1. Manila Memorial Park vs DSWD

7/21/2019 1. Manila Memorial Park vs DSWD

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 175356 December 3, 2013

MANILA MEMORIAL PAR , INC. AND LA !UNERARIA PA"#SUCAT, INC., Petitioners,vs.SECRETAR$ O! T%E DEPARTMENT O! SOCIAL &EL!ARE AND DE'ELOPMENT ()* T%ESECRETAR$ O! T%E DEPARTMENT O! !INANCE, Respondents.

D E C I S I N

DEL CASTILLO, J.:

!hen a part" challe#es the constitutionalit" of a la$, the burden of proof rests upon hi%.

Before us is a Petition for Prohibition & under Rule '( of the Rules of Court filed b" petitioners ManilaMe%orial Par), Inc. and *a +uneraria Pa -Sucat, Inc., do%estic corporations en#a#ed in thebusiness of providin# funeral and burial services, a#ainst public respondents Secretaries of theDepart%ent of Social !elfare and Develop%ent DS!D/ and the Depart%ent of +inance D +/.

Petitioners assail the constitutionalit" of Section 0 of Republic Act RA/ No. 102&, 2 as a%ended b"RA 3&(1, 0 and the i%ple%entin# rules and re#ulations issued b" the DS!D and D + insofar asthese allo$ business establish%ents to clai% the &45 discount #iven to senior citi ens as a ta6deduction.

+actual Antecedents

n April &2, 733&, RA 102& $as passed into la$, #rantin# senior citi ens the follo$in# privile#es8

SEC9I N 0. Privile#es for the Senior Citi ens. : 9he senior citi ens shall be entitled to the follo$in#8

a/ the #rant of t$ent" percent &45/ discount fro% all establish%ents relative to utili ation oftransportation services, hotels and si%ilar lod#in# establish%ent;s<, restaurants and recreationcenters and purchase of %edicine an"$here in the countr"8 Provided, 9hat private establish%ents%a" clai% the cost as ta6 credit=

b/ a %ini%u% of t$ent" percent &45/ discount on ad%ission fees char#ed b" theaters, cine%ahouses and concert halls, circuses, carnivals and other si%ilar places of culture, leisure, anda%use%ent=

c/ e6e%ption fro% the pa"%ent of individual inco%e ta6es8 Provided, 9hat their annual ta6ableinco%e does not e6ceed the propert" level as deter%ined b" the National Econo%ic andDevelop%ent Authorit" NEDA/ for that "ear=

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d/ e6e%ption fro% trainin# fees for socioecono%ic pro#ra%s underta)en b" the SCA as part of its$or)=

e/ free %edical and dental services in #overn%ent establish%ent;s< an"$here in the countr", sub>ectto #uidelines to be issued b" the Depart%ent of ?ealth, the @overn%ent Service Insurance S"ste%and the Social Securit" S"ste%=

f/ to the e6tent practicable and feasible, the continuance of the sa%e benefits and privile#es #iven b"the @overn%ent Service Insurance S"ste% @SIS/, Social Securit" S"ste% SSS/ and PA@-IBI@, asthe case %a" be, as are en>o"ed b" those in actual service.

n Au#ust &2, 7332, Revenue Re#ulations RR/ No. 4&-30 $as issued to i%ple%ent RA 102&.Sections & i/ and 0 of RR No. 4&-30 provide8

Sec. &. DE+INI9I NS. : +or purposes of these re#ulations8 i. 9a6 Credit : refers to the a%ountrepresentin# the &45 discount #ranted to a ualified senior citi en b" all establish%ents relative totheir utili ation of transportation services, hotels and si%ilar lod#in# establish%ents, restaurants,dru#stores, recreation centers, theaters, cine%a houses, concert halls, circuses, carnivals and other

si%ilar places of culture, leisure and a%use%ent, $hich discount shall be deducted b" the saidestablish%ents fro% their #ross inco%e for inco%e ta6 purposes and fro% their #ross sales forvalue-added ta6 or other percenta#e ta6 purposes. 6 6 6 6 Sec. 0. REC RDIN@ B EEPIN@RE IREMEN9S + R PRIFA9E ES9AB*IS?MEN9S. : Private establish%ents, i.e., transportservices, hotels and si%ilar lod#in# establish%ents, restaurants, recreation centers, dru#stores,theaters, cine%a houses, concert halls, circuses, carnivals and other si%ilar places of culture;,<leisure and a%use%ent, #ivin# &45 discounts to ualified senior citi ens are re uired to )eepseparate and accurate record;s< of sales %ade to senior citi ens, $hich shall include the na%e,identification nu%ber, #ross sales receipts, discounts, dates of transactions and invoice nu%ber forever" transaction. 9he a%ount of &45 discount shall be deducted fro% the #ross inco%e for inco%eta6 purposes and fro% #ross sales of the business enterprise concerned for purposes of the FA9and other percenta#e ta6es.

In Co%%issioner of Internal Revenue v. Central *u on Dru# Corporation, ( the Court declaredSections & i/ and 0 of RR No. 4&-30 as erroneous because these contravene RA 102&, ' thus8

RA 102& specificall" allo$s private establish%ents to clai% as ta6 credit the a%ount of discountsthe" #rant. In turn, the I%ple%entin# Rules and Re#ulations, issued pursuant thereto, provide theprocedures for its avail%ent. 9o den" such credit, despite the plain %andate of the la$ and there#ulations carr"in# out that %andate, is indefensible. +irst, the definition #iven b" petitioner iserroneous. It refers to ta6 credit as the a%ount representin# the &4 percent discount that Gshall bededucted b" the said establish%ents fro% their #ross inco%e for inco%e ta6 purposes and fro% their #ross sales for value-added ta6 or other percenta#e ta6 purposes.G In ordinar" business lan#ua#e,the ta6 credit represents the a%ount of such discount. ?o$ever, the %anner b" $hich the discountshall be credited a#ainst ta6es has not been clarified b" the revenue re#ulations. B" ordinar"

acceptation, a discount is an Gabate%ent or reduction %ade fro% the #ross a%ount or value ofan"thin#.G 9o be %ore precise, it is in business parlance Ga deduction or lo$erin# of an a%ount of%one"=G or Ga reduction fro% the full a%ount or value of so%ethin#, especiall" a price.G In businessthere are %an" )inds of discount, the %ost co%%on of $hich is that affectin# the inco%e state%entor financial report upon $hich the inco%e ta6 is based.

6 6 6 6







Sections &.i and 0 of Revenue Re#ulations No. RR/ &-30 define ta6 credit as the &4 percentdiscount deductible fro% #ross inco%e for inco%e ta6 purposes, or fro% #ross sales for FA9 or other percenta#e ta6 purposes. In effect, the ta6 credit benefit under RA 102& is related to a salesdiscount. 9his contrived definition is i%proper, considerin# that the latter has to be deducted fro%#ross sales in order to co%pute the #ross inco%e in the inco%e state%ent and cannot be deducteda#ain, even for purposes of co%putin# the inco%e ta6. !hen the la$ sa"s that the cost of the

discount %a" be clai%ed as a ta6 credit, it %eans that the a%ount H $hen clai%ed H shall betreated as a reduction fro% an" ta6 liabilit", plain and si%ple. 9he option to avail of the ta6 creditbenefit depends upon the e6istence of a ta6 liabilit", but to li%it the benefit to a sales discount H$hich is not even identical to the discount privile#e that is #ranted b" la$ H does not define it at alland serves no useful purpose. 9he definition %ust, therefore, be stric)en do$n.

*a$s Not A%ended b" Re#ulations

Second, the la$ cannot be a%ended b" a %ere re#ulation. In fact, a re#ulation that Goperates tocreate a rule out of har%on" $ith the statute is a %ere nullit"=G it cannot prevail. It is a cardinal rulethat courts G$ill and should respect the conte%poraneous construction placed upon a statute b" thee6ecutive officers $hose dut" it is to enforce it 6 6 6.G In the sche%e of >udicial ta6 ad%inistration, the

need for certaint" and predictabilit" in the i%ple%entation of ta6 la$s is crucial. ur ta6 authorities fillin the details that GCon#ress %a" not have the opportunit" or co%petence to provide.G 9here#ulations these authorities issue are relied upon b" ta6pa"ers, $ho are certain that these $ill befollo$ed b" the courts. Courts, ho$ever, $ill not uphold these authorities interpretations $henclearl" absurd, erroneous or i%proper. In the present case, the ta6 authorities have #iven the ter%ta6 credit in Sections &.i and 0 of RR &-30 a %eanin# utterl" in contrast to $hat RA 102& provides.9heir interpretation has %uddled 6 6 6 the intent of Con#ress in #rantin# a %ere discount privile#e,not a sales discount. 9he ad%inistrative a#enc" issuin# these re#ulations %a" not enlar#e, alter orrestrict the provisions of the la$ it ad%inisters= it cannot en#raft additional re uire%ents notconte%plated b" the le#islature.

