Manila Electric Company vs. Province of Laguna power has been given in favor of local government units.
given in favor of local government units. Under the now
G.R. No. 131359 May 5, 1999
Facts:
Certain municipalities of the Province of Laguna,by virtue of existing laws then in
effect, issued resolutions through their respective municipal councils granting
franchise in favor of Manila Electric Company ("MERALCO") for the supply of
electric light, heat and power within their concerned areas. MERALCO was likewise
granted a franchise by the National Electrification Administration to operate an
electric light and power service in the Municipality of Calamba, Laguna. On 12
September 1991, Republic Act No. 7160, otherwise known as the "Local
Government Code of 1991," was enacted to take effect on 01 January 1992
enjoining local government units to create their own sources of revenue and to
levy taxes, fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant to the provisions of
the Code, the Province enacted Laguna Provincial Ordinance No. 01-92, effective
01 January 1993, providing, in part, as follows: “Sec. 2.09. Franchise Tax. —
There is hereby imposed a tax on businesses enjoying a franchise, at a rate of
fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall
include both cash sales and sales on account realized during the preceding
calendar year within this province, including the territorial limits on any city
located in the province.” On the basis of the ordinance, the Provincial Treasurer
sent a demand letter to MERALCO for the corresponding tax payment. MERALCO,
contended that the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened
the provisions of Section 1 of P.D. 551 which read: “Any provision of law or local
ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light,
heat and power shall be two per cent (2%) of their gross receipts received from
the sale of electric current and from transactions incident to the generation,
distribution and sale of electric current. Such franchise tax shall be payable to the
Commissioner of Internal Revenue or his duly authorized representative on or
before the twentieth day of the month following the end of each calendar quarter
or month, as may be provided in the respective franchise or pertinent municipal
regulation and shall, any provision of the Local Tax Code or any other law to the
contrary notwithstanding, be in lieu of all taxes and assessments of whatever
nature imposed by any national or local authority on earnings, receipts, income
and privilege of generation, distribution and sale of electric current.”
Issue:
Whether the Local Government Code of 1991, has repealed, amended or modified
Presidential Decree No. 551.
Held:
Local governments do not have the inherent power to tax except to the extent
that such power might be delegated to them either by the basic law or by statute.
Presently, under Article X of the 1987 Constitution, a general delegation of that
prevailing Constitution, where there is neither a grant nor a prohibition by statute,
the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current rule is to safeguard
the viability and self-sufficiency of local government units by directly granting
them general and broad tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional; the constitutional
objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, 6 the legislature must still see to it
that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share
of available resources; (c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform, and just. The Local
Government Code of 1991 has incorporated and adopted, by and large, the
provisions of the now repealed Local Tax Code, which had been in effect since 01
July 1973, promulgated into law by Presidential Decree
No. 231 7 pursuant to the then provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes provincial governments,
notwithstanding "any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise ." Section 137 thereof provides:
“Sec. 137. Franchise Tax — Notwithstanding any exemption granted by any law
or other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. In the case of a newly started
business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of
the capital investment. In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein. “ Indicative
of the legislative intent to carry out the Constitutional mandate of vesting broad
tax powers to local government units, the Local Government Code has effectively
withdrawn under Section 193 thereof, tax exemptions or incentives theretofore
enjoyed by certain entities. This law states: “Sec. 193. Withdrawal of Tax
Exemption Privileges — Unless otherwise provided in this Code, tax exemptions
or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code. “ The Code, in addition, contains a general repealing
clause in its Section 534; thus: “Sec. 534. Repealing Clause. — . . .(f) All general
and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with
any of the provisions of this Code are hereby repealed or modified accordingly. “
PEPSI-COLA vs MUNICIPALITY OF TANAUAN G.R. No. L-31156 February 27, 1976
Facts: The municipality of Tanauan, Leyte enacted two ordinances in 1962:
The first one, Municipal Ordinance No. 23 levies and collects " from soft drinks
producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked." For the purpose of computing the taxes due, the
person, firm, company or corporation producing soft drinks shall submit to the
Municipal Treasurer a monthly report, of the total number of bottles produced
and corked during the month.
Municipal Ordinance No. 27 levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity ."
For the purpose of computing the taxes due, the person, firm, company,
partnership, corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of gallons produced or
manufactured during the month.
Pepsi-Cola commenced a complaint with preliminary injunction before the Court
of First Instance of Leyte for that court to declare Section 2 of the Local Autonomy
Act unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27 null and void. Section 2 of the Local Autonomy
Act of 1959 provides: “xxx, all chartered cities, municipalities and municipal
district shall have authority to impose municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts xxxx.” Pepsi said both
Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that
on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per
his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27 series of 1962.
Issues: 1. — Is Section 2, Republic Act No. 2264 an undue delegation of power,
confiscatory and oppressive and invalid as double taxation? 2. — Do Ordinances
Nos. 23 and 27 constitute double taxation and impose percentage or specific
taxes? 3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
Held: 1. As to undue delegation: The rule is that the power of taxation is purely
legislative and cannot be delegated. The exception, however, lies in the case of
municipal corporations. Legislative powers may be delegated to local
governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for purposes of
local self-government carries with it the power to confer on such local
governmental agencies the power to tax. Moreover, under the New Constitution,
local governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. The plenary nature of the taxing power
thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive.
As to the ordinances being confiscatory and oppressive: The taking of
property without due process of law may not be passed over under the guise of
taxing power. This is not to say though that the constitutional injunction against
deprivation of property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the
rule on uniformity of taxation is observed ; (3) either the person or property taxed
is within the jurisdiction of the government levying the tax ; and (4) in the
assessment and collection of certain kinds of taxes notice and opportunity for
hearing are provided. Due process does not require that the property subject to
the tax or the amount of tax to be raised should be determined by judicial inquiry,
and a notice and hearing as to the amount of the tax and the manner in which it
shall be apportioned are generally not necessary to due process of law.
