Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 65532 August 31, 1992

CONCEPCION PELAEZ VDA. DE TAN, JORGE P. TAN, JR., GREGORIO P. TAN, EDUARDO P. TAN, MANUEL P.
TAN, CONCEPCION TAN AQUINO AND BENJAMIN P. TAN, petitioners,

vs.

INTERMEDIATE APPELLATE COURT, HON. FRANCISCO C. PEDROSA, Judge of the Judicial Region, Branch
XII, Ormoc City, and SPOUSES EMETERIO LARRAZABAL AND ADELINA Y. LARRAZABAL, respondents.

Pelaez, Adriano & Gregorio for petitioners.

Bienvenido P. Jaban and C.S. Sabellano for petitioners.

Astorga, Macamay, Rebong & Villacete for private respondents.

NOCON, J.:

This is a petition for review on certiorari assailing the judgment 1 rendered by the then Intermediate
Appellate Court dismissing herein petitioners' special civil action for injunction, prohibition and certiorari
which prays for the annulment of two orders 2 rendered by the respondent Judge in Civil Case No. 2175-
0.

The undisputed facts of the case are as follows:

Gregorio Yrastorza is the registered owner of four (4) adjacent parcels of land located at Ormoc City,
described as follows:

First lot: Known as Lot No. ONE (1) of the Consolidation and Subdivision Cad. Lots 31 and 32 of
Ormoc Cadastre; covered by TCT No. 2899, with an area of 463 sq. m.; 3

Second lot: Known as Lot No. 3 of the Consolidation and Subdivision Plan of Cad. Lots 31 and 32 of
Ormoc cadastre, covered by TCT No. 2901, with an area of 279 sq. m.;

Third lot: Known as Lot No. 4 of the Consolidation and Subdivision Plan of Cad. lots 31 and 32 of
Ormoc Cadastre, containing an area of 200 sq. m., covered with TCT No. 2902 (Annex B-Petition, G.R. No.
65532 and Annex 2, G.R. No. 63725);

Fourth Lot: A parcel of land (Lot I of the Subdivision Plan, (LRC) Psd-177251, being a portion of the
land described on plan Msi-V-27302, L.R.C. record No. M.S. Patent), situated in the Poblacion, City of
Ormoc, island of Leyte, containing an area of 856 sq. m., covered with TCT No. 12547 (Annex 5
Respondent's Comment, G.R. No. 63725).

On February 13, 1982, Gregorio Yrastorza sold the above-described first, second and third lots to Atty.
Jorge P. Tan, the late husband of petitioner Concepcion Pelaez Vda. de Tan and father of the other
petitioners, as evidenced by a Deed of Absolute Sale. 4 The subject matter of the instant appeal pertains
only to the first lot to wit:

FIRST LOT: Known as Lot No. ONE (1) of the Consolidation and Subdivision Plan of Cad. Lots 31 and
32 of Ormoc Cadastre; Bounded on the North, by Lot No. 4 of the Consolidation and Subdivision Plan of
Dac. Lots 31 and 32 of Ormoc Cadastre, measuring on this side 16.47 meters; on the East, by Lot No. 23
of the Ormoc Cadastral Survey, measuring 39 meters on this side; on the south, by Dr. Gregorio C.
Yrastorza, measuring 17.84 meters on this side; and by the West, by Lot No. 2 (seaside Hotel) and the Lot
No. 3 (Seaside Theatre) of the Consolidation and Subdivision Plan of Cad. 31 and 32 of Ormoc Cadastre,
measuring 39 meters on this side; containing an area of SIX HUNDRED SEVENTY-SEVEN (677) square
meters, more or less, and covered by TRANSFER CERTIFICATE OF TITLE NO. TWO THOUSAND EIGHT
HUNDRED NINETY-NINE (TCT-2899). 5

The aforementioned technical description of the first lot, which appears in the Deed of Absolute Sale, is
incorrect. The true and correct technical description of the first lot can be found in T.C.T. No. 2899 and
T.C.T. No. 4020, which cancelled the former title. The description of the lot as found in both titles are as
follows:

Bounded on the SE., along 1-2, by Lot 23, Ormoc Cad., on the SW., along line 2-3, by Public Land; on the
NW., along line 3-4, by Lot 2 and along line 4-5, by Lot 3, both of the Consolidation and Subdivision Plan.
Beginning at a point marked "l" on plan, being S. 84, deg. 52'W., 66.45 m. from B.L.L.M. 2, Ormoc Cad.

thence S. 17 Deg. 53' W., 26 m. to point 2;

thence N. 72 deg. 19'W., 17.84 m. to point 3;

thence N. 20 deg. 50'E., 12.97 m. to point 4;

thence N. 20 deg. 59'E., 13.87 m. to point 5;

thence S. 73 deg. 57 'E., 16.47 m. to point of beginning; containing an area of FOUR HUNDRED SIXTY
THREE (463) square meters.6

The improvements on Lot I of Consolidated lots 31 and 32 of Transfer Certificate of Title No. 2899 7
consist of the Metro Theatre, which partly occupies the entire area of 463 square meters, while a portion
of the stage of said theatre occupies an area of 116.26 square meters and another area of 85.74 square
meters, or a total of 214 square meters of the adjacent lot I, Psd.-177251 registered in the name of
Gregorio Yrastorza 8 and which was later sold to herein private respondents Larrazabals as evidenced by
TCT No. 17360. 9

By virtue of the Deed of Absolute Sale 10 executed by Gregorio Yrastorza in favor of Atty. Jorge P. Tan, the
Transfer Certificate of Title No. 2899 in the name of Gregorio Yrastorza married to Adelina Alonso was
cancelled. 11

Consequently, a new Transfer Certificate of Title No. 4020 12 was issued in the names of vendees Jorge
Tan married to Concepcion Pelaez, embodying the true and correct technical description of Lot I of
Consolidated lots 31 and 32, containing an area of 463 square meters.

Petitioners filed a Notice of Adverse Claim 13 which was inscribed on Transfer Certificate of Title No.
l2547 registered in the name of Gregorio Yrastorza covering the adjacent Lot I, Psd 177251 with an area
of 856 square meters which was later sold to respondents Larrazabals as evidenced by TCT No. 17360. 14
The aforestated Adverse Claim was lifted and cancelled 15 by the Acting Register of Deeds, Arturo Suarez
for the reason that the adverse claim does not affect Lot I of Transfer Certificate of Title No. 12547.

Private respondents filed a complaint for Recovery of Ownership and Possession with petition for
Issuance of writ of Preliminary Mandatory Injunction for the recovery of the 214 square meters occupied
by the stage of the Metro Theatre with Branch XII, Regional Trial Court of Ormoc City. 16

Respondent judge on March 30, 1983 granted the Petition for Issuance of Preliminary Mandatory
Injunction based on the following conclusion:

By comparing the area of 677 square meters as stated in the deed of sale between Gregorio Yrastorza as
vendor and defendants as vendees, the area covered by TCT No. 2899 which was later cancelled by TCT
No. 4020 with an area of 463 sq. m., there would appear a difference of 214 sq. m., and that from this
difference of 214 sq. m., there could be no other logical conclusion for this Court to arrive at but to hold
that such difference caused by the Deed of Sale was purely a clerical error and that what was sold under
the circumstances is that area of 463 sq. m., covered by TCT No. 2899 and cancelled by TCT No. 4020.