In case of conflict, the la$ %ust prevail. A Gre#ulation adopted pursuant to la$ is la$.G Conversel", are#ulation or an" portion thereof not adopted pursuant to la$ is no la$ and has neither the force northe effect of la$. 1

n +ebruar" &', &440, RA 3&(1 J a%ended certain provisions of RA 102&, to $it8


a/ the #rant of t$ent" percent &45/ discount fro% all establish%ents relative to the utili ation ofservices in hotels and si%ilar lod#in# establish%ents, restaurants and recreation centers, andpurchase of %edicines in all establish%ents for the e6clusive use or en>o"%ent of senior citi ens,includin# funeral and burial services for the death of senior citi ens=

6 6 6 6

9he establish%ent %a" clai% the discounts #ranted under a/, f/, #/ and h/ as ta6 deduction basedon the net cost of the #oods sold or services rendered8 Provided, 9hat the cost of the discount shallbe allo$ed as deduction fro% #ross inco%e for the sa%e ta6able "ear that the discount is #ranted.Provided, further, 9hat the total a%ount of the clai%ed ta6 deduction net of value added ta6 ifapplicable, shall be included in their #ross sales receipts for ta6 purposes and shall be sub>ect toproper docu%entation and to the provisions of the National Internal Revenue Code, as a%ended.







9o i%ple%ent the ta6 provisions of RA 3&(1, the Secretar" of +inance issued RR No. 0-&44', thepertinent provision of $hich provides8

SEC. J. AFAI*MEN9 BK ES9AB*IS?MEN9S + SA*ES DISC N9S AS DED C9I N +R M@R SS INC ME. : Establish%ents enu%erated in subpara#raph '/ hereunder #rantin# salesdiscounts to senior citi ens on the sale of #oods and or services specified thereunder are entitled to

deduct the said discount fro% #ross inco%e sub>ect to the follo$in# conditions8

7/ nl" that portion of the #ross sales ELC* SIFE*K SED, C NS MED R EN KED BK 9?ESENI R CI9I EN shall be eli#ible for the deductible sales discount.

&/ 9he #ross sellin# price and the sales discount M S9 BE SEPARA9E*K INDICA9ED IN 9?E++ICIA* RECEIP9 R SA*ES INF ICE issued b" the establish%ent for the sale of #oods or

services to the senior citi en.

2/ nl" the actual a%ount of the discount #ranted or a sales discount not e6ceedin# &45 of the#ross sellin# price can be deducted fro% the #ross inco%e, net of value added ta6, if applicable, forinco%e ta6 purposes, and fro% #ross sales or #ross receipts of the business enterprise concerned,

for FA9 or other percenta#e ta6 purposes.

0/ 9he discount can onl" be allo$ed as deduction fro% #ross inco%e for the sa%e ta6able "ear thatthe discount is #ranted.

(/ 9he business establish%ent #ivin# sales discounts to ualified senior citi ens is re uired to )eepseparate and accurate record;s< of sales, $hich shall include the na%e of the senior citi en, 9IN,

SCA ID, #ross sales receipts, sales discount #ranted, ;date< of ;transaction< and invoice nu%ber for ever" sale transaction to senior citi en.

'/ nl" the follo$in# business establish%ents $hich #ranted sales discount to senior citi ens ontheir sale of #oods and or services %a" clai% the said discount #ranted as deduction fro% #ross

inco%e, na%el"8

6 6 6 6

i/ +uneral parlors and si%ilar establish%ents : 9he beneficiar" or an" person $ho shall shoulder thefuneral and burial e6penses of the deceased senior citi en shall clai% the discount, such as cas)et,e%bal%%ent, cre%ation cost and other related services for the senior citi en upon pa"%ent andpresentation of ;his< death certificate.

9he DS!D li)e$ise issued its o$n Rules and Re#ulations I%ple%entin# RA 3&(1, to $it8

R *E FI DISC N9S AS 9AL DED C9I N + ES9AB*IS?MEN9S

Article J. 9a6 Deduction of Establish%ents. : 9he establish%ent %a" clai% the discounts #rantedunder Rule F, Section 0 : Discounts for Establish%ents, Section 3, Medical and Dental Services inPrivate +acilities and Sections 74 and 77 : Air, Sea and *and 9ransportation as ta6 deduction basedon the net cost of the #oods sold or services rendered.

Provided, 9hat the cost of the discount shall be allo$ed as deduction fro% #ross inco%e for thesa%e ta6able "ear that the discount is #ranted= Provided, further, 9hat the total a%ount of theclai%ed ta6 deduction net of value added ta6 if applicable, shall be included in their #ross sales



receipts for ta6 purposes and shall be sub>ect to proper docu%entation and to the provisions of theNational Internal Revenue Code, as a%ended= Provided, finall", that the i%ple%entation of the ta6deduction shall be sub>ect to the Revenue Re#ulations to be issued b" the Bureau of InternalRevenue BIR/ and approved b" the Depart%ent of +inance D +/.

+eelin# a##rieved b" the ta6 deduction sche%e, petitioners filed the present recourse, pra"in# that

Section 0 of RA 102&, as a%ended b" RA 3&(1, and the i%ple%entin# rules and re#ulations issuedb" the DS!D and the D + be declared unconstitutional insofar as these allo$ businessestablish%ents to clai% the &45 discount #iven to senior citi ens as a ta6 deduction= that the DS!Dand the D + be prohibited fro% enforcin# the sa%e= and that the ta6 credit treat%ent of the &45discount under the for%er Section 0 a/ of RA 102& be reinstated.

Issues

Petitioners raise the follo$in# issues8

A.

!?E9?ER 9?E PE9I9I N PRESEN9S AN AC9 A* CASE R C N9R FERSK.

B.

!?E9?ER SEC9I N 0 + REP B*IC AC9 N . 3&(1 AND L L L I9S IMP*EMEN9IN@ R *ES AND RE@ *A9I NS, INS +AR AS 9?EK PR FIDE 9?A9 9?E 9!EN9K PERCEN9 &45/DISC N9 9 SENI R CI9I ENS MAK BE C*AIMED AS A 9AL DED C9I N BK 9?E PRIFA9EES9AB*IS?MEN9S, ARE INFA*ID AND NC NS9I9 9I NA* . 3

Petitioners Ar#u%ents

Petitioners e%phasi e that the" are not uestionin# the &45 discount #ranted to senior citi ens but

are onl" assailin# the constitutionalit" of the ta6 deduction sche%e prescribed under RA 3&(1 andthe i%ple%entin# rules and re#ulations issued b" the DS!D and the D +. 74

Petitioners posit that the ta6 deduction sche%e contravenes Article III, Section 3 of the Constitution,$hich provides that8 G;p<rivate propert" shall not be ta)en for public use $ithout >ust co%pensation.G 77

In support of their position, petitioners cite Central *u on Dru# Corporation, 7& $here it $as ruled thatthe &45 discount privile#e constitutes ta)in# of private propert" for public use $hich re uires thepa"%ent of >ust co%pensation, 72 and Carlos Superdru# Corporation v. Depart%ent of Social !elfareand Develop%ent, 70 $here it $as ac)no$led#ed that the ta6 deduction sche%e does not %eet thedefinition of >ust co%pensation. 7(

Petitioners li)e$ise see) a reversal of the rulin# in Carlos Superdru# Corporation7'

that the ta6deduction sche%e adopted b" the #overn%ent is >ustified b" police po$er. 71

9he" assert that G;a<lthou#h both police po$er and the po$er of e%inent do%ain have the #eneral$elfare for their ob>ect, there are still traditional distinctions bet$een the t$oG 7J and that Ge%inentdo%ain cannot be %ade less supre%e than police po$er.G 73

Petitioners further clai% that the le#islature, in a%endin# RA 102&, relied on an erroneousconte%poraneous construction that prior pa"%ent of ta6es is re uired for ta6 credit. &4





























Petitioners also contend that the ta6 deduction sche%e violates Article LF, Section 0 &7 and ArticleLIII, Section 77 && of the Constitution because it shifts the State s constitutional %andate or dut" ofi%provin# the $elfare of the elderl" to the private sector .&2

nder the ta6 deduction sche%e, the private sector shoulders '(5 of the discount because onl"2(5 &0 of it is actuall" returned b" the #overn%ent. &(

Conse uentl", the i%ple%entation of the ta6 deduction sche%e prescribed under Section 0 of RA3&(1 affects the businesses of petitioners. &'

9hus, there e6ists an actual case or controvers" of transcendental i%portance $hich deserves >udicious disposition on the %erits b" the hi#hest court of the land. &1

Respondents Ar#u%ents

Respondents, on the other hand, uestion the filin# of the instant Petition directl" $ith the Supre%eCourt as this disre#ards the hierarch" of courts. &J

9he" li)e$ise assert that there is no >usticiable controvers" as petitioners failed to prove that the ta6deduction treat%ent is not a Gfair and full e uivalent of the loss sustainedG b" the%. &3

As to the constitutionalit" of RA 3&(1 and its i%ple%entin# rules and re#ulations, respondentscontend that petitioners failed to overturn its presu%ption of constitutionalit". 24

More i%portant, respondents %aintain that the ta6 deduction sche%e is a le#iti%ate e6ercise of theState s police po$er. 27

ur Rulin#

9he Petition lac)s %erit.

9here e6ists an actual case or controvers".

