II-II-A CASES

8/12/2019 II-II-A CASES

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levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'asprovided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,therefore, has now the power to tax, to license and to regulate provided that the subjects affected beone of those included in the charter. In this sense, the ordinance under consideration cannot beconsidered ultra vireswhether its purpose be to levy a tax or impose a license fee. The terminologyused is of no consequence."

It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to be sustained in his contention that no such statutory authority for the enactment ofthe challenged ordinance could be discerned from the language used in the amendatory act. That isabout all that needs to be said in upholding the lower court, considering that the City of Baguio wasnot devoid of authority in enacting this particular ordinance. As mentioned at the outset, however,defendant-appellant likewise alleged procedural missteps and asserted that the challengedordinance suffered from certain constitutional infirmities. To such points raised by him, we shall nowturn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio inthe suit for the collection of the real estate dealer's fee from him in the amount of P300. Hecontended before the lower court, and it is his contention now, that while the amount of P300 soughtwas within the jurisdiction of the City Court of Baguio where this action originated, since the principalissue was the legality and constitutionality of the challenged ordinance, it is not such City Court butthe Court of First Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently,on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v.Sabillano.4The plaintiff in that case filed a claim for the payment of his salary before the Justice ofthe Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; thedefendant Mayor asserted that what was in issue was the enforcement of the decision of theCommission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try thecase. The above plea was curtly dismissed by Us, as what was involved was "an ordinary moneyclaim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was

filed, considering the amount involved." Such is likewise the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5a suit to collect from a defendant this license feecorresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view ofthe amount involved. The thought that the municipal court lacked jurisdiction apparently was noteven in the minds of the parties and did not receive any consideration by this Court.

Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question israised, it is the Court of First Instance that should have original jurisdiction on the matter. It does notadmit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here,the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.

Nor could it be plausibly maintained that the validity of such ordinance being open to question as adefense against its enforcement from one adversely affected, the matter should be elevated to theCourt of First Instance. For the City Court could rely on the presumption of the validity of suchordinance,6and the mere fact, however, that in the answer to such a complaint a constitutionalquestion was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one forcollection, the lack of validity being only a defense to such an attempt at recovery. Since the CityCourt is possessed of judicial power and it is likewise axiomatic that the judicial power embraces theascertainment of facts and the application of the law, the Constitution as the highest law supersedingany statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of


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competence to proceed on the matter. In the exercise of such delicate power, however, theadmonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident toany one that the power to declare a legislative enactment void is one which the judge, conscious ofthe fallibility of the human judgment, will shrink from exercising in any case where he canconscientiously and with due regard to duty and official oath decline the responsibility."7While itremains undoubted that such a power to pass on the validity of an ordinance alleged to infringe

certain constitutional rights of a litigant exists, still it should be exercised with due care andcircumspection, considering not only the presumption of validity but also the relatively modest rankof a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra viresas there is more than amplestatutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds ischallenged because of the allegation that it imposed double taxation, which is repugnant to the dueprocess clause, and that it violated the requirement of uniformity. We do not view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes made clear in thislanguage: "The objection to the taxation as double may be laid down on one side. ... The 14th

Amendment [the due process clause] no more forbids double taxation than it does doubling theamount of a tax, short of confiscation or proceedings unconstitutional on other grounds." 8With thatdecision rendered at a time when American sovereignty in the Philippines was recognized, itpossesses more than just a persuasive effect. To some, it delivered the coup de graceto the bogeyof double taxation as a constitutional bar to the exercise of the taxing power. It would seem thoughthat in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridicalstate. In a 1947 decision, however,9we quoted with approval this excerpt from a leading Americandecision:10"Where, as here, Congress has clearly expressed its intention, the statute must besustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument against double taxationmay not be invoked where one tax is imposed by the state and the other is imposed by the city ..., itbeing widely recognized that there is nothing inherently obnoxious in the requirement that licensefees or taxes be exacted with respect to the same occupation, calling or activity by both the state

and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity established by theconstitution. According to the challenged ordinance, a real estate dealer who leases property worthP50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not overP50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, theabove ordinance cannot be assailed as violative of the constitutional requirement of uniformity.In Philippine Trust Company v. Yatco,12Justice Laurel, speaking for the Court, stated: "A tax isconsidered uniform when it operates with the same force and effect in every place where the subjectmay be found."

There was no occasion in that case to consider the possible effect on such a constitutionalrequirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.

Alfonso.13Thus: "Equality and uniformity in taxation means that all taxable articles or kinds ofproperty of the same class shall be taxed at the same rate. The taxing power has the authority tomake reasonable and natural classifications for purposes of taxation; ..." About two years later,Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De laFuente14incorporated the above excerpt in his opinion and continued: "Taking everything into


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account, the differentiation against which the plaintiffs complain conforms to the practical dictates ofjustice and equity and is not discriminatory within the meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in another case decided two yearslater, 15is that the statute or ordinance in question "applies equally to all persons, firms andcorporations placed in similar situation." This Court is on record as accepting the view in a leading

American case16

that "inequalities which result from a singling out of one particular class for taxationor exemption infringe no constitutional limitation."17

It is thus apparent from the above that in much the same way that the plea of double taxation isunavailing, the allegation that there was a violation of the principle of uniformity is inherently lackingin persuasiveness. There is no need to pass upon the other allegations to assail the validity of theabove ordinance, it being maintained that the license fees therein imposed "is excessive,unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection.

A reading of the ordinance will readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the last two, which would predicate agrievance on the complaint having been started by the City Treasurer rather than the City Mayor of

Baguio. These alleged errors, as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national government, performedwithin the limits of his authority, is presumptively the act of the President unless reprobated ordisapproved,18similarly the act of the City Treasurer, whose position is roughly analogous, may beassumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This shouldbe the case considering that such city official is called upon to see to it that revenues due the Cityare collected. When administrative steps are futile and unavailing, given the stubbornness andobduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may beresorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be metby condemnation rather than commendation.