Without going into the merits of the case so as to determine whether or not the defendant's occupation
of said portion was made in bad or good faith, what actually was bought by the defendants from
Gregorio Yrastorza was only that lot which consisted of 463 sq. m., as described in TCT No. 2899
registered in the names of Gregorio Yrastorza and Adelina Alonso, which was cancelled by TCT No. 4020
now in the names of the defendants. It cannot be said that plaintiffs should be deprived of their
ownership over the 214 sq. m., because that area is definitely within the portion of the land acquired by
the plaintiffs as described in TCT No. 17360, registered in their names. The registered titles of each of the
parties are imprescriptible. Consequently, under the circumstances, plaintiffs' right over such portion of
214 sq. m., is clearly established. Considering that there is an extreme urgency for the plaintiffs to enter
the premises in question, further that the building or improvement of the defendants is a dilapidated
structure, as per Certification of the City Planning and Development Office, Ormoc City and the Annual
Inspection Report of the Office of the Building Official Ormoc City, the continuation by the defendants of
their acts of intrusion would doubtlessly cause upon the plaintiff's inconvenience, prejudice, grave injury
and irreparable damage. Upon these weighty considerations, this Court is constrained to grant the
plaintiffs their Petition for the issuance of a Writ of Preliminary Mandatory Injunction, authorizing them
to enter into possession over the area of 214 sq. m., as described in the Relocated Plan (Annex 1-1) of
Annex I.

Not satisfied with the decision of the lower court, petitioner brought the matter to this Court in a
Petition for Injunction, Mandamus and Certiorari but the case was referred to the then Intermediate
Appellate Court for the purpose of determining a question of fact of whether the parties in this case are
the registered owners of their respective parcels of land namely: for petitioners Tan, Lot 1 of the
Consolidation and Subdivision of Cad. Lots 31 and 32 of the Ormoc Cadastre covered by T.C.T. No. 4020
and with an area of 463 square meters originally registered in the name of Gregorio Yrastorza under
T.C.T. No. 2899; for private respondents Larrazabals, Lot No. 1 of Subdivision Plan, Psd-177251 containing
an area of 856 square meters as described in Transfer certificate of Title No. 17360 and which parcel of
land was originally registered in the name of Gregorio Yrastorza under T.C.T. No. 12547.

The appellate court in a decision promulgated on August 30, 1983 dismissed the petition, stating as
follows:
From this TCT-2899 it is clear that the First Lot covers only 463 sq. m. and not 677 sq. m. as maintained
by petitioners. Indeed, after the sale, petitioners had TCT 2899 cancelled and replaced by TCT 4020.
Again, TCT 4020 speaks of 463 sq. m. of land only. They then paid real property tax on this 463 sq. m. of
land. In fine, We cannot see how respondent judge could have committed grave abuse of discretion in
initially recognizing the right of the private respondents over the disputed 214 sq. m. of lot for the
purpose of issuing a writ of preliminary Injunction. 17

There is no question as to the right of petitioners over the 463 square meters lot described in T.C.T. No.
4020 and in the same manner so is private respondents' right over Lot No. 1 of Psd-177251 covering 856
square meters as evidenced by T.C.T. No. 17360. 18

Indeed, there must have been a mistake committed in drafting the Deed of Sale executed by Gregorio C.
Yrastorza in favor of Atty. Jorge Tan when he sold Lot No. One (1) of the Consolidation and Subdivision of
Cad. Lots 31 and 32 of Ormoc Cadastre; . . containing an area of Six Hundred Seventy-Seven (677) square
meters, more or less, and covered by Transfer Certificate of Title No. Two Thousand Eight Hundred
Ninety-Nine (TCT-2899) 19

Since what Gregorio Yrastorza sold to Atty. Jorge Tan is Lot 1 covered by TCT No. 2899 with an area of
463 square meters only, it follows that he could not have sold an area more than what is stated in the
title. Consequently, when TCT No. 2899 was cancelled and TCT No. 4020 was issued in the name of the
vendor, Jorge S. Tan, it is only for a 463 square meters property, no more, no less.

What really defines a piece of land is not the area mentioned in its description, but the boundaries
therein laid down, as enclosing the land and indicating its limits. 20

In the instant case, the identity of the land is Lot 1 of the Consolidated Lots 31 and 32 and the
boundaries are sufficiently and certainly described in Transfer Certificate Title No. 4020 and speaks of no
other area but 463 square meters.

At any rate, it is settled that titled property cannot be attacked collaterally. It can only be altered,
modified or cancelled in a direct proceeding in accordance with law. 21

The foregoing facts and circumstances clearly show that private respondents are entitled to the Writ
sought for because of a clear right over the property in question and that urgency, expediency and
necessity require immediate possession while the petitioners on the other hand, are more than amply
secured by a bond of P100,000.00 as required by the lower court.

WHEREFORE, finding no reversible error in the Orders appealed from, the same is hereby AFFIRMED.
Petition is hereby DISMISSED for lack of merit.

SO ORDERED.

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

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

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

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

The contention has no merit.

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

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

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

On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on which
the laws were approved by the President and dates the separate bills of the two chambers of Congress
were respectively passed:
1. R.A. NO. 7642

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

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

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

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

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

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

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

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

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

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

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

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

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

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

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

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its
power to propose amendments to bills required to originate in the House, passed its own version of a
House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino
and Roco, as members of the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a
mere matter of form. Petitioner has not shown what substantial difference it would make if, as the
Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a substitute measure,
"taking into Consideration . . . H.B. 11197."

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

RULE XXIX

AMENDMENTS

xxx xxx xxx

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

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

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

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

xxx xxx xxx

70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject
distinct from that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.

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

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

Art. VI, 24 of our Constitution reads:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a
mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on
second and three readings. It was enough that after it was passed on first reading it was referred to the
Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be passed by the House
of Representatives before the two bills could be referred to the Conference Committee.

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the
House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits),
were referred to a conference committee, the question was raised whether the two bills could be the
subject of such conference, considering that the bill from one house had not been passed by the other
and vice versa. As Congressman Duran put the question:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Petitioners cite the rules of both houses which provide that conference committee reports must contain
"a detailed, sufficiently explicit statement of the changes in or other amendments." These changes are
shown in the bill attached to the Conference Committee Report. The members of both houses could thus
ascertain what changes had been made in the original bills without the need of a statement detailing the
changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform
Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order.
He said:

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

Petitioner Tolentino, then the Majority Floor Leader, answered:

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

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

After some interruption, he continued:

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

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

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

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

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

(Id. at 710. (emphasis added))

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

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

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A

COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).

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

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

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

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

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

xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to which the
Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103,
as follows:

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

xxx xxx xxx

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

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

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

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

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

No. 7716.

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

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

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

(227 SCRA at 707-708)

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

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

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

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the cases
invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936)
was found to be discriminatory because it was laid on the gross advertising receipts only of newspapers
whose weekly circulation was over 20,000, with the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of Senator Huey Long who controlled the state
legislature which enacted the license tax. The censorial motivation for the law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75
L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have been made
liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming
tangible goods, the press was not. Instead, the press was exempted from both taxes. It was, however,
later made to pay a special use tax on the cost of paper and ink which made these items "the only items
subject to the use tax that were component of goods to be sold at retail." The U.S. Supreme Court held
that the differential treatment of the press "suggests that the goal of regulation is not related to
suppression of expression, and such goal is presumptively unconstitutional." It would therefore appear
that even a law that favors the press is constitutionally suspect. (See the dissent of Rehnquist, J. in that
case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to
PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and
many more are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in
an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions,
which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of
these transactions will suffice to show that by and large this is not so and that the exemptions are
granted for a purpose. As the Solicitor General says, such exemptions are granted, in some cases, to
encourage agricultural production and, in other cases, for the personal benefit of the end-user rather
than for profit. The exempt transactions are:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(At 382-383)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from
taxation. Such theory is contrary to the Constitution under which only the following are exempt from
taxation: charitable institutions, churches and parsonages, by reason of Art. VI, 28 (3), and non-stock,
non-profit educational institutions by reason of Art. XIV, 4 (3).