!e shall first resolve the procedural issue. !hen the constitutionalit" of a la$ is put in issue, >udicialrevie$ %a" be availed of onl" if the follo$in# re uisites concur8 G 7/ the e6istence of an actual andappropriate case= &/ the e6istence of personal and substantial interest on the part of the part"raisin# the ; uestion of constitutionalit"<= 2/ recourse to >udicial revie$ is %ade at the earliestopportunit"= and 0/ the ; uestion of constitutionalit"< is the lis %ota of the case.G 2&

In this case, petitioners are challen#in# the constitutionalit" of the ta6 deduction sche%e provided inRA 3&(1 and the i%ple%entin# rules and re#ulations issued b" the DS!D and the D +.Respondents, ho$ever, oppose the Petition on the #round that there is no actual case or

controvers". !e do not a#ree $ith respondents. An actual case or controvers" e6ists $hen there isGa conflict of le#al ri#htsG or Gan assertion of opposite le#al clai%s susceptible of >udicial resolution.G 22

9he Petition %ust therefore sho$ that Gthe #overn%ental act bein# challen#ed has a direct adverseeffect on the individual challen#in# it.G 20

In this case, the ta6 deduction sche%e challen#ed b" petitioners has a direct adverse effect on the%.9hus, it cannot be denied that there e6ists an actual case or controvers".



































health and other social services available to all the people at affordable cost. 9here shall be priorit"for the needs of the underprivile#ed sic), elderl", disabled, $o%en and children.G Consonant $iththese constitutional principles the follo$in# are the declared policies of this Act8

O O O

f/ 9o reco#ni e the i%portant role of the private sector in the i%prove%ent of the $elfare of seniorciti ens and to activel" see) their partnership.

9o i%ple%ent the above polic", the la$ #rants a t$ent" percent discount to senior citi ens for%edical and dental services, and dia#nostic and laborator" fees= ad%ission fees char#ed b"theaters, concert halls, circuses, carnivals, and other si%ilar places of culture, leisure anda%use%ent= fares for do%estic land, air and sea travel= utili ation of services in hotels and si%ilarlod#in# establish%ents, restaurants and recreation centers= and purchases of %edicines for thee6clusive use or en>o"%ent of senior citi ens. As a for% of rei%burse%ent, the la$ provides thatbusiness establish%ents e6tendin# the t$ent" percent discount to senior citi ens %a" clai% thediscount as a ta6 deduction. 9he la$ is a le#iti%ate e6ercise of police po$er $hich, si%ilar to thepo$er of e%inent do%ain, has #eneral $elfare for its ob>ect. Police po$er is not capable of an e6act

definition, but has been purposel" veiled in #eneral ter%s to underscore its co%prehensiveness to%eet all e6i#encies and provide enou#h roo% for an efficient and fle6ible response to conditions andcircu%stances, thus assurin# the #reatest benefits. Accordin#l", it has been described as Gthe %ostessential, insistent and the least li%itable of po$ers, e6tendin# as it does to all the #reat publicneeds.G It is G;t<he po$er vested in the le#islature b" the constitution to %a)e, ordain, and establishall %anner of $holeso%e and reasonable la$s, statutes, and ordinances, either $ith penalties or$ithout, not repu#nant to the constitution, as the" shall >ud#e to be for the #ood and $elfare of theco%%on$ealth, and of the sub>ects of the sa%e.G +or this reason, $hen the conditions so de%andas deter%ined b" the le#islature, propert" ri#hts %ust bo$ to the pri%ac" of police po$er becausepropert" ri#hts, thou#h sheltered b" due process, %ust "ield to #eneral $elfare. Police po$er as anattribute to pro%ote the co%%on #ood $ould be diluted considerabl" if on the %ere plea ofpetitioners that the" $ill suffer loss of earnin#s and capital, the uestioned provision is invalidated.Moreover, in the absence of evidence de%onstratin# the alle#ed confiscator" effect of the provisionin uestion, there is no basis for its nullification in vie$ of the presu%ption of validit" $hich ever" la$has in its favor. @iven these, it is incorrect for petitioners to insist that the #rant of the senior citi endiscount is undul" oppressive to their business, because petitioners have not ta)en ti%e to calculatecorrectl" and co%e up $ith a financial report, so that the" have not been able to sho$ properl"$hether or not the ta6 deduction sche%e reall" $or)s #reatl" to their disadvanta#e. In treatin# thediscount as a ta6 deduction, petitioners insist that the" $ill incur losses because, referrin# to theD + pinion, for ever" P7.44 senior citi en discount that petitioners $ould #ive, P4.'J $ill beshouldered b" the% as onl" P4.2& $ill be refunded b" the #overn%ent b" $a" of a ta6 deduction. 9oillustrate this point, petitioner Carlos Super Dru# cited the anti-h"pertensive %aintenance dru#Norvasc as an e6a%ple. Accordin# to the latter, it ac uires Norvasc fro% the distributors at P21.(1per tablet, and retails it at P23.'4 or at a %ar#in of (5/. If it #rants a &45 discount to senior citi ensor an a%ount e uivalent to P1.3&, then it $ould have to sell Norvasc at P27.'J $hich translates to aloss fro% capital of P(.J3 per tablet. Even if the #overn%ent $ill allo$ a ta6 deduction, onl" P&.(2per tablet $ill be refunded and not the full a%ount of the discount $hich is P1.3&. In short, onl" 2&5of the &45 discount $ill be rei%bursed to the dru#stores. Petitioners co%putation is fla$ed. +orpurposes of rei%burse%ent, the la$ states that the cost of the discount shall be deducted fro% #rossinco%e, the a%ount of inco%e derived fro% all sources before deductin# allo$able e6penses, $hich$ill result in net inco%e. ?ere, petitioners tried to sho$ a loss on a per transaction basis, $hichshould not be the case. An inco%e state%ent, sho$in# an accountin# of petitioners sales,e6penses, and net profit or loss/ for a #iven period could have accuratel" reflected the effect of thediscount on their inco%e. Absent an" financial state%ent, petitioners cannot substantiate their clai%that the" $ill be operatin# at a loss should the" #ive the discount. In addition, the co%putation $as



erroneousl" based on the assu%ption that their custo%ers consisted $holl" of senior citi ens. *astl",the 2&5 ta6 rate is to be i%posed on inco%e, not on the a%ount of the discount.

+urther%ore, it is unfair for petitioners to critici e the la$ because the" cannot raise the prices oftheir %edicines #iven the cutthroat nature of the pla"ers in the industr". It is a business decision onthe part of petitioners to pe# the %ar)-up at (5. Sellin# the %edicines belo$ ac uisition cost, as

alle#ed b" petitioners, is %erel" a result of this decision. Inas%uch as pricin# is a propert" ri#ht,petitioners cannot reproach the la$ for bein# oppressive, si%pl" because the" cannot afford to raisetheir prices for fear of losin# their custo%ers to co%petition. 9he Court is not oblivious of the retailside of the phar%aceutical industr" and the co%petitive pricin# co%ponent of the business. !hilethe Constitution protects propert" ri#hts, petitioners %ust accept the realities of business and theState, in the e6ercise of police po$er, can intervene in the operations of a business $hich %a" resultin an i%pair%ent of propert" ri#hts in the process.

Moreover, the ri#ht to propert" has a social di%ension. !hile Article LIII of the Constitution providesthe precept for the protection of propert", various la$s and >urisprudence, particularl" on a#rarianrefor% and the re#ulation of contracts and public utilities, continuousl" serve as 6 6 6 re%inder;s< thatthe ri#ht to propert" can be relin uished upon the co%%and of the State for the pro%otion of public

#ood. ndeniabl", the success of the senior citi ens pro#ra% rests lar#el" on the support i%partedb" petitioners and the other private establish%ents concerned. 9his bein# the case, the %eanse%plo"ed in invo)in# the active participation of the private sector, in order to achieve the purpose orob>ective of the la$, is reasonabl" and directl" related. !ithout sufficient proof that Section 0 a/ ofR.A. No. 3&(1 is arbitrar", and that the continued i%ple%entation of the sa%e $ould beunconscionabl" detri%ental to petitioners, the Court $ill refrain fro% uashin# a le#islative act. 2'

Bold in the ori#inal= underline supplied/

!e, thus, found that the &45 discount as $ell as the ta6 deduction sche%e is a valid e6ercise of thepolice po$er of the State.

(o com"ellin' reason has een "roffered to overturn! modify or a andon the rulin' in &arlos$u"erdru' &or"oration.