So, much for the analytical approach. The conclusion thus reached has a reinforcement that comesto it from the functional and pragmatic test. If a city treasurer has to await the nod from the citymayor before a municipal ordinance is enforced, then opportunity exists for favoritism and unduediscrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to beaccorded a treatment denied another, the suspicion is unavoidable that such a manifestation ofofficial favor could have been induced by unnamed but not unknown consideration. It would not begoing too far to assert that even defendant-appellant would find no satisfaction in such a sad state ofaffairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is onethat would do away with such temptation on the part of both taxpayer and public official alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs againstdefendant-appellant.

Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano,JJ.,concur.Zaldivar, J.,is on leave.

Footnotes


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1Ordinance No. 218.

2Section 2553, paragraph (c), Revised Administrative Code.

391 Phil. 854, 856-857 (1952).

4L-20977.

5101 Phil. 859 (1957).

6U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor ofManila, L-24693, July 31, 1967.

7Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927).

8Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 (1920).

9Wise & Co. v. Meer, 78 Phil. 655.

10Helmich v. Hellman, 276 US 233 (1928).

11Punsalan v. Municipal Board of Manila, 95 Phil. 46, 49 (1954).

1269 Phil. 420 (1940).

1383 Phil. 852, 862 (1949).

1488 Phil. 60, 65 (1951).

15

Uy Matias v. City of Cebu, 93 Phil. 300 (1953).16Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937).

17Lutz v. Araneta, 98 Phil. 148, 153 (1955).

18Villena v. Sec. of the Interior, 67 Phil. 451 (1939).


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EN BANC

G.R. No. L-1104 May 31, 1949

EASTERN THEATRICAL CO., INC., ET AL.,plaintiffs-appellants,vs.

VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OFMANILA, and JUAN NOLASCO, as Mayor of the City of Manila,defendants-appellees.

Francisco Zulueta and Poblador Jr. for appellants.City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.

Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and Manuel D.Baldeo as amicus curiae.

PERFECTO, J .:

Twelve corporation engaged in motion picture business have initiated these proceeding through acomplaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila

which was enacted by the municipalBoard of said city on April 25 1946 approved by the Mayor onApril 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows:

AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSIONTICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES

THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHERPURPOSES.

SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies,theatrical shows and boxing exhibitions, as provided for in sections 633 and 778 ofOrdinance No. 1600, known as the Revised Ordinance of the City of Manila, as amended,there shall be collected from the place of amusement which are specifically mentioned above

the following fees on the price of every admission ticket sold by such enterprises:

a. For every ticket sold the price of which is from P0.25to P0.99

P0.05

b. For every ticket sold the price of which is from P1 toP1.99

0.10

c. For every ticket sold the price of which is from P2 toP2.99

0.15

d. for every ticket sold the price of which is from P3 toP4.99

0.20

e. or every ticket sold the price of which is from P5 to

P5.99

0.25

f.For every ticket sold the price of which is from P0 toP14.99

0.35

g. For ticket sold thee price of which is from P15 or more 0.50

SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorof suchcinematographs, theater, vaudeville companies, theatrical show and boxing exhibition toprovide himself with tickets which shall be serially numbered, indication therein the name of


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amusement place and the fee charge for admission. Before such ticket are sold he sameshall be presented to the office of the city Treasurer for registration. Tickets once issued andpresented at the gate of entrance shall be cut by the gatekeeper into halves, the first half tobe returned to the customer and the other half to be retained by the gate keeper.

It shall also be the duty of said proprietor lessee promoter or operator to deliver to the Office

of the City Treasurer the fees corresponding to the number of ticket old by him within twodays after the performances or exhibition has taken place.

SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge arecollection for and in behalf of any charitable education or religion institution or association.

All place of amusement which are operate by U.S. Army and Navy with fund belonging to theU.S. Government are hereby exempted from fees herein imposed.

SEC. 4. Any person violation any of the provision of this ordinance shall upon convictionthereof be punished by a fine of not more than P200 or by imprisonment for not more thansix months or by both such fine and imprisonment in the discretion of the court. If the

violation is committed by the club firm or corporation the manager the managing director orperson charged with the management of the business of such club firm or corporation shallbe criminally responsible therefor.

SEC. 5. This Ordinance shall take effect on the May 1, 1946.

Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they areinterested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and voidupon the following grounds: (a) For violation the Constitution more particular the provision regardingthe uniformity and equality of taxation and thee equal protection of the laws; (b) because theMunicipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City ofManila; (c) because it contravenes violates and is inconsistent with, existing nationallegislation moreparticularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capriciousunreasonable oppressive and is contrary to and violation our basic and recognizes principles oftaxation and licensing laws.

Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by theMunicipal Board of Manila by virtue of its express legislative power to tax fix the license fee andregulate the business of theaters, cinematographs and further to fix the location of and to tax, fix thelicense fee for and regulate the business of theatrical performances public exhibition circus andother performances and places of amusement; (b) that the graduated tax required by said ordinancebeing applied to all cinematographs, theaters, vaudeville companies theatricalshow and boxingexhibitions similarly situated and as a class without distinction or exception the same does notviolate the prohibition against uniformity and equality of taxation; (c) that the graduated taxonadmission tickets to theaters and other places of amusement imposed by the National Internal

Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the NationalGovernment, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax byand for the purposes of the Government of the City of Manila, and there is no case of doubletaxation, (d) that said ordinance having been enacted under the express power of the MunicipalBoard to tax for revenue as distinguishedfrom its power to license for purely police purposes, the factthat the amount collected thereunder are higher than what are needed for police regulation andsupervision does not render said ordinance unfair unjust capricious unreasonable and oppressive;(e) that consideration the nature of the business of the plaintiffs and the enormous volume ofbusiness they handle the graduated tax fixed by the ordinance is not unreasonable.