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

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

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

SO ORDERED.

Republic of the Philippines

SUPREME COURT
 THIRD DIVISION

G.R. No. 159647 April 15, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.

CENTRAL LUZON DRUG CORPORATION, Respondent.

The 20 percent discount required by the law to be given to senior citizens is a tax credit, not merely a tax
deduction from the gross income or gross sale of the establishment concerned. A tax credit is used by a
private establishment only after the tax has been computed; a tax deduction, before the tax is
computed. RA 7432 unconditionally grants a tax credit to all covered entities. Thus, the provisions of the
revenue regulation that withdraw or modify such grant are void. Basic is the rule that administrative
regulations cannot amend or revoke the law.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August
29, 2002 Decision2 and the August 11, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR SP No.
67439. The assailed Decision reads as follows:

"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto. No costs."4

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The CA narrated the antecedent facts as follows:

"Respondent is a domestic corporation primarily engaged in retailing of medicines and other

pharmaceutical products. In 1996, it operated six (6) drugstores under the business name and style
Mercury Drug.

"From January to December 1996, respondent granted twenty (20%) percent sales discount to qualified
senior citizens on their purchases of medicines pursuant to Republic Act No. [R.A.] 7432 and its
Implementing Rules and Regulations. For the said period, the amount allegedly representing the 20%
sales discount granted by respondent to qualified senior citizens totaled 904,769.00.

"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996 declaring
therein that it incurred net losses from its operations.

"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the amount of
904,769.00 allegedly arising from the 20% sales discount granted by respondent to qualified senior
citizens in compliance with [R.A.] 7432. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax Court)] via a Petition for Review.

"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondents Petition for lack of
merit. In said decision, the [CTA] justified its ruling with the following ratiocination:
x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount is due and
collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover, whether the recovery of
the tax is made by means of a claim for refund or tax credit, before recovery is allowed[,] it must be first
established that there was an actual collection and receipt by the government of the tax sought to be
recovered. x x x.

x x x x x x x x x

Prescinding from the above, it could logically be deduced that tax credit is premised on the existence of
tax liability on the part of taxpayer. In other words, if there is no tax liability, tax credit is not available.

"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,6 granted
respondents motion for reconsideration and ordered herein petitioner to issue a Tax Credit Certificate in
favor of respondent citing the decision of the then Special Fourth Division of [the CA] in CA G.R. SP No.
60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of Internal Revenue promulgated on
May 31, 2001, to wit:

However, Sec. 229 clearly does not apply in the instant case because the tax sought to be refunded or
credited by petitioner was not erroneously paid or illegally collected. We take exception to the CTAs
sweeping but unfounded statement that both tax refund and tax credit are modes of recovering taxes
which are either erroneously or illegally paid to the government. Tax refunds or credits do not
exclusively pertain to illegally collected or erroneously paid taxes as they may be other circumstances
where a refund is warranted. The tax refund provided under Section 229 deals exclusively with illegally
collected or erroneously paid taxes but there are other possible situations, such as the refund of excess
estimated corporate quarterly income tax paid, or that of excess input tax paid by a VAT-registered
person, or that of excise tax paid on goods locally produced or manufactured but actually exported. The
standards and mechanics for the grant of a refund or credit under these situations are different from
that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not in any
way refer to illegally collected or erroneously paid taxes, x x x."7

Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering petitioner to issue a tax
credit certificate in favor of respondent in the reduced amount of 903,038.39. It reasoned that Republic
Act No. (RA) 7432 required neither a tax liability nor a payment of taxes by private establishments prior
to the availment of a tax credit. Moreover, such credit is not tantamount to an unintended benefit from
the law, but rather a just compensation for the taking of private property for public use.

Hence this Petition.8

The Issues

Petitioner raises the following issues for our consideration:

"Whether the Court of Appeals erred in holding that respondent may claim the 20% sales discount as a
tax credit instead of as a deduction from gross income or gross sales.

"Whether the Court of Appeals erred in holding that respondent is entitled to a refund."9

These two issues may be summed up in only one: whether respondent, despite incurring a net loss, may
still claim the 20 percent sales discount as a tax credit.
The Courts Ruling

The Petition is not meritorious.

Sole Issue:

Claim of 20 Percent Sales Discount

as Tax Credit Despite Net Loss

Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent discount on
their purchase of medicine from any private establishment in the country.11 The latter may then claim
the cost of the discount as a tax credit.12 But can such credit be claimed, even though an establishment
operates at a loss?

We answer in the affirmative.

Tax Credit versus

Tax Deduction

Although the term is not specifically defined in our Tax Code,13 tax credit generally refers to an amount
that is "subtracted directly from ones total tax liability."14 It is an "allowance against the tax itself"15 or
"a deduction from what is owed"16 by a taxpayer to the government. Examples of tax credits are
withheld taxes, payments of estimated tax, and investment tax credits.17

Tax credit should be understood in relation to other tax concepts. One of these is tax deduction --
defined as a subtraction "from income for tax purposes,"18 or an amount that is "allowed by law to
reduce income prior to [the] application of the tax rate to compute the amount of tax which is due."19
An example of a tax deduction is any of the allowable deductions enumerated in Section 3420 of the Tax
Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due, including --
whenever applicable -- the income tax that is determined after applying the corresponding tax rates to
taxable income.21 A tax deduction, on the other, reduces the income that is subject to tax22 in order to
arrive at taxable income.23 To think of the former as the latter is to avoid, if not entirely confuse, the
issue. A tax credit is used only after the tax has been computed; a tax deduction, before.

Tax Liability Required

for Tax Credit

Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the
tax credit can be applied. Without that liability, any tax credit application will be useless. There will be no
reason for deducting the latter when there is, to begin with, no existing obligation to the government.
However, as will be presented shortly, the existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is mandatory, the availment or use is not.

If a net loss is reported by, and no other taxes are currently due from, a business establishment, there
will obviously be no tax liability against which any tax credit can be applied.24 For the establishment to
choose the immediate availment of a tax credit will be premature and impracticable. Nevertheless, the
irrefutable fact remains that, under RA 7432, Congress has granted without conditions a tax credit
benefit to all covered establishments.

Although this tax credit benefit is available, it need not be used by losing ventures, since there is no tax
liability that calls for its application. Neither can it be reduced to nil by the quick yet callow stroke of an
administrative pen, simply because no reduction of taxes can instantly be effected. By its nature, the tax
credit may still be deducted from a future, not a present, tax liability, without which it does not have any
use. In the meantime, it need not move. But it breathes.