As to the municipal ordinance being invalid on the ground of double
taxation resulting for delegation by the National Government: There is no
validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that
the delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity or by the same jurisdiction for the same
purpose, but not in a case where one tax is imposed by the State and
the other by the city or municipality.
2. There is no double taxation here. Ordinance No. 23, the first tax, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16)
of a centavo for every bottle corked, irrespective of the volume contents of the
bottle used. When it was discovered that the producer or manufacturer could
increase the volume contents of the bottle and still pay the same tax rate, the
Municipality of Tanauan enacted Ordinance No. 27 imposing a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference
between the two ordinances clearly lies in the tax rate of the soft drinks produced:
in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance
No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity.
The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27
is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23,
and operates as a repeal of the latter, even without words to that effect.
Moreover, the municipality mentioned in its letter that it was only seeking to
enforce Ordinance No. 27, series of 1962.
[As to the remaining Ordinance No. 27 imposes a percentage or a specific tax?
Undoubtedly, the taxing authority conferred on local governments under Section
2, Republic Act No. 2264, is broad enough as to extend to almost "everything,
accepting those which are mentioned therein." As long as the tax levied under
the authority of a city or municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of the general rule. The
limitation applies, particularly, to the prohibition against municipalities and
municipal districts to impose "any percentage tax or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax except gasoline, under
the provisions of the National Internal Revenue Code." For purposes of this
particular limitation, a municipal ordinance which prescribes a set ratio between
the amount of the tax and the volume of sale of the taxpayer imposes a sales tax
and is null and void for being outside the power of the municipality to enact.
The imposition of "a tax of one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature
of a percentage tax on sales, or other taxes in any form based thereon.
The tax is levied on the produce (whether sold or not) and not on the
sales. The volume capacity of the taxpayer's production of soft drinks is
considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the
amount of the tax.
Nor can the tax levied on softdrinks be treated as a specific tax. Specific
taxes are those imposed on specified articles, such as distilled spirits, wines,
fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-
forming drugs. Soft drink is not one of those specified.]
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-½
centavos per case is not unjust and unfair. Municipal corporations are allowed
much discretion in determining the rates of imposable taxes. This is in line with
the constitutional policy of according the widest possible autonomy to local
governments in matters of local taxation. Unless the amount is so excessive as to
be prohibitive, courts will go slow in writing off an ordinance as unreasonable.
TAX DEPARTMENT
TAX DIGEST
The proper party to
question or seek a refund of
the tax is the statutory
taxpayer, the person on
whom the tax is imposed by
law and who paid the same
even when he shifts the
burden thereof to another.
Facts: Silkair (Singapore) Pte, Ltd (herein petitioner)., a foreign corporation duly
licensed to do business in the Philippines, filed an administrative claim for
refund for excise taxes paid by Petron Corporation (Petron) in the amount
of P5,007,043.39. Petitioner contends that in the course of its operations,
they purchased aviation fuel from Petron from July 1, 1998 to December
31, 1998 thereby paying the excise taxes thereon. Petitioners claimed
that under Section 135 (a) and (b) of the 1997 Tax Code they are exempt
from paying excise taxes. Petitioner also invoked Article 4(2) of the Air
Transport Agreement between the government of the Philippines and the
Government of the republic of Singapore agreeing that fuel, lubricants,
spare parts, regular equipment and aircraft stores introduced into or
taken on board aircraft shall be exempt from the same customs duties,
inspection fees and other duties or taxes imposed in the territory of the
other Contracting party. The Court of Appeals affirm the denial by Court
of Tax Appeals ruling that although the petitioner is exempt from paying
excise taxes on petroleum products by virtue of Section 135 (b) of the
1997 Tax Code, they are not the proper party to seek the refund of the
excise taxes paid. A Motion for Reconsideration was denied hence this
appeal. Petitioner further contends that they are the proper party to claim
refund being the entity granted the exemption under the Air Transport
Agreement.
.
Issue: Is the petitioner entitled to a tax refund
Ruling: Excise taxes, which apply to articles manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition
and to things imported into the Philippines, is basically an indirect tax.
While the tax is directly levied upon the manufacturer/importer upon
removal of the taxable goods from its place of production or from the
customs custody, the tax, in reality, is actually passed on to the end
consumer as part of the transfer value or selling price of the goods, sold,
bartered or exchanged. In early cases, we have ruled that for indirect
taxes (such as valued-added tax or VAT), the proper party to question or
seek a refund of the tax is the statutory taxpayer, the person on whom
 the tax is imposed by law and who paid the same even when he shifts dismissed. Hence, this petition for review on certiorari under Rule 45
the burden thereof to another. assailing the decision of the Court of Appeals.

(Silkair (Singapore) Pte. Ltd vs Comissioner of Internal Revenue, G.R. No. 166482, Issue: Was the issuance of CMO 27-2003 within the powers of the Commissioner
January 25, 2012) of Customs?

Held: The provision mandates that the customs officer must first assess and
determine the classification of the imported article before tariff may be
imposed. Unfortunately, CMO 23-2007 has already classified the article
even before the customs officer had the chance to examine it. In effect,
Customs officer must first petitioner Commissioner of Customs diminished the powers granted by
assess and determine the the Tariff and Customs Code with regard to wheat importation when it no
classification of the
longer required the customs officer’s prior examination and assessment
imported article before
tariff may be imposed. of the proper classification of the wheat.