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Defendants allege also that since May 1, 1946, when the ordinance in question took effect plaintiffshave been charging the theater-going public increased prices for admission to the cinematographsowned and operated to the graduated tax imposed by said ordinance and as a result while refusingto pay said tax but at the same time collecting an amount equal to said tax plaintiffs have takenundue advantage of said ordinance to realized more profits.

On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered adecision upholding the validity of Ordinance No. 2958.

Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will considerthem separately.

Appellants contend that the lower court erred in holding that under section 2444 (m) of the Revisedadministrative Code the Municipal Board of the City ofManila had the power to enact Ordinance No.2958.

Section 2444 (m) of the Revised Administrative code reads as follows:

To tax fix the license fee and regulate the business of hotels restaurants refreshment places,cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters,cinematographs; and further to fix the location of and to tax fix the license fee for andregulate the businessof lively stables, the license fee for and regulate the business of liverystable, boarding stables, embalmers, public billiard table public pool tables, bowling alleys,dance halls, public dancing halls, cabarets, circusand other similar parades, public vehicles,race tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circusandother performances and places of amusements, match factories, blacksmith shops,foundries, steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar,pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum orany Ofthe products thereof and of all other highly combustible or explosivematerials andother establishment likely to endanger the public safety or give rise to conflagration orexplosion and subject to the provision of ordinance issue by the (Philippines Health Service)Bureau of Health in accordance with law tanneries, renders tallow chandlers bone factoriesand soap factories.

Appellants line of argument runs as follows:

By virtue of the specific power granted in the above quoted provision of the Revised AdministrationCode Ordinance No. 2958 was enacted.

On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as theNational Internal Revenue Code section 18, 260 and 261 of which read as follows:

SEC. 18. Sources of revenue.The following taxes fees and charges are deemed to benational internal revenue taxes:

(a) Income tax;(b) Estate inheritance and gift taxes;(c) Specific taxes on certain articles;(d) Privilege taxes on business or occupation;(e) Documentary stamp taxes;(f)Mining taxes;(g) Miscellaneous taxes fees and charges, namely, taxes on banks and insurance


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companies franchise taxes on amusements charges on forest product fees forsealing weights and measures firearms license fees radio registration fees and waterrentals.

SEC. 260.Amusement taxes.There shall be collected from the proprietor, lessee, oroperation of theater cinematographs, concert halls, circuses, boxing exhibition and other

places of amusement the following taxes:

(a) When the amount paid for admission exceeds twenty-nine centavos, two centavos oneach admission;

(b) When the amount paid for admission exceeds twenty-nine but does not exceed thirty-ninecentavos, three centavos on each admission;

(c) When the amount paid for admission exceeds thirty-nine centavos but does not exceedforty-nine centavos four centavos on each admission.

(d) When the amount paid for admission exceeds forty-nine centavos but does not exceed

fifty-nine centavos five admission.

(e) When the amount paid for admission exceeds fifty-nine centavos but does not exceedsixty-nine centavos six centavos on each admission.

(f) When the amount paid for admission exceeds sixty-nine centavos but does not exceedseventy nine centavos seven centavos on each admission.

(g) When the amount paid for admission exceeds seventy nine centavos but does notexceed eighty-nine centavos eight centavos on each admission;

(h) When the amount paid for admission exceeds eighty-nine centavos but does not exceed

ninty-nine centavos, nine centavos on each admission;

(i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on eachadmission.

In the case of theaters or cinematographs, the taxes herein prescribed shall first be decutedand withheld by the proprietros, lessees, or operators of such theaters or cinematogrphs andpaid to the Collector of Internal Revenue before the gross receipts are divided between theproprietros, lessees, or operators of the theaters of cinematographs and the distributors ofthe cinematographic films.

In the case of cockpits, race tracks, and cabarets, there shall be collected from the

proprietor, lessee, or operator a tax equivalent to ten per centum of the gross receipts,irrespective of whether or not any amount is charged or paid for admission: Provided,however, That in the case of race tracks, this tax is in addition to the privilege tax prescribedin seciton 193. for the purpose of the amusement tax, the term "gross receipts" embraces allthe receipts of the proprietor, lessee, or operator of the amusement place, excluding thereceipts derived by him from the sale of liquors, beverages, or other articles subject tospecific tax, or from any business subject to tax under this Code. (This section was amendedby section 8, Republic Act No. 39, effective October 1, 1946. We are quoting the originalprovision to show the status of the law when the Ordinance was passed.)


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SEC. 261. Exemption.The tax herein imposed shall not be paid where the admission feeor charges are collected by or for and in behalf of any religious, charitable, scientific, oreducational institution or association, and where no part of the net proceeds of suchadmission fees or charges inures to the benefit of any private stockholder or individual.

Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven

schedules and other details of said ordinance are, in every respect, identical with the amusement taxprovided by section 260 of Commonwealth Act No. 466.

But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon the Cityof Manila the power to impose a tax on business but not on amusement and, consequently,Ordinance No. 2958 was enacted beyond the charter powers of the City of Manila.

The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted to theCity of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority toimpose a tax on business, with exclusion of the power to impose a tax amusement; but, theassumption is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m).The distinction made by plaintiffs as to the power to tax on business and the power to tax on

amusement has no ground under the provisions of section 2444(m) of the Revised AdministrativeCode. The tax therein authorized cannot be defined as tax on business and cannot be restrictedwithin a smaller scope than what is authorized by the words used, to the extent of excluding whatplaintiffs describe as tax on amusement.