Petitioners ar#ue that $e have previousl" ruled in Central *u on Dru# Corporation 21 that the &45discount is an e6ercise of the po$er of e%inent do%ain, thus, re uirin# the pa"%ent of >ustco%pensation. 9he" ur#e us to re-e6a%ine our rulin# in Carlos Superdru# Corporation 2J $hichalle#edl" reversed the rulin# in Central *u on Dru# Corporation. 23

9he" also point out that Carlos Superdru# Corporation 04 reco#ni ed that the ta6 deduction sche%eunder the assailed la$ does not provide for sufficient >ust co%pensation. !e a#ree $ith petitionersobservation that there are state%ents in Central *u on Dru# Corporation 07 describin# the &45discount as an e6ercise of the po$er of e%inent do%ain, vi .8

;9<he privile#e en>o"ed b" senior citi ens does not co%e directl" fro% the State, but rather fro% theprivate establish%ents concerned. Accordin#l", the ta6 credit benefit #ranted to these establish%entscan be dee%ed as their >ust co%pensation for private propert" ta)en b" the State for public use. 9heconcept of public use is no lon#er confined to the traditional notion of use b" the public, but helds"non"%ous $ith public interest, public benefit, public $elfare, and public convenience. 9he discountprivile#e to $hich our senior citi ens are entitled is actuall" a benefit en>o"ed b" the #eneral public to$hich these citi ens belon#. 9he discounts #iven $ould have entered the coffers and for%ed part ofthe #ross sales of the private establish%ents concerned, $ere it not for RA 102&. 9he per%anentreduction in their total revenues is a forced subsid" correspondin# to the ta)in# of private propert"for public use or benefit. As a result of the &4 percent discount i%posed b" RA 102&, respondent

















beco%es entitled to a >ust co%pensation. 9his ter% refers not onl" to the issuance of a ta6 creditcertificate indicatin# the correct a%ount of the discounts #iven, but also to the pro%ptness in itsrelease. E uivalent to the pa"%ent of propert" ta)en b" the State, such issuance H $hen not done$ithin a reasonable ti%e fro% the #rant of the discounts H cannot be considered as >ustco%pensation. In effect, respondent is %ade to suffer the conse uences of bein# i%%ediatel"deprived of its revenues $hile a$aitin# actual receipt, throu#h the certificate, of the e uivalent

a%ount it needs to cope $ith the reduction in its revenues. Besides, the ta6ation po$er can also beused as an i%ple%ent for the e6ercise of the po$er of e%inent do%ain. 9a6 %easures are butGenforced contributions e6acted on pain of penal sanctionsG and Gclearl" i%posed for a publicpurpose.G In recent "ears, the po$er to ta6 has indeed beco%e a %ost effective tool to reali e social

>ustice, public $elfare, and the e uitable distribution of $ealth. !hile it is a declared co%%it%entunder Section 7 of RA 102&, social >ustice Gcannot be invo)ed to tra%ple on the ri#hts of propert"o$ners $ho under our Constitution and la$s are also entitled to protection. 9he social >usticeconsecrated in our ;C<onstitution ;is< not intended to ta)e a$a" ri#hts fro% a person and #ive the% toanother $ho is not entitled thereto.G +or this reason, a >ust co%pensation for inco%e that is ta)ena$a" fro% respondent beco%es necessar". It is in the ta6 credit that our le#islators find support toreali e social >ustice, and no ad%inistrative bod" can alter that fact. 9o put it differentl", a privateestablish%ent that %erel" brea)s even H $ithout the discounts "et H $ill surel" start to incur lossesbecause of such discounts. 9he sa%e effect is e6pected if its %ar)-up is less than &4 percent, and ifall its sales co%e fro% retail purchases b" senior citi ens. Aside fro% the observation $e havealread" raised earlier, it $ill also be #rossl" unfair to an establish%ent if the discounts $ill be treated%erel" as deductions fro% either its #ross inco%e or its #ross sales. peratin# at a loss throu#h nofault of its o$n, it $ill reali e that the ta6 credit li%itation under RR &-30 is inutile, if not i%proper.!orse, profit-#eneratin# businesses $ill be put in a better position if the" avail the%selves of ta6credits denied those that are losin#, because no ta6es are due fro% the latter. 0& Italics in the ori#inal=e%phasis supplied/

9he above $as partl" incorporated in our rulin# in Carlos Superdru# Corporation 02 $hen $e statedpreli%inaril" thatH

Petitioners assert that Section 0 a/ of the la$ is unconstitutional because it constitutes deprivation of

private propert". Co%pellin# dru#store o$ners and establish%ents to #rant the discount $ill result ina loss of profit and capital because 7/ dru#stores i%pose a %ar)-up of onl" (5 to 745 on branded%edicines= and &/ the la$ failed to provide a sche%e $hereb" dru#stores $ill be >ustl" co%pensatedfor the discount. E6a%inin# petitioners ar#u%ents, it is apparent that $hat petitioners are ulti%atel"

uestionin# is the validit" of the ta6 deduction sche%e as a rei%burse%ent %echanis% for thet$ent" percent &45/ discount that the" e6tend to senior citi ens. Based on the afore-stated D +

pinion, the ta6 deduction sche%e does not full" rei%burse petitioners for the discount privile#eaccorded to senior citi ens. 9his is because the discount is treated as a deduction, a ta6-deductiblee6pense that is subtracted fro% the #ross inco%e and results in a lo$er ta6able inco%e. Statedother$ise, it is an a%ount that is allo$ed b" la$ to reduce the inco%e prior to the application of theta6 rate to co%pute the a%ount of ta6 $hich is due. Bein# a ta6 deduction, the discount does notreduce ta6es o$ed on a peso for peso basis but %erel" offers a fractional reduction in ta6es o$ed.9heoreticall", the treat%ent of the discount as a deduction reduces the net inco%e of the privateestablish%ents concerned. 9he discounts #iven $ould have entered the coffers and for%ed part ofthe #ross sales of the private establish%ents, $ere it not for R.A. No. 3&(1. 9he per%anentreduction in their total revenues is a forced subsid" correspondin# to the ta)in# of private propert"for public use or benefit. 9his constitutes co%pensable ta)in# for $hich petitioners $ould ordinaril"beco%e entitled to a >ust co%pensation. ust co%pensation is defined as the full and fair e uivalentof the propert" ta)en fro% its o$ner b" the e6propriator. 9he %easure is not the ta)er s #ain but theo$ner s loss. 9he $ord >ust is used to intensif" the %eanin# of the $ord co%pensation, and toconve" the idea that the e uivalent to be rendered for the propert" to be ta)en shall be real,substantial, full and a%ple. A ta6 deduction does not offer full rei%burse%ent of the senior citi en








discount. As such, it $ould not %eet the definition of >ust co%pensation. ?avin# said that, this raisesthe uestion of $hether the State, in pro%otin# the health and $elfare of a special #roup of citi ens,can i%pose upon private establish%ents the burden of partl" subsidi in# a #overn%ent pro#ra%.9he Court believes so. 00

9his, not$ithstandin#, $e $ent on to rule in Carlos Superdru# Corporation 0( that the &45 discount

and ta6 deduction sche%e is a valid e6ercise of the police po$er of the State. 9he present case,thus, affords an opportunit" for us to clarif" the above- uoted state%ents in Central *u on Dru#Corporation 0' and Carlos Superdru# Corporation. 01

+irst, $e note that the above- uoted dis uisition on e%inent do%ain in Central *u on Dru#Corporation 0J is obiter dicta and, thus, not bindin# precedent. As stated earlier, in Central *u on Dru#Corporation, 03 $e ruled that the BIR acted ultra vires $hen it effectivel" treated the &45 discount as ata6 deduction, under Sections &.i and 0 of RR No. &-30, despite the clear $ordin# of the previous la$that the sa%e should be treated as a ta6 credit. !e $ere, therefore, not confronted in that case $iththe issue as to $hether the &45 discount is an e6ercise of police po$er or e%inent do%ain. Second,althou#h $e adverted to Central *u on Dru# Corporation (4 in our rulin# in Carlos Superdru#Corporation, (7 this referred onl" to preli%inar" %atters. A fair readin# of Carlos Superdru#

Corporation(&

$ould sho$ that $e cate#oricall" ruled therein that the &45 discount is a valid e6erciseof police po$er. 9hus, even if the current la$, throu#h its ta6 deduction sche%e $hich abandonedthe ta6 credit sche%e under the previous la$/, does not provide for a peso for peso rei%burse%entof the &45 discount #iven b" private establish%ents, no constitutional infir%it" obtains because,bein# a valid e6ercise of police po$er, pa"%ent of >ust co%pensation is not $arranted. !e havecarefull" revie$ed the basis of our rulin# in Carlos Superdru# Corporation (2 and $e find no co#entreason to overturn, %odif" or abandon it. !e also note that petitioners ar#u%ents are a %erereiteration of those raised and resolved in Carlos Superdru# Corporation. (0 9hus, $e sustain CarlosSuperdru# Corporation. ((

Nonetheless, $e dee% it proper, in $hat follo$s, to a%plif" our e6planation in Carlos Superdru#Corporation (' as to $h" the &45 discount is a valid e6ercise of police po$er and $h" it %a" not,under the specific circu%stances of this case, be considered as an e6ercise of the po$er of e%inentdo%ain contrar" to the obiter in Central *u on Dru# Corporation. (1

Police po$er versus e%inent do%ain.

