Case Compilation - Law 124

8/12/2019 Case Compilation - Law 124

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CASE COMPILATION

LAW 124Taxation

1stsemester S/Y 2014-2015

1.) Reyes vs. Almanzor

2.) Progressive Development Corporation vs Quezon City

3.) PAL vs Edu

4.) Planters Products, Inc. vs. Fertiphil Corporation

5.) Pascual vs Secretary of Public Works

6.) Manila International Airport Authority vs City of Paranaque

7.) Tiu vs Court of Appeals

8.) Tolentino vs Secretary of Finance

9.) Bureau of Customs Employees' Association vs Teves


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respondents would have this Court completely ignore the effects of the restrictions of P.D. No. 20on the market value of properties within its coverage. In any event, it is unquestionable that boththe "Comparable Sales Approach" and the "Income Approach" are generally acceptable methodsof appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. DeLeon, 1988 Edition). However, it is conceded that the propriety of one as against the other wouldof course depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club,

Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that theassessors, in finding the value of the property, have to consider all the circumstances and elementsof value and must exercise a prudent discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must notonly be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds of property ofthe same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects oftaxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,Second Edition). Thus, the need to examine closely and determine the specific mandate of theConstitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation isprogressive when its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers ofgovernment. But for all its plenitude the power to tax is not unconfined as there are restrictions.Adversely effecting as it does property rights, both the due process and equal protection clausesof the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure.If it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "thepower to tax involves the power to destroy." The web or unreality spun from Marshall's famousdictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is notthe power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is so arbitrarythat it finds no support in the Constitution. An obvious example is where it can be shown to amountto confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification for purposesof taxation but the government's act must not be prompted by a spirit of hostility, or at the veryleast discrimination that finds no support in reason. It suffices then that the laws operate equallyand uniformly on all persons under similar circumstances or that all persons must be treated in thesame manner, the conditions not being different both in the privileges conferred and the liabilitiesimposed (Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the firstFundamental Principle to guide the appraisal and assessment of real property for taxationpurposes is that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 beequated with the market value of properties not so covered. The former has naturally a much lessermarket value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subjectproperties under the "comparable sales approach" were presented by the public respondents,namely: (1) that the sale must represent a bonafide arm's length transaction between a willing


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PROGRESSIVE DEVELOPMENT CORP. vs . QUEZON CITY

G.R. No. L-36081 April 24, 1989

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,

vs.QUEZON CITY,respondent.

Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO,J.:

On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997,Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which provided:

Sec. 3. Supervision Fee.- Privately owned and operated public markets shallsubmit monthly to the Treasurer's Office, a certified list of stallholders showing the

amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10%of the gross receipts from stall rentalsto the City, ... , as supervision fee. Failuretosubmit said list and to pay the corresponding amount within the period hereinprescribed shall subject the operator to the penalties provided in this Code ...includingrevocation of permit to operate. ... .1

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March1972, which reads:

SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receiptson rentals or lease of space in privately-owned public markets in Quezon City.

xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance, owners of privatelyowned public markets shall submit ... a monthly certified list of stallholders oflessees of space in their markets showing ... :

a. name of stallholder or lessee;

b. amount of rental;

c. period of lease, indicating therein whether the same is on a daily, monthly or

yearly basis.

xxx xxx xxx

SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3)consecutive months, the City shall revoke the permit of the privately-ownedmarketto operate and/or take any other appropriate action or remedy allowed bylaw for the collection of the overdue percentage tax and surcharge.

xxx xxx xxx 2

On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public

market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition withPreliminary Injunction against respondent before the then Court of First Instance of Rizal on the


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ground that the supervision fee or license tax imposed by the above-mentioned ordinances is inreality a tax on income which respondent may not impose, the same being expressly prohibited byRepublic Act No. 2264, as amended.

In its Answer, respondent, through the City Fiscal, contended that it had authority to enact thequestioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax onincome. The Solicitor General also filed an Answer arguing that petitioner, not having paid the tenpercent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question,and was estopped from questioning, its validity; that the tax on gross receipts was not a tax onincome but one imposed for the enjoyment of the privilege to engage in a particular trade orbusiness which was within the power of respondent to impose.

In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protestthe five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972.Two (2) days later, on 25 September 1972, petitioner moved for judgment on the pleadings,alleging that the material facts had been admitted by the parties.

On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a taxon income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect.

Having failed to obtain reconsideration of said decision, petitioner came to us on the presentPetition for Review.

The only issue to be resolved here is whether the tax imposed by respondent on gross receipts ofstall rentals is properly characterized as partaking of the nature of an income tax or, alternatively,of a license fee.

We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as theRevised Charter of Quezon City, authorizes the City Council:

xxx xxx xxx

(b) To provide for the levy and collection of taxes and other city revenues and applythe same to the payment of city expenses in accordance with appropriations.

(c) To tax, fix the license fee, and regulate the business ofthe following:

... preparation and sale of meat, poultry, fish, game, butter, cheese, lardvegetables, bread and other provisions.4

The scope of legislative authority conferred upon the Quezon City Council in respect of businesses

like that of the petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fixthe license fee," but also " to tax" 5

Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the LocalAutonomy Act, provides that:

Any provision of law to the contrary notwithstanding, all charteredcities, municipalities and municipal districts shall have authority to imposemunicipal license taxes or fees upon persons engaged in any occupation orbusiness, or exercising privileges in chartered cities, municipalities or municipaldistricts by requiring them to secure licenses at rates fixed by the municipal boardor city council of the city, the municipal council of the municipality, or the municipal

district council of the municipal district; to collect fees and charges for servicerendered by the city, municipality or municipal district; to regulate and impose


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reasonable fees for services rendered in connection with any business, professionor occupation being conducted within the city, municipality or municipal district andotherwise to levy for public purposes just and uniform taxes licenses or fees: ... 6