The very fact that section 2444 (m) of the Revised Administrative Code includes theaters,cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancinghalls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances,public exhibition, circus and other performances and places of amusements, will show conclusivelythat the power to tax amusement is expressly included within the power granted by section 2444(m)of the Revised Administrative Code.

Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of theRevised Administrative Code was repealed or the power therein contained was withdrawn by theNational Assembly by the enactment of Commonwealth Act No. 466 known as the National InternalRevenue Code.

In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing section2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On April 25, 1940,the National Assembly enacted Commonwealth Act No. 466, including provisions on amusementtax, covering the whole field on taxation and provided for more than what the ordinance in questionhas provided. As a result, there are two taxing powers seeking to occupy exactly the same field oflegislation, and so the apparent conflict must be resolved with the conclusion that, with theenactment of Commonwealth Act No. 466, as later amended by Republic Act No. 39, section2444(m) of the Revised Administrative Code has been impliedly repealed and the power therein

delegated to the City of Manila withdrawn.

We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary.Both provisions of law may stand together and be enforced at the same time without anyincompatibility among themselves.

Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958 violated theprinciple of equality and uniformity of taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art.VI, Constitution of the philippines).


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To support this contenttion, appellantts point out to the fact that the ordinance in question does nottax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits,cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely nomerit. The fact that some places of amusement are not taxed while others, such as cinematographs,theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds ofamusements or places of amusement are taxed, is no argument at all against the equality and

uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformityin taxation means that all taxable articles or kinds of property of the same class shall be taxed at thesame rate. The taxing power has the authority to make reasonable and natural classifications forpurposes of taxation; and the appellants cannot point out what places of amusement taxed by theordinance do not constitute a class by themselves and which can be confused with those notincluded in the ordinance.

The judgment of the trial court is affirmed with costs against appellants.

Paras, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ.,concur.Perfecto, J.,We certify that the Chief Justice voted to affirm the appealed judgment.


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EN BANC

BRITISH AMERICAN TOBACCO, G.R. No. 163583Petitioner,

Present:

Puno, C.J.,

Quisumbing,Ynares-Santiago,

Carpio,

Austria-Martinez,Corona,

- versus - Carpio Morales,

Tinga,

Chico-Nazario,

Velasco, Jr.,Nachura,

Leonardo-De Castro,Brion,

Peralta, and

Bersamin,JJ.

JOSE ISIDRO N. CAMACHO,

in his capacity as Secretary of

the Department of Finance and

GUILLERMO L. PARAYNO, JR.,

in his capacity as Commissioner of

the Bureau of Internal Revenue,

Respondents.

PHILIP MORRIS PHILIPPINESMANUFACTURING, INC.,FORTUNE TOBACCO, CORP., Promulgated:

MIGHTY CORPOR.A.TION, and

JT INTERNATIONAL, S.A.,

Respondents-in-Intervention. April 15, 2009


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x ---------------------------------------------------------------------------------------- x


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RESOLUTION

YNARES-SANTIAGO, J.:

On August 20, 2008, the Court rendered a Decision partially granting thepetition in this case, viz:

WHEREFORE, the petition is PARTIALLY GRANTED and thedecision of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-

1032, is AFFIRMED withMODIFICATION. As modified, this Court declares

that:

(1) Section 145 of the NIRC, as amended by Republic Act No. 9334,

is CONSTITUTIONAL; and that

(2) Section 4(B)(e)(c), 2nd

paragraph of Revenue Regulations No. 1-

97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections

II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) ofRevenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes

packed by machine, are INVALID insofar as they grant the BIR the power to

reclassify or update the classification of new brands every two years or earlier.

SO ORDERED.

In its Motion for Reconsideration, petitioner insists that the assailed

provisions (1) violate the equal protection and uniformity of taxation clauses of theConstitution, (2) contravene Section 19,[1]Article XII of the Constitution on unfair

competition, and (3) infringe the constitutional provisions on regressive and

inequitable taxation. Petitioner further argues that assuming the assailed

provisions are constitutional, petitioner is entitled to a downward reclassification ofLucky Strike from the premium-priced to the high-priced tax bracket.

The Court is not persuaded.

The assailed law does not violate the equal

protection and uniformity of taxation

clauses.
http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn1


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Petitioner argues that the classification freeze provision violates the equal

protection and uniformity of taxation clauses because Annex D brands are taxedbased on their 1996 net retail prices while new brands are taxed based on their

present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc

City,[2]petitioner asserts that the assailed provisions accord a special or privilegedstatus to Annex D brands while at the same time discriminate against other

brands.

These contentions are without merit and a rehash of petitioners previousarguments before this Court. As held in the assailed Decision, the instant case

neither involves a suspect classification nor impinges on a fundamental

right. Consequently, the rational basis test was properly applied to gauge theconstitutionality of the assailed law in the face of an equal protection challenge. It

has been held that in the areas of social and economic policy, a statutory

classification that neither proceeds along suspect lines nor infringes constitutionalrights must be upheld against equal protection challenge if there is any reasonablyconceivable state of facts that could provide a rational basis for the

classification.[3] Under the rational basis test, it is sufficient that the legislative

classification is rationally related to achieving some legitimate State interest. Asthe Court ruled in the assailed Decision, viz:

A legislative classification that is reasonable does not offend the

constitutional guaranty of the equal protection of the laws. The classification isconsidered valid and reasonable provided that: (1) it rests on substantial

distinctions; (2) it is germane to the purpose of the law; (3) it applies, all thingsbeing equal, to both present and future conditions; and (4) it applies equally to allthose belonging to the same class.

