPCs total tax payments along with checks duly
acknowledged and received by BIRs authorized agent banks.

The tax credit of a taxpayer evidenced by a TCC is used up or, in accounting parlance, debited
when applied to the taxpayers internal revenue tax liability, and the TCC canceled after the tax credit it

Several approvals were secured by PSPC before it utilized the transferred TCCs, and it relied

represented is fully debited or used up. A credit is a payable or a liability. A tax credit, therefore, is a

on the verification of the various government agencies concerned of the genuineness and authenticity of

liability of the government evidenced by a TCC. Thus, the tax credit of a taxpayer evidenced by a TCC is

the TCCs as well as the validity of their issuances. Furthermore, the parties stipulated in open court that

debited by the BIR through a TDM, not only evidencing the payment of the tax by the taxpayer, but

the BIR-issued ATAPETs for the taxes covered by the subject TCCs confirm the correctness of the amount

likewise deducting or debiting the existing tax credit with the amount of the tax paid.

of excise taxes paid by PSPC during the tax years in question.

For example, a transferee or the tax claimant has a TCC of PhP 1 million, which was used to
Thus, it is clear that PSPC is a transferee in good faith and for value of the subject TCCs and

pay income tax liability of PhP 500,000, documentary stamp tax liability of PhP 100,000, and value-added

may not be prejudiced with a re-assessment of excise tax liabilities it has already settled when due with

tax liability of PhP 350,000, for an aggregate internal revenue tax liability of PhP 950,000. After the

the use of the subject TCCs. Logically, therefore, the excise tax returns filed by PSPC duly covered by the

payments through the PhP 1 million TCC have been approved and accepted by the BIR through the

TDM and ATAPETs issued by the BIR confirming the full payment and satisfaction of the excise tax

issuance of corresponding TDM, the TCC money value is reduced to only PhP 50,000, that is, a credit

liabilities of PSPC, have not been fraudulently filed. Consequently, as PSPC is a transferee in good faith

balance of PhP 50,000. In this sense, the tax credit of the TCC has been canceled or used up in the amount

and for value, Sec. 222(a) of the NIRC does not apply in the instant case as PSPC has neither been shown

of PhP 950,000. Now, let us say the transferee or taxpayer has excise tax liability of PhP 250,000, s/he

nor proven to have committed any fraudulent act in the transfer and utilization of the subject TCCs. With

only has the remaining PhP 50,000 tax credit in the TCC to pay part of said excise tax. When the

more reason, therefore, that the three-year prescriptive period for assessment under Art. 203 of the NIRC

transferee or taxpayer applies such payment, the TCC is canceled as the money value of the tax credit it

has already set in and bars respondent from assessing anew PSPC for the excise taxes already paid in 1992

represented has been fully debited or used up. In short, there is no more tax credit available for the

and 1994 to 1997. Besides, even if the period for assessment has not prescribed, still, there is no valid

taxpayer to settle his/her other tax liabilities.

ground for the assessment as the excise tax liabilities of PSPC have been duly settled and paid.

In the instant case, with due application, approval, and acceptance of the payment by PSPC of
the subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs

which the Center relied upon as basis for the cancellation is defective, ineffective, and cannot prejudice
third parties for lack of publication.

have been canceled as the money value of the tax credits these represented have been used up. Therefore,
the DOF through the Center may not now cancel the subject TCCs as these have already been canceled

As we have explained above, the subject TCCs after being fully utilized in the settlement of

and used up after their acceptance as payment for PSPCs excise tax liabilities. What has been used up,

PSPCs excise tax liabilities have been canceled, and thus cannot be canceled anymore. For being

debited, and canceled cannot anymore be declared to be void, ineffective, and canceled anew.

immediately effective and valid when issued, the subject TCCs have been duly utilized by transferee
PSPC which is a transferee in good faith and for value.

Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the
TCC canceled when fully utilized, but the payment is also final subject only to a post-audit on
computational errors. Under RR 5-2000, a TDM is

On the issue of the fraudulent procurement of the TCCs, it has been asseverated that fraud was
committed by the TCC claimants who were the transferors of the subject TCCs. We see no need to rule on
this issue in view of our finding that the real issue in this petition does not dwell on the validity of the
TCCs procured by the transferor from the Center but on whether fraud or breach of law attended the

a certification, duly issued by the Commissioner or his duly authorized

representative, reduced in a BIR Accountable Form in accordance with the
prescribed formalities, acknowledging that the taxpayer named therein has duly
paid his internal revenue tax liability in the form of and through the use of a Tax
Credit Certificate, duly issued and existing in accordance with the provisions of
these Regulations. The Tax Debit Memo shall serve as the official receipt from
the BIR evidencing a taxpayers payment or satisfaction of his tax obligation.
The amount shown therein shall be charged against and deducted from the credit
balance of the aforesaid Tax Credit Certificate.

transfer of said TCCs by the transferor to the transferee.

The finding of the CTA En Banc that there was fraud in the procurement of the subject TCCs
is, therefore, irrelevant and immaterial to the instant petition. Moreover, there are pending criminal cases
arising from the alleged fraud. We leave the matter to the anti-graft court especially considering the
failure of the affiants to the affidavits to appear, making these hearsay evidence.

Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made
by PSPC with the use of the subject TCCs have been effected and consummated as the TDMs serve as the
official receipts evidencing PSPCs payment or satisfaction of its tax obligation. Moreover, the BIR not
only issued the corresponding TDM, but it also issued ATAPETs which doubly show the payment of the
subject excise taxes of PSPC.

We note in passing that PSPC and its officers were not involved in any fraudulent act that may
have been undertaken by the transferors of subject TCCs, supported by the finding of the Ombudsman
Special Prosecutor Leonardo P. Tamayo that Pacifico R. Cruz, PSPC General Manager of the Treasury and
Taxation Department, who was earlier indicted as accused in OMB-0-99-2012 to 2034 for violation of
Sec. 3(e) and (j) of RA 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act,
for allegedly conspiring with other accused in defrauding and causing undue injury to the government, did

Based on the above discussion, we hold that respondent erroneously and without factual and
legal basis levied the assessment. Consequently, the CTA En Banc erred in sustaining respondents

not in any way participate in alleged fraudulent activities relative to the transfer and use of the subject
TCCs.

assessment.
In a Memorandum addressed to then Ombudsman Aniano A. Desierto, the Special Prosecutor
Second Issue: Cancellation of TCCs

Leonardo P. Tamayo recommended dropping Pacifico Cruz as accused in Criminal Case Nos. 2594025962 entitled People of the Philippines v. Antonio P. Belicena, et al., pending before the Sandiganbayan

PSPC argues that the CTA En Banc erred in upholding the cancellation by the Center of the subject TCCs

Fifth Division for lack of probable cause. Special

it used in paying some of its excise tax liabilities as the subject TCCs were genuine and authentic, having
been subjected to thorough and stringent procedures, and approvals by the Center. Moreover, PSPC posits
that both the CTAs Division and En Banc duly found that PSPC had neither knowledge, involvement, nor
participation in the alleged fraudulent issuance of the subject TCCs, and, thus, as a transferee in good faith
and for value, it cannot be held solidarily liable for any fraud attendant to the issuance of the subject
TCCs. PSPC further asserts that the Center has no authority to cancel the subject TCCs as such authority
is lodged exclusively with the BOI. Lastly, PSPC said that the Centers Excom Resolution No. 03-05-99

Prosecutor Tamayo found that Cruzs involvement in the transfers of the subject TCCs came after the
applications for the transfers had been duly processed and approved; and that Cruz could not have been
part of the conspiracy as he cannot be presumed to have knowledge of the irregularity, because the 1989
MOA, which prescribed the additional requirement that the transferee of a TCC should be a supplier of the
transferor, was not yet published and made known to private parties at the time the subject TCCs were
transferred to PSPC. The Memorandum of Special Prosecutor Tamayo was duly approved by then

Ombudsman Desierto. Consequently, on May 31, 2000, the Sandiganbayan Fifth Division, hearing
Criminal Case Nos. 25940-25962, dropped Cruz as accused.

Sec. 3, letter l. of AO 266, in relation to letters a. and g., does give ample authority to the
Center to cancel the TCCs it issued. Evidently, the Center cannot carry out its mandate if it cannot cancel
the TCCs it may have erroneously issued or those that were fraudulently issued. It is axiomatic that when

But even assuming that fraud attended the procurement of the subject TCCs, it cannot

the law and its implementing rules are silent on the matter of cancellation while granting explicit authority

prejudice PSPCs rights as earlier explained since PSPC has not been shown or proven to have

to issue, an inherent and incidental power resides on the issuing authority to cancel that which was issued.

participated in the perpetration of the fraudulent acts, nor is it shown that PSPC committed fraud in the

A caveat however is required in that while the Center has authority to do so, it must bear in mind the

transfer and utilization of the subject TCCs.

nature of the TCCs immediate effectiveness and validity for which cancellation may only be exercised
before a transferred TCC has been fully utilized or canceled by the BIR after due application of the

On the issue of the authority to cancel duly issued TCCs, we agree with respondent that the

available tax credit to the internal revenue tax liabilities of an innocent transferee for value, unless of

Center has concurrent authority with the BIR and BOC to cancel the TCCs it issued. The Center was

course the claimant or transferee was involved in the perpetration of the fraud in the TCCs issuance,

created under Administrative Order No. (AO) 266 in relation to EO 226. A scrutiny of said executive

transfer, or utilization. The utilization of the TCC will not shield a guilty party from the consequences of

issuances clearly shows that the Center was granted the authority to issue TCCs pursuant to its mandate

the fraud committed.

under AO 266. Sec. 5 of AO 266 provides:

While we agree with respondent that the State in the performance of governmental function is
not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation,
SECTION 5. Issuance of Tax Credit Certificates and/or Duty
Drawback.The Secretary of Finance shall designate his representatives who
shall, upon the recommendation of the CENTER, issue tax credit certificates within
thirty (30) working days from acceptance of applications for the enjoyment thereof.
(Emphasis supplied.)
On the other hand, it is undisputed that the BIR under the NIRC and related statutes has the
authority to both issue and cancel TCCs it has issued and even those issued by the Center, either upon full
utilization in the settlement of internal revenue tax liabilities or upon conversion into a tax refund of
unutilized TCCs in specific cases under the conditions provided. AO 266 however is silent on whether or
not the Center has authority to cancel a TCC it itself issued. Sec. 3 of AO 266 reveals:

yet this principle cannot be applied to work injustice against an innocent party. In the case at bar, PSPCs
rights as an innocent transferee for value must be protected. Therefore, the remedy for respondent is to go
after the claimant companies who allegedly perpetrated the fraud. This is now the subject of a criminal
prosecution before the Sandiganbayan docketed as Criminal Case Nos. 25940-25962 for violation of RA
3019.
On the issue of the publication of the Centers Excom Resolution No. 03-05-99 providing for
the Guidelines and Procedures for the Cancellation, Recall and Recovery of Fraudulently Issued Tax
Credit Certificates, we find that the resolution is invalid and unenforceable. It authorizes the cancellation
of TCCs and TDM which are found to have been granted without legal basis or based on fraudulent

SECTION 3. Powers, Duties and Functions.The Center shall have the

following powers, duties and functions:
a. To promulgate the necessary rules and regulations and/or guidelines for
the effective implementation of this administrative order;

documents. The cancellation of the TCCs and TDM is covered by a penal provision of the assailed
resolution. Such being the case, it should have been published and filed with the National Administrative
Register of the U.P. Law Center in accordance with Secs. 3, 4, and 5, Chapter 2 of Book VII, EO 292 or
the Administrative Code of 1987.

xxxx
g.
To enforce compliance with tax credit/duty drawback policy and
procedural guidelines;
xxxx
l. To perform such other functions/duties as may be necessary or incidental in
the furtherance of the purpose for which it has been established. (Emphasis
supplied.)

We explained in People v. Que Po Lay that a rule which carries a penal sanction will bind the
public if the public is officially and specifically informed of the contents and penalties prescribed for the
breach of the rule. Since Excom Resolution No. 03-05-99 was neither registered with the U.P.
Law Center nor published, it is ineffective and unenforceable. Even if the resolution need not be
published, the punishment for any alleged fraudulent act in the procurement of the TCCs must not be
visited on PSPC, an innocent transferee for value, which has not been shown to have participated in the
fraud. Respondent must go after the perpetrators of the fraud.

Third Issue: Imposition of surcharges and interests

PSPC was merely informed that it is liable for the amount of excise taxes it declared in its
excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand

PSPC claims that having no deficiency excise tax liabilities, it may not be liable for the late
payment surcharges and annual interests.
This issue has been mooted by our disquisition above resolving the first issue in that PSPC has
duly settled its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no basis for the
imposition of a late payment surcharges and for interests, and no need for further discussion on the matter.

and assessment notice. For being formally defective, the November 15, 1999 formal letter of demand and
assessment notice is void. Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides:
3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of
demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of

Fourth Issue: Non-compliance with statutory and procedural due process

demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered
mail or by personal delivery. x x x (Emphasis supplied.)

Finally, PSPC avers that its statutory and procedural right to due process was violated by respondent in
the issuance of the assessment. PSPC claims respondent violated RR 12-99 since no pre-assessment
notice was issued to PSPC before the November 15, 1999 assessment. Moreover, PSPC argues that the
November 15, 1999 assessment effectively deprived it of its statutory right to protest the pre-assessment
within 30 days from receipt of the disputed assessment letter.
While this has likewise been mooted by our discussion above, it would not be amiss to state that PSPCs
rights to substantive and procedural due process have indeed been violated. The facts show that PSPC
was not accorded due process before the assessment was levied on it. The Center required PSPC to
submit certain sales documents relative to supposed delivery of IFOs by PSPC to the TCC transferors.
PSPC contends that it could not submit these documents as the transfer of the subject TCCs did not

In short, respondent merely relied on the findings of the Center which did not give PSPC
ample opportunity to air its side. While PSPC indeed protested the formal assessment, such does not
denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment
before it was issued. Respondent must be more circumspect in the exercise of his functions, as this Court
aptly held in Roxas v. Court of Tax Appeals:

The power of taxation is sometimes called also the power to destroy.

Therefore it should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the hen that lays the golden egg. And, in the order to maintain the
general publics trust and confidence in the Government this power must be used
justly and not treacherously.

require that it be a supplier of materials and/or component supplies to the transferors in a letter dated
October 29, 1999 which was received by the Center on November 3, 1999. On the same day, the Center
informed PSPC of the cancellation of the subject TCCs and the TDM covering the application of the TCCs
to PSPCs excise tax liabilities. The objections of PSPC were brushed aside by the Center and the
assessment was issued by respondent on November 15, 1999, without following the statutory and
procedural requirements clearly provided under the NIRC and applicable regulations.

WHEREFORE, the petition is GRANTED. The April 28, 2006 CTA En Banc Decision in
CTA EB No. 64 is hereby REVERSED and SET ASIDE, and the August 2, 2004 CTA Decision in CTA
Case No. 6003 disallowing the assessment is hereby REINSTATED. The assessment of respondent for
deficiency excise taxes against petitioner for 1992 and 1994 to 1997 inclusive contained in the April 22,
1998 letter of respondent is canceled and declared without force and effect for lack of legal basis. No

What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation

pronouncement as to costs.

to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of
national internal revenue taxes, fees, and charges. The procedures delineated in the said statutory provisos
and RR 12-99 were not followed by respondent, depriving PSPC of due process in contesting the formal
assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal

SO ORDERED.

conference and a preliminary assessment notice, as required. PSPCs November 4, 1999 motion for
reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was
not even acted upon.

COCONUT OIL REFINERS ASSOCIATION, INC. represented by its President, JESUS L. ARRANZA,
PHILIPPINE ASSOCIATION OF MEAT PROCESSORS, INC. (PAMPI), represented by its Secretary,

ROMEO G. HIDALGO, FEDERATION OF FREE FARMERS (FFF), represented by its President,

JEREMIAS U. MONTEMAYOR, and BUKLURAN NG MANGGAGAWANG PILIPINO (BMP),
represented by its Chairperson, FELIMON C. LAGMAN, petitioners, vs. HON. RUBEN TORRES, in his
capacity as Executive Secretary; BASES CONVERSION AND DEVELOPMENT AUTHORITY,
CLARK DEVELOPMENT CORPORATION, SUBIC BAY METROPOLITAN AUTHORITY, 88 MART
DUTY FREE, FREEPORT TRADERS, PX CLUB, AMERICAN HARDWARE, ROYAL DUTY FREE
SHOPS, INC., DFS SPORTS, ASIA PACIFIC, MCI DUTY FREE DISTRIBUTOR CORP. (formerly MCI
RESOURCES, CORP.), PARK & SHOP, DUTY FREE COMMODITIES, L. FURNISHING,
SHAMBURGH, SUBIC DFS, ARGAN TRADING CORP., ASIPINE CORP., BEST BUY, INC., PX
CLUB, CLARK TRADING, DEMAGUS TRADING CORP., D.F.S. SPORTS UNLIMITED, INC.,
DUTY FREE FIRST SUPERSTORE, INC., FREEPORT, JC MALL DUTY FREE INC. (formerly 88
Mart [Clark] Duty Free Corp.), LILLY HILL CORP., MARSHALL, PUREGOLD DUTY FREE, INC.,
ROYAL DFS and ZAXXON PHILIPPINES, INC., respondents.
DECISION
AZCUNA, J.:

...
The abovementioned zone shall be subject to the following policies:
(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed
into a self-sustaining, industrial, commercial, financial and investment center to generate employment
opportunities in and around the zone and to attract and promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory
ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials,
capital and equipment. However, exportation or removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes
under the Customs and Tariff Code and other relevant tax laws of the Philippines;[4]

This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch,
through the public respondents Ruben Torres in his capacity as Executive Secretary, the Bases Conversion
Development Authority (BCDA), the Clark Development Corporation (CDC) and the Subic Bay
Metropolitan Authority (SBMA), from allowing, and the private respondents from continuing with, the
operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ) and the Clark
Special Economic Zone (CSEZ), and to declare the following issuances as unconstitutional, illegal, and
void:

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

1. Section 5 of Executive Order No. 80,[1] dated April 3, 1993, regarding the CSEZ.

...

2. Executive Order No. 97-A, dated June 19, 1993, pertaining to the SSEZ.

SECTION 15.
Clark and Other Special Economic Zones. Subject to the concurrence by
resolution of the local government units directly affected, the President is hereby authorized to create by
executive proclamation a Special Economic Zone covering the lands occupied by the Clark military
reservations and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases
Agreement between the Philippines and the United States of America, as amended, located within the
territorial jurisdiction of Angeles City, Municipalities of Mabalacat and Porac, Province of Pampanga and
the Municipality of Capas, Province of Tarlac, in accordance with the policies as herein provided insofar
as applicable to the Clark military reservations.

3. Section 4 of BCDA Board Resolution No. 93-05-034,[2] dated May 18, 1993, pertaining to the CSEZ.
Petitioners contend that the aforecited issuances are unconstitutional and void as they constitute executive
lawmaking, and that they are contrary to Republic Act No. 7227[3] and in violation of the Constitution,
particularly Section 1, Article III (equal protection clause), Section 19, Article XII (prohibition of unfair
competition and combinations in restraint of trade), and Section 12, Article XII (preferential use of
Filipino labor, domestic materials and locally produced goods).
The facts are as follows:

The governing body of the Clark Special Economic Zone shall likewise be established by executive
proclamation with such powers and functions exercised by the Export Processing Zone Authority pursuant
to Presidential Decree No. 66 as amended.

On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and
balanced conversion of the Clark and Subic military reservations and their extensions into alternative
productive uses in the form of special economic zones in order to promote the economic and social
development of Central Luzon in particular and the country in general. Among the salient provisions are
as follows:

The policies to govern and regulate the Clark Special Economic Zone shall be determined upon
consultation with the inhabitants of the local government units directly affected which shall be conducted
within six (6) months upon approval of this Act.

SECTION 12. Subic Special Economic Zone.

Similarly, subject to the concurrence by resolution of the local government units directly affected, the
President shall create other Special Economic Zones, in the base areas of Wallace Air Station in San
Fernando, La Union (excluding areas designated for communications, advance warning and radar

requirements of the Philippine Air Force to be determined by the Conversion Authority) and Camp John
Hay in the City of Baguio.

SEZ. This privilege shall be enjoyed only once a month. Any excess shall be
levied taxes and duties by the Bureau of Customs.

Upon recommendation of the Conversion Authority, the President is likewise authorized to create Special
Economic Zones covering the Municipalities of Morong, Hermosa, Dinalupihan, Castillejos and San
Marcelino.