Police po$er is the inherent po$er of the State to re#ulate or to restrain the use of libert" andpropert" for public $elfare. (J

9he onl" li%itation is that the restriction i%posed should be reasonable, not oppressive. (3

In other $ords, to be a valid e6ercise of police po$er, it %ust have a la$ful sub>ect or ob>ective and ala$ful %ethod of acco%plishin# the #oal. '4

nder the police po$er of the State, Gpropert" ri#hts of individuals %a" be sub>ected to restraintsand burdens in order to fulfill the ob>ectives of the #overn%ent.G '7

9he State G%a" interfere $ith personal libert", propert", la$ful businesses and occupations topro%ote the #eneral $elfare ;as lon# as< the interference ;is< reasonable and not arbitrar".G '&

E%inent do%ain, on the other hand, is the inherent po$er of the State to ta)e or appropriate privatepropert" for public use. '2




















































9he Constitution, ho$ever, re uires that private propert" shall not be ta)en $ithout due process ofla$ and the pa"%ent of >ust co%pensation. '0

9raditional distinctions e6ist bet$een police po$er and e%inent do%ain. In the e6ercise of policepo$er, a propert" ri#ht is i%paired b" re#ulation, '( or the use of propert" is %erel" prohibited,re#ulated or restricted '' to pro%ote public $elfare. In such cases, there is no co%pensable ta)in#,

hence, pa"%ent of >ust co%pensation is not re uired. E6a%ples of these re#ulations are propert"conde%ned for bein# no6ious or intended for no6ious purposes e.#., a buildin# on the ver#e ofcollapse to be de%olished for public safet", or obscene %aterials to be destro"ed in the interest ofpublic %orals/ '1 as $ell as onin# ordinances prohibitin# the use of propert" for purposes in>urious tothe health, %orals or safet" of the co%%unit" e.#., dividin# a cit" s territor" into residential andindustrial areas/. 'J

It has, thus, been observed that, in the e6ercise of police po$er as distin#uished fro% e%inentdo%ain/, althou#h the re#ulation affects the ri#ht of o$nership, none of the bundle of ri#hts $hichconstitute o$nership is appropriated for use b" or for the benefit of the public. '3

n the other hand, in the e6ercise of the po$er of e%inent do%ain, propert" interests are

appropriated and applied to so%e public purpose $hich necessitates the pa"%ent of >ustco%pensation therefor. Nor%all", the title to and possession of the propert" are transferred to thee6propriatin# authorit". E6a%ples include the ac uisition of lands for the construction of publichi#h$a"s as $ell as a#ricultural lands ac uired b" the #overn%ent under the a#rarian refor% la$ forredistribution to ualified far%er beneficiaries. ?o$ever, it is a settled rule that the ac uisition of titleor total destruction of the propert" is not essential for Gta)in#G under the po$er of e%inent do%ain tobe present .14

E6a%ples of these include establish%ent of ease%ents such as $here the land o$ner is perpetuall"deprived of his proprietar" ri#hts because of the ha ards posed b" electric trans%ission linesconstructed above his propert" 17 or the co%pelled interconnection of the telephone s"ste% bet$eenthe #overn%ent and a private co%pan" .1&

In these cases, althou#h the private propert" o$ner is not divested of o$nership or possession,pa"%ent of >ust co%pensation is $arranted because of the burden placed on the propert" for the useor benefit of the public.

The 20% senior citizen discount is an exercise of "olice "o#er.

It %a" not al$a"s be eas" to deter%ine $hether a challen#ed #overn%ental act is an e6ercise ofpolice po$er or e%inent do%ain. 9he ver" nature of police po$er as elastic and responsive tovarious social conditions 12 as $ell as the evolvin# %eanin# and scope of public use 10 and >ustco%pensation 1( in e%inent do%ain evinces that these are not static concepts. Because of thee6i#encies of rapidl" chan#in# ti%es, Con#ress %a" be co%pelled to adopt or e6peri%ent $ithdifferent %easures to pro%ote the #eneral $elfare $hich %a" not fall s uarel" $ithin the traditionall"reco#ni ed cate#ories of police po$er and e%inent do%ain. 9he >udicious approach, therefore, is toloo) at the nature and effects of the challen#ed #overn%ental act and decide, on the basis thereof,$hether the act is the e6ercise of police po$er or e%inent do%ain. 9hus, $e no$ loo) at the natureand effects of the &45 discount to deter%ine if it constitutes an e6ercise of police po$er or e%inentdo%ain. 9he &45 discount is intended to i%prove the $elfare of senior citi ens $ho, at their a#e, areless li)el" to be #ainfull" e%plo"ed, %ore prone to illnesses and other disabilities, and, thus, in needof subsid" in purchasin# basic co%%odities. It %a" not be a%iss to %ention also that the discountserves to honor senior citi ens $ho presu%abl" spent the productive "ears of their lives oncontributin# to the develop%ent and pro#ress of the nation. 9his distinct cultural +ilipino practice of
































honorin# the elderl" is an inte#ral part of this la$. As to its nature and effects, the &45 discount is are#ulation affectin# the abilit" of private establish%ents to price their products and services relativeto a special class of individuals, senior citi ens, for $hich the Constitution affords preferentialconcern. 1'

In turn, this affects the a%ount of profits or inco%e #ross sales that a private establish%ent can

derive fro% senior citi ens. In other $ords, the sub>ect re#ulation affects the pricin#, and, hence, theprofitabilit" of a private establish%ent. ?o$ever, it does not purport to appropriate or burden specificproperties, used in the operation or conduct of the business of private establish%ents, for the use orbenefit of the public, or senior citi ens for that %atter, but %erel" re#ulates the pricin# of #oods andservices relative to, and the a%ount of profits or inco%e #ross sales that such private establish%ents%a" derive fro%, senior citi ens. 9he sub>ect re#ulation %a" be said to be si%ilar to, but $ithsubstantial distinctions fro%, price control or rate of return on invest%ent control la$s $hich aretraditionall" re#arded as police po$er %easures. 11

9hese la$s #enerall" re#ulate public utilities or industries enterprises i%bued $ith public interest inorder to protect consu%ers fro% e6orbitant or unreasonable pricin# as $ell as te%per corporate#reed b" controllin# the rate of return on invest%ent of these corporations considerin# that the" have

a %onopol" over the #oods or services that the" provide to the #eneral public. 9he sub>ect re#ulationdiffers therefro% in that 7/ the discount does not prevent the establish%ents fro% ad>ustin# the levelof prices of their #oods and services, and &/ the discount does not appl" to all custo%ers of a #ivenestablish%ent but onl" to the class of senior citi ens. Nonetheless, to the de#ree %aterial to theresolution of this case, the &45 discount %a" be properl" vie$ed as belon#in# to the cate#or" ofprice re#ulator" %easures $hich affect the profitabilit" of establish%ents sub>ected thereto. n itsface, therefore, the sub>ect re#ulation is a police po$er %easure. 9he obiter in Central *u on Dru#Corporation, 1J ho$ever, describes the &45 discount as an e6ercise of the po$er of e%inent do%ainand the ta6 credit, under the previous la$, e uivalent to the a%ount of discount #iven as the >ustco%pensation therefor. 9he reason is that 7/ the discount $ould have for%ed part of the #ross salesof the establish%ent $ere it not for the la$ prescribin# the &45 discount, and &/ the per%anentreduction in total revenues is a forced subsid" correspondin# to the ta)in# of private propert" forpublic use or benefit. 9he fla$ in this reasonin# is in its pre%ise. It presupposes that the sub>ect

re#ulation, $hich i%pacts the pricin# and, hence, the profitabilit" of a private establish%ent,auto%aticall" a%ounts to a deprivation of propert" $ithout due process of la$. If this $ere so, thenall price and rate of return on invest%ent control la$s $ould have to be invalidated because the"i%pact, at so%e level, the re#ulated establish%ent s profits or inco%e #ross sales, "et there is noprovision for pa"%ent of >ust co%pensation. It $ould also %ean that overn%ent cannot set price orrate of return on invest%ent li%its, $hich reduce the profits or inco%e #ross sales of privateestablish%ents, if no >ust co%pensation is paid even if the %easure is not confiscator". 9he obiter is,thus, at odds $ith the settled octrine that the State can e%plo" police po$er %easures to re#ulatethe pricin# of #oods and services, and, hence, the profitabilit" of business establish%ents in order topursue le#iti%ate State ob>ectives for the co%%on #ood, provided that the re#ulation does not #o toofar as to a%ount to Gta)in#.G 13

In Cit" of Manila v. *a#uio, r., J4 $e reco#ni ed thatH 6 6 6 a ta)in# also could be found if#overn%ent re#ulation of the use of propert" $ent Gtoo far.G !hen re#ulation reaches a certain%a#nitude, in %ost if not in all cases there %ust be an e6ercise of e%inent do%ain andco%pensation to support the act. !hile propert" %a" be re#ulated to a certain e6tent, if re#ulation#oes too far it $ill be reco#ni ed as a ta)in#. No for%ula or rule can be devised to ans$er the

uestions of $hat is too far and $hen re#ulation beco%es a ta)in#. In Mahon, ustice ?ol%esreco#ni ed that it $as Ga uestion of de#ree and therefore cannot be disposed of b" #eneralpropositions.G n %an" other occasions as $ell, the .S. Supre%e Court has said that the issue of$hen re#ulation constitutes a ta)in# is a %atter of considerin# the facts in each case. 9he Courtas)s $hether >ustice and fairness re uire that the econo%ic loss caused b" public action %ust be















co%pensated b" the #overn%ent and thus borne b" the public as a $hole, or $hether the lossshould re%ain concentrated on those fe$ persons sub>ect to the public action. J7

9he i%pact or effect of a re#ulation, such as the one under consideration, %ust, thus, be deter%inedon a case-to-case basis. !hether that line bet$een per%issible re#ulation under police po$er andGta)in#G under e%inent do%ain has been crossed %ust, under the specific circu%stances of this

case, be sub>ect to proof and the one assailin# the constitutionalit" of the re#ulation carries theheav" burden of provin# that the %easure is unreasonable, oppressive or confiscator". 9he ti%e-honored rule is that the burden of provin# the unconstitutionalit" of a la$ rests upon the oneassailin# it and Gthe burden beco%es heavier $hen police po$er is at issue.G J&

9he &45 senior citi en discount has not been sho$n to be unreasonable, oppressive orconfiscator".