It is well-settled that rules and regulations, which are the product of a
delegated power to create new and additional legal provisions that have
the effect of law, should be within the scope of the statutory authority
Facts: The Commissioner of Customs issued CM 27-2003 classifying wheat as (1)
granted by the legislature to the administrative agency. It is required that
importer or consignee; (2) country of origin; and (3) port of discharge
the regulation be germane to the objects and purposes of the law; and
and depending on these factors, wheat would be classified further as
that it be not in contradiction to, but in conformity with, the standards
either food grade with a tariff rate of 3% or feed grade with a tariff rate
prescribed by law.
of 7%. The regulation also provides for an exclusive list of corporations,
ports of discharge, commodity descriptions and countries of origin. On
(Commissioner of Customs and the District Collector of the Port of Subic vs
December 19, 2003, the respondent filed a Petition for Declaratory Relief
Hypermix Feeds Corporation, G.R. No 179579, February 1, 2012)
with the Regional Trial Court of Las Pinas contending the following: (1)
the regulation was issued without following the mandate of the Revised
Administrative Code, (2) that the regulation classified them to be a feed
grade supplier without prior assessment and examination, (3) the equal
protection clause of the Constitution was violated when the regulation
treated the non-flour millers differently from flour millers for no reason at
all, and (4) the retroactive application of the regulation is confiscatory.
The petitioners thereafter filed a motion to dismiss contending that: (1)
In case of the inaction of the
the RTC does not have jurisdiction of the subject matter, (2) an action
CIR on the protested
for declaratory relief was improper, (3) CM 27-2003 was an internal
assessment, the taxpayer
administrative rule and not legislative in nature; and (4) the claims of the
has two options, and these
respondent were speculative and premature. On March 10, 2005, the
options are mutually
Regional Trial Court rendered a decision ruling in favour of the
exclusive and resort to one
respondent. It held that the jurisdiction is properly held because the
bars the application of the
subject matter is quasi-legislative in nature. It also held that the petition
other.
for declaratory relief was proper remedy and that the respondent was the
proper party to file it. On matters relating to the validity of the regulation,
the court held that the regulation is invalid because the basic Facts: An assessment notice was issued on March 27, 1998 by the Commissioner
requirements of hearing and publication were not complied with. The of Internal Revenue against Lascona Land Co. Inc (Lascona) for their
petitioners then appealed to Court of Appeals but it was, however, alleged deficiency income tax for the year 1993 in the amount of
P753,266,56. Lascona subsequently filed a letter of protest on April 20,
1998, bur was later on denied by Norberto Odulio, the officer-in-charge,
 Regional Director, Bureau of Internal Revenue, Revenue Region No. 8,
Makati City. His denial was based on Section 228 of the Tax Code.
Lascona appealed to the CTA argung that the Regional Director erred in
ruling that the failure to appeal to the CTA within thirty (30) days from
the lapse of teh 180-day period rendered the assessment final and
executor. The CTA nullified the subject assessment in its decision on
January 4, 2000. A motion for reconsideration by the CIR was denied,
thus prompting them to appeal to the Court of Appeals. The CA set aside
the Decision of the CTA and further declared that the subject Assessment
Notice as final and executor.
Issue: Did the Court of Appeals Err in holding the assessment notice as final,
executor, and demandable?
Held: In RCBC v. CIR1, the Court has held that in case the Commissioner failed
to act on the disputed assessment within the 180-day period from date
of submission of documents, a taxpayer can either: (1) file a petition for
review with the Court of Tax Appeals within 30 days after the expiration
of the 180-day period; or (2) await the final decision of the Commissioner
on the disputed assessments and appeal such final decision to the Court
of Tax Appeals within 30 days after receipt of a copy of such decision.
It must be emphasized, however, that in case of the inaction of the CIR
on the protested assessment, while we reiterate − the taxpayer has two
options, either: (1) file a petition for review with the CTA within 30 days
after the expiration of the 180-day period; or (2) await the final decision
of the Commissioner on the disputed assessment and appeal such final
decision to the CTA within 30 days after the receipt of a copy of such
decision, these options are mutually exclusive and resort to one bars the
application of the other.
(Lascona Land Co. Inco. vs Comissioner of Internal Revenue, G.R. No. 171251,
March 5, 2012)
Tax Credit Certificates are
valid and effective from
their issuance and are not
subject to a post-audit as a
1
G.R. No. 168498, April 24, 2007, 522 SCRA 144
suspensive condition for
their validity
Facts: For the taxable years of 1995 to 1998, Petron Corporation (herein
respondent) had been using Tax Credit Certificates (TCCs) assigned by
them by several BOI-registered entities in payment of its excise taxes.
The transfers and assignment of the TCCs where approved by the
Department of Finance’s One Stop Shop Inter-Agency Tax Credit and
Duty Drawback Center (DOF Center), composed of representatives from
the appropriate government agencies. The Commissioner of Internal
Revenue (herein petitioner) acceptance of the TCCs as payment of the
respondents excise tax were continuously approved by the DOF as well
as the BIR’s Collection Program Division through its surrender and
subsequent issuance by the Assistant Commissioner of the Collection
Service of the BIR of the Tax Debit Memos (TDMs). However on January
30, 2002, petitioner issued an assessment against petitioner for
deficiency excise taxes for the taxable years 1995 to 1998. The deficiency
excise taxes was based on the ground that the TCCs utilized by the
petitioner have been cancelled by the DOF for having fraudulently issued
and transferred. The respondent filed a protest letter to the ‘Assessment’
but was adversely decided upon by the BIR by serving a Warrant of
Distraint and/or Levy upon them. The Court of Tax Appeal- second
division denied the petition of the respondent and ordered it to pay the
deficiency taxes together with interest and surcharge. The CTA En banc
thereafter promulgated a decision which reveres and set aside the
decision of the CTA-second division. Hence, this petition by the
Commissioner of Internal Revenue.
Issue: Are Tax Credit Certificates subject to a post-audit as a suspensive condition
for their validity?