Prior Tax Payments Not

Required for Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On
the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment
is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no
taxes have been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain
limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision
for donors taxes -- again when paid to a foreign country -- in computing for the donors tax due. The tax
credits in both instances allude to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -- whether or
not subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any input tax not
directly attributable to either activity. This input tax may either be the VAT on the purchase or
importation of goods or services that is merely due from -- not necessarily paid by -- such VAT-registered
person in the course of trade or business; or the transitional input tax determined in accordance with
Section 111(A). The latter type may in fact be an amount equivalent to only eight percent of the value of
a VAT-registered persons beginning inventory of goods, materials and supplies, when such amount -- as
computed -- is higher than the actual VAT paid on the said items.25 Clearly from this provision, the tax
credit refers to an input tax that is either due only or given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is actually paid prior to the availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the
purchase of primary agricultural products used as inputs -- either in the processing of sardines, mackerel
and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price of public
work contracts entered into with the government, again, no prior tax payments are needed for the use
of the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under
Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable input taxes
merely due -- again not necessarily paid to -- the government and attributable to such sales, to the
extent that the input taxes have not been applied against output taxes.26 Where a taxpayer

is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount of
creditable input taxes due that are not directly and entirely attributable to any one of these transactions
shall be proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax
credit for VAT purposes, this provision -- as well as the one earlier mentioned -- shows that the prior
payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed,
even though no prior tax payments are not required. Specifically, in this provision, the imposition of a
final withholding tax rate on cash and/or property dividends received by a nonresident foreign
corporation from a domestic corporation is subjected to the condition that a foreign tax credit will be
given by the domiciliary country in an amount equivalent to taxes that are merely deemed paid.27
Although true, this provision actually refers to the tax credit as a condition only for the imposition of a
lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not our government
but the domiciliary country that credits against the income tax payable to the latter by the foreign
corporation, the tax to be foregone or spared.28

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the
income tax imposable under Title II, the amount of income taxes merely incurred -- not necessarily paid
-- by a domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5)
provides that for such taxes incurred but not paid, a tax credit may be allowed, subject to the condition
precedent that the taxpayer shall simply give a bond with sureties satisfactory to and approved by
petitioner, in such sum as may be required; and further conditioned upon payment by the taxpayer of
any tax found due, upon petitioners redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that
grant or allow tax credits, even though no prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income
that is taxed in the state of source is also taxable in the state of residence, but the tax paid in the former
is merely allowed as a credit against the tax levied in the latter.29 Apparently, payment is made to the
state of source, not the state of residence. No tax, therefore, has been previously paid to the latter.

Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate,
the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas
Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net value earned, or
five or ten percent of the net local content of exports.30 In order to avail of such credits under the said
law and still achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not indispensable to the
availment of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did not require
prior tax payments by private establishments concerned.31 However, we do not agree with its finding32
that the carry-over of tax credits under the said special law to succeeding taxable periods, and even their
application against internal revenue taxes, did not necessitate the existence of a tax liability.

The examples above show that a tax liability is certainly important in the availment or use, not the
existence or grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss in
its financial statements is no different from another that presents a net income. Both are entitled to the
tax credit provided for under RA 7432, since the law itself accords that unconditional benefit. However,
for the losing establishment to immediately apply such credit, where no tax is due, will be an
improvident usance.

Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the amount of discounts they
grant.33 In turn, the Implementing Rules and Regulations, issued pursuant thereto, provide the
procedures for its availment.34 To deny such credit, despite the plain mandate of the law and the
regulations carrying out that mandate, is indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the amount representing
the 20 percent discount that "shall be deducted by the said establishments from their gross income for
income tax purposes and from their gross sales for value-added tax or other percentage tax
purposes."35 In ordinary business language, the tax credit represents the amount of such discount.
However, the manner by which the discount shall be credited against taxes has not been clarified by the
revenue regulations.

By ordinary acceptation, a discount is an "abatement or reduction made from the gross amount or value
of anything."36 To be more precise, it is in business parlance "a deduction or lowering of an amount of
money;"37 or "a reduction from the full amount or value of something, especially a price."38 In business
there are many kinds of discount, the most common of which is that affecting the income statement39
or financial report upon which the income tax is based.

Business Discounts

Deducted from Gross Sales

A cash discount, for example, is one granted by business establishments to credit customers for their
prompt payment.40 It is a "reduction in price offered to the purchaser if payment is made within a
shorter period of time than the maximum time specified."41 Also referred to as a sales discount on the
part of the seller and a purchase discount on the part of the buyer, it may be expressed in such terms as
"5/10, n/30."42

A quantity discount, however, is a "reduction in price allowed for purchases made in large quantities,
justified by savings in packaging, shipping, and handling."43 It is also called a volume or bulk discount.44

A "percentage reduction from the list price x x x allowed by manufacturers to wholesalers and by
wholesalers to retailers"45 is known as a trade discount. No entry for it need be made in the manual or
computerized books of accounts, since the purchase or sale is already valued at the net price actually
charged the buyer.46 The purpose for the discount is to encourage trading or increase sales, and the
prices at which the purchased goods may be resold are also suggested.47 Even a chain discount -- a
series of discounts from one list price -- is recorded at net.48

Finally, akin to a trade discount is a functional discount. It is "a suppliers price discount given to a
purchaser based on the [latters] role in the [formers] distribution system."49 This role usually involves
warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is peculiar. Applying generally
accepted accounting principles (GAAP) in the country, this type of discount is reflected in the income
statement50 as a line item deducted -- along with returns, allowances, rebates and other similar
expenses -- from gross sales to arrive at net sales.51 This type of presentation is resorted to, because the
accounts receivable and sales figures that arise from sales discounts, -- as well as from quantity, volume
or bulk discounts -- are recorded in the manual and computerized books of accounts and reflected in the
financial statements at the gross amounts of the invoices.52 This manner of recording credit sales --
known as the gross method -- is most widely used, because it is simple, more convenient to apply than
the net method, and produces no material errors over time.53

However, under the net method used in recording trade, chain or functional discounts, only the net
amounts of the invoices -- after the discounts have been deducted -- are recorded in the books of
accounts54 and reflected in the financial statements. A separate line item cannot be shown,55 because
the transactions themselves involving both accounts receivable and sales have already been entered
into, net of the said discounts.

The term sales discounts is not expressly defined in the Tax Code, but one provision adverts to amounts
whose sum -- along with sales returns, allowances and cost of goods sold56 -- is deducted from gross
sales to come up with the gross income, profit or margin57 derived from business.58 In another
provision therein, sales discounts that are granted and indicated in the invoices at the time of sale -- and
that do not depend upon the happening of any future event -- may be excluded from the gross sales
within the same quarter they were given.59 While determinative only of the VAT, the latter provision
also appears as a suitable reference point for income tax purposes already embraced in the former. After
all, these two provisions affirm that sales discounts are amounts that are always deductible from gross
sales.

Reason for the Senior Citizen Discount:

The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the private establishments outright
deduction of the discount from the invoice price of the medicine sold to the senior citizen.60 It is,
therefore, expected that for each retail sale made under this law, the discount period lasts no more than
a day, because such discount is given -- and the net amount thereof collected -- immediately upon
perfection of the sale.61 Although prompt payment is made for an arms-length transaction by the
senior citizen, the real and compelling reason for the private establishment giving the discount is that the
law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or any of the
above discounts in particular. Prompt payment is not the reason for (although a necessary consequence
of) such grant. To be sure, the privilege enjoyed by the senior citizen must be equivalent to the tax credit
benefit enjoyed by the private establishment granting the discount. Yet, under the revenue regulations
promulgated by our tax authorities, this benefit has been erroneously likened and confined to a sales
discount.