On June 10, 1993, the President issued Executive Order No. 97, Clarifying the Tax and Duty Free
Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227. Said issuance in part
states, thus:

On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others,
that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port
Zone under Republic Act No. 7227. The pertinent provision assailed therein is as follows:

SECTION 1. On Import Taxes and Duties Tax and duty-free importations shall apply only to raw
materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for these
items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals,
are subject to taxes and duties under relevant Philippine laws.

SECTION 5. Investments Climate in the CSEZ. Pursuant to Section 5(m) and Section 15 of RA 7227,
the BCDA shall promulgate all necessary policies, rules and regulations governing the CSEZ, including
investment incentives, in consultation with the local government units and pertinent government
departments for implementation by the CDC.
Among others, the CSEZ shall have all the applicable incentives in the Subic Special Economic and Free
Port Zone under RA 7227 and those applicable incentives granted in the Export Processing Zones, the
Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and new investments laws
which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base proper shall have all the aforecited investment
incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The
full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall be
determined by the BCDA.
Pursuant to the directive under Executive Order No. 80, the BCDA passed Board Resolution No. 93-05034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods imported via Clark
for consumption outside the CSEZ. The assailed provisions of said resolution read, as follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ MAIN ZONE. The CSEZ-registered
enterprises/businesses shall be entitled to all the incentives available under R.A. No. 7227, E.O. No. 226
and R.A. No. 7042 which shall include, but not limited to, the following:
I.

As in Subic Economic and Free Port Zone:

The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the
Philippine territory shall be subject to duties and taxes under relevant Philippine laws.
Nine days after, on June 19, 1993, Executive Order No. 97-A was issued, Further Clarifying the Tax and
Duty-Free Privilege Within the Subic Special Economic and Free Port Zone. The relevant provisions
read, as follows:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured
Area of the Subic Special Economic and Free Port Zone:
1.1
The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the
only completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos
and foreigners) residing within the Secured Area are free to import raw materials, capital goods,
equipment, and consumer items tax and duty-free. Consumption items, however, must be consumed
within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of
the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and
duties, except as may be provided herein.
1.2.
Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and
consume any quantity of consumption items in hotels and restaurants within the Secured Area. However,
these residents can purchase and bring out of the Secured Area to other parts of the Philippine territory
consumer items worth not exceeding US$100 per month per person. Only residents age 15 and over are
entitled to this privilege.

A.

Customs:

1.3.
Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity
of consumption items in hotels and restaurants within the Secured Area. However, they can purchase and
bring out [of] the Secured Area to other parts of the Philippine territory consumer items worth not
exceeding US$200 per year per person. Only Filipinos age 15 and over are entitled to this privilege.

4.

Tax and duty-free purchase and consumption of goods/articles (duty free

shopping) within the CSEZ Main Zone.

Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited
provisions respectively to SSEZ residents living outside the Secured Area of the SSEZ and to Filipinos
aged 15 and over residing outside the SSEZ.

5.

For individuals, duty-free consumer goods may be brought out of the CSEZ Main
Zone into the Philippine Customs territory but not to exceed US$200.00 per
month per CDC-registered person, similar to the limits imposed in the Subic

...

On February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity of the
assailed issuances on the following grounds:

I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF
BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING AN EXERCISE
OF EXECUTIVE LAWMAKING.
II.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF
BCDA BOARD RESOLUTION NO. 93-05-034 ARE UNCONSTITUTIONAL FOR BEING
VIOLATIVE OF THE EQUAL PROTECTION CLAUSE AND THE PROHIBITION AGAINST
UNFAIR COMPETITION AND PRACTICES IN RESTRAINT OF TRADE.
III.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF EXECUTIVE ORDER NO. 80, AND SECTION 4 OF
BCDA BOARD RESOLUTION NO. 93-05-034 ARE NULL AND VOID [FOR] BEING VIOLATIVE OF
REPUBLIC ACT NO. 7227.

for each others acts.[9] Hence, to doubt is to sustain. The theory is that before the act was done or the
law was enacted, earnest studies were made by Congress, or the President, or both, to insure that the
Constitution would not be breached.[10] This Court, however, may declare a law, or portions thereof,
unconstitutional where a petitioner has shown a clear and unequivocal breach of the Constitution, not
merely a doubtful or argumentative one.[11] In other words, before a statute or a portion thereof may be
declared unconstitutional, it must be shown that the statute or issuance violates the Constitution clearly,
palpably and plainly, and in such a manner as to leave no doubt or hesitation in the mind of the Court.[12]
The Issue on Executive Legislation
Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive Order No.
80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute executive legislation, in violation
of the rule on separation of powers. Petitioners argue that the Executive Department, by allowing through
the questioned issuances the setting up of tax and duty-free shops and the removal of consumer goods and
items from the zones without payment of corresponding duties and taxes, arbitrarily provided additional
exemptions to the limitations imposed by Republic Act No. 7227, which limitations petitioners identify as
follows:
(1) [Republic Act No. 7227] allowed only tax and duty-free importation of raw materials, capital
and equipment.

IV.
(2) It provides that any exportation or removal of goods from the territory of the Subic Special
Economic Zone to other parts of the Philippine territory shall be subject to customs duties
and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.

THE CONTINUED IMPLEMENTATION OF THE CHALLENGED ISSUANCES IF NOT

RESTRAINED WILL CONTINUE TO CAUSE PETITIONERS TO SUFFER GRAVE AND
IRREPARABLE INJURY.[5]
In their Comments, respondents point out procedural issues, alleging lack of petitioners legal standing,
the unreasonable delay in the filing of the petition, laches, and the propriety of the remedy of prohibition.
Anent the claim on lack of legal standing, respondents argue that petitioners, being mere suppliers of the
local retailers operating outside the special economic zones, do not stand to suffer direct injury in the
enforcement of the issuances being assailed herein. Assuming this is true, this Court has nevertheless held
that in cases of paramount importance where serious constitutional questions are involved, the standing
requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to
the party claiming the right of judicial review.[6]

Anent the first alleged limitation, petitioners contend that the wording of Republic Act No. 7227 clearly
limits the grant of tax incentives to the importation of raw materials, capital and equipment only. Hence,
they claim that the assailed issuances constitute executive legislation for invalidly granting tax incentives
in the importation of consumer goods such as those being sold in the duty-free shops, in violation of the
letter and intent of Republic Act No. 7227.
A careful reading of Section 12 of Republic Act No. 7227, which pertains to the SSEZ, would show that it
does not restrict the duty-free importation only to raw materials, capital and equipment. Section 12 of
the cited law is partly reproduced, as follows:
SECTION 12. Subic Special Economic Zone.

In the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such
defects, this Court, in the exercise of its discretion, brushes aside these technicalities and takes cognizance
of the petition considering the importance to the public of the present case and in keeping with the duty to
determine whether the other branches of the government have kept themselves within the limits of the
Constitution.[7]
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on the validity of an act of a co-equal and coordinate branch
of the Government, it bears emphasis that deeply ingrained in our jurisprudence is the time-honored
principle that a statute is presumed to be valid.[8] This presumption is rooted in the doctrine of separation
of powers which enjoins upon the three coordinate departments of the Government a becoming courtesy

...
The abovementioned zone shall be subject to the following policies:
...
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free
importations of raw materials, capital and equipment. However, exportation or removal of

goods from the territory of the Subic Special Economic Zone to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant tax laws of the Philippines.[13]
While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital and
equipment, this does not necessarily mean that the tax and duty-free buying privilege is limited to these
types of articles to the exclusion of consumer goods. It must be remembered that in construing statutes,
the proper course is to start out and follow the true intent of the Legislature and to adopt that sense which
harmonizes best with the context and promotes in the fullest manner the policy and objects of the
Legislature.[14]
In the present case, there appears to be no logic in following the narrow interpretation petitioners urge. To
limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw
materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free
port where the free flow of goods or capital within, into, and out of the zones is insured.
The phrase tax and duty-free importations of raw materials, capital and equipment was merely cited as
an example of incentives that may be given to entities operating within the zone. Public respondent SBMA
correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely
to support their restrictive interpretation, does not apply when words are mentioned by way of example.
[15] It is obvious from the wording of Republic Act No. 7227, particularly the use of the phrase such as,
that the enumeration only meant to illustrate incentives that the SSEZ is authorized to grant, in line with
its being a free port zone.
Furthermore, said legal maxim should be applied only as a means of discovering legislative intent which
is not otherwise manifest, and should not be permitted to defeat the plainly indicated purpose of the
Legislature.[16]
The records of the Senate containing the discussion of the concept of special economic zone in Section
12 (a) of Republic Act No. 7227 show the legislative intent that consumer goods entering the SSEZ which
satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance
with Philippine laws, thus:
Senator Guingona. . . . The concept of Special Economic Zone is one that really includes the concept of
a free port, but it is broader. While a free port is necessarily included in the Special Economic Zone, the
reverse is not true that a free port would include a special economic zone.
Special Economic Zone, Mr. President, would include not only the incoming and outgoing of vessels,
duty-free and tax-free, but it would involve also tourism, servicing, financing and all the appurtenances of
an investment center. So, that is the concept, Mr. President. It is broader. It includes the free port concept
and would cater to the greater needs of Olangapo City, Subic Bay and the surrounding municipalities.

needs of tourism, could embrace the needs of servicing, could embrace the needs of financing and other
investment aspects.
Senator Enrile. When a hotel is constructed, Mr. President, in this geographical unit which we call a
special economic zone, will the goods entering to be consumed by the customers or guests of the hotel be
subject to duties?
Senator Guingona. That is the concept that we are crafting, Mr. President.
Senator Enrile. No. I am asking whether those goods will be duty-free, because it is constructed within
a free port.
Senator Guingona. For as long as it services the needs of the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain within the zone, whether we call it an economic zone or
a free port, for as long as we say in this law that all goods entering this particular territory will be dutyfree and tax-free, for as long as they remain there, consumed there or reexported or destroyed in that
place, then they are not subject to the duties and taxes in accordance with the laws of the Philippines?
Senator Guingona. Yes.[17]
Petitioners rely on Committee Report No. 1206 submitted by the Ad Hoc Oversight Committee on Bases
Conversion on June 26, 1995. Petitioners put emphasis on the reports finding that the setting up of dutyfree stores never figured in the minds of the authors of Republic Act No. 7227 in attracting foreign
investors to the former military baselands. They maintain that said law aimed to attract manufacturing and
service enterprises that will employ the dislocated former military base workers, but not investors who
would buy consumer goods from duty-free stores.
The Court is not persuaded. Indeed, it is well-established that opinions expressed in the debates and
proceedings of the Legislature, steps taken in the enactment of a law, or the history of the passage of the
law through the Legislature, may be resorted to as aids in the interpretation of a statute with a doubtful
meaning.[18] Petitioners posture, however, overlooks the fact that the 1995 Committee Report they are
referring to came into being well after the enactment of Republic Act No. 7227 in 1993. Hence, as
pointed out by respondent Executive Secretary Torres, the aforementioned report cannot be said to form
part of Republic Act No. 7227s legislative history.
Section 12 of Republic Act No. 7227, provides in part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
The abovementioned zone shall be subject to the following policies:

Senator Enrile. May I know then if a factory located within the jurisdiction of Morong, Bataan that was
originally a part of the Subic Naval reservation, be entitled to a free port treatment or just a special
economic zone treatment?
Senator Guingona. As far as the goods required for manufacture is concerned, Mr. President, it would
have privileges of duty-free and tax-free. But in addition, the Special Economic Zone could embrace the

(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed
into a self-sustaining, industrial, commercial, financial and investment center to generate employment
opportunities in and around the zone and to attract and promote productive foreign investments. [19]

The aforecited policy was mentioned as a basis for the issuance of Executive Order No. 97-A, thus:
WHEREAS, Republic Act No. 7227 provides that within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic
Special Economic and Free Port Zone (SSEFPZ) shall be developed into a self-sustaining industrial,
commercial, financial and investment center to generate employment opportunities in and around the zone
and to attract and promote productive foreign investments; and
WHEREAS, a special tax and duty-free privilege within a Secured Area in the SSEFPZ subject, to
existing laws has been determined necessary to attract local and foreign visitors to the zone.
Executive Order No. 97-A provides guidelines to govern the tax and duty-free privileges within the
Secured Area of the Subic Special Economic and Free Port Zone. Paragraph 1.6 thereof states that (t)he
sale of tax and duty-free consumer items in the Secured Area shall only be allowed in duly authorized
duty-free shops.
The Court finds that the setting up of such commercial establishments which are the only ones duly
authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section
12 of Republic Act No. 7227 that . . .the Subic Special Economic Zone shall be developed into a selfsustaining, industrial, commercial, financial and investment center to generate employment
opportunities in and around the zone and to attract and promote productive foreign investments .
(Emphasis supplied.)
However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order
No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount,
from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act
No. 7227. Said Section clearly provides that exportation or removal of goods from the territory of the
Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.
On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive
legislation is tenable.
In John Hay Peoples Alternative Coalition, et al. v. Victor Lim, et al.,[20] this Court resolved an issue,
very much like the one herein, concerning the legality of the tax exemption benefits given to the John Hay
Economic Zone under Presidential Proclamation No. 420, Series of 1994, CREATING AND
DESIGNATING A PORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN AS THE
JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227.
In that case, among the arguments raised was that the granting of tax exemptions to John Hay was an
invalid and illegal exercise by the President of the powers granted only to the Legislature. Petitioners
therein argued that Republic Act No. 7227 expressly granted tax exemption only to Subic and not to the
other economic zones yet to be established. Thus, the grant of tax exemption to John Hay by Presidential
Proclamation contravenes the constitutional mandate that [n]o law granting any tax exemption shall be
passed without the concurrence of a majority of all the members of Congress.[21]

This Court sustained the argument and ruled that the incentives under Republic Act No. 7227 are
exclusive only to the SSEZ. The President, therefore, had no authority to extend their application to John
Hay. To quote from the Decision:
More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature,
unless limited by a provision of a state constitution, that has full power to exempt any person or
corporation or class of property from taxation, its power to exempt being as broad as its power to tax.
Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments
may pass ordinances on exemption only from local taxes.
The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting
any tax exemption must have the concurrence of a majority of all the members of Congress. In the same
vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress
to legislate upon.
Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from
taxation should be manifest and unmistakable from the language of the law on which it is based; it must be
expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be
implied as it must be categorically and unmistakably expressed.
If it were the intent of the legislature to grant to John Hay SEZ the same tax exemption and incentives
given to the Subic SEZ, it would have so expressly provided in R.A. No. 7227.[22]
In the present case, while Section 12 of Republic Act No. 7227 expressly provides for the grant of
incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones, including the
CSEZ. Tax and duty-free incentives being in the nature of tax exemptions, the basis thereof should be
categorically and unmistakably expressed from the language of the statute. Consequently, in the absence
of any express grant of tax and duty-free privileges to the CSEZ in Republic Act No. 7227, there would be
no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive Order No. 80
and Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ.
Petitioners also contend that the questioned issuances constitute executive legislation for allowing the
removal of consumer goods and items from the zones without payment of corresponding duties and taxes
in violation of Republic Act No. 7227 as Section 12 thereof provides for the taxation of goods that are
exported or removed from the SSEZ to other parts of the Philippine territory.
On September 26, 1997, Executive Order No. 444 was issued, curtailing the duty-free shopping privileges
in the SSEZ and the CSEZ to prevent abuse of duty-free privilege and to protect local industries from
unfair competition. The pertinent provisions of said issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted During the Year-round Centennial Anniversary
Celebration in 1998. Upon effectivity of this Order and up to the Centennial Year 1998, in addition to
the permanent residents, locators and employees of the fenced-in areas of the Subic Special Economic and
Freeport Zone and the Clark Special Economic Zone who are allowed unlimited duty free purchases,
provided these are consumed within said fenced-in areas of the Zones, the residents of the municipalities
adjacent to Subic and Clark as respectively provided in R.A. 7227 (1992) and E.O. 97-A s. 1993 shall
continue to be allowed One Hundred US Dollars (US$100) monthly shopping privilege until 31 December

1998. Domestic tourists visiting Subic and Clark shall be allowed a shopping privilege of US$25 for
consumable goods which shall be consumed only in the fenced-in area during their visit therein.
SECTION 4. Grant of Duty Free Shopping Privileges Limited Only To Individuals Allowed by Law.
Starting 1 January 1999, only the following persons shall continue to be eligible to shop in duty free
shops/outlets with their corresponding purchase limits:
a.

Tourists and Filipinos traveling to or returning from foreign destinations under E.O. 97-A s. 1993 One
Thousand US Dollars (US$1,000) but not to exceed Ten Thousand US Dollars (US$10,000) in any given
year;

b.

Overseas Filipino Workers (OFWs) and Balikbayans defined under R.A. 6768 dated 3 November 1989
Two Thousand US Dollars (US$2,000);

c.

Residents, eighteen (18) years old and above, of the fenced-in areas of the freeports under R.A. 7227 (1992)
and E.O. 97-A s. 1993 Unlimited purchase as long as these are for consumption within these freeports.
The term "Residents" mentioned in item c above shall refer to individuals who, by virtue of domicile or
employment, reside on permanent basis within the freeport area. The term excludes (1) non-residents who
have entered into short- or long-term property lease inside the freeport, (2) outsiders engaged in doing
business within the freeport, and (3) members of private clubs (e.g., yacht and golf clubs) based or located
within the freeport. In this regard, duty free privileges granted to any of the above individuals (e.g.,
unlimited shopping privilege, tax-free importation of cars, etc.) are hereby revoked.[23]
A perusal of the above provisions indicates that effective January 1, 1999, the grant of duty-free shopping
privileges to domestic tourists and to residents living adjacent to SSEZ and the CSEZ had been revoked.
Residents of the fenced-in area of the free port are still allowed unlimited purchase of consumer goods,
as long as these are for consumption within these freeports. Hence, the only individuals allowed by law
to shop in the duty-free outlets and remove consumer goods out of the free ports tax-free are tourists and
Filipinos traveling to or returning from foreign destinations, and Overseas Filipino Workers and
Balikbayans as defined under Republic Act No. 6768.[24]

In any event, Republic Act No. 7227, specifically Section 12 (b) thereof, clearly provides that exportation
or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines.
Thus, the removal of goods from the SSEZ to other parts of the Philippine territory without payment of
said customs duties and taxes is not authorized by the Act. Consequently, the following italicized
provisions found in the second sentences of paragraphs 1.2 and 1.3, Section 1 of Executive Order No. 97A are null and void:
1.2 Residents of the SSEFPZ living outside the Secured Area can enter and consume any quantity
of consumption items in hotels and restaurants within the Secured Area. However, these
residents can purchase and bring out of the Secured Area to other parts of the Philippine
territory consumer items worth not exceeding US $100 per month per person. Only
residents age 15 and over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any
quantity of consumption items in hotels and restaurants within the Secured Area. However,
they can purchase and bring out of the Secured Area to other parts of the Philippine
territory consumer items worth not exceeding US $200 per year per person. Only Filipinos
age 15 and over are entitled to this privilege.[26]
A similar provision found in paragraph 5, Section 4(A) of BCDA Board Resolution No. 93-05-034 is also
null and void. Said Resolution applied the incentives given to the SSEZ under Republic Act No. 7227 to
the CSEZ, which, as aforestated, is without legal basis.
Having concluded earlier that the CSEZ is excluded from the tax and duty-free incentives provided under
Republic Act No. 7227, this Court will resolve the remaining arguments only with regard to the operations
of the SSEZ. Thus, the assailed issuance that will be discussed is solely Executive Order No. 97-A, since
it is the only one among the three questioned issuances which pertains to the SSEZ.
Equal Protection of the Laws

Subsequently, on October 20, 2000, Executive Order No. 303 was issued, amending Executive Order No.
444. Pursuant to the limited duration of the privileges granted under the preceding issuance, Section 2 of
Executive Order No. 303 declared that [a]ll special shopping privileges as granted under Section 3 of
Executive Order 444, s. 1997, are hereby deemed terminated. The grant of duty free shopping privileges
shall be restricted to qualified individuals as provided by law.
It bears noting at this point that the shopping privileges currently being enjoyed by Overseas Filipino
Workers, Balikbayans, and tourists traveling to and from foreign destinations, draw authority not from the
issuances being assailed herein, but from Executive Order No. 46[25] and Republic Act No. 6768, both
enacted prior to the promulgation of Republic Act No. 7227.
From the foregoing, it appears that petitioners objection to the allowance of tax-free removal of goods
from the special economic zones as previously authorized by the questioned issuances has become moot
and academic.