Held: TCCs are valid and effective from their issuance and are not subject to a
post-audit as a suspensive condition for their validity. Our ruling
in Petron finds guidance from our earlier ruling in Shell, which
categorically states that a TCC is valid and effective upon its issuance and
is not subject to a post-audit. The implication on the instant case of the
said earlier ruling is that Petron has the right to rely on the validity and
effectivity of the TCCs that were assigned to it. In finally determining their
effectivity in the settlement of respondent’s excise tax liabilities, the
validity of those TCCs should not depend on the results of the DOF’s post-
audit findings.
 because the Bureau of Customs had yet to examine respondent’s
products.
(Commisioner of Internal Revenue Vs. Petron Corporation, G.R. No. 185568, 9) RTC held that a petition for declaratory relief was proper remedy, and
March 21, 2012)
that respondent was the proper party to file it.
ISSUE
DECISION
WON Whether or not the CMO 27-2003 of the petitioner met the requirements
NO
for the Revised Administrative Code? Whether or not the content of the
 The petitioners violated respondents’ right to due process in the issuance
CMO 27-2003 met the requirement of the equal protection clause of the
of CMO 27-2003 when they failed to observe the requirements under the
Constitution
Administrative Code which are:
FACTS
1) November 7 2003, petitioner Commissioner of Customs issued CMO 27-
Sec 3. Filing. (1) Every agency shall file with the University of the
2003 (Customs Memorandum Order).
Philippines Law Center three (3) certified copies of every rule adopted by
2) Under the memorandum, for tariff purposes, wheat is classified according
it. Rules in force on the date of effectively of this Code which are not filed
to:
within three (3) months from that date shall not thereafter be the bases
a) Importer or consignee
of any sanction against any party of persons.
b) Country of origin,
Sec 9. Public Participation. - (1) If not otherwise required by law, an
c) 3. Port of discharge.
agency shall, as far as practicable, publish or circulate notices of proposed
rules and afford interested parties the opportunity to submit their views
Depending on these factors wheat would be classified as either as food
prior to the adoption of any rule. (2) In the fixing of rates, no rule or final
grade or food feed.
order shall be valid unless the proposed rates shall have been published
3) The corresponding tariff for food grade wheat was 3%, for food feed
in a newspaper of general circulation at least 2 weeks before the first
grade 7%.
hearing thereon.(3) In case of opposition, the rules on contested cases
4) A month after the issuance of CMO 27-200 respondent filed a petition for
shall be observed.
declaratory for Relief with the Regional Trial Court of Las Piñas City.
 CMO 27-2003 is not constitutional because it failed to meet the equal
5) Respondent contented that CMO 27-2003 was issued without following
protection clause. We do not see how the quality of wheat is affected by
the mandate of the Revised Administrative Code on public participation,
who imports it, where it is discharged or which country it came from.
prior notice, and publication or registration with University of the
 The Equal Protection Clause means that no person or class of persons
Philippines Law Canter.
shall be deprived of the same protection of laws enjoyed by other persons
6) Respondent also alleged that the regulation summarily adjudged it to be
or other classes in the same place in the like circumstances. The
a feed grade supplier without the benefit of prior assessment and
guarantee of equal protection of laws is not violated when there is a
examination, despite having imported food grade wheat, it would be
reasonable classification.
subjected to the 7% tariff upon the arrival of the shipment, forcing to pay
 For a classification to be reasonable, it must be shown that
133%.
a) it rests on substantial distinctions;
7) Respondent also claimed that the equal protection clause of the
b) it is germane to the purpose of the law;
Constitution was violated and asserted that the retroactive application of
c) it is not limited to existing conditions only; and
the regulation was confiscatory in nature.
d) it applies equally to all members of the same class.
8) Petitioners filed a Motion to Dismiss. They alleged that: 1. The RTC did
 Petitioners violated respondents right to equal protection of laws when
not have jurisdiction over the subject matter of the case, 2. an action for
they provided for unreasonable classification in the application of the
declaratory relief (Rule 63, Sec.1 “who may file petition”) was improper,
regulation. Petitioner Commissioner of Customs went beyond his powers
3. CMO 27-2003 was internal administrative rule not legislative in nature,
of delegated authority when the regulation limited the powers of the
and 4. The claims of respondent were speculative and premature,
customs officer to examine and assess imported articles.

NOTES
G.R. No. 179579
February 1 2012
COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE
PORT OF SUBIC (Petitioner)
VS
HYPERMIX FEEDS CORPORATION (Respondent)
FACTS:
November 7 2003, petitioner Commissioner of Customs issued CMO 27-
2003 (Customs Memorandum Order). Under the memorandum, for tariff
purposes, wheat is classified according to: 1. Importer or consignee, 2. Country
of origin, and 3. Port of discharge. Depending on these factors wheat would be
classified as either as food grade or food feed. The corresponding tariff for food
grade wheat was 3%, for food feed grade 7%. A month after the issuance of
CMO 27-200 respondent filed a petition for declaratory for Relief with the Regional
Trial Court of Las Piñas City.
Respondent contented that CMO 27-2003 was issued without following
the mandate of the Revised Administrative Code on public participation, prior
notice, and publication or registration with University of the Philippines Law
Canter. Respondent also alleged that the regulation summarily adjudged it to be
a feed grade supplier without the benefit of prior assessment and examination,
despite having imported food grade wheat, it would be subjected to the 7% tariff
upon the arrival of the shipment, forcing to pay 133%. Respondent also claimed
that the equal protection clause of the Constitution was violated and asserted that
the retroactive application of the regulation was confiscatory in nature.