The first, third and fourth requisites are satisfied. The classification freezeprovision was inserted in the law for reasons of practicality and expediency. That

is, since a new brand was not yet in existence at the time of the passage of RA

8240, then Congress needed a uniform mechanism to fix the tax bracket of a new

brand. The current net retail price, similar to what was used to classify the brandsunder Annex D as of October 1, 1996, was thus the logical and practical

choice. Further, with the amendments introduced by RA 9334, the freezing of the

tax classifications now expressly applies not just to Annex D brands but tonewer brands introduced after the effectivity of RA 8240 on January 1, 1997 andany new brand that will be introduced in the future. (However, as will be

discussed later, the intent to apply the freezing mechanism to newer brands was

already in place even prior to the amendments introduced by RA 9334 to RA8240.) This does not explain, however, why the classification is frozen after its

determination based on current net retail price and how this is germane to the
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purpose of the assailed law. An examination of the legislative history of RA 8240

provides interesting answers to this question.

x x x x

From the foregoing, it is quite evident that the classification freezeprovision could hardly be considered arbitrary, or motivated by a hostile oroppressive attitude to unduly favor older brands over newer brands. Congress was

unequivocal in its unwillingness to delegate the power to periodically adjust the

excise tax rate and tax brackets as well as to periodically resurvey and reclassifythe cigarette brands based on the increase in the consumer price index to the DOF

and the BIR. Congress doubted the constitutionality of such delegation of power,

and likewise, considered the ethical implications thereof. Curiously,

the classification freeze provision was put in place of the periodic adjustment andreclassification provision because of the belief that the latter would foster an anti-

competitive atmosphere in the market. Yet, as it is, this same criticism is being

foisted by petitioner upon the classification freeze provision.

To our mind, the classification freeze provision was in the main the result

of Congresss earnest efforts to improve the efficiency and effectivity of the tax

administration over sin products while trying to balance the same with other Stateinterests. In particular, the questioned provision addressed Congresss

administrative concerns regarding delegating too much authority to the DOF and

BIR as this will open the tax system to potential areas for abuse andcorruption. Congress may have reasonably conceived that a tax system which

would give the least amount of discretion to the tax implementers would address

the problems of tax avoidance and tax evasion.

To elaborate a little, Congress could have reasonably foreseen that, under

the DOF proposal and the Senate Version, the periodic reclassification of brands

would tempt the cigarette manufacturers to manipulate their price levels or bribethe tax implementers in order to allow their brands to be classified at a lower tax

bracket even if their net retail prices have already migrated to a higher tax bracket

after the adjustment of the tax brackets to the increase in the consumer priceindex. Presumably, this could be done when a resurvey and reclassification is

forthcoming. As briefly touched upon in the Congressional deliberations, the

difference of the excise tax rate between the medium-priced and the high-priced

tax brackets under RA 8240, prior to its amendment, was P3.36. For a moderatelypopular brand which sells around 100 million packs per year, this easily translates

to P336,000,000. The incentive for tax avoidance, if not outright tax evasion,

would clearly be present. Then again, the tax implementers may use the power to

periodically adjust the tax rate and reclassify the brands as a tool to undulyoppress the taxpayer in order for the government to achieve its revenue targets for

a given year.


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Thus, Congress sought to, among others, simplify the whole tax system for

sin products to remove these potential areas of abuse and corruption from both the

side of the taxpayer and the government. Without doubt, the classification freeze

provision was an integral part of this overall plan. This is in line with one of the

avowed objectives of the assailed law to simplify the tax administration and

compliance with the tax laws that are about to unfold in order to minimize lossesarising from inefficiencies and tax avoidance scheme, if not outright taxevasion. RA 9334 did not alter this classification freeze provision of RA

8240. On the contrary, Congress affirmed this freezing mechanism by clarifying

the wording of the law. We can thus reasonably conclude, as the deliberations onRA 9334 readily show, that the administrative concerns in tax administration,

which moved Congress to enact the classification freeze provision in RA 8240,

were merely continued by RA 9334. Indeed, administrative concerns may

provide a legitimate, rational basis for legislative classification. In the case at bar,these administrative concerns in the measurement and collection of excise taxes

on sin products are readily apparent as afore-discussed.

Aside from the major concern regarding the elimination of potential areas

for abuse and corruption from the tax administration of sin products, the

legislative deliberations also show that the classification freeze provision was

intended to generate buoyant and stable revenues for government. With thefrozen tax classifications, the revenue inflow would remain stable and the

government would be able to predict with a greater degree of certainty the amount

of taxes that a cigarette manufacturer would pay given the trend in its salesvolume over time. The reason for this is that the previously classified cigarette

brands would be prevented from moving either upward or downward their tax

brackets despite the changes in their net retail prices in the future and, as a result,

the amount of taxes due from them would remain predictable. The classificationfreeze provision would, thus, aid in the revenue planning of the government.

All in all, the classification freeze provision addressed Congresssadministrative concerns in the simplification of tax administration of sin products,

elimination of potential areas for abuse and corruption in tax collection, buoyant

and stable revenue generation, and ease of projection of revenues. Consequently,there can be no denial of the equal protection of the laws since the rational-basis

test is amply satisfied.

Moreover, petitioners contention that the assailed provisions violate the

uniformity of taxation clause is similarly unavailing. In Churchill v.Concepcion,[4]we explained that a tax is uniform when it operates with the same

force and effect in every place where the subject of it is found.[5] It does notsignify an intrinsic but simply a geographical uniformity.[6] A levy of tax is not

unconstitutional because it is not intrinsically equal and uniform in itsoperation.[7] The uniformity rule does not prohibit classification for purposes of

taxation.[8] As ruled in Tan v. Del Rosario, Jr.:[9]
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Uniformity of taxation, like the kindred concept of equal protection,

merely requires that all subjects or objects of taxation, similarly situated, are to betreated alike both in privileges and liabilities (citations omitted). Uniformity does

not forfend classification as long as: (1) the standards that are used therefor are

substantial and not arbitrary, (2) the categorization is germane to achieve thelegislative purpose, (3) the law applies, all things being equal, to both present and

future conditions, and (4) the classification applies equally well to all those

belonging to the same class (citations omitted).[10]

In the instant case, there is no question that the classification freezeprovision meets the geographical uniformity requirement because the assailed law

applies to all cigarette brands in the Philippines. And, for reasons already adverted

to in our August 20, 2008 Decision, the above four-fold test has been met in the

present case.