Petitioners argue that the assailed issuance (Executive Order No. 97-A) is violative of their right to equal
protection of the laws, as enshrined in Section 1, Article III of the Constitution. To support this argument,
they assert that private respondents operating inside the SSEZ are not different from the retail
establishments located outside, the products sold being essentially the same. The only distinction, they
claim, lies in the products variety and source, and the fact that private respondents import their items taxfree, to the prejudice of the retailers and manufacturers located outside the zone.
Petitioners contention cannot be sustained. It is an established principle of constitutional law that the
guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable
classification.[27] Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to
the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members
of the same class.[28]
Applying the foregoing test to the present case, this Court finds no violation of the right to equal
protection of the laws. First, contrary to petitioners claim, substantial distinctions lie between the

establishments inside and outside the zone, justifying the difference in their treatment. In Tiu v. Court of
Appeals,[29] the constitutionality of Executive Order No. 97-A was challenged for being violative of the
equal protection clause. In that case, petitioners claimed that Executive Order No. 97-A was
discriminatory in confining the application of Republic Act No. 7227 within a secured area of the SSEZ,
to the exclusion of those outside but are, nevertheless, still within the economic zone.
Upholding the constitutionality of Executive Order No. 97-A, this Court therein found substantial
differences between the retailers inside and outside the secured area, thereby justifying a valid and
reasonable classification:
Certainly, there are substantial differences between the big investors who are being lured to establish and
operate their industries in the so-called secured area and the present business operators outside the area.
On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other
hand, definitely none of such magnitude. In the first, the economic impact will be national; in the second,
only local. Even more important, at this time the business activities outside the secured area are not
likely to have any impact in achieving the purpose of the law, which is to turn the former military base to
productive use for the benefit of the Philippine economy. There is, then, hardly any reasonable basis to
extend to them the benefits and incentives accorded in R.A. 7227. Additionally, as the Court of Appeals
pointed out, it will be easier to manage and monitor the activities within the secured area, which is
already fenced off, to prevent fraudulent importation of merchandise or smuggling.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws. As long
as there are actual and material differences between territories, there is no violation of the constitutional
clause. And of course, anyone, including the petitioners, possessing the requisite investment capital can
always avail of the same benefits by channeling his or her resources or business operations into the
fenced-off free port zone.[30]
The Court in Tiu found real and substantial distinctions between residents within the secured area and
those living within the economic zone but outside the fenced-off area. Similarly, real and substantial
differences exist between the establishments herein involved. A significant distinction between the two
groups is that enterprises outside the zones maintain their businesses within Philippine customs territory,
while private respondents and the other duly-registered zone enterprises operate within the so-called
separate customs territory. To grant the same tax incentives given to enterprises within the zones to
businesses operating outside the zones, as petitioners insist, would clearly defeat the statutes intent to
carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is
maintained.

And, lastly, the classification applies equally to all retailers found within the secured area. As ruled in
Tiu, the individuals and businesses within the secured area, being in like circumstances or contributing
directly to the achievement of the end purpose of the law, are not categorized further. They are all
similarly treated, both in privileges granted and in obligations required.
With all the four requisites for a reasonable classification present, there is no ground to invalidate
Executive Order No. 97-A for being violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special tax exemptions and privileges gave the private respondents
undue advantage over local enterprises which do not operate inside the SSEZ, thereby creating unfair
competition in violation of the constitutional prohibition against unfair competition and practices in
restraint of trade.
The argument is without merit. Just how the assailed issuance is violative of the prohibition against unfair
competition and practices in restraint of trade is not clearly explained in the petition. Republic Act No.
7227, and consequently Executive Order No. 97-A, cannot be said to be distinctively arbitrary against the
welfare of businesses outside the zones. The mere fact that incentives and privileges are granted to certain
enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair
competition. Said constitutional prohibition cannot hinder the Legislature from using tax incentives as a
tool to pursue its policies.
Suffice it to say that Congress had justifiable reasons in granting incentives to the private respondents, in
accordance with Republic Act No. 7227s policy of developing the SSEZ into a self-sustaining entity that
will generate employment and attract foreign and local investment. If petitioners had wanted to avoid any
alleged unfavorable consequences on their profits, they should upgrade their standards of quality so as to
effectively compete in the market. In the alternative, if petitioners really wanted the preferential treatment
accorded to the private respondents, they could have opted to register with SSEZ in order to operate
within the special economic zone.
Preferential Use of Filipino Labor, Domestic Materials
and Locally Produced Goods

The classification is germane to the purpose of Republic Act No. 7227. As held in Tiu, the real concern of
Republic Act No. 7227 is to convert the lands formerly occupied by the US military bases into economic
or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic
incentives to the establishments within the zone to attract and encourage foreign and local investors. This
is the very rationale behind Republic Act No. 7227 and other similar special economic zone laws which
grant a complete package of tax incentives and other benefits.
The classification, moreover, is not limited to the existing conditions when the law was promulgated, but
to future conditions as well, inasmuch as the law envisioned the former military reservation to ultimately
develop into a self-sustaining investment center.

Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly violated the
State policy of promoting the preferential use of Filipino labor, domestic materials and locally produced
goods and adopting measures to help make them competitive.
Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their sweeping
conclusion that the issuance has violated the State policy of giving preference to Filipino goods and labor.
The mere fact that said issuance authorizes the importation and trade of foreign goods does not suffice to
declare it unconstitutional on this ground.

Petitioners cite Manila Prince Hotel v. GSIS[31] which, however, does not apply. That case dealt with the
policy enunciated under the second paragraph of Section 10, Article XII of the Constitution, [32]
applicable to the grant of rights, privileges, and concessions covering the national economy and
patrimony, which is different from the policy invoked in this petition, specifically that of giving
preference to Filipino materials and labor found under Section 12 of the same Article of the Constitution.
(Emphasis supplied).
In Taada v. Angara,[33] this Court elaborated on the meaning of Section 12, Article XII of the
Constitution in this wise:
[W]hile the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises,
at the same time, it recognizes the need for business exchange with the rest of the world on the bases of
equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and
trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist
policy. It did not shut out foreign investments, goods and services in the development of the Philippine
economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and
investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of
equality and reciprocity, frowning only on foreign competition that is unfair.[34]
This Court notes that the Executive Department, with its subsequent issuance of Executive Order Nos. 444
and 303, has provided certain measures to prevent unfair competition. In particular, Executive Order Nos.
444 and 303 have restricted the special shopping privileges to certain individuals.[35] Executive Order
No. 303 has limited the range of items that may be sold in the duty-free outlets,[36] and imposed sanctions
to curb abuses of duty-free privileges.[37] With these measures, this Court finds no reason to strike down
Executive Order No. 97-A for allegedly being prejudicial to Filipino labor, domestic materials and locally
produced goods.
WHEREFORE, the petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4
of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly
declared of no legal force and effect. Respondents are hereby enjoined from implementing the aforesaid
void provisions. All portions of Executive Order No. 97-A are valid and effective, except the second
sentences in paragraphs 1.2 and 1.3 of said Executive Order, which are hereby declared INVALID.
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. FORTUNE TOBACCO
CORPORATION,
RESPONDENT.

After much wrangling in the Court of Tax Appeals (CTA) and the Court of Appeals, Fortune Tobacco
Corporation (Fortune Tobacco) was granted a tax refund or tax credit representing specific taxes
erroneously collected from its tobacco products. The tax refund is being re-claimed by the Commissioner
of
Internal
Revenue
(Commissioner)
in
this
petition.
The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed
Decision[1] dated 28 September 2004:
CAG.R.
SP
No.
80675
x

Petitioner is the manufacturer/producer of, among others, the following cigarette brands, with tax rate
classification based on net retail price prescribed by Annex "D" to R.A. No. 4280, to wit:
Brand
Tax Rate
Champion M 100
P1.00
Salem M 100
P1.00
Salem M King
P1.00
Camel F King
P1.00
Camel Lights Box 20's
P1.00
Camel Filters Box 20's
P1.00
Winston F Kings
P5.00
Winston Lights
P5.00
Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem
tax pursuant to then Section 142 of the Tax Code of 1977, as amended. However, on January 1, 1997, R.A.
No. 8240 took effect whereby a shift from the ad valorem tax (AVT) system to the specific tax system was
made and subjecting the aforesaid cigarette brands to specific tax under [S]ection 142 thereof, now
renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus:
Section 145. Cigars and Cigarettes(A) Cigars. - There shall be levied, assessed and collected on cigars a tax of One peso (P1.00) per cigar.
"(B) Cigarettes packed by hand. - There shall be levied, assessesed and collected on cigarettes packed
by
hand
a
tax
of
Forty
centavos
(P0.40)
per
pack.
(C) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed
by
machine
a
tax
at
the
rates
prescribed
below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00)
per
pack,
the
tax
shall
be
Twelve
(P12.00)
per
pack;
(2) If the net retail price (excluding the excise tax and the value added tax) exceeds Six pesos and Fifty
centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be Eight Pesos (P8.00) per
pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does
not exceed Six Pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00)
per
pack,
the
tax
shall
be
One
peso
(P1.00)
per
pack;
"Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity
of R.A. No. 8240 shall be taxed under the highest classification of any variant of that brand.

Simple and uncomplicated is the central issue involved, yet whopping is the amount at stake in this case.

Republic of the Philippines, with principal address at Fortune Avenue, Parang, Marikina City.

Petitioner[2] is a domestic corporation duly organized and existing under and by virtue of the laws of the

The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No.
8240 shall not be lower than the tax, which is due from each brand on October 1, 1996. Provided,
however, that in cases were (sic) the excise tax rate imposed in paragraphs (1), (2), (3) and (4)
hereinabove will result in an increase in excise tax of more than seventy percent (70%), for a brand of
cigarette, the increase shall take effect in two tranches: fifty percent (50%) of the increase shall be
effective in 1997 and one hundred percent (100%) of the increase shall be effective in 1998.
Duly registered or existing brands of cigarettes or new brands thereof packed by machine shall only be
packed
in
twenties.
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be
increased by twelve percent (12%) on January 1, 2000. (Emphasis supplied)

claim
New

brands

shall

be

classified

according

to

their

current

net

retail

For the above purpose, `net retail price' shall mean the price at which the cigarette is sold on retail in
twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding
the amount intended to cover the applicable excise tax and value-added tax. For brands which are
marketed only outside Metro [M]anila, the `net retail price' shall mean the price at which the cigarette is
sold in five (5) major supermarkets in the region excluding the amount intended to cover the applicable
excise
tax
and
the
value-added
tax.

To implement the provisions for a twelve percent (12%) increase of excise tax on, among others, cigars
and cigarettes packed by machines by January 1, 2000, the Secretary of Finance, upon recommendation of
the respondent Commissioner of Internal Revenue, issued Revenue Regulations No. 17-99, dated
December 16, 1999, which provides the increase on the applicable tax rates on cigar and cigarettes as
follows:

145

(A) Cigars

PRESENT
NEW
SPECIFIC
SPECIFIC
TAX TAX
RATE
RATES PRIOR TO Effective Jan.. 1,
JAN. 1, 2000
2000
P1.00/cigar

P1.12/cigar

(B)Cigarettes packed by Machine

(1) Net Retail Price (excluding VAT and P12.00/pack
Excise) exceeds P10.00 per pack
(2) Net Retail Price (excluding VAT and
Excise) is P6.51 up to P10.00 per pack
(3) Net Retail Price (excluding VAT and
excise) is P5.00 to P6.50 per pack

P13.44/pack

P8.00/pack

P8.96/pack

P5.00/pack

P5.60/pack

P1.00/pack

P1.12/pack

month

of

January

2000

in

the

amount

of

P35,651,410.00.

In his answer filed on January 16, 2002, respondent raised the following Special and Affirmative
Defenses;

Variant of a brand shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name
of the brand and/or a different brand which carries the same logo or design of the existing brand.

DESCRIPTION OF ARTICLES

the

As there was no action on the part of the respondent, petitioner filed the instant petition for review with
this Court on December 11, 2001, in order to comply with the two-year period for filing a claim for
refund.

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

SECTION

for

price.

(4) Net Retail Price (excluding VAT and

excise) is below P5.00 per pack)

Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, "( t)hat the
new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits,
wines and fermented liquor shall not be lower than the excise tax that is actually being paid prior to
January
1,
2000."
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands
manufactured
and
removed
in
the
total
amounts
of
P585,705,250.00.
On February 7, 2000, petitioner filed with respondent's Appellate Division a claim for refund or tax credit
of its purportedly overpaid excise tax for the month of January 2000 in the amount of P35,651,410.00
On June 21, 2001, petitioner filed with respondent's Legal Service a letter dated June 20, 2001 reiterating
all the claims for refund/tax credit of its overpaid excise taxes filed on various dates, including the present

CA

4.

Petitioner's alleged claim for refund

investigation/examination by the Bureau;

5.

The amount of P35,651,410 being claimed by petitioner as alleged overpaid excise tax for the
month of January 2000 was not properly documented.

6.

In an action for tax refund, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to its claim for refund/credit.

7.

Petitioner must show that it has complied with the provisions of Section 204(C) in relation [to]
Section 229 of the Tax Code on the prescriptive period for claiming tax refund/credit;

8.

Claims for refund are construed strictly against the claimant for the same partake of tax
exemption from taxation; and

9.

The last paragraph of Section 1 of Revenue Regulation[s] [No.]17-99 is a valid implementing

regulation which has the force and effect of law."
G.R.

is

subject

SP

to

No.

administrative

routinary

83165

The petition contains essentially similar facts, except that the said case questions the CTA's December 4,
2003 decision in CTA Case No. 6612 granting respondent's [3] claim for refund of the amount of
P355,385,920.00 representing erroneously or illegally collected specific taxes covering the period January
1, 2002 to December 31, 2002, as well as its March 17, 2004 Resolution denying a reconsideration
thereof.
x

In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the Court of Tax Appeals reduced the issues to
be resolved into two as stipulated by the parties, to wit: (1) Whether or not the last paragraph of Section 1
of Revenue Regulation[s] [No.] 17-99 is in accordance with the pertinent provisions of Republic Act [No.]
8240, now incorporated in Section 145 of the Tax Code of 1997; and (2) Whether or not petitioner is
entitled to a refund of P35,651,410.00 as alleged overpaid excise tax for the month of January 2000.
x

Hence, the respondent CTA in its assailed October 21, 2002 [twin] Decisions[s] disposed in CTA Case
Nos. 6365 & 6383:
WHEREFORE, in view of the foregoing, the court finds the instant petition meritorious and in
accordance with law. Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount
of P35,651.410.00 representing erroneously paid excise taxes for the period January 1 to January 31,
2000.
SO ORDERED.
Herein petitioner sought reconsideration of the above-quoted decision. In [twin] resolution[s] [both] dated
July 15, 2003, the Tax Court, in an apparent change of heart, granted the petitioner's consolidated motions

for

reconsideration,

thereby

denying

the

respondent's

claim

for

refund.

However, on consolidated motions for reconsideration filed by the respondent in CTA Case Nos. 6363 and
6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this time with a semblance of
finality, that the respondent is entitled to the refund claimed. Hence, in a resolution dated November 4,
2003, the tax court reinstated its December 21, 2002 Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos. 6365 and 6383 are hereby REINSTATED. Accordingly,
respondent is hereby ORDERED to REFUND petitioner the total amount of P680,387,025.00 representing
erroneously paid excise taxes for the period January 1, 2000 to January 31, 2000 and February 1, 2000 to
December
31,
2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the Court of Tax Appeals rendered decision in CTA Case No. 6612
granting the prayer for the refund of the amount of P355,385,920.00 representing overpaid excise tax for
the period covering January 1, 2002 to December 31, 2002. The tax court disposed of the case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is
hereby ORDERED to REFUND to petitioner the amount of P355,385,920.00 representing overpaid excise
tax
for
the
period
covering
January
1,
2002
to
December
31,
2002.

Appeals merely followed the letter of the law when they ruled that the basis for the 12% increase in the
tax rate should be the net retail price of the cigarettes in the market as outlined in paragraph C, sub
paragraphs (1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has gone beyond his
delegated rule-making power when he promulgated, enforced and implemented Revenue Regulation No.
17-99, which effectively created a separate classification for cigarettes based on the excise tax "actually
being
paid
prior
to
January
1,
2000." [9]
It should be mentioned at the outset that there is no dispute between the fact of payment of the taxes
sought to be refunded and the receipt thereof by the Bureau of Internal Revenue (BIR). There is also no
question about the mathematical accuracy of Fortune Tobacco's claim since the documentary evidence in
support of the refund has not been controverted by the revenue agency. Likewise, the claims have been
made and the actions have been filed within the two (2)-year prescriptive period provided under Section
229
of
the
Tax
Code.
The power to tax is inherent in the State, such power being inherently legislative, based on the principle
that taxes are a grant of the people who are taxed, and the grant must be made by the immediate
representatives of the people; and where the people have laid the power, there it must remain and be
exercised.[10]

SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a Resolution dated March 17,
2004.[4] (Emphasis supplied) (Citations omitted)
The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the grant of
refund in the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675, whereas that assailing
the grant of refund in the amount of P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The
petitions were consolidated and eventually denied by the Court of Appeals. The appellate court also
denied
reconsideration
in
its
Resolution[5]
dated
1
March
2005.

This entire controversy revolves around the interplay between Section 145 of the Tax Code and Revenue
Regulation 17-99. The main issue is an inquiry into whether the revenue regulation has exceeded the
allowable
limits
of
legislative
delegation.

In its Memorandum[6] 22 dated November 2006, filed on behalf of the Commissioner, the Office of the
Solicitor General (OSG) seeks to convince the Court that the literal interpretation given by the CTA and
the Court of Appeals of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a lower tax
imposable on 1 January 2000 than that imposable during the transition period. Instead of an increase of
12% in the tax rate effective on 1 January 2000 as allegedly mandated by the Tax Code, the appellate
court's ruling would result in a significant decrease in the tax rate by as much as 66%.

(B). Cigarettes packed by hand.--There shall be levied, assessed and collected on cigarettes packed by
hand
a
tax
of
Forty
centavos
(P0.40)
per
pack.

The OSG argues that Section 145 of the Tax Code admits of several interpretations, such as:
1.

That by January 1, 2000, the excise tax on cigarettes should be the higher tax imposed under
the specific tax system and the tax imposed under the ad valorem tax system plus the 12%
increase imposed by par. 5, Sec. 145 of the Tax Code;

2.

The increase of 12% starting on January 1, 2000 does not apply to the brands of cigarettes
listed under Annex "D" referred to in par. 8, Sec. 145 of the Tax Code;

3.

The 12% increment shall be computed based on the net retail price as indicated in par. C, subpar. (1)-(4), Sec. 145 of the Tax Code even if the resulting figure will be lower than the amount
already being paid at the end of the transition period. This is the interpretation followed by
both the CTA and the Court of Appeals.[7]

For ease of reference, Section 145 of the Tax Code is again reproduced in full as follows:
Section 145. Cigars and Cigarettes(A) Cigars.--There shall be levied, assessed and collected on cigars a tax of One peso (P1.00) per cigar.

(C) Cigarettes packed by machine.--There shall be levied, assessed and collected on cigarettes packed
by
machine
a
tax
at
the
rates
prescribed
below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00)
per
pack,
the
tax
shall
be
Twelve
pesos
(P12.00)
per
pack;
(2) If the net retail price (excluding the excise tax and the value added tax) exceeds Six pesos and Fifty
centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be Eight Pesos (P8.00) per
pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does
not exceed Six Pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00)
per
pack,
the
tax
shall
be
One
peso
(P1.00)
per
pack;
Variants of existing brands of cigarettes which are introduced in the domestic market after the effectivity
of R.A. No. 8240 shall be taxed under the highest classification of any variant of that brand.

Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must, therefore, be
construed
strictly
against
the
taxpayer,
such
as
Fortune
Tobacco.

The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No.
8240 shall not be lower than the tax, which is due from each brand on October 1, 1996. Provided,
however, That in cases where the excise tax rates imposed in paragraphs (1), (2), (3) and (4) hereinabove
will result in an increase in excise tax of more than seventy percent (70%), for a brand of cigarette, the
increase shall take effect in two tranches: fifty percent (50%) of the increase shall be effective in 1997 and
one
hundred
percent
(100%)
of
the
increase
shall
be
effective
in
1998.

In its Memorandum[8] dated 10 November 2006, Fortune Tobacco argues that the CTA and the Court of

Duly registered or existing brands of cigarettes or new brands thereof packed by machine shall only be

This being so, the interpretation which will give life to the legislative intent to raise revenue should
govern,
the
OSG
stresses.

packed

in

twenties.