It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authorityextending to almost "everything, excepting those which are mentioned therein," provided that thetax levied is "for public purposes, just and uniform," does not transgress any constitutional provisionand is not repugnant to a controlling statute. 7Both the Local Autonomy Act and the Charter of respondent clearly showthat respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-ownedpublic market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a return fromcapital invested in the construction of the Farmers Market, practically operates as a tax on income,one of those expressly excepted from respondent's taxing authority, and thus beyond the latter'scompetence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on tostate: 8

... Provided, however, That no city,municipality or municipal districtmay levy or

impose any of the following:

xxx xxx xxx

(g) Taxes on income of any kind whatsoever;

The term "tax" frequently applies to all kinds of exactions of monies which become public funds. Itis often loosely used to include levies for revenue as well as levies for regulatory purposes suchthat license fees are frequently called taxes although license feeis a legal concept distinguishablefromtax:the former is imposed in the exercise of police power primarily for purposes of regulation,while the latter is imposed under the taxing power primarily for purposes of raising revenues. 9Thus,if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is theprimary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. 10

To be considered a license fee, the imposition questioned must relate to an occupation or activitythat so engages the public interest in health, morals, safety and development as to requireregulation for the protection and promotion of such public interest; the imposition must also bear areasonable relation to the probable expenses of regulation, taking into account not only the costsof direct regulation but also its incidental consequences as well.11When an activity, occupation or professionis of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance ofpublic health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form ofregulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no oneshall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision hasbeen paid. 12Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held tobe a tax rather than an exercise of the police power. 13

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No.7350 passed on 30 January 1967 by respondents's local legislative body authorizing petitioner toestablish and operate a market with a permit to sell fresh meat, fish, poultry and otherfoodstuffs. 14The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by andcomply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in QuezonCity." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a market opento and inviting the patronage of the general public, even though privately owned, petitioner'soperation thereof required a license issued by the respondent City, the issuance of which, applyingthe standards set forth above, was done principally in the exercise of the respondent's policepower. 16 The operation of a privately owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same asthe operation of a government-owned market; both are established for the rendition of service to the general public, which warrants closesupervision and control by the respondent City, 17for the protection of the health of the public by insuring, e.g., the maintenance of

sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and relatedstandards, for the prevention of fraud and imposition upon the buying public, and so forth.


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We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes,not a tax on income,not a cityincome tax (as distinguished from the nationalincometax imposedby the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local AutonomyAct, but rather a license tax or fee for the regulation of the business in which the petitioner isengaged. While it is true that the amount imposed by the questioned ordinances may beconsidered in determining whether the exaction is really one for revenue or prohibition, instead of

one of regulation under the police power, 18it nevertheless will be presumed to be reasonable. Local' governments areallowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absenceof proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to theissue of arbitrariness or unreasonableness of the questioned rates. 19Thus:

[A]n ordinance carries with it the presumption of validity. The question ofreasonableness though is open to judicial inquiry. Much should be left thus to thediscretion of municipal authorities. Courts will go slow in writing off an ordinanceas unreasonable unless the amount is so excessive as to be prohibitory, arbitrary,unreasonable, oppressive, or confiscatory. A rule which has gained acceptance isthat factors relevant to such an inquiry are the municipal conditions as a whole andthe nature of the business made subject to imposition. 20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large andexcessive and so grossly disproportionate to the costs of the regulatory service being performedby the respondent as to compel the Court to characterize the imposition as a revenue measureexclusively. The lower court correctly held that the gross receipts from stall rentals have been usedonly as a basis for computing the fees or taxes due respondent to cover the latter's administrativeexpenses, i.e., for regulation and supervision of the sale of foodstuffs to the public. The use of thegross amount of stall rentals as basis for determining the collectible amount of license tax, doesnot by itself, upon the one hand, convert or render the license tax into a prohibited city tax onincome. Upon the other hand, it has not been suggested that such basis has no reasonablerelationship to the probable costs of regulation and supervision of the petitioner's kind of business.For, ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffsand related items sold in petitioner's privately owned market; and the higher the volume of goods

sold in such private market, the greater the extent and frequency of inspection and supervisionthat may be reasonably required in the interest of the buying public. Moreover, what we startedwith should be recalled here: the authority conferred upon the respondent's City Councilis notmerely "to regulate" but also embraces the power "to tax" the petitioner's business.

Finally, petitioner argues that respondent is without power to impose a gross receipts tax forrevenue purposes absent an express grant from the national government. As a general rule, theremust be a statutory grant for a local government unit to impose lawfully a gross receipts tax, thatunit not having the inherent power of taxation. 21The rule, however, finds no application in the instant case where whatis involved is an exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expresslyaccompanied by the taxing power.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18,is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.


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Footnotes1 Rollo, p. 102; Italics supplied.2 Records on Appeal, pp. 14-15; Underscoring supplied.3 Ibid, pp. 58-68.4 46 Official Gazette 4732 (1950); Italics supplied. Certain portions of the Charterhad been amended by R.A. 5541, 65 Official Gazette, p. 7126 (1968). The

amendatory law, however, did not introduce any change to the portion quotedabove.5 See, in this connection, Pacific Commercial Co. v. Romualdez, et al., 49 Phil. 917(1927).6 Section 2 of R.A. 2264 has been amended by R.A. 4497, 62 Official Gazette, p.8616 (1966); Underscoring supplied. R.A. 2264 was further amended by P.D. No.145, 69 Official Gazette, p 2418 (1973), which however did not affect theabovequoted portion.7 Nin Bay Mining Co. v. Municipality of Roxas, 14 SCRA 660 (1965); See also C.N.Hodges v. Municipal Board of the City of Iloilo, et. al., 19 SCRA 28 (1967); andVillanueva v. City of Iloilo, 26 SCRA 578 (1968).8 supra, note 6; underscoring supplied.

9 Compania General de Tabacos de Filipinas v. City of Manila, 118 Phil. 383; 8SCRA 370 (1963); Pacific Commercial Co. v. Romualdez, 49 Phil, 917 (1927).10 Manila Electric Company v. El Auditor General y La Comision

de Servicios Publicos, 73 Phil. 133 (1941); Republic v. PhilippineRabbit Bus Lines, 32 SCRA 215 (1970).