Petitioners filed a Motion to Dismiss. They alleged that: 1. The RTC did
not have jurisdiction over the subject matter of the case, 2. an action for
declaratory relief (Rule 63, Sec.1 “who may file petition”) was improper, 3. CMO
27-2003 was internal administrative rule not legislative in nature, and 4. The
claims of respondent were speculative and premature, because the Bureau of
Customs had yet to examine respondent’s products.
RTC held that a petition for declaratory relief was proper remedy, and
that respondent was the proper party to file it.
ISSUE:
Whether or not the CMO 27-2003 of the petitioner met the requirements
for the Revised Administrative Code? Whether or not the content of the CMO 27-
2003 met the requirement of the equal protection clause of the Constitution?
RULLING:
No, they did not. The petitioners violated respondents’ right to due
process in the issuance of CMO 27-2003 when they failed to observe the
requirements under the Administrative Code which are:
Sec 3. Filing. (1) Every agency shall file with the University of the Philippines Law
Center three (3) certified copies of every rule adopted by it. Rules in force on the
date of effectively of this Code which are not filed within three (3) months from
that date shall not thereafter be the bases of any sanction against any party of
persons.
Sec 9. Public Participation. - (1) If not otherwise required by law, an
agency shall, as far as practicable, publish or circulate notices of proposed
rules and afford interested parties the opportunity to submit their views
prior to the adoption of any rule. (2) In the fixing of rates, no rule or final
order shall be valid unless the proposed rates shall have been published
in a newspaper of general circulation at least 2 weeks before the first
hearing thereon.(3) In case of opposition, the rules on contested cases
shall be observed.
No. CMO 27-2003 did not meet these requirements. For a classification to be
reasonable, it must be shown that 1. it rests on substantial distinctions; 2. it is
germane to the purpose of the law; 3. it is not limited to existing conditions only;
and 4. it applies equally to all members of the same class. Petitioners violated
respondents right to equal protection of laws when they provided for
unreasonable classification in the application of the regulation. Petitioner
Commissioner of Customs went beyond his powers of delegated authority when
the regulation limited the powers of the customs officer to examine and assess
imported articles.
 British American Tobacco Corporation v. Finance Secretary Camacho,  Lucky Strike was classified as premium-priced hence was imposed the
BIR Commissioner Parayno (2008) Above P10 tax rate
 Lucky Strike protested the P22.77M tax assessment pegged at P25/pack
 Lucky Strike interposes that the legislative freeze is discriminatory against
new brands and poses barrier to entry in the cigarette industry
Doctrine: Classification if rational in character is allowable. The taxing power o Legislative freeze means: existing or "old" brands shall be taxed
has the authority to make reasonable and natural classifications for purposes of based on their net retail price as of October 1, 1996.
taxation. o Hence, the classification based on pricing is lower for older
brands compared to new entrants
 Lucky Strike found it unfair that Philip Morris and Marlboro are classified
only as High-priced while it is classified as Premium Priced.
Facts:
WON:
 British American Tobacco is the distributor of Lucky Strike Cigarette in the
Philippines 1. The pertinent portions of RA 8240, as amended by RA 9334,
 The company is questioning the constitutionality of RA 8240, entitled "An discriminates against new cigarette brands and favors old cigarette
Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended brands?
and For Other Purposes," which took effect on January 1, 1997 2. The classification freeze provision unduly favors older brands over
 The law provided a legislative freeze on brands of cigarettes introduced newer brands?
between the period January 2, 1997 to December 31, 2003, such that
said cigarettes shall remain in the classification under which the BIR has
determined them to belong as of December 31, 2003, until revised by
Congress. Held: In applying the rational basis test, the Court found the questioned law
 In effect: older brands or existing brands will have, in the long term, Constitutional.
lower price and tax rate as inflation and price appreciation were not  A legislative classification that is reasonable does not offend the
factored in. constitutional guaranty of the equal protection of the laws.
o Their tax rate shall remain until Congress changes it  The classification is considered valid and reasonable provided that:
o Hence, a legislative freeze in the class of cigarettes (1) it rests on substantial distinctions;
Net Retail 2005 Tax 2007 Tax 2009 Tax 2011 Tax Supreme (2) it is germane to the purpose of the law;
Price Court (3) it applies, all things being equal, to both present and future
(excluding Classification conditions; and
excise tax (4) it applies equally to all those belonging to the same class.
and VAT  classification freeze provision uniformly applies to all newly introduced
brands in the market,
Less than P2/pack P2.23/pack P2.47/pack P2.72/pack Low-priced
 Finding that the assailed law seems to derogate, to a limited extent, one
P5 per
of its avowed objectives (i.e. promoting fair competition among the
pack
players in the industry) would suggest that, by Congress’s own standards,
Bet P5- P6.35/pack P6.74/pack P7.14/pack P7.56/pack Medium-
the current excise tax system on sin products is imperfect. But the Court
P6.50 priced
cannot declare a statute unconstitutional merely because it can be
Bet P6.50- P10.35/pack P10.88/pack P11.43/pack P12/pack High-priced
improved or that it does not tend to achieve all of its stated objectives.
P10
Above P10 P25/pack P26.06/pack P27.16/pack P28.30/pack Premium-
British American Tobacco Corporation v. Finance Secretary Camacho,
priced
BIR Commissioner Parayno (2009)
 New brands shall be classified according to current net retail price
 New brands are the ones registered after January 1, 1997 Doctrine: A levy of tax is not unconstitutional because it is not intrinsically equal
 In 2001, Lucky Strike was introduced in the market and uniform in its operation.The uniformity rule does not prohibit classification for
purposes of taxation

Facts:
 British American Tobacco filed a Motion for Reconsideration for the
Court’s decision in 2008
 Petitioner interposes that the assailed provisions:
(1) violate the equal protection and uniformity of taxation clauses of the
Constitution,
(2) contravene Section 19,[1] Article XII of the Constitution on unfair
competition, and
(3) infringe the constitutional provisions on regressive and inequitable
taxation.