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

brands

shall

be

classified

according

to

their

current

net

retail

price.

For the above purpose, `net retail price' shall mean the price at which the cigarette is sold on retail in
twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding
the amount intended to cover the applicable excise tax and value-added tax. For brands which are
marketed only outside Metro Manila, the `net retail price' shall mean the price at which the cigarette is
sold in five (5) major intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average retail price as of October 1, 1996, as set
forth
in
Annex
"D,"
shall
remain
in
force
until
revised
by
Congress.
Variant of a brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name
of the brand and/or a different brand which carries the same logo or design of the existing brand. [11]
(Emphasis supplied)
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the Secretary of
Finance to promulgate rules and regulations for the effective implementation of the Tax Code, [12] interprets
the above-quoted provision and reflects the 12% increase in excise taxes in the following manner:
SECTION

DESCRIPTION OF ARTICLES

PRESENT
NEW
SPECIFIC
SPECIFIC
TAX TAX
RATE
RATES PRIOR TO Effective Jan.. 1,
JAN. 1, 2000
2000

145

(A) Cigars

P1.00/cigar

P1.12/cigar

(B)Cigarettes packed by Machine

(1) Net Retail Price (excluding VAT and P12.00/pack
Excise) exceeds P10.00 per pack
(2) Net Retail Price (excluding VAT and
Excise) is P6.51 up to P10.00 per pack
(3) Net Retail Price (excluding VAT and
excise) is P5.00 to P6.50 per pack

P8.00/pack

P13.44/pack

than the tax actually paid prior to 1 January 2000, Revenue Regulation No. 17-99 effectively imposes a
tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year
transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12%--a
situation not supported by the plain wording of Section 145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area of unauthorized
administrative
legislation.
In Commissioner of Internal Revenue v. Reyes,[14] respondent was not informed in writing of the law and
the facts on which the assessment of estate taxes was made pursuant to Section 228 of the 1997 Tax Code,
as amended by Republic Act (R.A.) No. 8424. She was merely notified of the findings by the
Commissioner, who had simply relied upon the old provisions of the law and Revenue Regulation No. 1285 which was based on the old provision of the law. The Court held that in case of discrepancy between
the law as amended and the implementing regulation based on the old law, the former necessarily prevails.
The law must still be followed, even though the existing tax regulation at that time provided for a different
procedure.[15]
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,[16] the tax authorities gave the
term "tax credit" in Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly disparate from what
R.A. No. 7432 provides. Their interpretation muddled up the intent of Congress to grant a mere discount
privilege and not a sales discount. The Court, striking down the revenue regulation, held that an
administrative agency issuing regulations may not enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not contemplated by the legislature. The Court
emphasized that tax administrators are not allowed to expand or contract the legislative mandate and that
the "plain meaning rule" or verba legis in statutory construction should be applied such that where the
words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied
without
attempted
interpretation.
As we have previously declared, rule-making power must be confined to details for regulating the mode or
proceedings in order to carry into effect the law as it has been enacted, and it cannot be extended to amend
or expand the statutory requirements or to embrace matters not covered by the statute. Administrative
regulations must always be in harmony with the provisions of the law because any resulting discrepancy
between the two will always be resolved in favor of the basic law.[17]

P8.96/pack

P5.00/pack

P5.60/pack

P1.00/pack

P1.12/pack

(4) Net Retail Price (excluding VAT and

excise) is below P5.00 per pack)
This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective on 1
January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1)-(4). However, Revenue
Regulation No. 17-99 went further and added that "[T]he new specific tax rate for any existing brand of
cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not be lower than
the excise tax that is actually being paid prior to January 1, 2000."[13]
Parenthetically, Section 145 states that during the transition period, i.e., within the next three (3) years
from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the
tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as
regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among
others, effective on 1 January 2000. Clearly and unmistakably, Section 145 mandates a new rate of excise
tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard
to whether the revenue collection starting from this period may turn out to be lower than that collected
prior
to
this
date.
By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower

In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[18] Commissioner Jose Ong
issued Revenue Memorandum Order (RMO) No. 15-91, as well as the clarificatory Revenue
Memorandum Circular (RMC) 43-91, imposing a 5% lending investor's tax under the 1977 Tax Code, as
amended by Executive Order (E.O.) No. 273, on pawnshops. The Commissioner anchored the imposition
on the definition of lending investors provided in the 1977 Tax Code which, according to him, was broad
enough to include pawnshop operators. However, the Court noted that pawnshops and lending investors
were subjected to different tax treatments under the Tax Code prior to its amendment by the executive
order; that Congress never intended to treat pawnshops in the same way as lending investors; and that the
particularly involved section of the Tax Code explicitly subjected lending investors and dealers in
securities only to percentage tax. And so the Court affirmed the invalidity of the challenged circulars,
stressing that "administrative issuances must not override, supplant or modify the law, but must remain
consistent
with
the
law
they
intend
to
carry
out."[19]
In Philippine Bank of Communications v. Commissioner of Internal Revenue, [20] the then acting
Commissioner issued RMC 7-85, changing the prescriptive period of two years to ten years for claims of
excess quarterly income tax payments, thereby creating a clear inconsistency with the provision of Section
230 of the 1977 Tax Code. The Court nullified the circular, ruling that the BIR did not simply interpret the
law; rather it legislated guidelines contrary to the statute passed by Congress. The Court held:
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense
of more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by
the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts

will not countenance administrative issuances that override, instead of remaining consistent and in
harmony with, the law they seek to apply and implement.[21]
In Commissioner of Internal Revenue v. CA, et al.,[22] the central issue was the validity of RMO 4-87
which had construed the amnesty coverage under E.O. No. 41 (1986) to include only assessments issued
by the BIR after the promulgation of the executive order on 22 August 1986 and not assessments made to
that date. Resolving the issue in the negative, the Court held:
x x x all such issuances must not override, but must remain consistent and in harmony with, the law they
seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to
supplant
nor
to
modify,
the
law.[23]
x

A claim for tax refund may be based on statutes granting tax exemption or tax refund. In such case, the
rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature
of an exemption, a legislative grace, which cannot be allowed unless granted in the most explicit and
categorical language. The taxpayer must show that the legislature intended to exempt him from the tax by
words
too
plain
to
be
mistaken.[29]
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace but on the
legal principle which underlies all quasi-contracts abhorring a person's unjust enrichment at the expense of
another.[30] The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in law.[31]

If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985 tax
liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so
provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive
order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases
specifically excepted by it.[24]
In the case at bar, the OSG's argument that by 1 January 2000, the excise tax on cigarettes should be the
higher tax imposed under the specific tax system and the tax imposed under the ad valorem tax system
plus the 12% increase imposed by paragraph 5, Section 145 of the Tax Code, is an unsuccessful attempt to
justify what is clearly an impermissible incursion into the limits of administrative legislation. Such an
interpretation is not supported by the clear language of the law and is obviously only meant to validate the
OSG's thesis that Section 145 of the Tax Code is ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands of
cigarettes listed under Annex "D" is likewise unmeritorious, absurd even. Paragraph 8, Section 145 of the
Tax Code simply states that, "[T]he classification of each brand of cigarettes based on its average net retail
price as of October 1, 1996, as set forth in Annex `D', shall remain in force until revised by Congress."
This declaration certainly does not lend itself to the interpretation given to it by the OSG. As plainly
worded, the average net retail prices of the listed brands under Annex "D," which classify cigarettes
according to their net retail price into low, medium or high, obviously remain the bases for the application
of
the
increase
in
excise
tax
rates
effective
on
1
January
2000.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly flawed. The
Commissioner cannot seek refuge in his claim that the purpose behind the passage of the Tax Code is to
generate additional revenues for the government. Revenue generation has undoubtedly been a major
consideration in the passage of the Tax Code. However, as borne by the legislative record, [25] the shift from
the ad valorem system to the specific tax system is likewise meant to promote fair competition among the
players in the industries concerned, to ensure an equitable distribution of the tax burden and to simplify
tax administration by classifying cigarettes, among others, into high, medium and low-priced based on
their
net
retail
price
and
accordingly
graduating
tax
rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we have held, the
meaning of the law is clear on its face and free from the ambiguities that the Commissioner imputes. We
simply cannot disregard the letter of the law on the pretext of pursuing its spirit. [26]
Finally, the Commissioner's contention that a tax refund partakes the nature of a tax exemption does not
apply to the tax refund to which Fortune Tobacco is entitled. There is parity between tax refund and tax
exemption only when the former is based either on a tax exemption statute or a tax refund statute.
Obviously, that is not the situation here. Quite the contrary, Fortune Tobaccos claim for refund is premised
on its erroneous payment of the tax, or better still the government's exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption from the burden of
taxation must justify his claim by showing that the legislature intended to exempt him by words too plain
to be mistaken.[27] The rule is that tax exemptions must be strictly construed such that the exemption will
not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such
was
the
intention.[28]

The Government is not exempt from the application of solutio indebiti.[32] Indeed, the taxpayer expects fair
dealing from the Government, and the latter has the duty to refund without any unreasonable delay what it
has erroneously collected.[33] If the State expects its taxpayers to observe fairness and honesty in paying
their taxes, it must hold itself against the same standard in refunding excess (or erroneous) payments of
such taxes. It should not unjustly enrich itself at the expense of taxpayers. [34] And so, given its essence, a
claim for tax refund necessitates only preponderance of evidence for its approbation like in any other
ordinary
civil
case.
Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract principle, a claim for
tax refund may be based on the following: (a) erroneously or illegally assessed or collected internal
revenue taxes; (b) penalties imposed without authority; and (c) any sum alleged to have been excessive or
in
any
manner
wrongfully
collected. [35]
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of
taxes, not the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is
that a statute will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly,
the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be extended by implication. In answering the
question of who is subject to tax statutes, it is basic that in case of doubt, such statutes are to be construed
most strongly against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import. [36] As burdens,
taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax laws. [37]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675,
dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as
to
costs.
SO ORDERED.

CARLOS SUPERDRUG CORP v DSWD

This is a petition for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257, otherwise known as the Expanded
Senior Citizens Act of 2003.
Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Public respondents, on the other hand, include the Department of Social Welfare and Development
(DSWD), the Department of Health (DOH), the Department of Finance (DOF), the Department of Justice
(DOJ), and the Department of Interior and Local Government (DILG) which have been specifically

tasked to monitor the drugstores compliance with the law; promulgate the implementing rules and

On July 10, 2004, in reference to the query of the Drug Stores Association of the Philippines

regulations for the effective implementation of the law; and prosecute and revoke the licenses of erring

(DSAP) concerning the meaning of a tax deduction under the Expanded Senior Citizens Act, the DOF,

drugstore establishments.

through Director IV Ma. Lourdes B. Recente, clarified as follows:

The antecedents are as follows:

1)
The difference between the Tax Credit (under the Old Senior
Citizens Act) and Tax Deduction (under the Expanded Senior Citizens Act).
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432, was signed into law by
President Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section 4(a) of the Act
states:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be
entitled to the following:
(a)
the grant of twenty percent (20%) discount from all
establishments relative to the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers, and purchase of medicines in all
establishments for the exclusive use or enjoyment of senior citizens, including
funeral and burial services for the death of senior citizens;
...
The establishment may claim the discounts granted under (a), (f), (g)
and (h) as tax deduction based on the net cost of the goods sold or services
rendered: Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted. Provided,
further, That the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall
be subject to proper documentation and to the provisions of the National Internal
Revenue Code, as amended.

On May 28, 2004, the DSWD approved and adopted the Implementing Rules and Regulations
of R.A. No. 9257, Rule VI, Article 8 of which states:

Article 8. Tax Deduction of Establishments. The establishment may

claim the discounts granted under Rule V, Section 4 Discounts for Establishments;
Section 9, Medical and Dental Services in Private Facilities[,] and Sections 10 and
11 Air, Sea and Land Transportation as tax deduction based on the net cost of the
goods sold or services rendered. Provided, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that the discount
is granted; Provided, further, That the total amount of the claimed tax deduction net
of value added tax if applicable, shall be included in their gross sales receipts for
tax purposes and shall be subject to proper documentation and to the provisions of
the National Internal Revenue Code, as amended; Provided, finally, that the
implementation of the tax deduction shall be subject to the Revenue Regulations to
be issued by the Bureau of Internal Revenue (BIR) and approved by the Department
of Finance (DOF).

1.1.
The provision of Section 4 of R.A. No. 7432 (the old
Senior Citizens Act) grants twenty percent (20%) discount from all
establishments relative to the utilization of transportation services, hotels
and similar lodging establishment, restaurants and recreation centers and
purchase of medicines anywhere in the country, the costs of which may
be claimed by the private establishments concerned as tax credit.
Effectively, a tax credit is a peso-for-peso deduction from a
taxpayers tax liability due to the government of the amount of discounts
such establishment has granted to a senior citizen. The establishment
recovers the full amount of discount given to a senior citizen and hence,
the government shoulders 100% of the discounts granted.
It must be noted, however, that conceptually, a tax credit
scheme under the Philippine tax system, necessitates that prior payments
of taxes have been made and the taxpayer is attempting to recover this
tax payment from his/her income tax due. The tax credit scheme under
R.A. No. 7432 is, therefore, inapplicable since no tax payments have
previously occurred.
1.2.
The provision under R.A. No. 9257, on the other
hand, provides that the establishment concerned may claim the discounts
under Section 4(a), (f), (g) and (h) as tax deduction from gross income,
based on the net cost of goods sold or services rendered.
Under this scheme, the establishment concerned is allowed to
deduct from gross income, in computing for its tax liability, the amount
of discounts granted to senior citizens. Effectively, the government loses
in terms of foregone revenues an amount equivalent to the marginal tax
rate the said establishment is liable to pay the government. This will be
an amount equivalent to 32% of the twenty percent (20%) discounts so
granted. The establishment shoulders the remaining portion of the
granted discounts.
It may be necessary to note that while the burden on [the]
government is slightly diminished in terms of its percentage share on the
discounts granted to senior citizens, the number of potential
establishments that may claim tax deductions, have however, been
broadened. Aside from the establishments that may claim tax credits
under the old law, more establishments were added under the new law
such as: establishments providing medical and dental services,
diagnostic and laboratory services, including professional fees of
attending doctors in all private hospitals and medical facilities, operators
of domestic air and sea transport services, public railways and skyways
and bus transport services.
A simple illustration might help amplify the points discussed
above, as follows:

Tax Deduction
Credit

Gross Sales

xxxxxx

Less : Cost of goods sold

Net Sales

xxxxx
xxxxx x

Other deductions:

xxxx

Net Taxable Income

xxxxx

Tax Due

xxx

The law is confiscatory because it infringes Art. III, Sec. 9 of the

Constitution which provides that private property shall not be taken for
public use without just compensation;

2)

It violates the equal protection clause (Art. III, Sec. 1) enshrined in our
Constitution which states that no person shall be deprived of life,
liberty or property without due process of law, nor shall any person be
denied of the equal protection of the laws; and

3)

The 20% discount on medicines violates the constitutional guarantee

in Article XIII, Section 11 that makes essential goods, health and other
social services available to all people at affordable cost.

xxxxxx
xxxxx
xxxxxx

Less: Operating Expenses:

Tax Deduction on Discounts x x x x

1)
Tax

-xxxx
xxxxx
xxx

Less: Tax Credit

--

______x x

Net Tax Due

--

xx

As shown above, under a tax deduction scheme, the tax deduction on

discounts was subtracted from Net Sales together with other deductions which are
considered as operating expenses before the Tax Due was computed based on the
Net Taxable Income. On the other hand, under a tax credit scheme, the amount of
discounts which is the tax credit item, was deducted directly from the tax due
amount.

Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of
private property. Compelling drugstore owners and establishments to grant the discount will result in a
loss of profit and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for
the discount.
Examining petitioners arguments, it is apparent that what petitioners are ultimately
questioning is the validity of the tax deduction scheme as a reimbursement mechanism for the twenty
percent (20%) discount that they extend to senior citizens.

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known as the
Expanded Senior Citizens Act of 2003 was issued by the DOH, providing the grant of twenty percent
(20%) discount in the purchase of unbranded generic medicines from all establishments dispensing
medicines for the exclusive use of the senior citizens.

Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the discount is treated as
a deduction, a tax-deductible expense that is subtracted from the gross income and results in a lower
taxable income. Stated otherwise, it is an amount that is allowed by law to reduce the income prior to the
application of the tax rate to compute the amount of tax which is due. Being a tax deduction, the discount

On November 12, 2004, the DOH issued Administrative Order No 177 amending A.O. No. 171.

does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed.

Under A.O. No. 177, the twenty percent discount shall not be limited to the purchase of unbranded generic
medicines only, but shall extend to both prescription and non-prescription medicines whether branded or
generic. Thus, it stated that [t]he grant of twenty percent (20%) discount shall be provided in the
purchase of medicines from all establishments dispensing medicines for the exclusive use of the senior
citizens.

Theoretically, the treatment of the discount as a deduction reduces the net income of the private
establishments concerned. The discounts given would have entered the coffers and formed part of the
gross sales of the private establishments, were it not for R.A. No. 9257.

Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act based on
the following grounds:

The permanent reduction in their total revenues is a forced subsidy corresponding to the taking
of private property for public use or benefit. This constitutes compensable taking for which petitioners
would ordinarily become entitled to a just compensation.

Just compensation is defined as the full and fair equivalent of the property taken from its owner

concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares for

by the expropriator. The measure is not the takers gain but the owners loss. The word just is used to

domestic land, air and sea travel; utilization of services in hotels and similar lodging establishments,

intensify the meaning of the word compensation, and to convey the idea that the equivalent to be

restaurants and recreation centers; and purchases of medicines for the exclusive use or enjoyment of senior

rendered for the property to be taken shall be real, substantial, full and ample.

citizens. As a form of reimbursement, the law provides that business establishments extending the twenty
percent discount to senior citizens may claim the discount as a tax deduction.

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation.

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has
general welfare for its object. Police power is not capable of an exact definition, but has been purposely

Having said that, this raises the question of whether the State, in promoting the health and

veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough

welfare of a special group of citizens, can impose upon private establishments the burden of partly

room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest

subsidizing a government program.

benefits. Accordingly, it has been described as the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs. It is [t]he power vested in the legislature by

The Court believes so.

the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens

the good and welfare of the commonwealth, and of the subjects of the same.

to nation-building, and to grant benefits and privileges to them for their improvement and well-being as
the State considers them an integral part of our society.

For this reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though sheltered by due process,

The priority given to senior citizens finds its basis in the Constitution as set forth in the law

must yield to general welfare.

itself. Thus, the Act provides:

Police power as an attribute to promote the common good would be diluted considerably if on
the mere plea of petitioners that they will suffer loss of earnings and capital, the questioned provision is
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:
SECTION 1. Declaration of Policies and Objectives. Pursuant to
Article XV, Section 4 of the Constitution, it is the duty of the family to take care of
its elderly members while the State may design programs of social security for
them. In addition to this, Section 10 in the Declaration of Principles and State
Policies provides: The State shall provide social justice in all phases of national
development. Further, Article XIII, Section 11, provides: The State shall adopt an
integrated and comprehensive approach to health development which shall
endeavor to make essential goods, health and other social services available to all
the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women and children. Consonant with these
constitutional principles the following are the declared policies of this Act:

invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the
provision in question, there is no basis for its nullification in view of the presumption of validity which
every law has in its favor.
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is
unduly oppressive to their business, because petitioners have not taken time to calculate correctly and
come up with a financial report, so that they have not been able to show properly whether or not the tax
deduction scheme really works greatly to their disadvantage.

...
(f) To recognize the important role of the private sector in the
improvement of the welfare of senior citizens and to actively seek their
partnership.

In treating the discount as a tax deduction, petitioners insist that they will incur losses because,
referring to the DOF Opinion, for every P1.00 senior citizen discount that petitioners would give, P0.68
will be shouldered by them as only P0.32 will be refunded by the government by way of a tax deduction.

To implement the above policy, the law grants a twenty percent discount to senior citizens for
medical and dental services, and diagnostic and laboratory fees; admission fees charged by theaters,

To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance
drug Norvasc as an example. According to the latter, it acquires Norvasc from the distributors at P37.57

per tablet, and retails it at P39.60 (or at a margin of 5%). If it grants a 20% discount to senior citizens or

arbitrary, and that the continued implementation of the same would be unconscionably detrimental to

an amount equivalent to P7.92, then it would have to sell Norvasc at P31.68 which translates to a loss

petitioners, the Court will refrain from quashing a legislative act.

from capital of P5.89 per tablet. Even if the government will allow a tax deduction, only P2.53 per tablet
will be refunded and not the full amount of the discount which is P7.92. In short, only 32% of the 20%

WHEREFORE, the petition is DISMISSED for lack of merit.

discount will be reimbursed to the drugstores.