11 City of Iloilo v. Villanueva, 105 Phil. 337 (1959).12 Manila Electric Company vs. El Auditor General y la Comision de ServiciosPublicos, supra, at 134-135.13 Serafin Saldana v. City of Iloilo, 104 Phil, 28. (1958).14 Record on Appeal, p. 10.15 Ibid.16 In City of Jacksonville, et al. v. Ledwith 7 So. at 892 [1890]; 26 Fla. 163, it washeld that a permit to establish a market was:

"from the nature of a market, a license. It is a permit to dosomething which could not be done before without such permit, andhence is the grant of a license. x x x [T]he power to establishmarkets is within the police power, and [thus is] x x x the power tocharge, as a police regulation, a fee for the permit or license forselling meats or vegetables therein, x x x. The fee, however, is nota tax for revenue, but a charge under the police power, and itsamount is to be controlled by the principles governing in suchcases."

17 Brief for the Respondent, pp. 6-7; Rollo, p. 172.18 E.g., Calalang v. Lorenzo and Villar, 97 Phil. 212 (1955).19 Procter & Gamble PMC v. Municipality of Jagna 94 SCRA 894 (1979); Northern

Phil. Tobacco Co. v. Municipality of Agoo, 31 SCRA 304 (1970); and San MiguelBrewery, Inc. v. City of Cebu, 43 SCRA 275 (1972).20 Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25SCRA 192 at 205 (1968), citing 9 McQuillin Municipal Corporations, 3rd ed., at 65.

In Atkins v. Philips, 8 So. at 431 (1890); 26 Fla. 281, the SupremeCourt of Florida held:

21 City of Ozamis v. Lumapas, 65 SCRA 33 (1975).


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PAL vs. EDU

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDOCARBONELL, in his capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking fora re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals ina case where the then Court of First Instance of Rizal dismissed the portion-about complaint forrefund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevatepursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation andTraffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of thePhilippines and engaged in the air transportation business under a legislative franchise, Act No.42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt fromthe payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the granteeshall pay to the National Government during the life of this franchise a tax of twoper cent of the gross revenue or gross earning derived by the grantee from itsoperations under this franchise. Such tax shall be due and payable quarterly andshall be in lieu of all taxes of any kind, nature or description, levied, established orcollected by any municipal, provincial or national automobiles, Provided, that if,after the audit of the accounts of the grantee by the Commissioner of InternalRevenue, a deficiency tax is shown to be due, the deficiency tax shall be payablewithin the ten days from the receipt of the assessment. The grantee shall pay thetax on its real property in conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulationrequiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unlessthe amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, toCommissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.


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Lorenzo(97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in realitytaxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicleregistration fees are regulatory exceptional. and not revenue measures and, therefore, do notcome within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaintagainst Land Transportation Commissioner Romeo F. Edu and National Treasurer UbaldoCarbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil CaseNo. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in hiscapacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no causeof action. In support of the motion to dismiss, defendants repatriation the ruling in Republic v.Philippine Rabbit Bus Lines, Inc., (supra)that registration fees of motor vehicles are not taxes, butregulatory fees imposed as an incident of the exercise of the police power of the state. Theycontended that while Act 4271 exempts PAL from the payment of any tax except two per cent onits gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as

motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Courtuntil after trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "movedby the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit BusLines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified thecase to us.

Calalang v. Lorenzo (supra)and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PALand Commissioner Romeo F. Edu respectively, discuss the main points of contention in the caseat bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its headingspeaks of "registration fees." The term is repeated four times in the body thereof.Equally so, mention is made of the "fee for registration." (Ibid., Subsection G) Asubsection starts with a categorical statement "No fees shall be charged."(lbid.,Subsection H) The conclusion is difficult to resist therefore that the MotorVehicle Act requires the payment not of a tax but of a registration fee under thepolice power. Hence the incipient, of the section relied upon by defendant-appelleeunder the Back Pay Law, It is not held liable for a tax but for a registration fee. Ittherefore cannot make use of a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should bedissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the impositionof additional tax on privately-owned passenger automobiles, motorcycles andscooters was amended by Republic Act No. 5470 which is (sic) approved on May30, 1969.) A special science fund was thereby created and its title expressly setsforth that a tax on privately-owned passenger automobiles, motorcycles andscooters was imposed. The rates thereof were provided for in its Section 3 whichclearly specifies the" Philippine tax."(Cooley to be paid as distinguished from theregistration fee under the Motor Vehicle Act. There cannot be any clearerexpression therefore of the legislative will, even on the assumption that the earlierlegislation could by subdivision the point be susceptible of the interpretation that a

tax rather than a fee was levied. What is thus most apparent is that where the


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legislative body relies on its authority to tax it expressly so states, and where it isenacting a regulatory measure, it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,held:

The charges prescribed by the Revised Motor Vehicle Law for the registration ofmotor vehicles are in section 8 of that law called "fees". But the appellation is noimpediment to their being considered taxes if taxes they really are. For not thename but the object of the charge determines whether it is a tax or a fee. Geveiaspeaking, taxes are for revenue, whereas fees are exceptional. for purposes ofregulation and inspection and are for that reason limited in amount to what isnecessary to cover the cost of the services rendered in that connection. Hence, acharge fixed by statute for the service to be person,-When by an officer, where thecharge has no relation to the value of the services performed and where theamount collected eventually finds its way into the treasury of the branch of thegovernment whose officer or officers collected the chauffeur, is not a fee but atax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of theMotor Vehicle Office are but a small portionabout 5 per centumof the totalcollections from motor vehicle registration fees. And as proof that the moneycollected is not intended for the expenditures of that office, the law itself providesthat all such money shall accrue to the funds for the construction and maintenanceof public roads, streets and bridges. It is thus obvious that the fees are not collectedfor regulatory purposes, that is to say, as an incident to the enforcement ofregulations governing the operation of motor vehicles on public highways, for theirexpress object is to provide revenue with which the Government is to dischargeone of its principal functionsthe construction and maintenance of public highwaysfor everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those feesas taxes, for it provides that "no other taxes or fees than those prescribed in thisAct shall be imposed," thus implying that the charges therein imposedthoughcalled feesare of the category of taxes. The provision is contained in section 70,of subsection (b), of the law, as amended by section 17 of Republic Act 587, whichreads:

Sec. 70(b) No other taxes or fees than those prescribed in this Actshall be imposed for the registration or operation or on theownership of any motor vehicle, or for the exercise of the professionof chauffeur, by any municipal corporation, the provisions of any

city charter to the contrary notwithstanding: Provided, however,That any provincial board, city or municipal council or board, orother competent authority may exact and collect such reasonableand equitable toll fees for the use of such bridges and ferries, withintheir respective jurisdiction, as may be authorized and approved bythe Secretary of Public Works and Communications, and also forthe use of such public roads, as may be authorized by the Presidentof the Philippines upon the recommendation of the Secretary ofPublic Works and Communications, but in none of these cases,shall any toll fee." be charged or collected until and unless theapproved schedule of tolls shall have been posted levied, in aconspicuous place at such toll station. (at pp. 213-214)


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Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the LandTransportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remainedunsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the moneycollected under the provisions of this Act shall accrue to the road and bridge fundsof the different provinces and chartered cities in proportion to the centum shallduring the next previous year and the remaining eighty per centum shall bedeposited in the Philippine Treasury to create a special fund for the constructionand maintenance of national and provincial roads and bridges. as well as thestreets and bridges in the chartered cities to be alloted by the Secretary of PublicWorks and Communications for projects recommended by the Director of PublicWorks in the different provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisionsof this Act shall be deposited in a special trust account in the National Treasury toconstitute the Highway Special Fund, which shall be apportioned and expended inaccordance with the provisions of the" Philippine Highway Act of 1935. "Provided,however, That the amount necessary to maintain and equip the LandTransportation Commission but not to exceed twenty per cent of the total collectionduring one year, shall be set aside for the purpose. (As amended by RA 64-67,approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the lawrequiring owners of vehicles to pay for their registration is mainly to raise funds for the constructionand maintenance of highways and to a much lesser degree, pay for the operating expenses of theadministering agency. On the other hand, thePhilippine Rabbit case mentions a presumptionarising from the use of the term "fees," which appears to have been favored by the legislature todistinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 whichreads:

Sec. 13. Payment of taxes upon registration.No original registration of motorvehicles subject to payment of taxes, customs s duties or other charges shall beaccepted unless proof of payment of the taxes due thereon has been presented tothe Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motorvehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument ofregulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on variousaspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees arechanges. looked to as a source of revenue as well as a means of regulation(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile licensefees. Isabela such case, the fees may properly be regarded as taxes even thoughthey also serve as an instrument of regulation. If the purpose is primarily revenue,


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or if revenue is at least one of the real and substantial purposes, then the exactionis properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley onTaxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,

Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-593).

Indeed, 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 substantialpurposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicleregistration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587quoted in the Calalang case. The same provision appears as Section 591-593). in the LandTransportation code. It is patent therefrom that the legislators had in mind a regulatory tax as thelaw refers to the imposition on the registration, operation or ownership of a motor vehicle as a "taxor fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is atax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on theownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making theintent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speakof an "additional" tax," where the law could have referred to an original tax and not one in additiontothe tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep.Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, theimposition 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 additionalfees for change of registration (Sec. 11). These are not to be understood as taxes because suchfees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). ofthe Code as taxes like the motor vehicle registration fee and chauffers' license fee. Such fees are

to go into the expenditures of the Land Transportation Commission as provided for in the lastproviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended onlyfor rigidly purposes in the exercise of the State's police powers. Over the years, however, asvehicular traffic exploded in number and motor vehicles became absolute necessities withoutwhich modem life as we know it would stand still, Congress found the registration of vehicles avery convenient way of raising much needed revenues. Without changing the earlier deputy. ofregistration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuantto the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of

government even if one fifth or less of the amount collected is set aside for the operating expensesof the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in thecomplaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to whatpayments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislativefranchises similar to that invoked by PAL in this case.


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PLANTERS PRODUCTS, INC. VS. FERTIPHIL CORPORATION

G.R. No. 166006PLANTERS PRODUCTS, INC.,Petitioner,VS.FERTIPHIL CORPORATION,Respondent.

Present:

YNARES-SANTIAGO, J.,Chairperson,AUSTRIA-MARTINEZ,CHICO-NAZARIO,NACHURA, andREYES, JJ.

Promulgated: March 14, 2008

D E C I S I O N

REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the

constitutionality of statutes, executive orders, presidential decrees and other issuances. The

Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorariof the Decision[1]of the Court

of Appeals (CA) affirming with modification that of the RTC in Makati City,[2] finding petitioner

Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the

levies it paid under Letter of Instruction (LOI) No. 1465.

The Facts

Petitioner PPI and private respondent Fertiphil are private corporations incorporated under

Philippine laws.[3]They are both engaged in the importation and distribution of fertilizers, pesticides

and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers,

issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery

component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.[4] The LOI

provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer

pricing formula a capital contribution component of not less than P10 perbag. This capital contribution shall be collected until adequate capital is raised
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to make PPI viable. Such capital contribution shall be applied by FPA to alldomestic sales of fertilizers in the Philippines.[5] (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 tothe 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.[6]

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.[7]

Fertiphil filed a complaint for collection and damages[8]against FPA and PPI with the RTC

in Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,

oppressive, invalid and an unlawful imposition that amounted to a denial of due process of

law.[9] Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used

the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer,[10]FPA, through the Solicitor General, countered that the issuance of LOI

No. 1465 was a valid exercise of the police power of the State in ensuring the stability of the

fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage from the

LOI because the burden imposed by the levy fell on the ultimate consumer, not the seller.