 Petitioner further argues that assuming the assailed provisions are
constitutional, it is entitled to a downward reclassification of Lucky Strike
from the premium-priced to the high-priced tax bracket.
 Lucky Strike reiterates in its MR that the classification freeze provision
violates the equal protection and uniformity of taxation clauses because
older brands are taxed based on their 1996 net retail prices while new
brands are taxed based on their present day net retail prices.
HELD: Petition is denied
 Without merit and a rehash of petitioner’s previous arguments before this
Court
 The rational basis test was properly applied to gauge the constitutionality
of the assailed law in the face of an equal protection challenge
The classification is considered valid and reasonable provided
that: (1) it rests on substantial distinctions; (2) it is germane
to the purpose of the law; (3) it applies, all things being equal,
to both present and future conditions; and (4) it applies
equally to all those belonging to the same class.
 The classification freeze provision was inserted in the law for reasons of
practicality and expediency.
o since a new brand was not yet in existence at the time of the
passage of RA 8240, then Congress needed a uniform mechanism
to fix the tax bracket of a new brand.
o The current net retail price, similar to what was used to classify
the brands under Annex “D” as of October 1, 1996, was thus the
logical and practical choice
 The classification freeze provision was in the main the result of Congress’s
earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with
other State interests
American Bible Society v. City of Manila [GR L-9637, 30 April 1957]
Second Division, Felix (J): 7 concur, 1 concur in result
Facts: In the course of its ministry, American Bible Society’s Philippine agency has
been distributing and selling bibles and/or gospel portions thereof (since 1898,
but except during the Japanese occupation) throughout the Philippines and
translating the same into several Philippine dialects. On 29 May 1953, the acting
City Treasurer of the City of Manila informed the Society that it was conducting
the business of general merchandise since November 1945, without providing
itself with the necessary Mayor’s permit and municipal license, in violation of
Ordinance 3000, as amended, and Ordinances 2529, 3028 and 3364, and required
the Society to secure, within 3 days, the corresponding permit and license fees,
together with compromise covering the period from the 4th quarter of 1945 to
the 2nd quarter of 1953, in the total sum of P5,821.45. On 24 October 1953, the
Society paid to the City Treasurer under protest the said permit and license fees,
giving at the same time notice to the City Treasurer that suit would be taken in
court to question the legality of the ordinances under which the said fees were
being collected, which was done on the same date by filing the complaint that
gave rise to this action. After hearing, the lower court dismissed the complaint for
lack of merit. the Society appealed to the Court of Appeals, which in turn certified
the case to the Supreme Court for the reason that the errors assigned involved
only questions of law.
Issue: Whether the Society is required to secure municipal permit to allow it to
sell and distribute bibles and religious literature, and to pay taxes from the sales
thereof.
Held: No. Section 27 (e) of Commonwealth Act 466 (NIRC) exempts corporations
or associations organized and operated exclusively for religious, charitable, or
educational purposes, Provided however, That the income of whatever kind and
character from any of its properties, real or personal, or from any activity
conducted for profit, regardless of the disposition made of such income, shall be
liable to the tax imposed under the Code. Herein, the act of distributing and selling
bibles, etc. is purely religious and cannot be made liable for taxes or fees therein.
Further, Ordinance 2529, as amended, cannot be applied to the Society, for in
doing so it would impair its free exercise and enjoyment of its religious profession
and worship as well as its rights of dissemination of religious beliefs. The fact that
the price of the bibles and other religious pamphlets are little higher than the
actual cost of the same does not necessarily mean that it is already engaged in
the business or occupation of selling said “merchandise” for profit. Furthermore,
Ordinance 3000 of the City of Manila is of general application and it does not
contain any provisions whatsoever prescribing religious censorship nor restraining
the free exercise and enjoyment of any religious profession. The ordinance is not
applicable to the Society, as its business, trade or occupation is not particularly
mentioned in Section 3 of the Ordinance, and the record does not show that a
permit is required therefor under existing laws and ordinances for the proper
supervision and enforcement of their provisions governing the sanitation, security
and welfare of the public and the health of the employees engaged in the business
of the Society.
 American Bible Society vs. City of Manila
American Bible Society vs. City of Manila
GR No. L-9637 | April 30, 1957
Facts:
American Bible Society is a foreign, non-stock, non-profit, religious, missionary
corporation duly registered and doing business in the Philippines through its
Philippine agency established in Manila in November, 1898
City of Manila is a municipal corporation with powers that are to be exercised
in conformity with the provisions of Republic Act No. 409, known as the Revised
Charter of the City of Manila
American Bible Society has been distributing and selling bibles and/or gospel
portions throughout the Philippines and translating the same into several
Philippine dialect
City Treasurer of Manila informed American Bible Society that it was violating
several Ordinances for operating without the necessary permit and license,
thereby requiring the corporation to secure the permit and license fees covering
the period from 4Q 1945-2Q 1953
To avoid closing of its business, American Bible Society paid the City of Manila
its permit and license fees under protest
American Bible filed a complaint, questioning the constitutionality and legality
of the Ordinances 2529 and 3000, and prayed for a refund of the payment made
to the City of Manila. They contended:
a. They had been in the Philippines since 1899 and were not required to pay any
license fee or sales tax
b. it never made any profit from the sale of its bibles
City of Manila prayed that the complaint be dismissed, reiterating the
constitutionality of the Ordinances in question
Trial Court dismissed the complaint
American Bible Society appealed to the Court of Appeals
Issue: WON American Bible Society liable to pay sales tax for the distribution and
sale of bibles
Ruling: NO
Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person
or entity engaged in any of the business, trades or occupation enumerated under
Sec. 3 must obtain a Mayor’s permit and license from the City Treasurer. American
Bible Society’s business is not among those enumerated
However, item 79 of Sec. 3 of the Ordinance provides that all other businesses,
trade or occupation not mentioned, except those upon which the City is not
empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of
the City to license or tax said business, trade or occupation.