Petitioners reliance onOrmoc Sugar Co. is misplaced. In said case, thecontroverted municipal ordinance specifically named and taxed only the Ormoc

Sugar Company, and excluded any subsequently established sugar central from itscoverage. Thus, the ordinance was found unconstitutional on equal protection

grounds because its terms do not apply to future conditions as well. This is not thecase here. The classification freeze provision uniformly applies to all cigarette

brands whether existing or to be introduced in the market at some future time. Itdoes not purport to exempt any brand from its operation nor single out a brand for

the purpose of imposition of excise taxes.

At any rate, petitioners real disagreement lies with the legitimate Stateinterests. Although it concedes that the Court utilized the rationality test and that

theclassification freeze provision was necessitated by several legitimate Stateinterests, however, it refuses to accept the justifications given by Congress for

theclassification freeze provision. As we elucidated in our August 20, 2008Decision, this line of argumentation revolves around the wisdom and expediency

of the assailed law which we cannot inquire into, much less overrule. Equal

protection is not a license for courts to judge the wisdom, fairness, or logic of

legislative choices.[11]

We reiterate, therefore, that petitioners remedy is withCongress and not this Court.

The assail ed provisions do not violate the

constitutional prohibition on unfair

competition.
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Petitioner asserts that the Court erroneously applied the rational basis test

allegedly because this test does not apply in a constitutional challenge based on aviolation of Section 19, Article XII of the Constitution on unfair

competition. Citing Tatad v. Secretary of the Department of Energy ,[12]it argues

that theclassification freeze provision gives the brands under Annex D a decisiveedge because it constitutes a substantial barrier to the entry of prospective players;

that the Annex D provision is no different from the 4% tariff differential whichwe invalidated in Tatad; that some of the new brands, like Astro, Memphis, Capri,

L&M, Bowling Green, Forbes, and Canon, which were introduced into the marketafter the effectivity of the assailed law on January 1, 1997, were killed by Annex

D brands because the former brands were reclassified by the BIR to higher tax

brackets; that the finding that price is not the only factor in the market as there areother factors like consumer preference, active ingredients, etc. is contrary to the

evidence presented and the deliberations in Congress; that the classification freeze

provisionwill encourage predatory pricing in contravention of the constitutionalprohibition on unfair competition; and that the cumulative effect of the operationof theclassification freeze provision is to perpetuate the oligopoly of intervenors

Philip Morris and Fortune Tobacco in contravention of the constitutional edict for

the State to regulate or prohibit monopolies, and to disallow combinations inrestraint of trade and unfair competition.

The argument lacks merit. While previously arguing that the rational basistest was not satisfied, petitioner now asserts that this test does not apply in this case

and that the proper matrix to evaluate the constitutionality of the assailed law is the

prohibition on unfair competition under Section 19, Article XII of theConstitution. It should be noted that during the trial below, petitioner did not

invoke said constitutional provision as it relied solely on the alleged violation ofthe equal protection and uniformity of taxation clauses. Well-settled is the rule

that points of law, theories, issues and arguments not adequately brought to the

attention of the lower court will not be ordinarily considered by a reviewing court

as they cannot be raised for the first time on appeal.[13] At any rate, even if wewere to relax this rule, as previously stated, the evidence presented before the trial

court is insufficient to establish the alleged violation of the constitutional

proscription against unfair competition.

Indeed, in Tatad we ruled that a law which imposes substantial barriers to

the entry and exit of new players in our downstream oil industry may be struckdown for being violative of Section 19, Article XII of the

Constitution.[14] However, we went on to say in that case that if they areinsignificant impediments, they need not be stricken down.[15] As we stated in our
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August 20, 2008 Decision, petitioner failed to convincingly prove that there is a

substantial barrier to the entry of new brands in the cigarette market due tothe classification freeze provision. We further observed that several new brands

were introduced in the market after the assailed law went into effect thus negating

petitioners sweeping claim that theclassification freeze provision is aninsurmountable barrier to the entry of new brands. We also noted that price is not

the only factor affecting competition in the market for there are other factors suchas taste, brand loyalty, etc.

We see no reason to depart from these findings for the following reasons:

First, petitioner did not lay down the factual foundations, as supported byverifiable documentary proof, which would establish, among others, the cigarette

brands in competition with each other; the current net retail prices of Annex D

brands, as determined through a market survey, to provide a sufficient point ofcomparison with those covered by the BIRs market survey of new brands; and thecausal connection with as well as the extent of the impact on the competition in the

cigarette market of the classification freeze provision. Other than petitioners self-

serving allegations and testimonial evidence, no adequate documentary evidencewas presented to substantiate its claims. Absent ample documentary proof, we

cannot accept petitioners claim that theclassification freeze provision is an

insurmountable barrier to the entry of new players.

Second, we cannot lend credence to petitioners claim that it cannot produce

cigarettes that can compete with Marlboro and Philip Morris in the high-priced taxbracket. Except for its self-serving testimonial evidence, no sufficient

documentary evidence was presented to substantiate this claim. The current netretail price, which is the basis for determining the tax bracket of a cigarette brand,

more or less consists of the costs of raw materials, labor, advertising and profit

margin. To a large extent, these factors are controllable by the manufacturer, as

such, the decision to enter which tax bracket will depend on the pricing strategyadopted by the individual manufacturer. The same holds true for its claims that

other new brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and

Canon, were killed by Annex D brands due to the effects of the operation ofthe classification freeze provision over time. The evidence that petitioner

presented before the trial court failed to substantiate the basis for these claims.