To a senior citizen, the monetary effect of the privilege may be the same as that resulting from a sales
discount. However, to a private establishment, the effect is different from a simple reduction in price that
results from such discount. In other words, the tax credit benefit is not the same as a sales discount. To
repeat from our earlier discourse, this benefit cannot and should not be treated as a tax deduction.

To stress, the effect of a sales discount on the income statement and income tax return of an
establishment covered by RA 7432 is different from that resulting from the availment or use of its tax
credit benefit. While the former is a deduction before, the latter is a deduction after, the income tax is
computed. As mentioned earlier, a discount is not necessarily a sales discount, and a tax credit for a
simple discount privilege should not be automatically treated like a sales discount. Ubi lex non distinguit,
nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount
deductible from gross income for income tax purposes, or from gross sales for VAT or other percentage
tax purposes. In effect, the tax credit benefit under RA 7432 is related to a sales discount. This contrived
definition is improper, considering that the latter has to be deducted from gross sales in order to
compute the gross income in the income statement and cannot be deducted again, even for purposes of
computing the income tax.

When the law says that the cost of the discount may be claimed as a tax credit, it means that the amount
-- when claimed -- shall be treated as a reduction from any tax liability, plain and simple. The option to
avail of the tax credit benefit depends upon the existence of a tax liability, but to limit the benefit to a
sales discount -- which is not even identical to the discount privilege that is granted by law -- does not
define it at all and serves no useful purpose. The definition must, therefore, be stricken down.

Laws Not Amended

by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that "operates to create a
rule out of harmony with

the statute is a mere nullity";62 it cannot prevail.

It is a cardinal rule that courts "will and should respect the contemporaneous construction placed upon a
statute by the executive officers whose duty it is to enforce it x x x."63 In the scheme of judicial tax
administration, the need for certainty and predictability in the implementation of tax laws is crucial.64
Our tax authorities fill in the details that "Congress may not have the opportunity or competence to
provide."65 The regulations these authorities issue are relied upon by taxpayers, who are certain that
these will be followed by the courts.66 Courts, however, will not uphold these authorities
interpretations when clearly absurd, erroneous or improper.

In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of RR 2-94 a
meaning utterly in contrast to what RA 7432 provides. Their interpretation has muddled up the intent of
Congress in granting a mere discount privilege, not a sales discount. The administrative agency issuing
these regulations may not enlarge, alter or restrict the provisions of the law it administers; it cannot
engraft additional requirements not contemplated by the legislature.67

In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is law."69 Conversely, a
regulation or any portion thereof not adopted pursuant to law is no law and has neither the force nor
the effect of law.70

Availment of Tax

Credit Voluntary

Third, the word may in the text of the statute71 implies that the

availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no absolute right
conferred upon respondent, or any similar taxpayer, to avail itself of the tax credit remedy whenever it
chooses; "neither does it impose a duty on the part of the government to sit back and allow an
important facet of tax collection to be at the sole control and discretion of the taxpayer."73 For the tax
authorities to compel respondent to deduct the 20 percent discount from either its gross income or its
gross sales74 is, therefore, not only to make an imposition without basis in law, but also to blatantly
contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not imperative.
Respondent is given two options -- either to claim or not to claim the cost of the discounts as a tax
credit. In fact, it may even ignore the credit and simply consider the gesture as an act of beneficence, an
expression of its social conscience.

Granting that there is a tax liability and respondent claims such cost as a tax credit, then the tax credit
can easily be applied. If there is none, the credit cannot be used and will just have to be carried over and
revalidated75 accordingly. If, however, the business continues to operate at a loss and no other taxes are
due, thus compelling it to close shop, the credit can never be applied and will be lost altogether.

In other words, it is the existence or the lack of a tax liability that determines whether the cost of the
discounts can be used as a tax credit. RA 7432 does not give respondent the unfettered right to avail
itself of the credit whenever it pleases. Neither does it allow our tax administrators to expand or
contract the legislative mandate. "The plain meaning rule or verba legis in statutory construction is thus
applicable x x x. 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."76

Tax Credit Benefit

Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent domain. Be it
stressed that the privilege enjoyed by senior citizens does not come directly from the State, but rather
from the private establishments concerned. Accordingly, the tax credit benefit granted to these
establishments can be deemed as their just compensation for private property taken by the State for
public use.77

The concept of public use is no longer confined to the traditional notion of use by the public, but held
synonymous with public interest, public benefit, public welfare, and public convenience.78 The discount
privilege to which our senior citizens are entitled is actually a benefit enjoyed by the general public to
which these citizens belong. The discounts given would have entered the coffers and formed part of the
gross sales of the private establishments concerned, were it not for RA 7432. The permanent reduction
in their total revenues is a forced subsidy corresponding to the taking of private property for public use
or benefit.

As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to a just
compensation. This term refers not only to the issuance of a tax credit certificate indicating the correct
amount of the discounts given, but also to the promptness in its release. Equivalent to the payment of
property taken by the State, such issuance -- when not done within a reasonable time from the grant of
the discounts -- cannot be considered as just compensation. In effect, respondent is made to suffer the
consequences of being immediately deprived of its revenues while awaiting actual receipt, through the
certificate, of the equivalent amount it needs to cope with the reduction in its revenues.79

Besides, the taxation power can also be used as an implement for the exercise of the power of eminent
domain.80 Tax measures are but "enforced contributions exacted on pain of penal sanctions"81 and
"clearly imposed for a public purpose."82 In recent years, the power to tax has indeed become a most
effective tool to realize social justice, public welfare, and the equitable distribution of wealth.83
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be invoked to
trample on the rights of property owners who under our Constitution and laws are also entitled to
protection. The social justice consecrated in our [C]onstitution [is] not intended to take away rights from
a person and give them to another who is not entitled thereto."84 For this reason, a just compensation
for income that is taken away from respondent becomes necessary. It is in the tax credit that our
legislators find support to realize social justice, and no administrative body can alter that fact.

To put it differently, a private establishment that merely breaks even85 -- without the discounts yet -- will
surely start to incur losses because of such discounts. The same effect is expected if its mark-up is less
than 20 percent, and if all its sales come from retail purchases by senior citizens. Aside from the
observation we have already raised earlier, it will also be grossly unfair to an establishment if the
discounts will be treated merely as deductions from either its gross income or its gross sales. Operating
at a loss through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if
not improper. Worse, profit-generating businesses will be put in a better position if they avail themselves
of tax credits denied those that are losing, because no taxes are due from the latter.

Over General Law

Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general law. "x x x [T]he
rule is that on a specific matter the special law shall prevail over the general law, which shall

be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there are two statutes,
the earlier special and the later general -- the terms of the general broad enough to include the matter
provided for in the special -- the fact that one is special and the other is general creates a presumption
that the special is to be considered as remaining an exception to the general,91 one as a general law of
the land, the other as the law of a particular case."92 "It is a canon of statutory construction that a later
statute, general in its terms and not expressly repealing a prior special statute, will ordinarily not affect
the special provisions of such earlier statute."93

RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to, the Tax Code
-- a later law. When the former states that a tax credit may be claimed, then the requirement of prior tax
payments under certain provisions of the latter, as discussed above, cannot be made to apply. Neither
can the instances of or references to a tax deduction under the Tax Code94 be made to restrict RA 7432.
No provision of any revenue regulation can supplant or modify the acts of Congress.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila
 EN BANC

G.R. No. 159796 July 17, 2007

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK, INC.
(ECN), Petitioners,

vs.

DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL POWER

CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT GROUP (PSALM Corp.),
STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC COMPANY INC. (PECO), Respondents.

Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc.
(ECN) (petitioners), come before this Court in this original action praying that Section 34 of Republic Act
(RA) 9136, otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA), imposing the
Universal Charge,1 and Rule 18 of the Rules and Regulations (IRR)2 which seeks to implement the said
imposition, be declared unconstitutional. Petitioners also pray that the Universal Charge imposed upon
the consumers be refunded and that a preliminary injunction and/or temporary restraining order (TRO)
be issued directing the respondents to refrain from implementing, charging, and collecting the said
charge.3 The assailed provision of law reads:

SECTION 34. Universal Charge. Within one (1) year from the effectivity of this Act, a universal charge
to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-users for the
following purposes:

(a) Payment for the stranded debts4 in excess of the amount assumed by the National Government and
stranded contract costs of NPC5 and as well as qualified stranded contract costs of distribution utilities
resulting from the restructuring of the industry;

(b) Missionary electrification;6

(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis-
-vis imported energy fuels;

(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (0.0025/kWh),
which shall accrue to an environmental fund to be used solely for watershed rehabilitation and
management. Said fund shall be managed by NPC under existing arrangements; and

(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.

The universal charge shall be a non-bypassable charge which shall be passed on and collected from all
end-users on a monthly basis by the distribution utilities. Collections by the distribution utilities and the
TRANSCO in any given month shall be remitted to the PSALM Corp. on or before the fifteenth (15th) of
the succeeding month, net of any amount due to the distribution utility. Any end-user or self-generating
entity not connected to a distribution utility shall remit its corresponding universal charge directly to the
TRANSCO. The PSALM Corp., as administrator of the fund, shall create a Special Trust Fund which shall be
disbursed only for the purposes specified herein in an open and transparent manner. All amount
collected for the universal charge shall be distributed to the respective beneficiaries within a reasonable
period to be provided by the ERC.
The Facts

Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.7

On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group8 (NPC-SPUG)
filed with respondent Energy Regulatory Commission (ERC) a petition for the availment from the
Universal Charge of its share for Missionary Electrification, docketed as ERC Case No. 2002-165.9

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194, praying that
the proposed share from the Universal Charge for the Environmental charge of 0.0025 per kilowatt-
hour (/kWh), or a total of 119,488,847.59, be approved for withdrawal from the Special Trust Fund
(STF) managed by respondent Power Sector Assets and

Liabilities Management Group (PSALM)10 for the rehabilitation and management of watershed areas.11

On December 20, 2002, the ERC issued an Order12 in ERC Case No. 2002-165 provisionally approving the
computed amount of 0.0168/kWh as the share of the NPC-SPUG from the Universal Charge for
Missionary Electrification and authorizing the National Transmission Corporation (TRANSCO) and
Distribution Utilities to collect the same from its end-users on a monthly basis.

On June 26, 2003, the ERC rendered its Decision13 (for ERC Case No. 2002-165) modifying its Order of
December 20, 2002, thus:

WHEREFORE, the foregoing premises considered, the provisional authority granted to petitioner National
Power Corporation-Strategic Power Utilities Group (NPC-SPUG) in the Order dated December 20, 2002 is
hereby modified to the effect that an additional amount of 0.0205 per kilowatt-hour should be added
to the 0.0168 per kilowatt-hour provisionally authorized by the Commission in the said Order.
Accordingly, a total amount of 0.0373 per kilowatt-hour is hereby APPROVED for withdrawal from the
Special Trust Fund managed by PSALM as its share from the Universal Charge for Missionary
Electrification (UC-ME) effective on the following billing cycles:

(a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO); and

(b) July 2003 for Distribution Utilities (Dus).

Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount of 0.0373 per
kilowatt-hour and remit the same to PSALM on or before the 15th day of the succeeding month.

In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a detailed report to
include Audited Financial Statements and physical status (percentage of completion) of the projects
using the prescribed format.1avvphi1

Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities (Dus).

SO ORDERED.

On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among others,14 to
set aside the above-mentioned Decision, which the ERC granted in its Order dated October 7, 2003,
disposing:
WHEREFORE, the foregoing premises considered, the "Motion for Reconsideration" filed by petitioner
National Power Corporation-Small Power Utilities Group (NPC-SPUG) is hereby GRANTED. Accordingly,
the Decision dated June 26, 2003 is hereby modified accordingly.

Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following:

1. Projects for CY 2002 undertaken;

2. Location

3. Actual amount utilized to complete the project;

4. Period of completion;

5. Start of Operation; and

6. Explanation of the reallocation of UC-ME funds, if any.

SO ORDERED.15

Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw up to
70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget subject to the availability of
funds for the Environmental Fund component of the Universal Charge.16

On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged
petitioner Romeo P. Gerochi and all other end-users with the Universal Charge as reflected in their
respective electric bills starting from the month of July 2003.17

Hence, this original action.

Petitioners submit that the assailed provision of law and its IRR which sought to implement the same are
unconstitutional on the following grounds:

1) The universal charge provided for under Sec. 34 of the EPIRA and sought to be implemented under
Sec. 2, Rule 18 of the IRR of the said law is a tax which is to be collected from all electric end-users and
self-generating entities. The power to tax is strictly a legislative function and as such, the delegation of
said power to any executive or administrative agency like the ERC is unconstitutional, giving the same
unlimited authority. The assailed provision clearly provides that the Universal Charge is to be
determined, fixed and approved by the ERC, hence leaving to the latter complete discretionary legislative
authority.

2) The ERC is also empowered to approve and determine where the funds collected should be used.

3) The imposition of the Universal Charge on all end-users is oppressive and confiscatory and amounts to
taxation without representation as the consumers were not given a chance to be heard and
represented.18

Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund the
operations of the NPC. They argue that the cases19 invoked by the respondents clearly show the
regulatory purpose of the charges imposed therein, which is not so in the case at bench. In said cases,
the respective funds20 were created in order to balance and stabilize the prices of oil and sugar, and to
act as buffer to counteract the changes and adjustments in prices, peso devaluation, and other variables
which cannot be adequately and timely monitored by the legislature. Thus, there was a need to delegate
powers to administrative bodies.21 Petitioners posit that the Universal Charge is imposed not for a
similar purpose.