In Alala"an v. National Po$er Corporation, J2 petitioners, $ho $ere franchise holders of electric plants,challen#ed the validit" of a la$ li%itin# their allo$able net profits to no %ore than 7&5 per annu% oftheir invest%ents plus t$o-%onth operatin# e6penses. In re>ectin# their plea, $e ruled that, in anearlier case, it $as found that 7&5 is a reasonable rate of return and that petitioners failed to prove

that the aforesaid rate is confiscator" in vie$ of the presu%ption of constitutionalit".J0

!e adopted a si%ilar line of reasonin# in Carlos Superdru# Corporation J( $hen $e ruled thatpetitioners therein failed to prove that the &45 discount is arbitrar", oppressive or confiscator". !enoted that no evidence, such as a financial report, to establish the i%pact of the &45 discount on theoverall profitabilit" of petitioners $as presented in order to sho$ that the" $ould be operatin# at aloss due to the sub>ect re#ulation or that the continued i%ple%entation of the la$ $ould beunconscionabl" detri%ental to the business operations of petitioners. In the case at bar, petitionersproceeded $ith a h"pothetical co%putation of the alle#ed loss that the" $ill suffer si%ilar to $hat thepetitioners in Carlos Superdru# Corporation J' did. Petitioners $ent directl" to this Court $ithout firstestablishin# the factual bases of their clai%s. ?ence, the present recourse %ust, li)e$ise, fail.Because all la$s en>o" the presu%ption of constitutionalit", courts $ill uphold a la$ s validit" if an"set of facts %a" be conceived to sustain it. J1

n its face, $e find that there are at least t$o conceivable bases to sustain the sub>ect re#ulation svalidit" absent clear and convincin# proof that it is unreasonable, oppressive or confiscator".Con#ress %a" have le#iti%atel" concluded that business establish%ents have the capacit" toabsorb a decrease in profits or inco%e #ross sales due to the &45 discount $ithout substantiall"affectin# the reasonable rate of return on their invest%ents considerin# 7/ not all custo%ers of abusiness establish%ent are senior citi ens and &/ the level of its profit %ar#ins on #oods andservices offered to the #eneral public. Concurrentl", Con#ress %a" have, li)e$ise, le#iti%atel"concluded that the establish%ents, $hich $ill be re uired to e6tend the &45 discount, have thecapacit" to revise their pricin# strate#" so that $hatever reduction in profits or inco%e #ross salesthat the" %a" sustain because of sales to senior citi ens, can be recouped throu#h hi#her %ar)-upsor fro% other products not sub>ect of discounts. As a result, the discounts resultin# fro% sales to

senior citi ens $ill not be confiscator" or undul" oppressive. In su%, $e sustain our rulin# in CarlosSuperdru# Corporation JJ that the &45 senior citi en discount and ta6 deduction sche%e are valide6ercises of police po$er of the State absent a clear sho$in# that it is arbitrar", oppressive orconfiscator".

Conclusion

In closin#, $e note that petitioners h"pothesi e, consistent $ith our previous ratiocinations, that thediscount $ill force establish%ents to raise their prices in order to co%pensate for its i%pact on




















overall profits or inco%e #ross sales. 9he #eneral public, or those not belon#in# to the senior citi enclass, are, thus, %ade to effectivel" shoulder the subsid" for senior citi ens. 9his, in petitioners vie$,is unfair.

As alread" %entioned, Con#ress %a" be reasonabl" assu%ed to have foreseen this eventualit". But,%ore i%portantl", this #oes into the $isdo%, efficac" and e6pedienc" of the sub>ect la$ $hich is not

proper for >udicial revie$. In a $a", this la$ pursues its social e uit" ob>ective in a non-traditional%anner unli)e past and e6istin# direct subsid" pro#ra%s of the #overn%ent for the poor and%ar#inali ed sectors of our societ". Feril", Con#ress %ust be #iven sufficient lee$a" in for%ulatin#$elfare le#islations #iven the enor%ous challen#es that the #overn%ent faces relative to, a%on#others, resource ade uac" and ad%inistrative capabilit" in i%ple%entin# social refor% %easures$hich ai% to protect and uphold the interests of those %ost vulnerable in our societ". In the process,the individual, $ho en>o"s the ri#hts, benefits and privile#es of livin# in a de%ocratic polit", %ustbear his share in supportin# %easures intended for the co%%on #ood. 9his is onl" fair. In fine,$ithout the re uisite sho$in# of a clear and une uivocal breach of the Constitution, the validit" of theassailed la$ %ust be sustained.

Refutation of the Dissent

9he %ain points of ustice Carpio s Dissent %a" be su%%ari ed as follo$s8 7/ the discussion one%inent do%ain in Central *u on Dru# Corporation J3 is not obiter dicta = &/ allo$able ta)in#, inpolice po$er, is li%ited to propert" that is destro"ed or placed outside the co%%erce of %an forpublic $elfare= 2/ the a%ount of %andator" discount is private propert" $ithin the a%bit of Article III,Section 3 34 of the Constitution= and 0/ the per%anent reduction in a private establish%ent s totalrevenue, arisin# fro% the %andator" discount, is a ta)in# of private propert" for public use or benefit,hence, an e6ercise of the po$er of e%inent do%ain re uirin# the pa"%ent of >ust co%pensation. I!e %aintain that the discussion on e%inent do%ain in Central *u on Dru# Corporation 37 is obiterdicta. As previousl" discussed, in Central *u on Dru# Corporation, 3& the BIR, pursuant to Sections &.iand 0 of RR No. &-30, treated the senior citi en discount in the previous la$, RA 102&, as a ta6deduction instead of a ta6 credit despite the clear provision in that la$ $hich stated :


a/ 9he #rant of t$ent" percent &45/ discount fro% all establish%ents relative to utili ation oftransportation services, hotels and si%ilar lod#in# establish%ent, restaurants and recreation centersand purchase of %edicines an"$here in the countr"8 Provided, 9hat private establish%ents %a"clai% the cost as ta6 credit= E%phasis supplied/

9hus, the Court ruled that the sub>ect revenue re#ulation violated the la$, vi 8

9he &4 percent discount re uired b" the la$ to be #iven to senior citi ens is a ta6 credit, not %erel"a ta6 deduction fro% the #ross inco%e or #ross sale of the establish%ent concerned. A ta6 credit isused b" a private establish%ent onl" after the ta6 has been co%puted= a ta6 deduction, before theta6 is co%puted. RA 102& unconditionall" #rants a ta6 credit to all covered entities. 9hus, theprovisions of the revenue re#ulation that $ithdra$ or %odif" such #rant are void. Basic is the rulethat ad%inistrative re#ulations cannot a%end or revo)e the la$. 32

As can be readil" seen, the discussion on e%inent do%ain $as not necessar" in order to arrive atthis conclusion. All that $as needed $as to point out that the revenue re#ulation contravened the la$$hich it sou#ht to i%ple%ent. And, precisel", this $as done in Central *u on Dru# Corporation 30 b"co%parin# the $ordin# of the previous la$ vis-Q-vis the revenue re#ulation= e%plo"in# the rules ofstatutor" construction= and appl"in# the settled principle that a re#ulation cannot a%end the la$ it
























all private propert" and an" ta)in# should be attended b" correspondin# pa"%ent of >ustco%pensation. 9he &45 discount #ranted to senior citi ens belon# to private establish%ents,$hether these establish%ents %a)e a profit or suffer a loss. In fact, the &45 discount applies to non-profit establish%ents li)e countr", social, or #olf clubs $hich are open to the public and not onl" fore6clusive %e%bership. 9he issue of profit or loss to the establish%ents is i%%aterial. 774

9$o thin#s %a" be said of this ar#u%ent. +irst, it contradicts the rest of the ar#u%ents of theDissent. After it states that the issue of profit or loss is i%%aterial, the Dissent proceeds to ar#ue thatthe &45 discount is not a %ini%al loss 777 and that the &45 discount forces business establish%entsto operate at a loss. 77&