Petitioners computation is flawed. For purposes of reimbursement, the law states that the cost
of the discount shall be deducted from gross income, the amount of income derived from all sources

SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. CEMENT MANUFACTURERS

ASSOCIATION OF THE PHILIPPINES, THE SECRETARY OF THE DEPARTMENT OF TRADE
AND INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE and THE
COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

before deducting allowable expenses, which will result in net income. Here, petitioners tried to show a
loss on a per transaction basis, which should not be the case. An income statement, showing an
accounting of petitioners sales, expenses, and net profit (or loss) for a given period could have accurately
reflected the effect of the discount on their income. Absent any financial statement, petitioners cannot
substantiate their claim that they will be operating at a loss should they give the discount. In addition, the

Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best to put
up a spirited advocacy of their respective positions, throwing in everything including the proverbial
kitchen sink. At present, the burden of passion, if not proof, has shifted to public respondents Department
of Trade and Industry (DTI) and private respondent Philippine Cement Manufacturers Corporation
(Philcemcor),[1] who now seek reconsideration of our Decision dated 8 July 2004 (Decision), which
granted the petition of petitioner Southern Cross Cement Corporation (Southern Cross).

computation was erroneously based on the assumption that their customers consisted wholly of senior
citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices
of their medicines given the cutthroat nature of the players in the industry. It is a business decision on the
part of petitioners to peg the mark-up at 5%. Selling the medicines below acquisition cost, as alleged by
petitioners, is merely a result of this decision. Inasmuch as pricing is a property right, petitioners cannot
reproach the law for being oppressive, simply because they cannot afford to raise their prices for fear of
losing their customers to competition.

This case, of course, is ultimately not just about cement. For respondents, it is about love of country and
the future of the domestic industry in the face of foreign competition. For this Court, it is about elementary
statutory construction, constitutional limitations on the executive power to impose tariffs and similar
measures, and obedience to the law. Just as much was asserted in the Decision, and the same holds true
with this present Resolution.
An extensive narration of facts can be found in the Decision.[2] As can well be recalled, the case centers
on the interpretation of provisions of Republic Act No. 8800, the Safeguard Measures Act (SMA),
which was one of the laws enacted by Congress soon after the Philippines ratified the General Agreement
on Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement.[3] The SMA provides
the structure and mechanics for the imposition of emergency measures, including tariffs, to protect
domestic industries and producers from increased imports which inflict or could inflict serious injury on
them.[4]

The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive
pricing component of the business. While the Constitution protects property rights, petitioners must accept
the realities of business and the State, in the exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution
provides the precept for the protection of property, various laws and jurisprudence, particularly on
agrarian reform and the regulation of contracts and public utilities, continuously serve as a reminder that
the right to property can be relinquished upon the command of the State for the promotion of public good.
Undeniably, the success of the senior citizens program rests largely on the support imparted by
petitioners and the other private establishments concerned. This being the case, the means employed in
invoking the active participation of the private sector, in order to achieve the purpose or objective of the
law, is reasonably and directly related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is

A brief summary as to how the present petition came to be filed by Southern Cross. Philcemcor, an
association of at least eighteen (18) domestic cement manufacturers filed with the DTI a petition seeking
the imposition of safeguard measures on gray Portland cement,[5] in accordance with the SMA. After the
DTI issued a provisional safeguard measure,[6] the application was referred to the Tariff Commission for
a formal investigation pursuant to Section 9 of the SMA and its Implementing Rules and Regulations, in
order to determine whether or not to impose a definitive safeguard measure on imports of gray Portland
cement. The Tariff Commission held public hearings and conducted its own investigation, then on 13
March 2002, issued its Formal Investigation Report (Report). The Report determined as follows:
The elements of serious injury and imminent threat of serious injury not having been established, it is
hereby recommended that no definitive general safeguard measure be imposed on the importation of gray
Portland cement.[7]
The DTI sought the opinion of the Secretary of Justice whether it could still impose a definitive safeguard
measure notwithstanding the negative finding of the Tariff Commission. After the Secretary of Justice
opined that the DTI could not do so under the SMA,[8] the DTI Secretary then promulgated a Decision[9]
wherein he expressed the DTIs disagreement with the conclusions of the Tariff Commission, but at the
same time, ultimately denying Philcemcors application for safeguard measures on the ground that the he
was bound to do so in light of the Tariff Commissions negative findings.[10]

Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals a Petition
for Certiorari, Prohibition and Mandamus[11] seeking to set aside the DTI Decision, as well as the Tariff
Commissions Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the Report
and to render judgment independently of the Report. Philcemcor argued that the DTI Secretary, vested as
he is under the law with the power of review, is not bound to adopt the recommendations of the Tariff
Commission; and, that the Report is void, as it is predicated on a flawed framework, inconsistent
inferences and erroneous methodology.[12]
The Court of Appeals Twelfth Division, in a Decision[13] penned by Court of Appeals Associate Justice
Elvi John Asuncion,[14] partially granted Philcemcors petition. The appellate court ruled that it had
jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. While it refused to
annul the findings of the Tariff Commission,[15] it also held that the DTI Secretary was not bound by the
factual findings of the Tariff Commission since such findings are merely recommendatory and they fall
within the ambit of the Secretarys discretionary review. It determined that the legislative intent is to grant
the DTI Secretary the power to make a final decision on the Tariff Commissions recommendation.[16]
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals has no
jurisdiction over Philcemcors petition, as the proper remedy is a petition for review with the CTA
conformably with the SMA, and; that the factual findings of the Tariff Commission on the existence or
non-existence of conditions warranting the imposition of general safeguard measures are binding upon the
DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become final, its binding force was cited
by the DTI Secretary when he issued a new Decision on 25 June 2003, wherein he ruled that that in light
of the appellate courts Decision, there was no longer any legal impediment to his deciding Philcemcors
application for definitive safeguard measures.[17] He made a determination that, contrary to the findings
of the Tariff Commission, the local cement industry had suffered serious injury as a result of the import
surges.[18] Accordingly, he imposed a definitive safeguard measure on the importation of gray Portland
cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three years on
imported gray Portland Cement.[19]
On 7 July 2003, Southern Cross filed with the Court a Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary Injunction (TRO Application), seeking to enjoin the
DTI Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this
Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that
has jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI Secretarys
25 June 2003 Decision which imposed the definite safeguard measure. Yet Southern Cross did not
promptly inform this Court about this filing. The first time the Court would learn about this Petition with
the CTA was when Southern Cross mentioned such fact in a pleading dated 11 August 2003 and filed the
next day with this Court.[20]
Philcemcor argued before this Court that Southern Cross had deliberately and willfully resorted to forumshopping; that the CTA, being a special court of limited jurisdiction, could only review the ruling of the
DTI Secretary when a safeguard measure is imposed; and that the factual findings of the Tariff
Commission are not binding on the DTI Secretary.[21]
After giving due course to Southern Crosss Petition, the Court called the case for oral argument on 18
February 2004.[22] At the oral argument, attended by the counsel for Philcemcor and Southern Cross and
the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of
the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of
Appeals has jurisdiction, whether its Decision is in accordance with law; and, whether a Temporary
Restraining Order is warranted.[23]

After the parties had filed their respective memoranda, the Courts Second Division, to which the case had
been assigned, promulgated its Decision granting Southern Crosss Petition.[24]The Decision was
unanimous, without any separate or concurring opinion.
The Court ruled that the Court of Appeals had no jurisdiction over Philcemcors Petition, the proper
remedy under Section 29 of the SMA being a petition for review with the CTA; and that the Court of
Appeals erred in ruling that the DTI Secretary was not bound by the negative determination of the Tariff
Commission and could therefore impose the general safeguard measures, since Section 5 of the SMA
precisely required that the Tariff Commission make a positive final determination before the DTI
Secretary could impose these measures. Anent the argument that Southern Cross had committed forumshopping, the Court concluded that there was no evident malicious intent to subvert procedural rules so as
to match the standard under Section 5, Rule 7 of the Rules of Court of willful and deliberate forum
shopping. Accordingly, the Decision of the Court of Appeals dated 5 June 2003 was declared null and
void.
The Court likewise found it necessary to nullify the Decision of the DTI Secretary dated 25 June 2003,
rendered after the filing of this present Petition. This Decision by the DTI Secretary had cited the
obligatory force of the null and void Court of Appeals Decision, notwithstanding the fact that the decision
of the appellate court was not yet final and executory. Considering that the decision of the Court of
Appeals was a nullity to begin with, the inescapable conclusion was that the new decision of the DTI
Secretary, prescinding as it did from the imprimatur of the decision of the Court of Appeals, was a nullity
as well.
After the Decision was reported in the media, there was a flurry of newspaper articles citing alleged
negative reactions to the ruling by the counsel for Philcemcor, the DTI Secretary, and others.[25] Both
respondents promptly filed their respective motions for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon motion of respondents, to accept the petition
and resolve the Motions for Reconsideration.[26] The case was then reheard[27] on oral argument on 1
March 2005. During the hearing, the Court elicited from the parties their arguments on the two central
issues as discussed in the assailed Decision, pertaining to the jurisdictional aspect and to the substantive
aspect of whether the DTI Secretary may impose a general safeguard measure despite a negative
determination by the Tariff Commission. The Court chose not to hear argumentation on the peripheral
issue of forum-shopping,[28] although this question shall be tackled herein shortly. Another point of
concern emerged during oral arguments on the exercise of quasi-judicial powers by the Tariff
Commission, and the parties were required by the Court to discuss in their respective memoranda whether
the Tariff Commission could validly exercise quasi-judicial powers in the exercise of its mandate under
the SMA.
The Court has likewise been notified that subsequent to the rendition of the Courts Decision, Philcemcor
filed a Petition for Extension of the Safeguard Measure with the DTI, which has been referred to the Tariff
Commission.[29] In an Urgent Motion dated 21 December 2004, Southern Cross prayed that Philcemcor,
the DTI, the Bureau of Customs, and the Tariff Commission be directed to cease and desist from taking
any and all actions pursuant to or under the null and void CA Decision and DTI Decision, including
proceedings to extend the safeguard measure.[30] In a Manifestation and Motion dated 23 June 2004, the
Tariff Commission informed the Court that since no prohibitory injunction or order of such nature had
been issued by any court against the Tariff Commission, the Commission proceeded to complete its
investigation on the petition for extension, pursuant to Section 9 of the SMA, but opted to defer
transmittal of its report to the DTI Secretary pending guidance from this Court on the propriety of such
a step considering this pending Motion for Reconsideration. In a Resolution dated 5 July 2005, the Court
directed the parties to maintain the status quo effective of even date, and until further orders from this
Court. The denial of the pending motions for reconsideration will obviously render the pending petition
for extension academic.
I. Jurisdiction of the Court of Tax Appeals

Under Section 29 of the SMA

The first core issue resolved in the assailed Decision was whether the Court of Appeals had jurisdiction
over the special civil action for certiorari filed by Philcemcor assailing the 5 April 2002 Decision of the
DTI Secretary. The general jurisdiction of the Court of Appeals over special civil actions for certiorari is
beyond doubt. The Constitution itself assures that judicial review avails to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government. At the same time, the special civil action of certiorari is available
only when there is no plain, speedy and adequate remedy in the ordinary course of law.[31] Philcemcors
recourse of special civil action before the Court of Appeals to challenge the Decision of the DTI Secretary
not to impose the general safeguard measures is not based on the SMA, but on the general rule on
certiorari. Thus, the Court proceeded to inquire whether indeed there was no other plain, speedy and
adequate remedy in the ordinary course of law that would warrant the allowance of Philcemcors special
civil action.
The answer hinged on the proper interpretation of Section 29 of the SMA, which reads:
Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the
Secretary in connection with the imposition of a safeguard measure may file with the CTA, a petition
for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of
such petition for review shall not in any way stop, suspend or otherwise toll the imposition or collection of
the appropriate tariff duties or the adoption of other appropriate safeguard measures, as the case may be.
The petition for review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on
tax matters to the Court of Appeals.[32] (Emphasis supplied)
The matter is crucial for if the CTA properly had jurisdiction over the petition challenging the DTI
Secretarys ruling not to impose a safeguard measure, then the special civil action of certiorari resorted to
instead by Philcemcor would not avail, owing to the existence of a plain, speedy and adequate remedy in
the ordinary course of law.[33] The Court of Appeals, in asserting that it had jurisdiction, merely cited the
general rule on certiorari jurisdiction without bothering to refer to, or possibly even study, the import of
Section 29. In contrast, this Court duly considered the meaning and ramifications of Section 29,
concluding that it provided for a plain, speedy and adequate remedy that Philcemcor could have resorted
to instead of filing the special civil action before the Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for review allowed under Section 29 lies only if
the DTI Secretarys ruling imposes a safeguard measure. If, on the other hand, the DTI Secretarys ruling
is not to impose a safeguard measure, judicial review under Section 29 could not be resorted to since the
provision refers to rulings in connection with the imposition of the safeguard measure, as opposed to
the non-imposition. Since the Decision dated 5 April 2002 resolved against imposing a safeguard
measure, Philcemcor claims that the proper remedial recourse is a petition for certiorari with the Court of
Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004, expressly vests unto the CTA
jurisdiction over [d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,
commodity or article . . . involving . . . safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said duties.[34] It is clear that any future
attempts to advance the literalist position of the respondents would consequently fail. However, since
Republic Act No. 9282 has no retroactive effect, this Court had to decide whether Section 29 vests
jurisdiction on the CTA over rulings of the DTI Secretary not to impose a safeguard measure. And the
Court, in its assailed Decision, ruled that the CTA is endowed with such jurisdiction.

Both respondents reiterate their fundamentalist reading that Section 29 authorizes the petition for review
before the CTA only when the DTI Secretary decides to impose a safeguard measure, but not when he
decides not to. In doing so, they fail to address what the Court earlier pointed out would be the absurd
consequences if their interpretation is followed to its logical end. But in affirming, as the Court now does,
its previous holding that the CTA has jurisdiction over petitions for review questioning the non-imposition
of safeguard measures by the DTI Secretary, the Court relies on the plain reading that Section 29 explicitly
vests jurisdiction over such petitions on the CTA.
Under Section 29, there are three requisites to enable the CTA to acquire jurisdiction over the petition for
review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must be filed
by an interested party adversely affected by the ruling; and (iii) such ruling must be in connection with
the imposition of a safeguard measure. Obviously, there are differences between a ruling for the
imposition of a safeguard measure, and one issued in connection with the imposition of a safeguard
measure. The first adverts to a singular type of ruling, namely one that imposes a safeguard measure.
The second does not contemplate only one kind of ruling, but a myriad of rulings issued in connection
with the imposition of a safeguard measure.
Respondents argue that the Court has given an expansive interpretation to Section 29, contrary to the
established rule requiring strict construction against the existence of jurisdiction in specialized courts.[35]
But it is the express provision of Section 29, and not this Court, that mandates CTA jurisdiction to
be broad enough to encompass more than just a ruling imposing the safeguard measure.
The key phrase remains in connection with. It has connotations that are obvious even to the layman. A
ruling issued in connection with the imposition of a safeguard measure would be one that bears some
relation to the imposition of a safeguard measure. Obviously, a ruling imposing a safeguard measure is
covered by the phrase in connection with, but such ruling is by no means exclusive. Rulings which
modify, suspend or terminate a safeguard measure are necessarily in connection with the imposition of a
safeguard measure. So does a ruling allowing for a provisional safeguard measure. So too, a ruling by the
DTI Secretary refusing to refer the application for a safeguard measure to the Tariff Commission. It is
clear that there is an entire subset of rulings that the DTI Secretary may issue in connection with the
imposition of a safeguard measure, including those that are provisional, interlocutory, or dispositive in
character.[36] By the same token, a ruling not to impose a safeguard measure is also issued in connection
with the imposition of a safeguard measure.
In arriving at the proper interpretation of in connection with, the Court referred to the U.S. Supreme
Court cases of Shaw v. Delta Air Lines, Inc.[37] and New York State Blue Cross Plans v. Travelers Ins.[38]
Both cases considered the interpretation of the phrase relates to as used in a federal statute, the
Employee Retirement Security Act of 1974. Respondents criticize the citations on the premise that the
cases are not binding in our jurisdiction and do not involve safeguard measures. The criticisms are offtangent considering that our ruling did not call for the application of the Employee Retirement Security
Act of 1974 in the Philippine milieu. The American cases are not relied upon as precedents, but as guides
of interpretation. Certainly, if there are applicable local precedents pertaining to the interpretation of the
phrase in connection with, then these certainly would have some binding force. But none avail, and
neither do the respondents demonstrate a countervailing holding in Philippine jurisprudence.
Yet we should consider the claim that an expansive interpretation was favored in Shaw because the law
in question was an employees benefit law that had to be given an interpretation favorable to its intended
beneficiaries.[39] In the next breath, Philcemcor notes that the U.S. Supreme Court itself was alarmed by
the expansive interpretation in Shaw and thus in Blue Cross, the Shaw ruling was reversed and a more
restrictive interpretation was applied based on congressional intent.[40]
Respondents would like to make it appear that the Court acted rashly in applying a discarded precedent in
Shaw, a non-binding foreign precedent nonetheless. But the Court did make the following observation in
its Decision pertaining to Blue Cross:

Now, let us determine the maximum scope and reach of the phrase in connection with as used in Section
29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the U.S. Supreme Court in
New York State Blue Cross Plans v. Travelers Ins.[41] conceded that the phrases relate to or in
connection with may be extended to the farthest stretch of indeterminacy for, universally, relations or
connections are infinite and stop nowhere.[42] Thus, in the case the U.S. High Court, examining the
same phrase of the same provision of law involved in Shaw, resorted to looking at the statute and its
objectives as the alternative to an uncritical literalism. A similar inquiry into the other provisions
of the SMA is in order to determine the scope of review accorded therein to the CTA.[43]
In the next four paragraphs of the Decision, encompassing four pages, the Court proceeded to inquire into
the SMA and its objectives as a means to determine the scope of rulings to be deemed as in connection
with the imposition of a safeguard measure. Certainly, this Court did not resort to the broadest
interpretation possible of the phrase in connection with, but instead sought to bring it into the context of
the scope and objectives of the SMA. The ultimate conclusion of the Court was that the phrase includes
all rulings of the DTI Secretary which arise from the time an application or motu proprio initiation for the
imposition of a safeguard measure is taken.[44] This conclusion was derived from the observation that the
imposition of a general safeguard measure is a process, initiated motu proprio or through application,
which undergoes several stages upon which the DTI Secretary is obliged or may be called upon to issue a
ruling.
It should be emphasized again that by utilizing the phrase in connection with, it is the SMA that
expressly vests jurisdiction on the CTA over petitions questioning the non-imposition by the DTI
Secretary of safeguard measures. The Court is simply asserting, as it should, the clear intent of the
legislature in enacting the SMA. Without in connection with or a synonymous phrase, the Court would
be compelled to favor the respondents position that only rulings imposing safeguard measures may be
elevated on appeal to the CTA. But considering that the statute does make use of the phrase, there is little
sense in delving into alternate scenarios.
Respondents fail to convincingly address the absurd consequences pointed out by the Decision had their
proposed interpretation been adopted. Indeed, suffocated beneath the respondents legalistic tinsel is the
elemental questionwhat sense is there in vesting jurisdiction on the CTA over a decision to impose a
safeguard measure, but not on one choosing not to impose. Of course, it is not for the Court to inquire
into the wisdom of legislative acts, hence the rule that jurisdiction must be expressly vested and not
presumed. Yet ultimately, respondents muddle the issue by making it appear that the Decision has
uniquely expanded the jurisdictional rules. For the respondents, the proper statutory interpretation of the
crucial phrase in connection with is to pretend that the phrase did not exist at all in the statute. The
Court, in taking the effort to examine the meaning and extent of the phrase, is merely giving breath to the
legislative will.
The Court likewise stated that the respondents position calls for split jurisdiction, which is judicially
abhorred. In rebuttal, the public respondents cite Sections 2313 and 2402 of the Tariff and Customs Code
(TCC), which allegedly provide for a splitting of jurisdiction of the CTA. According to public
respondents, under Section 2313 of the TCC, a decision of the Commissioner of Customs affirming a
decision of the Collector of Customs adverse to the government is elevated for review to the Secretary of
Finance. However, under Section 2402 of the TCC, a ruling of the Commissioner of the Bureau of
Customs against a taxpayer must be appealed to the Court of Tax Appeals, and not to the Secretary of
Finance.
Strictly speaking, the review by the Secretary of Finance of the decision of the Commissioner of Customs
is not judicial review, since the Secretary of Finance holds an executive and not a judicial office. The
contrast is apparent with the situation in this case, wherein the interpretation favored by the respondents
calls for the exercise of judicial review by two different courts over essentially the same
questionwhether the DTI Secretary should impose general safeguard measures. Moreover, as petitioner
points out, the executive department cannot appeal against itself. The Collector of Customs, the
Commissioner of Customs and the Secretary of Finance are all part of the executive branch. If the
Collector of Customs rules against the government, the executive cannot very well bring suit in courts