2 provisions of law that may have bearing on this case:
a. Chapter 60 of the Revised Administrative Code, the Municipal Board of
the City of Manila is empowered to tax and fix the license fees on retail dealers
engaged in the sale of books
b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general
merchandise, including importers and indentors, except those dealers who may
be expressly subject to the payment of some other municipal tax. Further, Dealers
in general merchandise shall be classified as (a) wholesale dealers and (b) retail
dealers. For purposes of the tax on retail dealers, general merchandise shall be
classified into four main classes: namely (1) luxury articles, (2) semi-luxury
articles, (3) essential commodities, and (4) miscellaneous articles. A separate
license shall be prescribed for each class but where commodities of different
classes are sold in the same establishment, it shall not be compulsory for the
owner to secure more than one license if he pays the higher or highest rate of
tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such,
as may be provided by ordinance
The only difference between the 2 provisions is the limitation as to the amount
of tax or license fee that a retail dealer has to pay per annum
As held in Murdock vs. Pennsylvania, The power to impose a license tax on
the exercise of these freedoms provided for in the Bill of Rights, is indeed as
potent as the power of censorship which this Court has repeatedly struck down.
It is not a nominal fee imposed as a regulatory measure to defray the expenses
of policing the activities in question. It is in no way apportioned. It is flat license
tax levied and collected as a condition to the pursuit of activities whose enjoyment
is guaranteed by the constitutional liberties of press and religion and inevitably
tends to suppress their exercise. That is almost uniformly recognized as the
inherent vice and evil of this flat license tax.
Further, the case also mentioned that the power to tax the exercise of a
privilege is the power to control or suppress its enjoyment. Those who can tax
the exercise of this religious practice can make its exercise so costly as to deprive
it of the resources necessary for its maintenance. Those who can tax the privilege
of engaging in this form of missionary evangelism can close all its doors to all
those who do not have a full purse
Under Sec. 27(e) of Commonwealth Act No. 466 or the National
Internal Revenue Code,Corporations or associations organized and operated
exclusively for religious, charitable, . . . or educational purposes, . . .: Provided,
however, That the income of whatever kind and character from any of its
properties, real or personal, or from any activity conducted for profit, regardless
of the disposition made of such income, shall be liable to the tax imposed under
this Code shall not be taxed
The price asked for the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the same but this cannot mean
that American Bible Society was engaged in the business or occupation of selling
said "merchandise" for profit
Therefore, the Ordinance cannot be applied for in doing so it would impair
American Bible Society’s free exercise and enjoyment of its religious profession
and worship as well as its rights of dissemination of religious beliefs.
Wherefore, and on the strength of the foregoing considerations, We
hereby reverse the decision appealed from, sentencing defendant
return to plaintiff the sum of P5,891.45 unduly collected from it
Commissioner of Internal Revenue vs. Central Luzon Drug
Corporation
GR No. 159647, April 15, 2005
Facts:
Respondent is a domestic corporation engaged in the 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 20% sales discount to qualified senior citizens on their
purchases of medicines pursuant to RA 7432. For said period respondent granted
a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual ITR for taxable year 1996 declaring
therein net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for
tax refund/credit of ₱ 904,769.00 alledgedly arising from the 20% sales discount.
Unable to obtain affirmative response from petitioner, respondent elevated its
claim to the CTA via Petition for Review. CTA dismissed the same but on MR, CTA
reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate
in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon
Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with illegally
collected or erroneously paid taxes but that there are other situations which may
warrant a tax credit/refund.
CA affirmed CTA decision reasoning that 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.
ISSUE: W/N respondent, despite incurring a net loss, may still claim the 20%
sales discount as a tax credit.
RULING:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of
obtaining a 20% discount on their purchase of medicine from any private
establishment in the country. The latter may then claim the cost of the discount
as a tax credit. Such credit can be claimed even if the establishment operates at
a loss.
A tax credit generally refers to an amount that is “subtracted directly from one’s
total tax liability.” It is an “allowance against the tax itself” or “a deduction from
what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these
is tax deduction – which is subtraction “from income for tax purposes,” 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.” In other words, whereas a
tax credit reduces the tax due, tax deduction reduces the income subject to tax
in order to arrive at the taxable income.
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. 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. However, for the losing establishment
to immediately apply such credit, where no tax is due, will be an improvident
usance.
In addition, 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.
Petition is denied.
PLANTERS PRODUCTS, INC. VS. FERTIPHIL CORPORATION (Ponente:
Reyes)
Doctrine/s:
(1) If the purpose is primarily revenue, or if revenue is, at least, one of the
real and substantial purposes, then the exaction is properly called a tax.
(2) The power to tax exists for the general welfare; hence, implicit in its
power is the limitation that it should be used only for a public purpose.
Facts:
Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws. They are both engaged in the
importation and distribution of fertilizers, pesticides and agricultural chemicals.

On 3 June 1985, then President Ferdinand Marcos, exercising his
legislative powers, issued LOI No. 1465 which provided, among others,
for the imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers in the Philippines. The LOI
provides:
3. The Administrator of the Fertilizer Pesticide Authority to include in its
fertilizer pricing formula a capital contribution component of not
less than P10 per bag. This capital contribution shall be collected
until adequate capital is raised to make PPI viable. Such capital
contribution shall be applied by FPA to all domestic sales of
fertilizers in the Philippines. (Underscoring supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in
the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA
then remitted the amount collected to the Far East Bank and Trust
Company, the depositary bank of PPI.Fertiphil paid P6,689,144 to FPA from
July 8, 1985 to January 24, 1986
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition
of the P10 levy. With the return of democracy, Fertiphil demanded from PPI
a refund of the amounts it paid under LOI No. 1465, but PPI refused to
accede to the demand.