Essentially, petitioner would want us to accept its conclusions of law

without first laying down the factual foundations of its arguments. This Court,which is not a trier of facts, cannot take judicial notice of the factual premises of


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these arguments as petitioner now seems to suggest. The evidence should have

been presented before the trial court to allow it to examine and determine for itselfwhether such factual premises, as supported by sufficient documentary evidence,

provide reasonable basis for petitioners conclusion that there arose an

unconstitutional unfair competition due to the operation of the classification freeze

provision. Petitioner should be reminded that it appealed this case from the

adverse ruling of the trial court directly to this Court on pure questions of lawinstead of resorting to the Court of Appeals.

Third, Tatad is not applicable to the instant case. In Tatad, we found that

the 4% tariff differential between imported crude oil and imported refined

petroleum products erects a high barrier to the entry of new players because (1) itimposes an undue burden on new players to spend billions of pesos to build

refineries in order to compete with the old players, and (2) new players, who opt

not to build refineries, suffer from the huge disadvantage of increasing theirproduct cost by 4%.[16]The tariff was imposed on the raw materials uniformly usedby the players in the oil industry. Thus, the adverse effect on competition arising

from this discriminatory treatment was readily apparent. In contrast, the excise tax

under the assailed law is imposed based on the current net retail price of a cigarettebrand. As previously explained, the current net retail price is determined by the

pricing strategy of the manufacturer. This Court cannot simply speculate that the

reason why a new brand cannot enter a specific tax bracket and compete with thebrands therein was because of the classification freeze provision,rather than the

manufacturers own pricing decision or some other factor solely attributable to the

manufacturer. Again, the burden of proof in this regard is on petitioner which itfailed to muster.

Fourth, the finding in our August 20, 2008 Decision that price is not the only

factor which affects consumer behavior in the cigarette market is based on

petitioners own evidence. On cross-examination, petitioners witness admitted

that notwithstanding the change in price, a cigarette smoker may prefer the oldbrand because of its addictive formulation.[17] As a result, even if we were to

assume that the classification freeze provision distorts the pricing scheme of the

market players, it is not clear whether a substantial barrier to the entry of newplayers would thereby be created because of these other factors affecting consumer

behavior.

Last, the claim that the assailed provisions encourage predatory pricing was

never raised nor substantiated before the trial court. It is merely an afterthoughtand cannot be given weight.
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In sum, the totality of the evidence presented by petitioner before the trialcourt failed to convincingly establish the alleged violation of the constitutional

prohibition on unfair competition. It is a basic postulate that the one who

challenges the constitutionality of a law carries the heavy burden of proof for lawsenjoy a strong presumption of constitutionality as it is an act of a co-equal branch

of government. Petitioner failed to carry this burden.

The assai led law does not transgress the

consti tuti onal provisions on regressive and

inequi table taxation.

Petitioner argues that the classification freeze provision is a form of

regressive and inequitable tax system which is proscribed under Article VI, Section

28(1)[18]

of the Constitution. It claims that people in equal positions should betreated alike. The use of different tax bases for brands under Annex D vis--visnew brands is discriminatory, and thus, iniquitous. Petitioner further posits that

the classification freeze provision is regressive in character. It asserts that the

harmonization of revenue flow projections and ease of tax administration cannotoverride this constitutional command.

We note that the points raised by petitioner with respect to allegedinequitable taxation perpetuated by the classification freeze provision are a mere

reformulation of its equal protection challenge. As stated earlier, the assailed

provisions do not infringe the equal protection clause because the four-fold test issatisfied. In particular, the classification freeze provision has been found to

rationally further legitimate State interests consistent with rationalityreview. Petitioners repackaged argument has, therefore, no merit.

Anent the issue of regressivity, it may be conceded that the assailed law

imposes an excise tax on cigarettes which is a form of indirect tax, and thus,regressive in character. While there was an attempt to make the imposition of the

excise tax more equitable by creating a four-tiered taxation system where higher

priced cigarettes are taxed at a higher rate, still, every consumer, whether rich orpoor, of a cigarette brand within a specific tax bracket pays the same tax rate. To

this extent, the tax does not take into account the persons ability to

pay. Nevertheless, this does not mean that the assailed law may be declaredunconstitutional for being regressive in character because the Constitution does not

prohibit the imposition of indirect taxes but merely provides that Congress shall
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evolve a progressive system of taxation. As we explained in Tolentino v. Secretary

of Finance:[19]

[R]egressivity is not a negative standard for courts to enforce. What Congress is

required by the Constitution to do is to "evolve a progressive system of taxation."

This is a directive to Congress, just like the directive to it to give priority to theenactment of laws for the enhancement of human dignity and the reduction of

social, economic and political inequalities [Art. XIII, Section 1] or for thepromotion of the right to "quality education" [Art. XIV, Section 1]. These

provisions are put in the Constitution as moral incentives to legislation, not as

judicially enforceable rights.[20]

Petitioner is not entitled to a downward

reclassif ication of Lucky Str ike.

Petitioner alleges that assuming the assailed law is constitutional, its LuckyStrike brand should be reclassified from the premium-priced to the high-priced tax

bracket. Relying on BIR Ruling No. 018-2001 dated May 10, 2001, it claims thatit timely sought redress from the BIR to have the market survey conducted within

three months from product launch, as provided for under Section 4(B)[21]of

Revenue Regulations No. 1-97, in order to determine the actual current net retail

price of Lucky Strike, and thus, fix its tax classification. Further, the upwardreclassification of Lucky Strike amounts to deprivation of property right without

due process of law. The conduct of the market survey after two years from product

launch constitutes gross neglect on the part of the BIR. Consequently, for failureof the BIR to conduct a timely market survey, Lucky Strikes classification based

on its suggested gross retail price should be deemed its official tax classification.