RTC Disposition

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

follows:WHEREFORE, in view of the foregoing, the Court hereby renders

judgment in favor of the plaintiff and against the defendant Planters Product, Inc.,ordering the latter to pay the former:

1) the sum of P6,698,144.00 with interest at 12% from the time

of judicial demand;2) the sum of P100,000 as attorneys fees;3) the cost of suit.

SO ORDERED.[11]

Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of

taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be levied

for public purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country

by LOI 1465 is purportedly in the exercise of the power of taxation. It is a settledprinciple that the power of taxation by the state is plenary.
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Pascual vs Secretary of Public Wo rks

G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,petitioner-

appellant,vs.THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted thisaction for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled"An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair,extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen.Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that,at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothingbut projected and planned subdivision roads, not yet constructed, . . . within the AntonioSubdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition asAnnexes A and B, near Shaw Boulevard, not far away from the intersection between the latter andHighway 54), which projected feeder roads "do not connect any government property or any

important premises to the main highway"; that the aforementioned Antonio Subdivision (as well asthe lands on which said feeder roads were to be construed) were private properties of respondentJose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of theSenate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to theMunicipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipalityof Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to thecondition "that the donor would submit a plan of the said roads and agree to change the names oftwo of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed;that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention tothe approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for theconstruction of the projected feeder roads in question; that the municipal council of Pasig endorsedsaid letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has notmade any endorsement thereon" that inasmuch as the projected feeder roads in question wereprivate property at the time of the passage and approval of Republic Act No. 920, the appropriationof P85,000.00 therein made, for the construction, reconstruction, repair, extension andimprovement of said projected feeder roads, was illegal and, therefore, void ab initio"; that saidappropriation of P85,000.00 was made by Congress because its members were made to believethat the projected feeder roads in question were "public roads and not private streets of a privatesubdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to theaforementioned appropriation", respondents Zulueta executed on December 12, 1953, while hewas a member of the Senate of the Philippines, an alleged deed of donation copy of which isannexed to the petition of the four (4) parcels of land constituting said projected feeder roads,in favor of the Government of the Republic of the Philippines; that said alleged deed of donationwas, on the same date, accepted by the then Executive Secretary; that being subject to an onerouscondition, said donation partook of the nature of a contract; that, such, said donation violated the

provision of our fundamental law prohibiting members of Congress from being directly or indirectlyfinancially interested in any contract with the Government, and, hence, is unconstitutional, as well


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as null and voidab initio, for the construction of the projected feeder roads in question with publicfunds would greatly enhance or increase the value of the aforementioned subdivision ofrespondent Zulueta, "aside from relieving him from the burden of constructing his subdivisionstreets or roads at his own expense"; that the construction of said projected feeder roads was thenbeing undertaken by the Bureau of Public Highways; and that, unless restrained by the court, therespondents would continue to execute, comply with, follow and implement the aforementioned

illegal provision of law, "to the irreparable damage, detriment and prejudice not only to thepetitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null andvoid; that the alleged deed of donation of the feeder roads in question be "declared unconstitutionaland, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Worksand Communications, the Director of the Bureau of Public Works and Highways and Jose C.Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads project,and from making and securing any new and further releases on the aforementioned item ofRepublic Act No. 920, and the disbursing officers of the Department of Public Works and Highwaysfrom making any further payments out of said funds provided for in Republic Act No. 920; and thatpending final hearing on the merits, a writ of preliminary injunction be issued enjoining the

aforementioned parties respondent from making and securing any new and further releases on theaforesaid item of Republic Act No. 920 and from making any further payments out of said il legallyappropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacityto sue", and that the petition did "not state a cause of action". In support to this motion, respondentZulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent theProvince of Rizal, pursuant to section 1683 of the Revised Administrative Code; that saidrespondent is " not aware of any law which makes illegal the appropriation of public funds for theimprovements of . . . private property"; and that, the constitutional provision invoked by petitioneris inapplicable to the donation in question, the same being a pure act of liberality, not a contract.The other respondents, in turn, maintained that petitioner could not assail the appropriation in

question because "there is no actual bona fidecase . . . in which the validity of Republic Act No.920 is necessarily involved" and petitioner "has not shown that he has a personal and substantialinterest" in said Act "and that its enforcement has caused or will cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, datedOctober 29, 1953, holding that, since public interest is involved in this case, the Provincial Governorof Rizal and the provincial fiscal thereof who represents him therein, "have the requisitepersonalities" to question the constitutionality of the disputed item of Republic Act No. 920; that"the legislature is without power appropriate public revenues for anything but a public purpose",that the instructions and improvement of the feeder roads in question, if such roads where privateproperty, would not be a public purpose; that, being subject to the following condition:

The within donation is hereby made upon the condition that the Government of theRepublic of the Philippines will use the parcels of land hereby donated for street purposesonly and for no other purposes whatsoever; it being expressly understood that should theGovernment of the Republic of the Philippines violate the condition hereby imposed uponit, the title to the land hereby donated shall, upon such violation, ipso facto revert to theDONOR, JOSE C. ZULUETA. (Emphasis supplied.)

which is onerous, the donation in question is a contract; that said donation or contract is "absolutelyforbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of thePhilippines, declares in existence and void from the very beginning contracts "whose cause,objector purpose is contrary to law, morals . . . or public policy"; that the legality of said donationmay not be contested, however, by petitioner herein, because his "interest are not directly affected"

thereby; and that, accordingly, the appropriation in question "should be upheld" and the casedismissed.