On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC)
contends that unlike a tax which is imposed to provide income for public purposes, such as support of
the government, administration of the law, or payment of public expenses, the assailed Universal Charge
is levied for a specific regulatory purpose, which is to ensure the viability of the country's electric power
industry. Thus, it is exacted by the State in the exercise of its inherent police power. On this premise,
PSALM submits that there is no undue delegation of legislative power to the ERC since the latter merely
exercises a limited authority or discretion as to the execution and implementation of the provisions of
the EPIRA.22

Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General
(OSG), share the same view that the Universal Charge is not a tax because it is levied for a specific
regulatory purpose, which is to ensure the viability of the country's electric power industry, and is,
therefore, an exaction in the exercise of the State's police power. Respondents further contend that said
Universal Charge does not possess the essential characteristics of a tax, that its imposition would
redound to the benefit of the electric power industry and not to the public, and that its rate is uniformly
levied on electricity end-users, unlike a tax which is imposed based on the individual taxpayer's ability to
pay. Moreover, respondents deny that there is undue delegation of legislative power to the ERC since the
EPIRA sets forth sufficient determinable standards which would guide the ERC in the exercise of the
powers granted to it. Lastly, respondents argue that the imposition of the Universal Charge is not
oppressive and confiscatory since it is an exercise of the police power of the State and it complies with
the requirements of due process.23

On its part, respondent PECO argues that it is duty-bound to collect and remit the amount pertaining to
the Missionary Electrification and Environmental Fund components of the Universal Charge, pursuant to
Sec. 34 of the EPIRA and the Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could
be held liable under Sec. 4624 of the EPIRA, which imposes fines and penalties for any violation of its
provisions or its IRR.25

The Issues

The ultimate issues in the case at bar are:

1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax; and

2) Whether or not there is undue delegation of legislative power to tax on the part of the ERC.26

Before we discuss the issues, the Court shall first deal with an obvious procedural lapse.

Petitioners filed before us an original action particularly denominated as a Complaint assailing the
constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR.
No doubt, petitioners have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA
because they sustained a direct injury as a result of the imposition of the Universal Charge as reflected in
their electric bills.
However, petitioners violated the doctrine of hierarchy of courts when they filed this "Complaint"
directly with us. Furthermore, the Complaint is bereft of any allegation of grave abuse of discretion on
the part of the ERC or any of the public respondents, in order for the Court to consider it as a petition for
certiorari or prohibition.

Article VIII, Section 5(1) and (2) of the 1987 Constitution27 categorically provides that:

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

1. Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and
over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.

2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the rules of court may
provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or executive agreement,
law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.

But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and
habeas corpus, while concurrent with that of the regional trial courts and the Court of Appeals, does not
give litigants unrestrained freedom of choice of forum from which to seek such relief.28 It has long been
established that this Court will not entertain direct resort to it unless the redress desired cannot be
obtained in the appropriate courts, or where exceptional and compelling circumstances justify availment
of a remedy within and call for the exercise of our primary jurisdiction.29 This circumstance alone
warrants the outright dismissal of the present action.

This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised herein. We
are aware that if the constitutionality of Sec. 34 of the EPIRA is not resolved now, the issue will certainly
resurface in the near future, resulting in a repeat of this litigation, and probably involving the same
parties. In the public interest and to avoid unnecessary delay, this Court renders its ruling now.

The instant complaint is bereft of merit.

The First Issue

To resolve the first issue, it is necessary to distinguish the States power of taxation from the police
power.

The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency that is to pay it.30 It is based on the principle that
taxes are the lifeblood of the government, and their prompt and certain availability is an imperious
need.31 Thus, 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.32

On the other hand, police power is the power of the state to promote public welfare by restraining and
regulating the use of liberty and property.33 It is the most pervasive, the least limitable, and the most
demanding of the three fundamental powers of the State. The justification is found in the Latin maxims
salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum
non laedas (so use your property as not to injure the property of others). As an inherent attribute of
sovereignty which virtually extends to all public needs, police power grants a wide panoply of
instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers.34
We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and foremost, of the public, then of the utility and of its
patrons.35

The conservative and pivotal distinction between these two powers rests in the purpose for which the
charge is made. If generation of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised
does not make the imposition a tax.36

In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power,
particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates
the purposes for which the Universal Charge is imposed37 and which can be amply discerned as
regulatory in character. The EPIRA resonates such regulatory purposes, thus:

SECTION 2. Declaration of Policy. It is hereby declared the policy of the State:

(a) To ensure and accelerate the total electrification of the country;

(b) To ensure the quality, reliability, security and affordability of the supply of electric power;

(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and
full public accountability to achieve greater operational and economic efficiency and enhance the
competitiveness of Philippine products in the global market;

(d) To enhance the inflow of private capital and broaden the ownership base of the power generation,
transmission and distribution sectors;

(e) To ensure fair and non-discriminatory treatment of public and private sector entities in the process of
restructuring the electric power industry;

(f) To protect the public interest as it is affected by the rates and services of electric utilities and other
providers of electric power;

(g) To assure socially and environmentally compatible energy sources and infrastructure;

(h) To promote the utilization of indigenous and new and renewable energy resources in power
generation in order to reduce dependence on imported energy;

(i) To provide for an orderly and transparent privatization of the assets and liabilities of the National
Power Corporation (NPC);

(j) To establish a strong and purely independent regulatory body and system to ensure consumer
protection and enhance the competitive operation of the electricity market; and

(k) To encourage the efficient use of energy and other modalities of demand side management.

From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but
an exaction in the exercise of the State's police power. Public welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police
power.38 In Valmonte v. Energy Regulatory Board, et al.39 and in Gaston v. Republic Planters Bank,40
this Court held that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were
exactions made in the exercise of the police power. The doctrine was reiterated in Osmea v. Orbos41
with respect to the OPSF. Thus, we disagree with petitioners that the instant case is different from the
aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also created under the
administration of PSALM.42 The STF has some notable characteristics similar to the OPSF and the SSF,
viz.:

1) In the implementation of stranded cost recovery, the ERC shall conduct a review to determine
whether there is under-recovery or over recovery and adjust (true-up) the level of the stranded cost
recovery charge. In case of an over-recovery, the ERC shall ensure that any excess amount shall be
remitted to the STF. A separate account shall be created for these amounts which shall be held in trust
for any future claims of distribution utilities for stranded cost recovery. At the end of the stranded cost
recovery period, any remaining amount in this account shall be used to reduce the electricity rates to the
end-users.43

2) With respect to the assailed Universal Charge, if the total amount collected for the same is greater
than the actual availments against it, the PSALM shall retain the balance within the STF to pay for
periods where a shortfall occurs.44

3) Upon expiration of the term of PSALM, the administration of the STF shall be transferred to the DOF
or any of the DOF attached agencies as designated by the DOF Secretary.45

The OSG is in point when it asseverates:

Evidently, the establishment and maintenance of the Special Trust Fund, under the last paragraph of
Section 34, R.A. No. 9136, is well within the pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State.46

This feature of the Universal Charge further boosts the position that the same is an exaction imposed
primarily in pursuit of the State's police objectives. The STF reasonably serves and assures the
attainment and perpetuity of the purposes for which the Universal Charge is imposed, i.e., to ensure the
viability of the country's electric power industry.

The Second Issue

The principle of separation of powers ordains that each of the three branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.
A logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim potestas delegata non delegari potest (what has been delegated cannot be
delegated). This is based on the ethical principle that such delegated power constitutes not only a right
but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another. 47

In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle.48 Given the volume and
variety of interactions in today's society, it is doubtful if the legislature can promulgate laws that will deal
adequately with and respond promptly to the minutiae of everyday life. Hence, the need to delegate to
administrative bodies - the principal agencies tasked to execute laws in their specialized fields - the
authority to promulgate rules and regulations to implement a given statute and effectuate its policies. All
that is required for the valid exercise of this power of subordinate legislation is that the regulation be
germane to the objects and purposes of the law and that the regulation be not in contradiction to, but in
conformity with, the standards prescribed by the law. These requirements are denominated as the
completeness test and the sufficient standard test.

Under the first test, the law must be complete in all its terms and conditions when it leaves the
legislature such that when it reaches the delegate, the only thing he will have to do is to enforce it. The
second test mandates adequate guidelines or limitations in the law to determine the boundaries of the
delegate's authority and prevent the delegation from running riot.49

The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is
complete in all its essential terms and conditions, and that it contains sufficient standards.