Fertiphil filed a complaint for collection and damagesagainst FPA and
PPI with the RTC in Makati. It questioned the constitutionality of LOI No. 1465
for being unjust, unreasonable, oppressive, invalid and an unlawful imposition
that amounted to a denial of due process of law.Fertiphil alleged that the LOI
solely favored PPI, a privately owned corporation, which used the
proceeds to maintain its monopoly of the fertilizer industry.
In its Answer, FPA, through the Solicitor General, countered that the
issuance of LOI No. 1465 was a valid exercise of the police power of the
State in ensuring the stability of the fertilizer industry in the country. It
also averred that Fertiphil did not sustain any damage from the LOI because the
burden imposed by the levy fell on the ultimate consumer, not the seller.
RTC: the imposition of the P10 CRC was an exercise of the State’s
inherent power of taxation; invalidated the levy for violating the basic
principle that taxes can only be levied for public purpose. (PPI filed a M.R.
-> denied; In a separate but related proceeding, SC allowed appeal but remanded
to CA)
CA: affirmed with modification; even on the assumption that LOI No. 1465
was issued under the police power of the state, it is still
unconstitutional because it did not promote public welfare; the levy was
NOT for the benefit, as alleged, of Planters Foundation, Inc. (on the
strength of the Letter of Understanding (LOU) issued by then Prime
Minister Cesar Virata on 18 April 1985 and affirmed by the Secretary of
Justice in an Opinion dated 12 October 1987.(PPI filed a M.R. -> denied)
Issue/s:
(1) Whether the imposition of the levy was an exercise by the State of its
taxation power.
(2) Whether LOI 1465 constitutes a valid legislation pursuant to the exercise
of taxation.
(3) Whether LOI 1465 constitutes a valid legislation pursuant to the exercise
of police power.
Held:
(1) Yes;
The imposition of the levy was an exercise by the State of its taxation power.
While it is true that the power of taxation can be used as an implement of police
power,the primary purpose of the levy is revenue generation. If the purpose is
primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax.
In Philippine Airlines, Inc. v. Edu, it was held that the imposition of a vehicle
registration fee is not an exercise by the State of its police power, but of its
taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123
and Section 61 of the Land Transportation and Traffic Code that the
legislative intent and purpose behind the law requiring owners of vehicles
to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the
operating expenses of the administering agency. x xx Fees may be
properly regarded as taxes even though they also serve as an
instrument of regulation.
 Taxation may be made the implement of the state's police power (Lutz v.
Araneta, 98 Phil. 148). If the purpose is primarily revenue, or if revenue
is, at least, one of the real and substantial purposes, then the exaction is
properly called a tax. Such is the case of motor vehicle registration fees.
The same provision appears as Section 59(b) in the Land Transportation
Code. It is patent therefrom that the legislators had in mind a regulatory
tax as the law refers to the imposition on the registration, operation or
ownership of a motor vehicle as a "tax or fee." x xx Simply put, if the
exaction under Rep. Act 4136 were merely a regulatory fee, the
imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act
4136 also speaks of other "fees" such as the special permit fees for certain
types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus,
they are not mentioned by Sec. 59(b) of the Code as taxes like the motor
vehicle registration fee and chauffeurs’ license fee. Such fees are to go
into the expenditures of the Land Transportation Commission as provided
for in the last proviso of Sec. 61. (Underscoring supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a mere
regulatory purpose. The levy, no doubt, was a big burden on the seller or the
ultimate consumer. It increased the price of a bag of fertilizer by as much as five
percent. A plain reading of the LOI also supports the conclusion that the
levy was for revenue generation. The LOI expressly provided that the
levy was imposed "until adequate capital is raised to make PPI viable."
(2) No;
The P10 levy is unconstitutional because it was not for a public purpose. The levy
was imposed to give undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes
are exacted only for a public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons. The reason for
this is simple. The power to tax exists for the general welfare; hence,
implicit in its power is the limitation that it should be used only for a
public purpose.
The term "public purpose" is not defined. It is an elastic concept that can be
hammered to fit modern standards. Jurisprudence states that "public
purpose" should be given a broad interpretation. It does not only
pertain to those purposes which are traditionally viewed as essentially
government functions, such as building roads and delivery of basic
services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers,
low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent
requirement that taxes can only be exacted for a public purpose still
stands. Public purpose is the heart of a tax law. When a tax law is only a
mask to exact funds from the public when its true intent is to give undue
benefit and advantage to a private enterprise, that law will not satisfy
the requirement of "public purpose."
Indications that it is not for the public purpose
1. The LOI expressly provided that the levy be imposed to benefit PPI, a
private company.
2. The LOI provides that the imposition of the P10 levy was conditional and
dependent upon PPI becoming financially "viable."
3. The levies paid under the LOI were directly remitted and deposited by
FPA to Far East Bank and Trust Company, the depositary bank of PPI
which proves that PPI benefitted from the LOI
4. The levy was used to pay the corporate debts of PPI.
(3) No;
Even if We consider LOI No. 1695 enacted under the police power of the State,
it would still be invalid for failing to comply with the test of "lawful
subjects" and "lawful means." Jurisprudence states the test as follows: (1)
the interest of the public generally, as distinguished from those of particular class,
requires its exercise; and (2) the means employed are reasonably necessary for
the accomplishment of the purpose and not unduly oppressive upon individuals.
For the same reasons as discussed, LOI No. 1695 is invalid because it did
not promote public interest. The law was enacted to give undue advantage
to a private corporation.
Dispositive Portion: WHEREFORE, the petition is DENIED. The Court of Appeals
Decision dated November 28, 2003 is AFFIRMED.