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At the outset, it should be noted that we are concerned with a decision granting the aforementionedmotions to dismiss, which as much, are deemed to have admitted hypothetically the allegations offact made in the petition of appellant herein. According to said petition, respondent Zulueta is theowner of several parcels of residential land situated in Pasig, Rizal, and known as the AntonioSubdivision, certain portions of which had been reserved for the projected feeder roadsaforementioned, which, admittedly, were private property of said respondent when Republic Act

No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension andimprovement" of said roads, was passed by Congress, as well as when it was approved by thePresident on June 20, 1953. The petition further alleges that the construction of said roads, to beundertaken with the aforementioned appropriation of P85,000.00, would have the effect of relievingrespondent Zulueta of the burden of constructing his subdivision streets or roads at his ownexpenses, 1and would "greatly enhance or increase the value of the subdivision" of saidrespondent. The lower court held that under these circumstances, the appropriation in questionwas "clearly for a private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,respondent Zulueta contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal becauseCongress is the source of all laws . . . Aside from the fact that movant is not aware of anylaw which makes illegal the appropriation of public funds for the improvement of what we,in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature ofthe Government established under the Constitution of the Republic of the Philippines and thesystem of checks and balances underlying our political structure. Moreover, it is refuted by thedecisions of this Court invalidating legislative enactments deemed violative of the Constitution ororganic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle

according to Ruling Case Law, is this:

It is a general rule thatthe legislature is without power to appropriate public revenue foranything but a public purpose. . . . It is the essential character of the direct object of theexpenditure which must determine its validity as justifying a tax, and not the magnitude ofthe interest to be affected nor the degree to which the general advantage of the community,and thus the public welfare, may be ultimately benefited by their promotion. Incidental tothe public or to the state, which results from the promotion of private interest and theprosperity of private enterprises or business, does not justify their aid by the use publicmoney. (25 R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposesonly, discussedsuprasec. 14, money raised by taxation can be expended only for publicpurposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646;emphasis supplied.)

Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution,public funds may beused only for public purpose. The right of the legislature to appropriate funds is correlativewith its right to tax, and, under constitutional provisions against taxation except for publicpurposes and prohibiting the collection of a tax for one purpose and the devotion thereofto another purpose, no appropriation of state funds can be made for other than for a publicpurpose.


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x x x x x x x x x

The test of the constitutionality of a statute requiring the use of public funds is whether thestatute is designed to promote the public interest, as opposed to the furtherance of theadvantage of individuals, although each advantage to individuals might incidentallyservethe public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from beingpatently sound, are a necessary corollary to our democratic system of government, which, as such,exists primarily for the promotion of the general welfare. Besides, reflecting as they do, theestablished jurisprudence in the United States, after whose constitutional system ours has beenpatterned, said views and jurisprudence are, likewise, part and parcel of our own constitutionallaw.lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, uponthe ground that petitioner may not contest the legality of the donation above referred to becausethe same does not affect him directly. This conclusion is, presumably, based upon the followingpremises, namely: (1) that, if valid, said donation cured the constitutional infirmity of theaforementioned appropriation; (2) that the latter may not be annulled without a previous declarationof unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the CivilCode is absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage orapproval, not upon events occurring, or acts performed, subsequently thereto, unless the latterconsists of an amendment of the organic law, removing, with retrospective operation, theconstitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for theprojected feeder roads in question, the legality thereof depended upon whether said roads werepublic or private property when the bill, which, latter on, became Republic Act 920, was passed byCongress, or, when said bill was approved by the President and the disbursement of said sumbecame effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which

the projected feeder roads were to be constructed belonged then to respondent Zulueta, the resultis that said appropriation sought a private purpose, and hence, was null and void. 4 The donationto the Government, over five (5) months after the approval and effectivity of said Act, made,according to the petition, for the purpose of giving a "semblance of legality", or legalizing, theappropriation in question, did not cure its aforementioned basic defect. Consequently, a judicialnullification of said donation need not precede the declaration of unconstitutionality of saidappropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject toexceptions. For instance, the creditors of a party to an illegal contract may, under the conditionsset forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only thosewhich are inherent in his person, including therefore, his right to the annulment of said contract,

even though such creditors are not affected by the same, except indirectly, in the manner indicatedin said legal provision.

Again, it is well-stated that the validity of a statute may be contested only by one who will sustaina direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at theinstance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that"the expenditure of public funds by an officer of the State for the purpose of administeringan unconstitutionalact constitutes amisapplication of such funds," which may be enjoined at therequest of a taxpayer.6Although there are some decisions to the contrary, 7the prevailing view inthe United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to

attack the constitutionality of a statute, the general rule is that not only persons individuallyaffected, but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of


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moneys raised by taxation and may therefore question the constitutionality of statutesrequiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon(262 U.S. 447), insofar asfederal laws are concerned, upon the ground that the relationship of ataxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipalcorporation to its government. Indeed, under the compositesystem of government existing in theU.S., the states of the Union are integral part of the Federation from an international viewpoint,but, each state enjoys internally a substantial measure of sovereignty, subject to the limitationsimposed by the Federal Constitution. In fact, the same was made by representatives ofeachstate of the Union, not of the people of the U.S., except insofar as the former represented thepeople of the respective States, and the people of each State has, independently of that of theothers, ratified said Constitution. In other words, the Federal Constitution and the Federal statuteshave become binding upon the people of the U.S. in consequence of an act of, and, in thissense, through the respective states of the Union of which they are citizens. The peculiar natureof the relation between said people and the Federal Government of the U.S. is reflected in theelection of its President, who is chosen directly, not by the people of the U.S., but by electorschosen by each State, in such manner as the legislature thereof may direct (Article II, section 2, of

the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and theRepublic of the Philippines, on the other, is not identical to that obtaining between the people andtaxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to thatexisting between the people and taxpayers of each state and the government thereof, except thatthe authority of the Republic of the Philippines over the people of the Philippines is more fullydirect than that of the states of the Union, insofar as the simple and unitary type of our nationalgovernment is not subject to limitations analogous to those imposed by the Federal Constitutionupon the states of the Union, and those imposed upon the Federal Government in the interest ofthe Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionalityof a legislation appropriating local or state public funds which has been upheld by the Federal