against itself. On the other hand, if a private person is aggrieved by the decision of the Collector of
Customs, he can have proper recourse before the courts, which now would be called upon to exercise
judicial review over the action of the executive branch.
More fundamentally, the situation involving split review of the decision of the Collector of Customs under
the TCC is not apropos to the case at bar. The TCC in that instance is quite explicit on the divergent
reviewing body or official depending on which party prevailed at the Collector of Customs level. On the
other hand, there is no such explicit expression of bifurcated appeals in Section 29 of the SMA.
Public respondents likewise cite Fabian v. Ombudsman[45] as another instance wherein the Court
purportedly allowed split jurisdiction. It is argued that the Court, in ruling that it was the Court of Appeals
which possessed appellate authority to review decisions of the Ombudsman in administrative cases while
the Court retaining appellate jurisdiction of decisions of the Ombudsman in non-administrative cases,
effectively sanctioned split jurisdiction between the Court and the Court of Appeals.[46]
Nonetheless, this argument is successfully undercut by Southern Cross, which points out the essential
differences in the power exercised by the Ombudsman in administrative cases and non-administrative
cases relating to criminal complaints. In the former, the Ombudsman may impose an administrative
penalty, while in acting upon a criminal complaint what the Ombudsman undertakes is a preliminary
investigation. Clearly, the capacity in which the Ombudsman takes on in deciding an administrative
complaint is wholly different from that in conducting a preliminary investigation. In contrast, in ruling
upon a safeguard measure, the DTI Secretary acts in one and the same role. The variance between an order
granting or denying an application for a safeguard measure is polar though emanating from the same
equator, and does not arise from the distinct character of the putative actions involved.
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only to
impositions of the general safeguard measures. It claims that there is a necessary tax implication in case
of an imposition of a tariff where the CTAs expertise is necessary, but there is no such tax implication,
hence no need for the assumption of jurisdiction by a specialized agency, when the ruling rejects the
imposition of a safeguard measure. But of course, whether the ruling under review calls for the imposition
or non-imposition of the safeguard measure, the common question for resolution still is whether or not the
tariff should be imposed an issue definitely fraught with a tax dimension. The determination of the
question will call upon the same kind of expertise that a specialized body as the CTA presumably
possesses.
In response to the Courts observation that the setup proposed by respondents was novel, unusual,
cumbersome and unwise, public respondents invoke the maxim that courts should not be concerned with
the wisdom and efficacy of legislation.[47] But this prescinds from the bogus claim that the CTA may not
exercise judicial review over a decision not to impose a safeguard measure, a prohibition that finds no
statutory support. It is likewise settled in statutory construction that an interpretation that would cause
inconvenience and absurdity is not favored. Respondents do not address the particular illogic that the
Court pointed out would ensue if their position on judicial review were adopted. According to the
respondents, while a ruling by the DTI Secretary imposing a safeguard measure may be elevated on
review to the CTA and assailed on the ground of errors in fact and in law, a ruling denying the imposition
of safeguard measures may be assailed only on the ground that the DTI Secretary committed grave abuse
of discretion. As stressed in the Decision, [c]ertiorari is a remedy narrow in its scope and inflexible in its
character. It is not a general utility tool in the legal workshop.[48]
It is incorrect to say that the Decision bars any effective remedy should the Tariff Commission act or
conclude erroneously in making its determination whether the factual conditions exist which necessitate
the imposition of the general safeguard measure. If the Tariff Commission makes a negative final
determination, the DTI Secretary, bound as he is by this negative determination, has to render a decision
denying the application for safeguard measures citing the Tariff Commissions findings as basis.
Necessarily then, such negative determination of the Tariff Commission being an integral part of the DTI
Secretarys ruling would be open for review before the CTA, which again is especially qualified by reason

of its expertise to examine the findings of the Tariff Commission. Moreover, considering that the Tariff
Commission is an instrumentality of the government, its actions (as opposed to those undertaken by the
DTI Secretary under the SMA) are not beyond the pale of certiorari jurisdiction. Unfortunately for
Philcemcor, it hinged its cause on the claim that the DTI Secretarys actions may be annulled on certiorari,
notwithstanding the explicit grant of judicial review over that cabinet members actions under the SMA to
the CTA.
Finally on this point, Philcemcor argues that assuming this Courts interpretation of Section 29 is correct,
such ruling should not be given retroactive effect, otherwise, a gross violation of the right to due process
would be had. This erroneously presumes that it was this Court, and not Congress, which vested
jurisdiction on the CTA over rulings of non-imposition rendered by the DTI Secretary. We have repeatedly
stressed that Section 29 expressly confers CTA jurisdiction over rulings in connection with the imposition
of the safeguard measure, and the reassertion of this point in the Decision was a matter of emphasis, not of
contrivance. The due process protection does not shield those who remain purposely blind to the express
rules that ensure the sporting play of procedural law.
Besides, respondents claim would also apply every time this Court is compelled to settle a novel question
of law, or to reverse precedent. In such cases, there would always be litigants whose causes of action
might be vitiated by the application of newly formulated judicial doctrines. Adopting their claim would
unwisely force this Court to treat its dispositions in unprecedented, sometimes landmark decisions not as
resolutions to the live cases or controversies, but as legal doctrine applicable only to future litigations.
II. Positive Final Determination
By the Tariff Commission an
Indispensable Requisite to the
Imposition of General Safeguard Measures
The second core ruling in the Decision was that contrary to the holding of the Court of Appeals, the DTI
Secretary was barred from imposing a general safeguard measure absent a positive final determination
rendered by the Tariff Commission. The fundamental premise rooted in this ruling is based on the
acknowledgment that the required positive final determination of the Tariff Commission exists as a
properly enacted constitutional limitation imposed on the delegation of the legislative power to impose
tariffs and imposts to the President under Section 28(2), Article VI of the Constitution.
Congressional Limitations Pursuant
To Constitutional Authority on the
Delegated Power to Impose
Safeguard Measures
The safeguard measures imposable under the SMA generally involve duties on imported products, tariff
rate quotas, or quantitative restrictions on the importation of a product into the country. Concerning as
they do the foreign importation of products into the Philippines, these safeguard measures fall within the
ambit of Section 28(2), Article VI of the Constitution, which states:
The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national development program of
the Government.[49]
The Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in this
case. They are:
(1) It is Congress which authorizes the President to impose tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot come from the

Finance Department, the National Economic Development Authority, or the World Trade Organization, no
matter how insistent or persistent these bodies may be.
(2) The authorization granted to the President must be embodied in a law. Hence, the justification
cannot be supplied simply by inherent executive powers. It cannot arise from administrative or executive
orders promulgated by the executive branch or from the wisdom or whim of the President.
(3) The authorization to the President can be exercised only within the specified limits set in the law
and is further subject to limitations and restrictions which Congress may impose. Consequently, if
Congress specifies that the tariff rates should not exceed a given amount, the President cannot impose a
tariff rate that exceeds such amount. If Congress stipulates that no duties may be imposed on the
importation of corn, the President cannot impose duties on corn, no matter how actively the local corn
producers lobby the President. Even the most picayune of limits or restrictions imposed by Congress must
be observed by the President.
There is one fundamental principle that animates these constitutional postulates. These impositions under
Section 28(2), Article VI fall within the realm of the power of taxation, a power which is within the
sole province of the legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs and other
similar tax levies involving the importation of foreign goods. Assuming that Section 28(2) Article VI
did not exist, the enactment of the SMA by Congress would be voided on the ground that it would
constitute an undue delegation of the legislative power to tax. The constitutional provision shields such
delegation from constitutional infirmity, and should be recognized as an exceptional grant of legislative
power to the President, rather than the affirmation of an inherent executive power.
This being the case, the qualifiers mandated by the Constitution on this presidential authority attain
primordial consideration. First, there must be a law, such as the SMA. Second, there must be specified
limits, a detail which would be filled in by the law. And further, Congress is further empowered to impose
limitations and restrictions on this presidential authority. On this last power, the provision does not
provide for specified conditions, such as that the limitations and restrictions must conform to prior
statutes, internationally accepted practices, accepted jurisprudence, or the considered opinion of members
of the executive branch.
The Court recognizes that the authority delegated to the President under Section 28(2), Article VI may be
exercised, in accordance with legislative sanction, by the alter egos of the President, such as department
secretaries. Indeed, for purposes of the Presidents exercise of power to impose tariffs under Article VI,
Section 28(2), it is generally the Secretary of Finance who acts as alter ego of the President. The SMA
provides an exceptional instance wherein it is the DTI or Agriculture Secretary who is tasked by Congress,
in their capacities as alter egos of the President, to impose such measures. Certainly, the DTI Secretary
has no inherent power, even as alter ego of the President, to levy tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA should be likewise construed within
the same context as part and parcel of the legislative delegation of its inherent power to impose tariffs and
imposts to the executive branch, subject to limitations and restrictions. In that regard, both the Tariff
Commission and the DTI Secretary may be regarded as agents of Congress within their limited respective
spheres, as ordained in the SMA, in the implementation of the said law which significantly draws its
strength from the plenary legislative power of taxation. Indeed, even the President may be considered
as an agent of Congress for the purpose of imposing safeguard measures. It is Congress, not the
President, which possesses inherent powers to impose tariffs and imposts. Without legislative
authorization through statute, the President has no power, authority or right to impose such
safeguard measures because taxation is inherently legislative, not executive.

When Congress tasks the President or his/her alter egos to impose safeguard measures under the
delineated conditions, the President or the alter egos may be properly deemed as agents of Congress
to perform an act that inherently belongs as a matter of right to the legislature. It is basic agency law
that the agent may not act beyond the specifically delegated powers or disregard the restrictions imposed
by the principal. In short, Congress may establish the procedural framework under which such safeguard
measures may be imposed, and assign the various offices in the government bureaucracy respective tasks
pursuant to the imposition of such measures, the task assignment including the factual determination of
whether the necessary conditions exists to warrant such impositions. Under the SMA, Congress assigned
the DTI Secretary and the Tariff Commission their respective functions[50] in the legislatures scheme of
things.
There is only one viable ground for challenging the legality of the limitations and restrictions imposed by
Congress under Section 28(2) Article VI, and that is such limitations and restrictions are themselves
violative of the Constitution. Thus, no matter how distasteful or noxious these limitations and restrictions
may seem, the Court has no choice but to uphold their validity unless their constitutional infirmity can be
demonstrated.
What are these limitations and restrictions that are material to the present case? The entire SMA provides
for a limited framework under which the President, through the DTI and Agriculture Secretaries, may
impose safeguard measures in the form of tariffs and similar imposts. The limitation most relevant to this
case is contained in Section 5 of the SMA, captioned Conditions for the Application of General
Safeguard Measures, and stating:
The Secretary shall apply a general safeguard measure upon a positive final determination of the
[Tariff] Commission that a product is being imported into the country in increased quantities, whether
absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat
thereof to the domestic industry; however, in the case of non-agricultural products, the Secretary shall first
establish that the application of such safeguard measures will be in the public interest.[51]
Positive Final Determination
By Tariff Commission Plainly
Required by Section 5 of SMA
There is no question that Section 5 of the SMA operates as a limitation validly imposed by Congress on
the presidential[52] authority under the SMA to impose tariffs and imposts. That the positive final
determination operates as an indispensable requisite to the imposition of the safeguard measure, and that it
is the Tariff Commission which makes such determination, are legal propositions plainly expressed in
Section 5 for the easy comprehension for everyone but respondents.
Philcemcor attributes this Courts conclusion on the indispensability of the positive final determination to
flawed syllogism in that we read the proposition if A then B as if it stated if A, and only A, then B.[53]
Translated in practical terms, our conclusion, according to Philcemcor, would have only been justified had
Section 5 read shall apply a general safeguard measure upon, and only upon, a positive final
determination of the Tariff Commission.
Statutes are not designed for the easy comprehension of the five-year old child. Certainly, general
propositions laid down in statutes need not be expressly qualified by clauses denoting exclusivity in order
that they gain efficacy. Indeed, applying this argument, the President would, under the Constitution, be
authorized to declare martial law despite the absence of the invasion, rebellion or public safety
requirement just because the first paragraph of Section 18, Article VII fails to state the magic word
only.[54]
But let us for the nonce pursue Philcemcors logic further. It claims that since Section 5 does not
allegedly limit the circumstances upon which the DTI Secretary may impose general safeguard measures,

it is a worthy pursuit to determine whether the entire context of the SMA, as discerned by all the other
familiar indicators of legislative intent supplied by norms of statutory interpretation, would justify
safeguard measures absent a positive final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not being as clear as it sounds. It is
advanced that Section 5 does not relate to the legal ability of either the Tariff Commission or the DTI
Secretary to bind or foreclose review and reversal by one or the other. Such relationship should instead be
governed by domestic administrative law and remedial law. Philcemcor thus would like to cast the
proposition in this manner: Does it run contrary to our legal order to assert, as the Court did in its
Decision, that a body of relative junior competence as the Tariff Commission can bind an administrative
superior and cabinet officer, the DTI Secretary? It is easy to see why Philcemcor would like to divorce
this DTI Secretary-Tariff Commission interaction from the confines of the SMA. Shorn of context, the
notion would seem radical and unjustifiable that the lowly Tariff Commission can bind the hands and feet
of the DTI Secretary.
It can be surmised at once that respondents preferred interpretation is based not on the express language
of the SMA, but from implications derived in a roundabout manner. Certainly, no provision in the SMA
expressly authorizes the DTI Secretary to impose a general safeguard measure despite the absence of a
positive final recommendation of the Tariff Commission. On the other hand, Section 5 expressly states
that the DTI Secretary shall apply a general safeguard measure upon a positive final determination of the
[Tariff] Commission. The causal connection in Section 5 between the imposition by the DTI Secretary of
the general safeguard measure and the positive final determination of the Tariff Commission is patent, and
even respondents do not dispute such connection.
As stated earlier, the Court in its Decision found Section 5 to be clear, plain and free from ambiguity so as
to render unnecessary resort to the congressional records to ascertain legislative intent. Yet respondents,
on the dubitable premise that Section 5 is not as express as it seems, again latch on to the record of
legislative deliberations in asserting that there was no legislative intent to bar the DTI Secretary from
imposing the general safeguard measure anyway despite the absence of a positive final determination by
the Tariff Commission.
Let us take the bait for a moment, and examine respondents commonly cited portion of the legislative
record. One would presume, given the intense advocacy for the efficacy of these citations, that they
contain a smoking gun express declarations from the legislators that the DTI Secretary may impose a
general safeguard measure even if the Tariff Commission refuses to render a positive final determination.
Such smoking gun, if it exists, would characterize our Decision as disingenuous for ignoring such
contrary expression of intent from the legislators who enacted the SMA. But as with many things, the
anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of the late Congressman Marcial
Punzalan Jr., by then (and still is) Congressman Simeon Datumanong.[55] Nowhere in these records is the
view expressed that the DTI Secretary may impose the general safeguard measures if the Tariff
Commission issues a negative final determination or otherwise is unable to make a positive final
determination. Instead, respondents hitch on the observations of Congressman Punzalan Jr., that the
results of the [Tariff] Commissions findings . . . is subsequently submitted to [the DTI Secretary] for the
[DTI Secretary] to impose or not to impose; and that the [DTI Secretary] here iswho would make the
final decision on the recommendation that is made by a more technical body [such as the Tariff
Commission].[56]
There is nothing in the remarks of Congressman Punzalan which contradict our Decision. His
observations fall in accord with the respective roles of the Tariff Commission and the DTI Secretary under
the SMA. Under the SMA, it is the Tariff Commission that conducts an investigation as to whether the
conditions exist to warrant the imposition of the safeguard measures. These conditions are enumerated in
Section 5, namely; that a product is being imported into the country in increased quantities, whether
absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat

thereof to the domestic industry. After the investigation of the Tariff Commission, it submits a report to
the DTI Secretary which states, among others, whether the above-stated conditions for the imposition of
the general safeguard measures exist. Upon a positive final determination that these conditions are present,
the Tariff Commission then is mandated to recommend what appropriate safeguard measures should be
undertaken by the DTI Secretary. Section 13 of the SMA gives five (5) specific options on the type of
safeguard measures the Tariff Commission recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary to adopt the recommendations made by
the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of
such safeguard measures is in the public interest, notwithstanding the Tariff Commissions
recommendation on the appropriate safeguard measure upon its positive final determination. Thus, even if
the Tariff Commission makes a positive final determination, the DTI Secretary may opt not to impose a
general safeguard measure, or choose a different type of safeguard measure other than that recommended
by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary makes the decision to impose or not to
impose, which is correct since the DTI Secretary may choose not to impose a safeguard measure in spite
of a positive final determination by the Tariff Commission. Congressman Punzalan also correctly stated
that it is the DTI Secretary who makes the final decision on the recommendation that is made [by the
Tariff Commission], since the DTI Secretary may choose to impose a general safeguard measure different
from that recommended by the Tariff Commission or not to impose a safeguard measure at all. Nowhere
in these cited deliberations was Congressman Punzalan, or any other member of Congress for that matter,
quoted as saying that the DTI Secretary may ignore a negative determination by the Tariff Commission as
to the existence of the conditions warranting the imposition of general safeguard measures, and thereafter
proceed to impose these measures nonetheless. It is too late in the day to ascertain from the late
Congressman Punzalan himself whether he had made these remarks in order to assure the other legislators
that the DTI Secretary may impose the general safeguard measures notwithstanding a negative
determination by the Tariff Commission. But certainly, the language of Section 5 is more resolutory to
that question than the recorded remarks of Congressman Punzalan.
Respondents employed considerable effort to becloud Section 5 with undeserved ambiguity in order that a
proper resort to the legislative deliberations may be had. Yet assuming that Section 5 deserves to be
clarified through an inquiry into the legislative record, the excerpts cited by the respondents are far more
ambiguous than the language of the assailed provision regarding the key question of whether the DTI
Secretary may impose safeguard measures in the face of a negative determination by the Tariff
Commission. Moreover, even Southern Cross counters with its own excerpts of the legislative record in
support of their own view.[57]
It will not be difficult, especially as to heavily-debated legislation, for two sides with contrapuntal
interpretations of a statute to highlight their respective citations from the legislative debate in support of
their particular views.[58] A futile exercise of second-guessing is happily avoided if the meaning of the
statute is clear on its face. It is evident from the text of Section 5 that there must be a positive final
determination by the Tariff Commission that a product is being imported into the country in
increased quantities (whether absolute or relative to domestic production), as to be a substantial
cause of serious injury or threat to the domestic industry. Any disputation to the contrary is, at best,
the product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality of a positive final determination
by the Tariff Commission, there is no need to refer to the Implementing Rules of the SMA to ascertain a
contrary intent. If there is indeed a provision in the Implementing Rules that allows the DTI Secretary to
impose a general safeguard measure even without the positive final determination by the Tariff
Commission, said rule is void as it cannot supplant the express language of the legislature. Respondents
essentially rehash their previous arguments on this point, and there is no reason to consider them anew.
The Decision made it clear that nothing in Rule 13.2 of the Implementing Rules, even though captioned
Final Determination by the Secretary, authorizes the DTI Secretary to impose a general safeguard
measure in the absence of a positive final determination by the Tariff Commission.[59] Similarly, the