Even the obiter in Central *u on Dru# Corporation, 772 $hich the Dissent essentiall" adopts and relieson, is pre%ised on the per%anent reduction of total revenues and the loss that businessestablish%ents $ill be forced to suffer in ar#uin# that the &45 discount constitutes a Gta)in#G underthe po$er of e%inent do%ain. 9hus, $hen the Dissent no$ ar#ues that the issue of profit or loss isi%%aterial, it contradicts itself because it later ar#ues, in order to >ustif" that there is a Gta)in#G underthe po$er of e%inent do%ain in this case, that the &45 discount forces business establish%ents tosuffer a si#nificant loss or to operate at a loss. Second, this ar#u%ent suffers fro% the sa%e fla$ as

the Dissent s ori#inal ar#u%ents. It is an erroneous characteri ation of the &45 discount. Accordin#to the Dissent, the &45 discount is part of the #ross sales and, hence, private propert" belon#in# tobusiness establish%ents. ?o$ever, as previousl" discussed, the &45 discount is not privatepropert" actuall" o$ned and or used b" the business establish%ent. It should be distin#uished fro%properties li)e lands or buildin#s actuall" used in the operation of a business establish%ent $hich, ifappropriated for public use, $ould a%ount to a Gta)in#G under the po$er of e%inent do%ain. Instead,the &45 discount is a re#ulator" %easure $hich i%pacts the pricin# and, hence, the profitabilit" ofbusiness establish%ents. At the ti%e the discount is i%posed, no particular propert" of the businessestablish%ent can be said to be Gta)en.G 9hat is, the State does not ac uire or ta)e an"thin# fro%the business establish%ent in the $a" that it ta)es a piece of private land to build a public road.!hile the &45 discount %a" for% part of the potential profits or inco%e #ross sales 770 of the businessestablish%ent, as si%ilarl" characteri ed b" ustice Bersa%in in his Concurrin# pinion, potentialprofits or inco%e #ross sales are not private propert", specificall" cash or %one", alread" belon#in#

to the business establish%ent. 9he" are a %ere e6pectanc" because the" are potential fruits of thesuccessful conduct of the business. Prior to the sale of #oods or services, a business establish%ent%a" be sub>ect to State re#ulations, such as the &45 senior citi en discount, $hich %a" i%pact thelevel or a%ount of profits or inco%e #ross sales that can be #enerated b" such establish%ent. +orthis reason, the validit" of the discount is to be deter%ined based on its overall effects on theoperations of the business establish%ent.

A#ain, as previousl" discussed, the &45 discount does not auto%aticall" result in a &45 reduction inprofits, or, to ali#n it $ith the ter% used b" the Dissent, the &45 discount does not %ean that a &45reduction in #ross sales necessaril" results. Because 7/ the profit %ar#in of a product is notnecessaril" less than &45, &/ not all custo%ers of a business establish%ent are senior citi ens, and

2/ the establish%ent %a" revise its pricin# strate#", such reduction in profits or inco%e #ross sales%a" be prevented or, in the alternative, %iti#ated so that the business establish%ent continues tooperate profitabl". 9hus, even if $e #ratuitousl" assu%e that so%e de#ree of reduction in profits orinco%e #ross sales occurs because of the &45 discount, it does not follo$ that the re#ulation isunreasonable, oppressive or confiscator" because the business establish%ent %a" %a)e thenecessar" ad>ust%ents to continue to operate profitabl". No evidence $as presented b" petitionersto sho$ other$ise. In fact, no evidence $as presented b" petitioners at all. ustice *eonen, in hisConcurrin# and Dissentin# pinion, characteri es GprofitsG or inco%e #ross sales/ as an inchoateri#ht. Another $a" to vie$ it, as stated b" ustice Felasco in his Concurrin# pinion, is that thebusiness establish%ent %erel" has a ri#ht to profits. 9he Constitution adverts to it as the ri#ht of anenterprise to a reasonable return on invest%ent. 77(

















ndeniabl", this ri#ht, li)e an" other ri#ht, %a" be re#ulated under the police po$er of the State toachieve i%portant #overn%ental ob>ectives li)e protectin# the interests and i%provin# the $elfare ofsenior citi ens. It should be noted thou#h that potential profits or inco%e #ross sales are relevant inpolice po$er and e%inent do%ain anal"ses because the" %a", in appropriate cases, serve as anindicia $hen a re#ulation has #one Gtoo farG as to a%ount to a Gta)in#G under the po$er of e%inentdo%ain. !hen the deprivation or reduction of profits or inco%e #ross sales is sho$n to be

unreasonable, oppressive or confiscator", then the challen#ed #overn%ental re#ulation %a" benullified for bein# a Gta)in#G under the po$er of e%inent do%ain. In such a case, it is not profits orinco%e #ross sales $hich are actuall" ta)en and appropriated for public use. Rather, $hen there#ulation causes an establish%ent to incur losses in an unreasonable, oppressive or confiscator"%anner, $hat is actuall" ta)en is capital and the ri#ht of the business establish%ent to a reasonablereturn on invest%ent. If the business losses are not halted because of the continued operation of there#ulation, this eventuall" leads to the destruction of the business and the total loss of the capitalinvested therein. But, a#ain, petitioners in this case failed to prove that the sub>ect re#ulation isunreasonable, oppressive or confiscator".

F.

9he Dissent further ar#ues that $e erroneousl" used price and rate of return on invest%ent controlla$s to >ustif" the senior citi en discount la$. Accordin# to the Dissent, onl" profits fro% industriesi%bued $ith public interest %a" be re#ulated because this is a condition of their franchises. Profits of establish%ents $ithout franchises cannot be re#ulated per%anentl" because there is no la$re#ulatin# their profits. 9he Dissent concludes that the per%anent reduction of total revenues or#ross sales of business establish%ents $ithout franchises is a ta)in# of private propert" under thepo$er of e%inent do%ain. In %a)in# this ar#u%ent, it is unfortunate that the Dissent uotes onl" aportion of the ponencia : 9he sub>ect re#ulation %a" be said to be si%ilar to, but $ith substantialdistinctions fro%, price control or rate of return on invest%ent control la$s $hich are traditionall"re#arded as police po$er %easures. 9hese la$s #enerall" re#ulate public utilities orindustries enterprises i%bued $ith public interest in order to protect consu%ers fro% e6orbitant orunreasonable pricin# as $ell as te%per corporate #reed b" controllin# the rate of return oninvest%ent of these corporations considerin# that the" have a %onopol" over the #oods or services

that the" provide to the #eneral public. 9he sub>ect re#ulation differs therefro% in that 7/ thediscount does not prevent the establish%ents fro% ad>ustin# the level of prices of their #oods andservices, and &/ the discount does not appl" to all custo%ers of a #iven establish%ent but onl" tothe class of senior citi ens. 6 6 6 77'

9he above para#raph, in full, states :

9he sub>ect re#ulation %a" be said to be si%ilar to, but $ith substantial distinctions fro%, pricecontrol or rate of return on invest%ent control la$s $hich are traditionall" re#arded as police po$er%easures. 9hese la$s #enerall" re#ulate public utilities or industries enterprises i%bued $ith publicinterest in order to protect consu%ers fro% e6orbitant or unreasonable pricin# as $ell as te%percorporate #reed b" controllin# the rate of return on invest%ent of these corporations considerin# that

the" have a %onopol" over the #oods or services that the" provide to the #eneral public. 9he sub>ectre#ulation differs therefro% in that 7/ the discount does not prevent the establish%ents fro%ad>ustin# the level of prices of their #oods and services, and &/ the discount does not appl" to allcusto%ers of a #iven establish%ent but onl" to the class of senior citi ens.

Nonetheless, to the de#ree %aterial to the resolution of this case, the &45 discount %a" be properl"vie$ed as belon#in# to the cate#or" of price re#ulator" %easures $hich affects the profitabilit" ofestablish%ents sub>ected thereto. E%phasis supplied/





9he point of this para#raph is to si%pl" sho$ that the State has, in the past, re#ulated prices andprofits of business establish%ents. In other $ords, this t"pe of re#ulator" %easures is traditionall"reco#ni ed as police po$er %easures so that the senior citi en discount %a" be considered as apolice po$er %easure as $ell. !hat is %ore, the substantial distinctions bet$een price and rate ofreturn on invest%ent control la$s vis-à-vis the senior citi en discount la$ provide #reater reason touphold the validit" of the senior citi en discount la$. As previousl" discussed, the abilit" to ad>ust

prices allo$s the establish%ent sub>ect to the senior citi en discount to prevent or %iti#ate an"reduction of profits or inco%e #ross sales arisin# fro% the #ivin# of the discount. In contrast,establish%ents sub>ect to price and rate of return on invest%ent control la$s cannot ad>ust pricesaccordin#l". Certainl", there is no intention to sa" that price and rate of return on invest%ent controlla$s are the >ustification for the senior citi en discount la$. Not at all. 9he >ustification for the seniorciti en discount la$ is the plenar" po$ers of Con#ress. 9he le#islative po$er to re#ulate businessestablish%ents is broad and covers a $ide arra" of areas and sub>ects. It is $ell $ithin Con#ressle#islative po$ers to re#ulate the profits or inco%e #ross sales of industries and enterprises, eventhose $ithout franchises. +or $hat are franchises but %ere le#islative enact%ents 9here is nothin#in the Constitution that prohibits Con#ress fro% re#ulatin# the profits or inco%e #ross sales ofindustries and enterprises $ithout franchises. n the contrar", the social >ustice provisions of theConstitution en>oin the State to re#ulate the Gac uisition, o$nership, use, and dispositionG of propert"and its incre%ents. 771