Supreme Court (Crampton vs.Zabriskie, 101 U.S. 601) has greater application in the Philippinesthan that adopted with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs.Perez (56 Phil., 257), involving the expropriation of a landby the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purposeof contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that inCustodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of theGovernment was not permitted to question the constitutionality of an appropriation for backpay ofmembers of Congress. However, in Rodriguez vs. Treasurer of the Philippines andBarredo vs.Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the actionof taxpayers impugning the validity of certain appropriations of public funds, and invalidated thesame. Moreover, the reason that impelled this Court to take such position in said two (2) cases

the importance of the issues therein raised is present in the case at bar. Again, like thepetitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. TheProvince of Rizal, which he represents officially as its Provincial Governor, is our most populatedpolitical subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation,in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justifypetitioners action in contesting the appropriation and donation in question; that this action shouldnot have been dismissed by the lower court; and that the writ of preliminary injunction should havebeen maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the

lower court for further proceedings not inconsistent with this decision, with the costs of this instanceagainst respondent Jose C. Zulueta. It is so ordered.


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Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,Paredes, and Dizon, JJ., concur.

Footnotes

1 For, pursuant to section 19(h) of the existing rules and regulation of the Urban Planning

Commission, the owner of a subdivision is under obligation "to improve, repair and maintain allstreets, highways and other ways in his subdivision until their dedication to public use is acceptedby the government."2 Ex parte Bagwell, 79 P. 2d. 395; Road District No. 4 Shelby County vs.Allred. 68 S.W 2d 164;State ex rel. Thomson vs.Giessel, 53-N.W. 2d. 726, Attorney General vs.City of Eau Claire, 37 Wis.400; State ex rel. Smith vs.Annuity Pension Board, 241 Wis. 625, 6 N.W. 2d. 676; State vs.Smith,293 N.W. 161; State vs.Dammann 280 N.W. 698; Sjostrum vs.State Highway Commission 228 P.2d. 238; Hutton vs.Webb, 126 N.C. 897, 36 S.E. 341; Michigan Sugar Co. vs.Auditor General, 124Mich. 674, 83 N.W. 625; Oxnard Beet Sugar Co. vs.State, 105 N.W. 716.3 Casanovas vs. Hord. 8 Phil., McGirr vs. Hamilton, 30 Phil., 563; Compania General deTabacos vs. Board of Public Utility, 34 Phil., 136; Central Capiz vs. Ramirez, 40 Phil., 883;Concepcion vs.Paredes, 42 Phil., 599; U.S. vs.Ang Tang Ho, 43 Phil., 6; McDaniel vs.Apacible,44 Phil., 248; People vs.Pomar, 46 Phil., 440; Agcaoili vs.Suguitan, 48 Phil., 676; Government of

P.I. vs. Springer, 50 Phil., 259; Manila Electric Co. vs.Pasay Transp. Co., 57 Phil., 600;People vs.Linsangan, 62 Phil., 464; People and Hongkong & Shanghai Banking Corp. vs.Jose O.Vera, 65 Phil., 56; People vs.Carlos, 78 Phil., 535; 44 Off. Gaz. 428; In re Cunanan, 94 Phil., 534;50 Off. Gaz., 1602; City of Baguio vs.Nawasa, 106 Phil., 144; City of Cebu vs.Nawasa, 107 Phil.,1112; Rutter vs.Esteban, 93 Phil., 68; Off. Gaz., [5]1807.4 In the language of the Supreme Court of Nebraska, "An unconstitutional statute is a legal still birth,which neither moves, nor breathes, nor holds out any sign of life. It is a form without one vital spark.It is whollydead from the time of conception, and, no right, either legal or equitable, arises from suchinanimate thing." (Oxnard Beet Sugar Co. vs.State, 102 N.W. 80.).5 See, among others, Livermore, vs. Waite, 102 Cal. 113, 25 L.R.A. 312,36 P. 424;Crawford vs.Gilchrist, 64 Fla. 41, 59 So. 963; Lucas vs.American Hawaiian Engineering and Constr.Co., 16 Haw. 80; Castle vs.Capena, 5 Haw. 27; Littler vs. Jayne, 124 Ill. 123, 16 N.E. 374;Burke vs. Snively, 208 I11. 328, 70 N.E. 372; Ellingham vs. Dye, 178 Ind. 336, 99 N.E. 1;Christmas vs. Warfield, 105 Md. 536; Sears vs. Steel, 55 Or. 544, 107 Pac. 3; State ex rel.

Taylor vs. Pennover, 26 Or. 205, 37 Pac. 906; Carman vs. Woodruf, 10 Or. 123;MacKinley vs.Watson, 145 Pac. 266; Sears vs.James, 47 Or. 50, 82 Pac. 14; Mott vs.PennsylvaniaR. Co., 30 Pa. 9, 72 Am. Dec. 664; Bradly vs.Power County, 37 Am. Dec. 563; Frost vs.Thomas,26 Colo. 227, 77 Am. St. Rep. 259, 56 Pac. 899; Martin vs. Ingham, 38 Kan. 641, 17 Pac. 162;Martin vs.Lacy, 39 Kan. 703, 18 Pac. 951; Smith vs.Maguerich, 44 Ga. 163; Giddings vs.Blacker,93 Mich. 1, 16 L.R.A. 402, 52 N.W. 944; Rippe vs. Becker, 56 Minn. 100, 57 N.W. 331;