Although Sec. 34 of the EPIRA merely provides that "within one (1) year from the effectivity thereof, a
Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity
end-users," and therefore, does not state the specific amount to be paid as Universal Charge, the
amount nevertheless is made certain by the legislative parameters provided in the law itself. For one,
Sec. 43(b)(ii) of the EPIRA provides:

SECTION 43. Functions of the ERC. The ERC shall promote competition, encourage market
development, ensure customer choice and penalize abuse of market power in the restructured
electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order after due
notice and hearing. Towards this end, it shall be responsible for the following key functions in the
restructured industry:

xxxx

(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in accordance with law,
a National Grid Code and a Distribution Code which shall include, but not limited to the following:

xxxx

(ii) Financial capability standards for the generating companies, the TRANSCO, distribution utilities and
suppliers: Provided, That in the formulation of the financial capability standards, the nature and function
of the entity shall be considered: Provided, further, That such standards are set to ensure that the
electric power industry participants meet the minimum financial standards to protect the public interest.
Determine, fix, and approve, after due notice and public hearings the universal charge, to be imposed on
all electricity end-users pursuant to Section 34 hereof;

Moreover, contrary to the petitioners contention, the ERC does not enjoy a wide latitude of discretion in
the determination of the Universal Charge. Sec. 51(d) and (e) of the EPIRA50 clearly provides:

SECTION 51. Powers. The PSALM Corp. shall, in the performance of its functions and for the
attainment of its objective, have the following powers:

xxxx

(d) To calculate the amount of the stranded debts and stranded contract costs of NPC which shall form
the basis for ERC in the determination of the universal charge;
(e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and other property
contributed to it, including the proceeds from the universal charge.

Thus, the law is complete and passes the first test for valid delegation of legislative power.

As to the second test, this Court had, in the past, accepted as sufficient standards the following: "interest
of law and order;"51 "adequate and efficient instruction;"52 "public interest;"53 "justice and equity;"54
"public convenience and welfare;"55 "simplicity, economy and efficiency;"56 "standardization and
regulation of medical education;"57 and "fair and equitable employment practices."58 Provisions of the
EPIRA such as, among others, "to ensure the total electrification of the country and the quality,
reliability, security and affordability of the supply of electric power"59 and "watershed rehabilitation and
management"60 meet the requirements for valid delegation, as they provide the limitations on the ERCs
power to formulate the IRR. These are sufficient standards.

It may be noted that this is not the first time that the ERC's conferred powers were challenged. In
Freedom from Debt Coalition v. Energy Regulatory Commission,61 the Court had occasion to say:

In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must not be read
in separate parts. Rather, the law must be read in its entirety, because a statute is passed as a whole, and
is animated by one general purpose and intent. Its meaning cannot to be extracted from any single part
thereof but from a general consideration of the statute as a whole. Considering the intent of Congress in
enacting the EPIRA and reading the statute in its entirety, it is plain to see that the law has expanded the
jurisdiction of the regulatory body, the ERC in this case, to enable the latter to implement the reforms
sought to be accomplished by the EPIRA. When the legislators decided to broaden the jurisdiction of the
ERC, they did not intend to abolish or reduce the powers already conferred upon ERC's predecessors. To
sustain the view that the ERC possesses only the powers and functions listed under Section 43 of the
EPIRA is to frustrate the objectives of the law.

In his Concurring and Dissenting Opinion62 in the same case, then Associate Justice, now Chief Justice,
Reynato S. Puno described the immensity of police power in relation to the delegation of powers to the
ERC and its regulatory functions over electric power as a vital public utility, to wit:

Over the years, however, the range of police power was no longer limited to the preservation of public
health, safety and morals, which used to be the primary social interests in earlier times. Police power
now requires the State to "assume an affirmative duty to eliminate the excesses and injustices that are
the concomitants of an unrestrained industrial economy." Police power is now exerted "to further the
public welfare a concept as vast as the good of society itself." Hence, "police power is but another
name for the governmental authority to further the welfare of society that is the basic end of all
government." When police power is delegated to administrative bodies with regulatory functions, its
exercise should be given a wide latitude. Police power takes on an even broader dimension in developing
countries such as ours, where the State must take a more active role in balancing the many conflicting
interests in society. The Questioned Order was issued by the ERC, acting as an agent of the State in the
exercise of police power. We should have exceptionally good grounds to curtail its exercise. This
approach is more compelling in the field of rate-regulation of electric power rates. Electric power
generation and distribution is a traditional instrument of economic growth that affects not only a few but
the entire nation. It is an important factor in encouraging investment and promoting business. The
engines of progress may come to a screeching halt if the delivery of electric power is impaired. Billions of
pesos would be lost as a result of power outages or unreliable electric power services. The State thru the
ERC should be able to exercise its police power with great flexibility, when the need arises.
This was reiterated in National Association of Electricity Consumers for Reforms v. Energy Regulatory
Commission63 where the Court held that the ERC, as regulator, should have sufficient power to respond
in real time to changes wrought by multifarious factors affecting public utilities.

From the foregoing disquisitions, we therefore hold that there is no undue delegation of legislative
power to the ERC.

Petitioners failed to pursue in their Memorandum the contention in the Complaint that the imposition of
the Universal Charge on all end-users is oppressive and confiscatory, and amounts to taxation without
representation. Hence, such contention is deemed waived or abandoned per Resolution64 of August 3,
2004.65 Moreover, the determination of whether or not a tax is excessive, oppressive or confiscatory is
an issue which essentially involves questions of fact, and thus, this Court is precluded from reviewing the
same.66

As a penultimate statement, it may be well to recall what this Court said of EPIRA:

One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA. It established
a new policy, legal structure and regulatory framework for the electric power industry. The new thrust is
to tap private capital for the expansion and improvement of the industry as the large government debt
and the highly capital-intensive character of the industry itself have long been acknowledged as the
critical constraints to the program. To attract private investment, largely foreign, the jaded structure of
the industry had to be addressed. While the generation and transmission sectors were centralized and
monopolistic, the distribution side was fragmented with over 130 utilities, mostly small and uneconomic.
The pervasive flaws have caused a low utilization of existing generation capacity; extremely high and
uncompetitive power rates; poor quality of service to consumers; dismal to forgettable performance of
the government power sector; high system losses; and an inability to develop a clear strategy for
overcoming these shortcomings.

Thus, the EPIRA provides a framework for the restructuring of the industry, including the privatization of
the assets of the National Power Corporation (NPC), the transition to a competitive structure, and the
delineation of the roles of various government agencies and the private entities. The law ordains the
division of the industry into four (4) distinct sectors, namely: generation, transmission, distribution and
supply.

Corollarily, the NPC generating plants have to privatized and its transmission business spun off and
privatized thereafter.67

Finally, every law has in its favor the presumption of constitutionality, and to justify its nullification, there
must be a clear and unequivocal breach of the Constitution and not one that is doubtful, speculative, or
argumentative.68 Indubitably, petitioners failed to overcome this presumption in favor of the EPIRA. We
find no clear violation of the Constitution which would warrant a pronouncement that Sec. 34 of the
EPIRA and Rule 18 of its IRR are unconstitutional and void.

WHEREFORE, the instant case is hereby DISMISSED for lack of merit. SO ORDERED.