9his %a" cover the re#ulation of profits or inco%e #ross sales of all businesses, $ithout ualification,to attain the ob>ective of diffusin# $ealth in order to protect and enhance the ri#ht of all the people tohu%an di#nit" .77J

9hus, under the social >ustice polic" of the Constitution, business establish%ents %a" be co%pelledto contribute to upliftin# the pli#ht of vulnerable or %ar#inali ed #roups in our societ" provided thatthe re#ulation is not arbitrar", oppressive or confiscator", or is not in breach of so%e specificconstitutional li%itation. !hen the Dissent, therefore, states that the Gprofits of privateestablish%ents $hich are non-franchisees cannot be re#ulated per%anentl", and there is no suchla$ re#ulatin# their profits per%anentl",G 773 it is assu%in# $hat it ou#ht to prove. +irst, there are la$s$hich, in effect, per%anentl" re#ulate profits or inco%e #ross sales of establish%ents $ithout

franchises, and RA 3&(1 is one such la$. And, second, Con#ress can re#ulate such profits orinco%e #ross sales because, as previousl" noted, there is nothin# in the Constitution to prevent itfro% doin# so. ?ere, a#ain, it %ust be e%phasi ed that petitioners failed to present an" proof tosho$ that the effects of the assailed la$ on their operations has been unreasonable, oppressive orconfiscator". 9he per%anent re#ulation of profits or inco%e #ross sales of business establish%ents,even those $ithout franchises, is not as unco%%on as the Dissent depicts it to be. +or instance, the%ini%u% $a#e la$ allo$s the State to set the %ini%u% $a#e of e%plo"ees in a #iven re#ion or#eo#raphical area. Because of the added labor costs arisin# fro% the %ini%u% $a#e, a per%anentreduction of profits or inco%e #ross sales $ould result, assu%in# that the e%plo"er does notincrease the prices of his #oods or services. 9o illustrate, suppose it costs a co%pan" P(.44 toproduce a product and it sells the sa%e at P74.44 $ith a (45 profit %ar#in. *ater, the Stateincreases the %ini%u% $a#e. As a result, the co%pan" incurs #reater labor costs so that it no$costs P1.44 to produce the sa%e product. 9he profit per product of the co%pan" $ould be reducedto P2.44 $ith a profit %ar#in of 245. 9he net effect $ould be the sa%e as in the earlier e6a%ple of#rantin# a &45 senior citi en discount. As can be seen, the %ini%u% $a#e la$ could, li)e$ise, leadto a per%anent reduction of profits. Does this %ean that the %ini%u% $a#e la$ should, li)e$ise, bedeclared unconstitutional on the %ere plea that it results in a per%anent reduction of profits 9a)in#it a step further, suppose the co%pan" decides to increase the price of its product in order to offsetthe effects of the increase in labor cost= does this %ean that the %ini%u% $a#e la$, follo$in# thereasonin# of the Dissent, is unconstitutional because the consu%in# public is effectivel" %ade tosubsidi e the $a#e of a #roup of laborers, i.e., %ini%u% $a#e earners 9he sa%e reasonin# can beadopted relative to the e6a%ples cited b" the Dissent $hich, accordin# to it, are valid police po$er










re#ulations. Article 7(1 of the *abor Code, Sections 73 and 7J of the Social Securit" *a$, andSection 1 of the Pa#-IBI@ +und *a$ $ould effectivel" increase the labor cost of a businessestablish%ent. 9his $ould, in turn, be inte#rated as part of the cost of its #oods or services. A#ain, ifthe establish%ent does not increase its prices, the net effect $ould be a per%anent reduction in itsprofits or inco%e #ross sales. +ollo$in# the reasonin# of the Dissent that Gan" for% of per%anentta)in# of private propert" includin# profits or inco%e #ross sales/ 7&4 is an e6ercise of e%inent do%ain

that re uires the State to pa" >ust co%pensation,G7&7

then these statutor" provisions $ould, li)e$ise,have to be declared unconstitutional. It does not %atter that these benefits are dee%ed part of thee%plo"ees le#islated $a#es because the net effect is the sa%e, that is, it leads to hi#her labor costsand a per%anent reduction in the profits or inco%e #ross sales of the business establish%ents. 7&&

9he point then is this : %ost, if not all, re#ulator" %easures i%posed b" the State on businessestablish%ents i%pact, at so%e level, the latter s prices and or profits or inco%e #ross sales. 7&2

If the Court $ere to sustain the Dissent s theor", then a $holesale nullification of such %easures$ould inevitabl" result. 9he police po$er of the State and the social >ustice provisions of theConstitution $ould, thus, be rendered nu#ator". 9here is nothin# sacrosanct about profits orinco%e #ross sales. 9his, $e %ade clear in Carlos Superdru# Corporation8 7&0

Police po$er as an attribute to pro%ote the co%%on #ood $ould be diluted considerabl" if on the%ere plea of petitioners that the" $ill suffer loss of earnin#s and capital, the uestioned provision isinvalidated. Moreover, in the absence of evidence de%onstratin# the alle#ed confiscator" effect ofthe provision in uestion, there is no basis for its nullification in vie$ of the presu%ption of validit"$hich ever" la$ has in its favor.

6 6 6 6

9he Court is not oblivious of the retail side of the phar%aceutical industr" and the co%petitive pricin#co%ponent of the business. !hile the Constitution protects propert" ri#hts petitioners %ust therealities of business and the State, in the e6ercise of police po$er, can intervene in the operations of a business $hich %a" result in an i%pair%ent of propert" ri#hts in the process.

Moreover, the ri#ht to propert" has a social di%ension. !hile Article LIII of the Constitution providesthe percept for the protection of propert", various la$s and >urisprudence, particularl" on a#rarianrefor% and the re#ulation of contracts and public utilities, continousl" serve as a re%inder for thepro%otion of public #ood.

ndeniabl", the success of the senior citi ens pro#ra% rests lar#el" on the support i%parted b"petitioners and the other private establish%ents concerned. 9his bein# the case, the %eanse%plo"ed in invo)in# the active participation of the private sector, in order to achieve the purpose orob>ective of the la$, is reasonabl" and directl" related. !ithout sufficient proof that Section 0 a/ ofR.A. No. 3&(1 is arbitrar", and that the continued i%ple%entation of the sa%e $ould beunconscionabl" detri%ental to petitioners, the Court $ill refrain for% uashin# a le#islative act. 7&(

In conclusion, $e %aintain that the correct rule in deter%inin# $hether the sub>ect re#ulator"%easure has a%ounted to a Gta)in#G under the po$er of e%inent do%ain is the one laid do$n in

Alalayan v. National Power Corporation 7&' and follo$ed in Carlos Superdurg Corporation 7&1 consistent$ith lon# standin# principles in police po$er and e%inent do%ain anal"sis. 9hus, the deprivation orreduction of profits or inco%e. @ross sales %ust be clearl" sho$n to be unreasonable, oppressive or confiscator". nder the specific circu%stances of this case, such deter%ination can onl" be %adeupon the presentation of co%petent proof $hich petitioners failed to do. A la$, $hich has been inoperation for %an" "ears and pro%otes the $elfare of a #roup accorded special concern b" the





















Constitution, cannot and should not be su%%aril" invalidated on a %ere alle#ation that it reduces theprofits or inco%e #ross sales of business establish%ents.

!?ERE+ RE, the Petition is hereb" DISMISSED for lac) of %erit.

S RDERED.

MARIANO C. DEL CASTILLO Associate ustice

!E C NC R8

MARIA LOURDES P.A. SERENOChief ustice

See Dissentin# pinionANTONIO T. CARPIO

Associate ustice

Please See Concurrin# pinionPRES+ITERO . 'ELASCO, R.

Associate ustice

I certif" that . De Castro *eft her voteconcurrin# %" ponencia of . Del CastilloTERESITA . LEONARDO#DE CASTRO

Associate ustice

No PartARTURO D. +RION Associate ustice

I certif" that . Peralta left his voteconcurrin# %" ponencia of . Del Castillo

DIOSDADO M. PERALTA Associate ustice

!ith Concurrin# pinionLUCAS P. +ERSAMIN

Associate ustice

RO+ERTO A. A+AD Associate ustice

MARTIN S. 'ILLARAMA Associate ustice

OSE PORTUGAL PERE" Associate ustice

OSE CATRAL MENDO"A Associate ustice

+IEN'ENIDO L. RE$ES Associate ustice

ESTELA M. PERLAS#+ERNA+E Associate ustice

See separate concurrin# opinionMAR'IC MARIO 'ICTOR !. LEONEN

Associate ustice

C E R 9 I + I C A 9 I N

I certif" that the conclusions in the above Decision had been reached in consultation before the case$as assi#ned to the $riter of the opinion of the Court.

MARIA LOURDES P.A. SERENOChief ustice



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