Auditor vs.Treasurer, 4 S.C. 311; McCullough vs.Brown, 31 S.C. 220, 19 S.E. 458; State ex rel.Lamb vs.Cummingham, 83 Wis. 90, 53 N.W. 35; State ex rel. Rosenhian vs.Frear, 138 Wis. 173,119 N.W. 894.6 Rubs vs. Thompson, 56 N.E. 2d. 761; Reid vs. Smith, 375 Ill. 147, 30N. E. 2d. 908;Fergus vs.Russel, 270 Ill. 304, 110 N.E. 130; Burke vs.Snively, 208 Ill. 328; Jones vs.Connell, 266Ill. 443, 107 N.E. 731; Dudick vs.Baumann, 349 [PEPSI] Ill. 46, 181 N.E. 690.7 Thompson vs.Canal Fund Comps., 2 Abb. Pr. 248; Shieffelin vs.Komfort, 212 N.Y. 520, 106 N.E.675; Hutchison vs.Skinmer, 21 Misc. 729, 49N. Y. Supp. 360; Long vs.Johnson, 70 Misc. 308; 127N.Y. Supp. 756; Whiteback vs. Hooker, 73 Misc. 573, 133 N.Y. Supp. 534; State ex rel.Cranmer vs.Thorson, 9 S.D. 149, 68 N.W. 202; Davenport vs.Elrod, 20 S.D. 567, 107 N.W. 833;Indiana Jones vs.Reed, 3 Wash. 57, 27 Pac. 1067; Birmingham vs.Cheetham, 19 Wash. 657, 54Pac. 37; Tacoma vs.Bridges, 25 Wash. 221, 65 Pac. 186; Hilger vs.State, 63 Wash. 457, 116 Pac.19.8 It has 1,463,530 inhabitants.


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Manila Internat ional Airpo rt Auth ori ty v s City of Paranaque

G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE,SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE,and CITY TREASURER OF PARAAQUE,respondents.

D E C I S I O N

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International

Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known asthe Revised Charter of the Manila International Airport Authority("MIAA Charter"). Executive OrderNo. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently,Executive Order Nos. 9091and 2982amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipmentwithin the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares ofland,3including the runways and buildings ("Airport Lands and Buildings") then under the Bureauof Air Transportation.4The MIAA Charter further provides that no portion of the land transferred toMIAA shall be disposed of through sale or any other mode unless specifically approved by thePresident of the Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption fromreal estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated withrespondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid someof the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City ofParaaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken downas follows:

TAXDECLARATION

TAXABLEYEAR

TAX DUE PENALTY TOTAL

E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20

E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49

E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00

E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00

E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24

E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99

E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00

E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00

*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
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*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00

GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy andwarrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatenedto sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate taxdelinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. TheOGCC pointed out that Section 206 of the Local Government Code requires persons exempt from

real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charteris the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition andinjunction, with prayer for preliminary injunction or temporary restraining order. The petition soughtto restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioningfor public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No.66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA'smotion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5

December 2002 the present petition for review.7

Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the BarangayHalls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market ofBarangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaquepublished the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, anewspaper of general circulation in the Philippines. The notices announced the public auction saleof the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at theLegislative Session Hall Building of Paraaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Courtan Urgent Ex-Parteand Reiteratory Motion for the Issuance of a Temporary Restraining Order.

The motion sought to restrain respondents the City of Paraaque, City Mayor ofParaaque, Sangguniang Panglungsodng Paraaque, City Treasurer of Paraaque, and the CityAssessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately.The Court ordered respondents to cease and desist from selling at public auction the Airport Landsand Buildings. Respondents received the TRO on the same day that the Court issued it. However,respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the publicauction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tuncthe TRO.
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On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directiveissued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor Generalsubsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in thename of MIAA. However, MIAA points out that it cannot claim ownership over these propertiessince the real owner of the Airport Lands and Buildings is the Republic of the Philippines. TheMIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of thegeneral public. Since the Airport Lands and Buildings are devoted to public use and public service,the ownership of these properties remains with the State. The Airport Lands and Buildings are thusinalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from thepayment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section234 of the Local Government Code because the Airport Lands and Buildings are owned by theRepublic. To justify the exemption, MIAA invokes the principle that the government cannot taxitself. MIAA points out that the reason for tax exemption of public property is that its taxation wouldnot inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrewthetax exemption privileges of "government-owned and-controlled corporations" upon theeffectivity of the Local Government Code. Respondents also argue that a basic rule of statutoryconstruction is that the express mention of one person, thing, or act excludes all others. Aninternational airport is not among the exceptions mentioned in Section 193 of the LocalGovernment Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands andBuildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan Internat ional Airp ort v. Marcos8wherewe held that the Local Government Code has withdrawn the exemption from real estate tax grantedto international airports. Respondents further argue that since MIAA has already paid some of the

real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildingsare exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA areexempt from real estate tax under existing laws. If so exempt, then the real estate tax assessmentsissued by the City of Paraaque, and all proceedings taken pursuant to such assessments, arevoid. In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by localgovernments.

First, MIAA is not a government-owned or controlled corporation but an instrumentalityof theNational Government and thus exempt from local taxation. Second, the real properties of MIAAare owned by the Republicof the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exemptfrom real estate tax. Respondents claim that the deletion of the phrase "any government-owned or

controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew thereal estate tax exemption of government-owned or controlled corporations. The deleted phrase
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appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exemptfrom real estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from realestate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) ofthe Introductory Provisions of the Administrative Code of 1987 defines a government-owned orcontrolled corporation as follows:

SEC. 2. General Terms Defined.x x x x

(13) Government-owned or controlled corporationrefers to any agency organized as astock or non-stock corporation, vested with functions relating to public needs whethergovernmental or proprietary in nature, and owned by the Government directly or throughits instrumentalities either wholly, or, where applicable as in the case of stock corporations,to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stockcorporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stockcorporation because it has no capital stock divided into shares. MIAA has no stockholders orvoting shares. Section 10 of the MIAA Charter9provides:

SECTION 10. Capital. The capital of the Authority to be contributed by the NationalGovernment shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesosto Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and suchother properties, movable and immovable[,] which may be contributed by the NationalGovernment or transferred by it from any of its agencies, the valuation of which shall bedetermined jointly with the Department of Budget and Management and the Commissionon Audit on the date of such contribution or transfer after making due allowances fordepreciation and other deductions taking into account the loans and other liabilities of theAuthority at the time of the takeover of the assets and other properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventypercentum (70%) of the unremitted share of the National Government from 1983 to 1986to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 asamended, shall be converted into the equity of the National Governme

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