Rules and Regulations to Govern the Conduct of Investigation by the Tariff Commission Pursuant to
Republic Act No. 8800 now cited by the respondent does not contain any provision that the DTI
Secretary may impose the general safeguard measures in the absence of a positive final determination by
the Tariff Commission.
Section 13 of the SMA further bolsters the interpretation as argued by Southern Cross and upheld by the
Decision. The first paragraph thereof states that [u]pon its positive determination, the [Tariff]
Commission shall recommend to the Secretary an appropriate definitive measure, clearly referring to
the Tariff Commission as the entity that makes the positive determination. On the other hand, the
penultimate paragraph of the same provision states that [i]n the event of a negative final determination,
the DTI Secretary is to immediately issue through the Secretary of Finance, a written instruction to the
Commissioner of Customs authorizing the return of the cash bonds previously collected as a provisional
safeguard measure. Since the first paragraph of the same provision states that it is the Tariff Commission
which makes the positive determination, it necessarily follows that it, and not the DTI Secretary, makes
the negative final determination as referred to in the penultimate paragraph of Section 13.[60]
The Separate Opinion considers as highly persuasive of former Tariff Commission Chairman Abon, who
stated that the Commissions findings are merely recommendatory.[61] Again, the considered opinion of
Chairman Abon is of no operative effect if the statute plainly states otherwise, and Section 5 bluntly does
require a positive final determination by the Tariff Commission before the DTI Secretary may impose a
general safeguard measure.[62]Certainly, the Court cannot give controlling effect to the statements of any
public officer in serious denial of his duties if the law otherwise imposes the duty on the public office or
officer.
Nonetheless, if we are to render persuasive effect on the considered opinion of the members of the
Executive Branch, it bears noting that the Secretary of the Department of Justice rendered an Opinion
wherein he concluded that the DTI Secretary could not impose a general safeguard measure if the Tariff
Commission made a negative final determination.[63] Unlike Chairman Abons impromptu remarks made
during a hearing, the DOJ Opinion was rendered only after a thorough study of the question after referral
to it by the DTI. The DOJ Secretary is the alter ego of the President with a stated mandate as the head of
the principal law agency of the government.[64] As the DOJ Secretary has no denominated role in the
SMA, he was able to render his Opinion from the vantage of judicious distance. Should not his Opinion,
studied and direct to the point as it is, carry greater weight than the spontaneous remarks of the Tariff
Commissions Chairman which do not even expressly disavow the binding power of the Commissions
positive final determination?
III. DTI Secretary has No Power of Review
Over Final Determination of the Tariff Commission
We should reemphasize that it is only because of the SMA, a legislative enactment, that the executive
branch has the power to impose safeguard measures. At the same time, by constitutional fiat, the exercise
of such power is subjected to the limitations and restrictions similarly enforced by the SMA. In examining
the relationship of the DTI and the Tariff Commission as established in the SMA, it is essential to
acknowledge and consider these predicates.
It is necessary to clarify the paradigm established by the SMA and affirmed by the Constitution under
which the Tariff Commission and the DTI operate, especially in light of the suggestions that the Courts
rulings on the functions of quasi-judicial power find application in this case. Perhaps the reflexive
application of the quasi-judicial doctrine in this case, rooted as it is in jurisprudence, might allow for some
convenience in ruling, yet doing so ultimately betrays ignorance of the fundamental power of Congress to
reorganize the administrative structure of governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are incomplete. Its main stance,
similar to that of respondents, is that the DTI Secretary, acting as alter ego of the President, may modify
and alter the findings of the Tariff Commission, including the latters negative final determination by

substituting it with his own negative final determination to pave the way for his imposition of a safeguard
measure.[65] Fatally, this conclusion is arrived at without considering the fundamental constitutional
precept under Section 28(2), Article VI, on the ability of Congress to impose restrictions and limitations in
its delegation to the President to impose tariffs and imposts, as well as the express condition of Section 5
of the SMA requiring a positive final determination of the Tariff Commission.
Absent Section 5 of the SMA, the President has no inherent, constitutional, or statutory power to
impose a general safeguard measure. Tellingly, the Separate Opinion does not directly confront the
inevitable question as to how the DTI Secretary may get away with imposing a general safeguard measure
absent a positive final determination from the Tariff Commission without violating Section 5 of the SMA,
which along with Section 13 of the same law, stands as the only direct legal authority for the DTI
Secretary to impose such measures. This is a constitutionally guaranteed limitation of the highest order,
considering that the presidential authority exercised under the SMA is inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI Secretary, acting either as
alter ego of the President or in his capacity as head of an executive department, may review, modify or
otherwise alter the final determination of the Tariff Commission under the SMA. The succeeding
discussion shall focus on that question.
Preliminarily, we should note that none of the parties question the designation of the DTI or Agriculture
secretaries under the SMA as the imposing authorities of the safeguard measures, even though Section
28(2) Article VI states that it is the President to whom the power to impose tariffs and imposts may be
delegated by Congress. The validity of such designation under the SMA should not be in doubt. We
recognize that the authorization made by Congress in the SMA to the DTI and Agriculture Secretaries was
made in contemplation of their capacities as alter egos of the President.
Indeed, in Marc Donnelly & Associates v. Agregado[66] the Court upheld the validity of a Cabinet
resolution fixing the schedule of royalty rates on metal exports and providing for their collection even
though Congress, under Commonwealth Act No. 728, had specifically empowered the President and not
any other official of the executive branch, to regulate and curtail the export of metals. In so ruling, the
Court held that the members of the Cabinet were acting as alter egos of the President.[67] In this case,
Congress itself authorized the DTI Secretary as alter ego of the President to impose the safeguard
measures. If the Court was previously willing to uphold the alter egos tariff authority despite the absence
of explicit legislative grant of such authority on the alter ego, all the more reason now when Congress
itself expressly authorized the alter ego to exercise these powers to impose safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing the roles to be played therein by the
Tariff Commission and the DTI Secretary did not envision that the President, or his/her alter ego, could
exercise supervisory powers over the Tariff Commission. If truly Congress intended to allow the
traditional alter ego principle to come to fore in the peculiar setup established by the SMA, it would
have assigned the role now played by the DTI Secretary under the law instead to the NEDA. The Tariff
Commission is an attached agency of the National Economic Development Authority,[68] which in turn is
the independent planning agency of the government.[69]
The Tariff Commission does not fall under the administrative supervision of the DTI.[70] On the other
hand, the administrative relationship between the NEDA and the Tariff Commission is established not
only by the Administrative Code, but similarly affirmed by the Tariff and Customs Code.

Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary[71], acknowledged the
interplay between the NEDA and the Tariff Commission under the Tariff and Customs Code when he cited
the relevant provisions of that law evidencing such setup. Indeed, under Section 104 of the Tariff and
Customs Code, the rates of duty fixed therein are subject to periodic investigation by the Tariff
Commission and may be revised by the President upon recommendation of the NEDA.[72] Moreover,
under Section 401 of the same law, it is upon periodic investigations by the Tariff Commission and
recommendation of the NEDA that the President may cause a gradual reduction of protection levels
granted under the law.[73]
At the same time, under the Tariff and Customs Code, no similar role or influence is allocated to the DTI
in the matter of imposing tariff duties. In fact, the long-standing tradition has been for the Tariff
Commission and the DTI to proceed independently in the exercise of their respective functions. Only very
recently have our statutes directed any significant interplay between the Tariff Commission and the DTI,
with the enactment in 1999 of Republic Act No. 8751 on the imposition of countervailing duties and
Republic Act No. 8752 on the imposition of anti-dumping duties, and of course the promulgation a year
later of the SMA. In all these three laws, the Tariff Commission is tasked, upon referral of the matter by
the DTI, to determine whether the factual conditions exist to warrant the imposition by the DTI of a
countervailing duty, an anti-dumping duty, or a general safeguard measure, respectively. In all three laws,
the determination by the Tariff Commission that these required factual conditions exist is necessary before
the DTI Secretary may impose the corresponding duty or safeguard measure. And in all three laws, there is
no express provision authorizing the DTI Secretary to reverse the factual determination of the Tariff
Commission.[74]
In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky of the DTI
Secretary when it mandates that the positive final recommendation of the former be indispensable to the
latters imposition of a general safeguard measure. What the law indicates instead is a relationship of
interdependence between two bodies independent of each other under the Administrative Code and the
SMA alike. Indeed, even the ability of the DTI Secretary to disregard the Tariff Commissions
recommendations as to the particular safeguard measures to be imposed evinces the independence from
each other of these two bodies. This is properly so for two reasons the DTI and the Tariff Commission
are independent of each other under the Administrative Code; and impropriety is avoided in cases wherein
the DTI itself is the one seeking the imposition of the general safeguard measures, pursuant to Section 6 of
the SMA.
Thus, in ascertaining the appropriate legal milieu governing the relationship between the DTI and the
Tariff Commission, it is imperative to apply foremost, if not exclusively, the provisions of the SMA. The
argument that the usual rules on administrative control and supervision apply between the Tariff
Commission and the DTI as regards safeguard measures is severely undercut by the plain fact that there is
no long-standing tradition of administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to be a lower rank relative to the DTI.
But does this necessarily mean that the DTI has the intrinsic right, absent statutory authority, to reverse the
findings of the Tariff Commission? To insist that it does, one would have to concede for instance that,
applying the same doctrinal guide, the Secretary of the Department of Science and Technology (DOST)
has the right to reverse the rulings of the Civil Aeronautics Board (CAB) or the issuances of the Philippine
Coconut Authority (PCA). As with the Tariff Commission-DTI, there is no statutory authority granting the
DOST Secretary the right to overrule the CAB or the PCA, such right presumably arising only from the
position of subordinacy of these bodies to the DOST. To insist on such a right would be to invite
department secretaries to interfere in the exercise of functions by administrative agencies, even in areas
wherein such secretaries are bereft of specialized competencies.
The Separate Opinion notes that notwithstanding above, the Secretary of Department of Transportation
and Communication may review the findings of the CAB, the Agriculture Secretary may review those of
the PCA, and that the Secretary of the Department of Environment and Natural Resources may pass upon
decisions of the Mines and Geosciences Board.[75] These three officers may be alter egos of the
President, yet their authority to review is limited to those agencies or bureaus which are, pursuant to

statutes such as the Administrative Code of 1987, under the administrative control and supervision of their
respective departments. Thus, under the express provision of the Administrative Code expressly provides
that the CAB is an attached agency of the DOTC[76], and that the PCA is an attached agency of the
Department of Agriculture.[77] The same law establishes the Mines and Geo-Sciences Bureau as one of
the Sectoral Staff Bureaus[78] that forms part of the organizational structure of the DENR.[79]
As repeatedly stated, the Tariff Commission does not fall under the administrative control of the DTI, but
under the NEDA, pursuant to the Administrative Code. The reliance made by the Separate Opinion to
those three examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a functional relationship between the
Tariff Commission and the DTI Secretary, sufficient to allow the DTI Secretary to exercise alter ego
powers to reverse the determination of the Tariff Commission. Again, considering that the power to
impose tariffs in the first place is not inherent in the President but arises only from congressional grant, we
should affirm the congressional prerogative to impose limitations and restrictions on such powers which
do not normally belong to the executive in the first place. Nowhere in the SMA does it state that the DTI
Secretary may impose general safeguard measures without a positive final determination by the Tariff
Commission, or that the DTI Secretary may reverse or even review the factual determination made by the
Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff Commission and
the DTI Secretary did not envision that the President, or his/her alter ego could exercise supervisory
powers over the Tariff Commission. If truly Congress intended to allow the traditional alter ego principle
to come to fore in the peculiar setup established by the SMA, it would have assigned the role now played
by the DTI Secretary under the law instead to the NEDA, the body to which the Tariff Commission is
attached under the Administrative Code.
The Court has no issue with upholding administrative control and supervision exercised by the head of an
executive department, but only over those subordinate offices that are attached to the department, or which
are, under statute, relegated under its supervision and control. To declare that a department secretary, even
if acting as alter ego of the President, may exercise such control or supervision over all executive offices
below cabinet rank would lead to absurd results such as those adverted to above. As applied to this case,
there is no legal justification for the DTI Secretary to exercise control, supervision, review or amendatory
powers over the Tariff Commission and its positive final determination. In passing, we note that there is,
admittedly, a feasible mode by which administrative review of the Tariff Commissions final
determination could be had, but it is not the procedure adopted by respondents and now suggested for
affirmation. This mode shall be discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter ego cannot be made a mere rubber stamp
of the Tariff Commission since Section 17, Article VII of the Constitution denominates the Chief
Executive exercises control over all executive departments, bureaus and offices.[80] But let us be clear
that such executive control is not absolute. The definition of the structure of the executive branch of
government, and the corresponding degrees of administrative control and supervision, is not the exclusive
preserve of the executive. It may be effectively be limited by the Constitution, by law, or by judicial
decisions.
The Separate Opinion cites the respected constitutional law authority Fr. Joaquin Bernas, in support of the
proposition that such plenary power of executive control of the President cannot be restricted by a mere
statute passed by Congress. However, the cited passage from Fr. Bernas actually states, Since the
Constitution has given the President the power of control, with all its awesome implications, it is the
Constitution alone which can curtail such power.[81] Does the President have such tariff powers under
the Constitution in the first place which may be curtailed by the executive power of control? At the risk of
redundancy, we quote Section 28(2), Article VI: The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework

of the national development program of the Government. Clearly the power to impose tariffs belongs to
Congress and not to the President.
It is within reason to assume the framers of the Constitution deemed it too onerous to spell out all the
possible limitations and restrictions on this presidential authority to impose tariffs. Hence, the Constitution
especially allowed Congress itself to prescribe such limitations and restrictions itself, a prudent move
considering that such authority inherently belongs to Congress and not the President. Since Congress has
no power to amend the Constitution, it should be taken to mean that such limitations and restrictions
should be provided by mere statute. Then again, even the presidential authority to impose tariffs arises
only by mere statute. Indeed, this presidential privilege is both contingent in nature and legislative
in origin. These characteristics, when weighed against the aspect of executive control and
supervision, cannot militate against Congresss exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its unwieldiness, is mere putty in the hands
of Congress. The functions and mandates of the particular executive departments and bureaus are not
created by the President, but by the legislative branch through the Administrative Code. [82] The President
is the administrative head of the executive department, as such obliged to see that every government office
is managed and maintained properly by the persons in charge of it in accordance with pertinent laws and
regulations, and empowered to promulgate rules and issuances that would ensure a more efficient
management of the executive branch, for so long as such issuances are not contrary to law.[83] Yet the
legislature has the concurrent power to reclassify or redefine the executive bureaucracy, including the
relationship between various administrative agencies, bureaus and departments, and ultimately, even the
power to abolish executive departments and their components, hamstrung only by constitutional
limitations. The DTI itself can be abolished with ease by Congress through deleting Title X, Book IV of
the Administrative Code. The Tariff Commission can similarly be abolished through legislative enactment.
[84]
At the same time, Congress can enact additional tasks or responsibilities on either the Tariff Commission
or the DTI Secretary, such as their respective roles on the imposition of general safeguard measures under
the SMA. In doing so, the same Congress, which has the putative authority to abolish the Tariff
Commission or the DTI, is similarly empowered to alter or expand its functions through modalities
which do not align with established norms in the bureaucratic structure. The Court is bound to
recognize the legislative prerogative to prescribe such modalities, no matter how atypical they may be, in
affirmation of the legislative power to restructure the executive branch of government.
There are further limitations on the executive control adverted to by the Separate Opinion. The
President, in the exercise of executive control, cannot order a subordinate to disobey a final decision of
this Court or any courts. If the subordinate chooses to disobey, invoking sole allegiance to the President,
the judicial processes can be utilized to compel obeisance. Indeed, when public officers of the executive
department take their oath of office, they swear allegiance and obedience not to the President, but to the
Constitution and the laws of the land. The invocation of executive control must yield when under its
subsumption includes an act that violates the law.
The Separate Opinion concedes that the exercise of executive control and supervision by the President is
bound by the Constitution and law.[85] Still, just three sentences after asserting that the exercise of
executive control must be within the bounds of the Constitution and law, the Separate Opinion asserts,
the control power of the Chief Executive emanates from the Constitution; no act of Congress may validly
curtail it.[86] Laws are acts of Congress, hence valid confusion arises whether the Separate Opinion truly
believes the first proposition that executive control is bound by law. This is a quagmire for the Separate
Opinion to resolve for itself

The Separate Opinion unduly considers executive control as the ne plus ultra constitutional standard
which must govern in this case. But while the President may generally have the power to control, modify
or set aside the actions of a subordinate, such powers may be constricted by the Constitution, the
legislature, and the judiciary. This is one of the essences of the check-and-balance system in our tri-partite
constitutional democracy. Not one head of a branch of government may operate as a Caesar within his/her
particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in the
specific instance of safeguard measures such as tariffs and imposts, and would thus serve to qualify the
general grant to the President of the power to exercise control and supervision over his/her subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is bound by the Tariff Commission in
the sense the former cannot impose general safeguard measures absent a final positive determination from
the latter the Court is obliged to respect such legislative prerogative, no matter how such arrangement
deviates from traditional norms as may have been enshrined in jurisprudence. The only ground under
which such legislative determination as expressed in statute may be successfully challenged is if such
legislation contravenes the Constitution. No such argument is posed by the respondents, who do not
challenge the validity or constitutionality of the SMA.
Given these premises, it is utterly reckless to examine the interrelationship between the Tariff Commission
and the DTI Secretary beyond the context of the SMA, applying instead traditional precepts on
administrative control, review and supervision. For that reason, the Decision deemed inapplicable
respondents previous citations of Cario v. Commissioner on Human Rights and Lamb v. Phipps, since
the executive power adverted to in those cases had not been limited by constitutional restrictions such as
those imposed under Section 28(2), Article VI.[87]
A similar observation can be made on the case of Sharp International Marketing v. Court of Appeals,[88]
now cited by Philcemcor, wherein the Court asserted that the Land Bank of the Philippines was required to
exercise independent judgment and not merely rubber-stamp deeds of sale entered into by the Department
of Agrarian Reform in connection with the agrarian reform program. Philcemcor attempts to demonstrate
that the DTI Secretary, as with the Land Bank of the Philippines, is required to exercise independent
discretion and is not expected to just merely accede to DAR-approved compensation packages. Yet again,
such grant of independent discretion is expressly called for by statute, particularly Section 18 of Rep. Act
No. 6657 which specifically requires the joint concurrence of the landowner and the DAR and the [Land
Bank of the Philippines] on the amount of compensation. Such power of review by the Land Bank is a
consequence of clear statutory language, as is our holding in the Decision that Section 5 explicitly requires
a positive final determination by the Tariff Commission before a general safeguard measure may be
imposed. Moreover, such limitations under the SMA are coated by the constitutional authority of Section
28(2), Article VI of the Constitution.
Nonetheless, is this administrative setup, as envisioned by Congress and enshrined into the SMA, truly
noxious to existing legal standards? The Decision acknowledged the internal logic of the statutory
framework, considering that the DTI cannot exercise review powers over an agency such as the Tariff
Commission which is not within its administrative jurisdiction; that the mechanism employed establishes
a measure of check and balance involving two government offices with different specializations; and that
safeguard measures are the exception rather than the rule, pursuant to our treaty obligations.[89]
We see no reason to deviate from these observations, and indeed can add similarly oriented comments.
Corollary to the legislative power to decree policies through legislation is the ability of the legislature to
provide for means in the statute itself to ensure that the said policy is strictly implemented by the body or
office tasked so tasked with the duty. As earlier stated, our treaty obligations dissuade the State for now
from implementing default protectionist trade measures such as tariffs, and allow the same only under
specified conditions.[90]The conditions enumerated under the GATT Agreement on Safeguards for the
application of safeguard measures by a member country are the same as the requisites laid down in

Section 5 of the SMA.[91] To insulate the factual determination from political pressure, and to assure that
it be conducted by an entity especially qualified by reason of its general functions to undertake such
investigation, Congress deemed it necessary to delegate to the Tariff Commission the function of
ascertaining whether or not the those factual conditions exist to warrant the atypical imposition of
safeguard measures. After all, the Tariff Commission retains a degree of relative independence by virtue
of its attachment to the National Economic Development Authority, an independent planning agency of
the government,[92] and also owing to its vaunted expertise and specialization.
The matter of imposing a safeguard measure almost always involves not just one industry, but the national
interest as it encompasses other industries as well. Yet in all candor, any decision to impose a safeguard
measure is susceptible to all sorts of external pressures, especially if the domestic industry concerned is
well-organized. Unwarranted impositions of safeguard measures may similarly be detrimental to the
national interest. Congress could not be blamed if it desired to insulate the investigatory process by
assigning it to a body with a putative degree of independence and traditional expertise in ascertaining
factual conditions. Affected industries would have cause to lobby for or against the safeguard measures.
The decision-maker is in the unenviable position of having to bend an ear to listen to all concerned voices,
including those which may speak softly but carry a big stick. Had the law mandated that the decision be
made on the sole discretion of an executive officer, such as the DTI Secretary, it would be markedly easier
for safeguard measures to be imposed or withheld based solely on political considerations and not on the
factual conditions that are supposed to predicate the decision.
Reference of the binding positive final determination to the Tariff Commission is of course, not a fail-safe
means to ensure a bias-free determination. But at least the legislated involvement of the Commission in
the process assures some measure of measure of check and balance involving two different governmental
agencies with disparate specializations. There is no legal or constitutional demand for such a setup, but its
wisdom as policy should be acknowledged. As prescribed by Congress, both the Tariff Commission and
the DTI Secretary operate within limited frameworks, under which nobody acquires an undue advantage
over the other.
We recognize that Congress deemed it necessary to insulate the process in requiring that the factual
determination to be made by an ostensibly independent body of specialized competence, the Tariff
Commission. This prescribed framework, constitutionally sanctioned, is intended to prevent the baseless,
whimsical, or consideration-induced imposition of safeguard measures. It removes from the DTI Secretary
jurisdiction over a matter beyond his putative specialized aptitude, the compilation and analysis of
picayune facts and determination of their limited causal relations, and instead vests in the Secretary the
broad choice on a matter within his unquestionable competence, the selection of what particular safeguard
measure would assist the duly beleaguered local industry yet at the same time conform to national trade
policy. Indeed, the SMA recognizes, and places primary importance on the DTI Secretarys mandate to
formulate trade policy, in his capacity as the Presidents alter ego on trade, industry and investmentrelated matters.
At the same time, the statutory limitations on this authorized power of the DTI Secretary must prevail
since the Constitution itself demands the enforceability of those limitations and restrictions as imposed by
Congress. Policy wisdom will not save a law from infirmity if the statutory provisions violate the
Constitution. But since the Constitution itself provides that the President shall be constrained by the limits
and restrictions imposed by Congress and since these limits and restrictions are so clear and categorical,
then the Court has no choice but to uphold the reins.
Even assuming that this prescribed setup made little sense, or seemed uncommonly silly,[93] the Court
is bound by propriety not to dispute the wisdom of the legislature as long as its acts do not violate the
Constitution. Since there is no convincing demonstration that the SMA contravenes the Constitution, the
Court is wont to respect the administrative regimen propounded by the law, even if it allots the Tariff
Commission a higher degree of puissance than normally expected. It is for this reason that the traditional
conceptions of administrative review or quasi-judicial power cannot control in this case.

Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap owing to the multifaceted denotations the term quasi-judicial has come to acquire.
Under the SMA, the Tariff Commission undertakes formal hearings,[94] receives and evaluates testimony
and evidence by interested parties,[95] and renders a decision is rendered on the basis of the evidence
presented, in the form of the final determination. The final determination requires a conclusion whether
the importation of the product under consideration is causing serious injury or threat to a domestic
industry producing like products or directly competitive products, while evaluating all relevant factors
having a bearing on the situation of the domestic industry.[96] This process aligns conformably with
definition provided by Blacks Law Dictionary of quasi-judicial as the action, discretion, etc., of public
administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts,
hold hearings, weigh evidence, and draw conclusions from them, as a basis for their official action, and to
exercise discretion of a judicial nature.[97]
However, the Tariff Commission is not empowered to hear actual cases or controversies lodged directly
before it by private parties. It does not have the power to issue writs of injunction or enforcement of its
determination. These considerations militate against a finding of quasi-judicial powers attributable to the
Tariff Commission, considering the pronouncement that quasi-judicial adjudication would mean a
determination of rights privileges and duties resulting in a decision or order which applies to a specific
situation.[98]
Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers, even if ascertained for
the limited purpose of exercising its functions under the SMA, may have the unfortunate effect of
expanding the Commissions powers beyond that contemplated by law. After all, the Tariff Commission is
by convention, a fact-finding body, and its role under the SMA, burdened as it is with factual
determination, is but a mere continuance of this tradition. However, Congress through the SMA offers a
significant deviation from this traditional role by tying the decision by the DTI Secretary to impose a
safeguard measure to the required positive factual determination by the Tariff Commission. Congress is
not bound by past traditions, or even by the jurisprudence of this Court, in enacting legislation it may
deem as suited for the times. The sole benchmark for judicial substitution of congressional wisdom is
constitutional transgression, a standard which the respondents do not even attempt to match.
Respondents Suggested Interpretation
Of the SMA Transgresses Fair Play
Respondents have belabored the argument that the Decisions interpretation of the SMA, particularly of
the role of the Tariff Commission vis--vis the DTI Secretary, is noxious to traditional notions of
administrative control and supervision. But in doing so, they have failed to acknowledge the congressional
prerogative to redefine administrative relationships, a license which falls within the plenary province of
Congress under our representative system of democracy. Moreover, respondents own suggested
interpretation falls wayward of expectations of practical fair play.
Adopting respondents suggestion that the DTI Secretary may disregard the factual findings of the Tariff
Commission and investigatory process that preceded it, it would seem that the elaborate procedure
undertaken by the Commission under the SMA, with all the attendant guarantees of due process, is but an
inutile spectacle. As Justice Garcia noted during the oral arguments, why would the DTI Secretary bother
with the Tariff Commission and instead conduct the investigation himself.[99]
Certainly, nothing in the SMA authorizes the DTI Secretary, after making the preliminary determination,
to personally oversee the investigation, hear out the interested parties, or receive evidence.[100] In fact,
the SMA does not even require the Tariff Commission, which is tasked with the custody of the submitted
evidence,[101] to turn over to the DTI Secretary such evidence it had evaluated in order to make its
factual determination.[102] Clearly, as Congress tasked it to be, it is the Tariff Commission and not the
DTI Secretary which acquires the necessary intimate acquaintance with the factual conditions and
evidence necessary for the imposition of the general safeguard measure. Why then favor an interpretation

of the SMA that leaves the findings of the Tariff Commission bereft of operative effect and makes them
subservient to the wishes of the DTI Secretary, a personage with lesser working familiarity with the
relevant factual milieu? In fact, the bare theory of the respondents would effectively allow the DTI
Secretary to adopt, under the subterfuge of his discretion, the factual determination of a private
investigative group hired by the industry concerned, and reject the investigative findings of the Tariff
Commission as mandated by the SMA. It would be highly irregular to substitute what the law clearly
provides for a dubious setup of no statutory basis that would be readily susceptible to rank chicanery.
Moreover, the SMA guarantees the right of all concerned parties to be heard, an elemental requirement of
due process, by the Tariff Commission in the context of its investigation. The DTI Secretary is not
similarly empowered or tasked to hear out the concerns of other interested parties, and if he/she does so, it
arises purely out of volition and not compulsion under law.
Indeed, in this case, it is essential that the position of other than that of the local cement industry should be
given due consideration, cement being an indispensable need for the operation of other industries such as
housing and construction. While the general safeguard measures may operate to the better interests of the
domestic cement industries, its deprivation of cheaper cement imports may similarly work to the detriment
of these other domestic industries and correspondingly, the national interest. Notably, the Tariff
Commission in this case heard the views on the application of representatives of other allied industries
such as the housing, construction, and cement-bag industries, and other interested parties such as
consumer groups and foreign governments.[103] It is only before the Tariff Commission that their views
had been heard, and this is because it is only the Tariff Commission which is empowered to hear their
positions. Since due process requires a judicious consideration of all relevant factors, the Tariff
Commission, which is in a better position to hear these parties than the DTI Secretary, is similarly more
capable to render a determination conformably with the due process requirements than the DTI Secretary.
In a similar vein, Southern Cross aptly notes that in instances when it is the DTI Secretary who initiates
motu proprio the application for the safeguard measure pursuant to Section 6 of the SMA, respondents
suggested interpretation would result in the awkward situation wherein the DTI Secretary would rule upon
his own application after it had been evaluated by the Tariff Commission. Pertinently cited is our ruling in
Corona v. Court of Appeals[104] that no man can be at once a litigant and judge.[105] Certainly, this
anomalous situation is avoided if it is the Tariff Commission which is tasked with arriving at the final
determination whether the conditions exist to warrant the general safeguard measures. This is the setup
provided for by the express provisions of the SMA, and the problem would arise only if we adopt the
interpretation urged upon by respondents.
The Possibility for Administrative Review
Of the Tariff Commissions Determination
The Court has been emphatic that a positive final determination from the Tariff Commission is required in
order that the DTI Secretary may impose a general safeguard measure, and that the DTI Secretary has no
power to exercise control and supervision over the Tariff Commission and its final determination. These
conclusions are the necessary consequences of the applicable provisions of the Constitution, the SMA, and
laws such as the Administrative Code. However, the law is silent though on whether this positive final
determination may otherwise be subjected to administrative review.
There is no evident legislative intent by the authors of the SMA to provide for a procedure of
administrative review. If ever there is a procedure for administrative review over the final determination of
the Tariff Commission, such procedure must be done in a manner that does not contravene or disregard
legislative prerogatives as expressed in the SMA or the Administrative Code, or fundamental
constitutional limitations.
In order that such procedure of administrative review would not contravene the law and the constitutional
scheme provided by Section 28(2), Article VI, it is essential to assert that the positive final determination
by the Tariff Commission is indispensable as a requisite for the imposition of a general safeguard measure.

The submissions of private respondents and the Separate Opinion cannot be sustained insofar as they hold
that the DTI Secretary can peremptorily ignore or disregard the determinations made by the Tariff
Commission. However, if the mode of administrative review were in such a manner that the administrative
superior of the Tariff Commission were to modify or alter its determination, then such reversal may still
be valid within the confines of Section 5 of the SMA, for technically it is still the Tariff Commissions
determination, administratively revised as it may be, that would serve as the basis for the DTI Secretarys
action.
However, and fatally for the present petitions, such administrative review cannot be conducted by the DTI
Secretary. Even if conceding that the Tariff Commissions findings may be administratively reviewed, the
DTI Secretary has no authority to review or modify the same. We have been emphatic on the reasons
such as that there is no traditional or statutory basis placing the Commission under the control and
supervision of the DTI; that to allow such would contravene due process, especially if the DTI itself were
to apply for the safeguard measures motu proprio. To hold otherwise would destroy the administrative
hierarchy, contravene constitutional due process, and disregard the limitations or restrictions provided in
the SMA.

locally produced goods and adopt measures that help make them competitive. By no means does this
provision dictate that the Court favor the domestic industry in all competing claims that it may bring
before this Court. If it were so, judicial proceedings in this country would be rendered a mockery, resolved
as they would be, on the basis of the personalities of the litigants and not their legal positions.
Moreover, the duty imposed on by Section 12, Article XIII falls primarily with Congress, which in that
regard enacted the SMA, a law designed to protect domestic industries from the possible ill-effects of our
accession to the global trade order. Inconveniently perhaps for respondents, the SMA also happens to
provide for a procedure under which such protective measures may be enacted. The Court cannot just
impose what it deems as the spirit of the law without giving due regard to its letter.

Instead, assuming administrative review were available, it is the NEDA that may conduct such review
following the principles of administrative law, and the NEDAs decision in turn is reviewable by the
Office of the President. The decision of the Office of the President then effectively substitutes as the
determination of the Tariff Commission, which now forms the basis of the DTI Secretarys decision,
which now would be ripe for judicial review by the CTA under Section 29 of the SMA. This is the only
way that administrative review of the Tariff Commissions determination may be sustained without
violating the SMA and its constitutional restrictions and limitations, as well as administrative law.

In like-minded manner, the Separate Opinion loosely states that the purpose of the SMA is to protect or
safeguard local industries from increased importation of foreign products.[106] This inaccurately leaves
the impression that the SMA ipso facto unravels a protective cloak that shelters all local industries and
producers, no matter the conditions. Indeed, our country has knowingly chosen to accede to the world
trade regime, as expressed in the GATT and WTO Agreements, despite the understanding that local
industries might suffer ill-effects, especially with the easier entry of competing foreign products. At the
same time, these international agreements were designed to constrict protectionist trade policies by its
member-countries. Hence, the median, as expressed by the SMA, does allow for the application of
protectionist measures such as tariffs, but only after an elaborate process of investigation that ensures
factual basis and indispensable need for such measures. More accurately, the purpose of the SMA is to
provide a process for the protection or safeguarding of domestic industries that have duly established that
there is substantial injury or threat thereof directly caused by the increased imports. In short, domestic
industries are not entitled to safeguard measures as a matter of right or influence.

In bare theory, the NEDA may review, alter or modify the Tariff Commissions final determination, the
Commission being an attached agency of the NEDA. Admittedly, there is nothing in the SMA or any other
statute that would prevent the NEDA to exercise such administrative review, and successively, for the
President to exercise in turn review over the NEDAs decision.

Respondents also make the astounding argument that the imposition of general safeguard measures should
not be seen as a taxation measure, but instead as an exercise of police power. The vain hope of
respondents in divorcing the safeguard measures from the concept of taxation is to exclude from
consideration Section 28(2), Article VI of the Constitution.

Nonetheless, in acknowledging this possibility, the Court, without denigrating the bare principle that
administrative officers may exercise control and supervision over the acts of the bodies under its
jurisdiction, realizes that this comes at the expense of a speedy resolution to an application for a safeguard
measure, an application dependent on fluctuating factual conditions. The further delay would foster
uncertainty and insecurity within the industry concerned, as well as with all other allied industries, which
in turn may lead to some measure of economic damage. Delay is certain, since judicial review authorized
by law and not administrative review would have the final say. The fact that the SMA did not expressly
prohibit administrative review of the final determination of the Tariff Commission does not negate the
supreme advantages of engendering exclusive judicial review over questions arising from the imposition
of a general safeguard measure.

This argument can be debunked at length, but it deserves little attention. The motivation behind many
taxation measures is the implementation of police power goals. Progressive income taxes alleviate the
margin between rich and poor; the so-called sin taxes on alcohol and tobacco manufacturers help
dissuade the consumers from excessive intake of these potentially harmful products. Taxation is
distinguishable from police power as to the means employed to implement these public good goals. Those
doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive
effects of taxation,[107] and the belief that taxes are the lifeblood of the state.[108] These considerations
necessitated the evolution of taxation as a distinct legal concept from police power. Yet at the same time,
it has been recognized that taxation may be made the implement of the states police power.[109]

In any event, even if we conceded the possibility of administrative review of the Tariff Commissions final
determination by the NEDA, such would not deny merit to the present petition. It does not change the fact
that the Court of Appeals erred in ruling that the DTI Secretary was not bound by the negative final
determination of the Tariff Commission, or that the DTI Secretary acted without jurisdiction when he
imposed general safeguard measures despite the absence of the statutory positive final determination of
the Commission.
IV. Courts Interpretation of SMA
In Harmony with Other
Constitutional Provisions
In response to our citation of Section 28(2), Article VI, respondents elevate two arguments grounded in
constitutional law. One is based on another constitutional provision, Section 12, Article XIII, which
mandates that [t]he State shall promote the preferential use of Filipino labor, domestic materials and

Even assuming that the SMA should be construed exclusively as a police power measure, the Court
recognizes that police power is lodged primarily in the national legislature, though it may also be
exercised by the executive branch by virtue of a valid delegation of legislative power.[110] Considering
these premises, it is clear that police power, however illimitable in theory, is still exercised within the
confines of implementing legislation. To declare otherwise is to sanction rule by whim instead of rule of
law. The Congress, in enacting the SMA, has delegated the power to impose general safeguard measures
to the executive branch, but at the same time subjected such imposition to limitations, such as the
requirement of a positive final determination by the Tariff Commission under Section 5. For the executive
branch to ignore these boundaries imposed by Congress is to set up an ignoble clash between the two coequal branches of government. Considering that the exercise of police power emanates from legislative
authority, there is little question that the prerogative of the legislative branch shall prevail in such a clash.
V. Assailed Decision Consistent
With Ruling in Taada v. Angara

Public respondents allege that the Decision is contrary to our holding in Taada v. Angara,[111] since the
Court noted therein that the GATT itself provides built-in protection from unfair foreign competition and
trade practices, which according to the public respondents, was a reason why the Honorable [Court] ruled
the way it did. On the other hand, the Decision eliminates safeguard measures as a mode of defense.
This is balderdash, as with any and all claims that the Decision allows foreign industries to ride roughshod
over our domestic enterprises. The Decision does not prohibit the imposition of general safeguard
measures to protect domestic industries in need of protection. All it affirms is that the positive final
determination of the Tariff Commission is first required before the general safeguard measures are
imposed and implemented, a neutral proposition that gives no regard to the nationalities of the parties
involved. A positive determination by the Tariff Commission is hardly the elusive Shangri-la of
administrative law. If a particular industry finds it difficult to obtain a positive final determination from
the Tariff Commission, it may be simply because the industry is still sufficiently competitive even in the
face of foreign competition. These safeguard measures are designed to ensure salvation, not avarice.
Respondents well have the right to drape themselves in the colors of the flag. Yet these postures hardly
advance legal claims, or nationalism for that matter. The fineries of the costume pageant are no better
measure of patriotism than simple obedience to the laws of the Fatherland. And even assuming that
respondents are motivated by genuine patriotic impulses, it must be remembered that under the setup
provided by the SMA, it is the facts, and not impulse, that determine whether the protective safeguard
measures should be imposed. As once orated, facts are stubborn things; and whatever may be our wishes,
our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.[112]
It is our goal as judges to enforce the law, and not what we might deem as correct economic policy.
Towards this end, we should not construe the SMA to unduly favor or disfavor domestic industries, simply
because the law itself provides for a mechanism by virtue of which the claims of these industries are
thoroughly evaluated before they are favored or disfavored. What we must do is to simply uphold what the
law says. Section 5 says that the DTI Secretary shall impose the general safeguard measures upon the
positive final determination of the Tariff Commission. Nothing in the whereas clauses or the invisible ink
provisions of the SMA can magically delete the words positive final determination and Tariff
Commission from Section 5.
VI. On Forum-Shopping
We remain convinced that there was no willful and deliberate forum-shopping in this case by Southern
Cross. The causes of action that animate this present petition for review and the petition for review with
the CTA are distinct from each other, even though they relate to similar factual antecedents. Yet it also
appears that contrary to the undertaking signed by the President of Southern Cross, Hironobu Ryu, to
inform this Court of any similar action or proceeding pending before any court, tribunal or agency within
five (5) days from knowledge thereof, Southern Cross informed this Court only on 12 August 2003 of the
petition it had filed with the CTA eleven days earlier. An appropriate sanction is warranted for such
failure, but not the dismissal of the petition.

Philcemcor argues that the granting of Southern Crosss Petition should not necessarily lead to the voiding
of the Decision of the DTI Secretary dated 5 August 2003 imposing the general safeguard measures. For
Philcemcor, the availability of appeal to the CTA as an available and adequate remedy would have made
the Court of Appeals Decision merely erroneous or irregular, but not void. Moreover, the said Decision
merely required the DTI Secretary to render a decision, which could have very well been a decision not to
impose a safeguard measure; thus, it could not be said that the annulled decision resulted from the
judgment of the Court of Appeals.
The Court of Appeals Decision was annulled precisely because the appellate court did not have the power
to rule on the petition in the first place. Jurisdiction is necessarily the power to decide a case, and a court
which does not have the power to adjudicate a case is one that is bereft of jurisdiction. We find no reason
to disturb our earlier finding that the Court of Appeals Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the peculiarities attaching to the 5
August 2003 Decision of the DTI Secretary. In the DTI Secretarys Decision, he expressly stated that as a
result of the Court of Appeals Decision, there is no legal impediment for the Secretary to decide on the
application. Yet the truth remained that there was a legal impediment, namely, that the decision of the
appellate court was not yet final and executory. Moreover, it was declared null and void, and since the
DTI Secretary expressly denominated the Court of Appeals Decision as his basis for deciding to impose
the safeguard measures, the latter decision must be voided as well. Otherwise put, without the Court of
Appeals Decision, the DTI Secretarys Decision of 5 August 2003 would not have been rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision dated 5 August 2003. As a
necessary consequence, no further action can be taken on Philcemcors Petition for Extension of the
Safeguard Measure. Obviously, if the imposition of the general safeguard measure is void as we declared
it to be, any extension thereof should likewise be fruitless. The proper remedy instead is to file a new
application for the imposition of safeguard measures, subject to the conditions prescribed by the SMA.
Should this step be eventually availed of, it is only hoped that the parties involved would content
themselves in observing the proper procedure, instead of making a mockery of the rule of law.
WHEREFORE, respondents Motions for Reconsideration are DENIED WITH FINALITY.
Respondent DTI Secretary is hereby ENJOINED from taking any further action on the pending Petition
for Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and Angara Abello
Concepcion Regala & Cruz, counsel petitioner, are hereby given FIVE (5) days from receipt of this
Resolution to EXPLAIN why they should not be meted disciplinary sanction for failing to timely inform
the Court of the filing of Southern Crosss Petition for Review with the Court of Tax Appeals, as adverted
to earlier in this Resolution.
SO ORDERED.

VII. Effects of Courts Resolution