Finally, petitioner asserts that had the market survey been timely conductedsometime in 2001, the current net retail price of Lucky Strike would have been

found to be under the high-priced tax bracket.

These contentions are untenable and misleading.

First, BIR Ruling No. 018-2001 was requested by petitioner for the purposeof fixing Lucky Strikes initial tax classification based on its suggested gross retail

price relative to its planned introduction of Lucky Strike in the market sometime in2001 and not for the conduct of the market survey within three months from

product launch. In fact, the said Ruling contained an express reservation that thetax classification of Lucky Strike set therein is without prejudice, however, to the

subsequent conduct of a survey x x x in order to determine if the actual gross retail
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price thereof is consistent with [petitioners] suggested gross retail price.[22] In

short, petitioner acknowledged that the initial tax classification of Lucky Strikemay be modified depending on the outcome of the survey which will determine the

actual current net retail price of Lucky Strike in the market.

Second, there was no upward reclassification of Lucky Strike because it was

taxed based on its suggested gross retail price from the time of its introduction inthe market in 2001 until the BIR market survey in 2003. We reiterate that Lucky

Strikesactual current net retail price was surveyed for the first time in 2003 andwas found to be from P10.34 to P11.53 per pack, which is within the premium-

priced tax bracket. There was, thus, no prohibited upward reclassification of

Lucky Strike by the BIR based on its current net retail price.

Third, the failure of the BIR to conduct the market survey within the three-

month period under the revenue regulations then in force can in no way make theinitial tax classification of Lucky Strike based on its suggested gross retail pricepermanent. Otherwise, this would contravene the clear mandate of the law which

provides that the basis for the tax classification of a new brand shall be the current

net retail price and not the suggested gross retail price. It is a basic principle oflaw that the State cannot be estopped by the mistakes of its agents.

Last, the issue of timeliness of the market survey was never raised before thetrial court because petitioners theory of the case was who lly anchored on the

alleged unconstitutionality of the classification freeze provision. As a

consequence, no documentary evidence as to the actual net retail price of LuckyStrike in 2001, based on a market survey at least comparable to the one mandated

by law, was presented before the trial court. Evidently, it cannot be assumed thathad the BIR conducted the market survey within three months from its product

launch sometime in 2001, Lucky Strike would have been found to fall under the

high-priced tax bracket and not the premium-priced tax bracket. To so hold would

run roughshod over the States right to due process. Verily, petitioner prosecutedits case before the trial court solely on the theory that the assailed law is

unconstitutional instead of merely challenging the timeliness of the market

survey. The rule is that a party is bound by the theory he adopts and by the causeof action he stands on. He cannot be permitted after having lost thereon to

repudiate his theory and cause of action, and thereafter, adopt another and seek to

re-litigate the matter anew either in the same forum or on appeal.[23] Havingpursued one theory and lost thereon, petitioner may no longer pursue another

inconsistent theory without thereby trifling with court processes and burdening thecourts with endless litigation.
http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn22http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn22http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn23http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/163583.htm#_ftn22


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WHEREFORE, the motion for reconsideration is DENIED.


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EN BANC

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,vs.THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNALREVENUE, respondents.

G.R. No. 115525 October 30, 1995

JUAN T. DAVID, petitioner,vs.TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretaryof Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and theirAUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,vs.THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THEBUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.

G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHINGCORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.

DIMALANTA, petitioners,vs.HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,vs.THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSEABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FORBROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBTCOALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAADA,petitioners,vs.


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THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OFINTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner,

vs.THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 October 30, 1995

COOPERATIVE UNION OF THE PHILIPPINES, petitioner,vs.HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 October 30, 1995

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OFPHILIPPINE BOOK SELLERS, petitioners,vs.HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in hiscapacity as the Commissioner of Customs,respondents.

R E S O L U T I O N

MENDOZA, J .:

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

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

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

I. Power of the Senate to propose amendments to revenue bills . Some of the petitioners (Tolentino,Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders

Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originateexclusively" in the House of Representatives as required by Art. VI, 24 of the Constitution. Althoughthey admit that H. No. 11197 was filed in the House of Representatives where it passed threereadings and that afterward it was sent to the Senate where after first reading it was referred to the


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Senate Ways and Means Committee, they complain that the Senate did not pass it on second andthird readings. Instead what the Senate did was to pass its own version (S. No. 1630) which itapproved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should havedone was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text ofS. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomesthe text (only the text) of the House bill."

The contention has no merit.

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

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BYEXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTYEXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the Presidenton April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the

House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3,1992.

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

On the other hand, the Ninth Congress passed revenue laws which were also the result of theconsolidation of House and Senate bills. These are the following, with indications of the dates onwhich the laws were approved by the President and dates the separate bills of the two chambers ofCongress were respectively passed:

1. R.A. NO. 7642

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

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TOREQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO

ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONALINTERNAL REVENUE CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992


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Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TOPRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY

LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONSOF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICALSUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING

GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TODEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OFTHREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OFGOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICESRENDERED BY CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLEDCORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TOTHE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,1993)

House Bill No. 11024, November 3, 1993


6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION

OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSECERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS

AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOROTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993



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7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARESOF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGEOR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSETHE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A

NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5,1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

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

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

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

RULE XXIX

AMENDMENTS

xxx xxx xxx

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

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

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

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

xxx xxx xxx

70-A. A bill or resolution shall not be amended by substituting it with another whichcovers a subject distinct from that proposed in the original bill or resolution.(emphasis added).

Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senatepossesses less power than the U.S. Senate because of textual differences between constitutionalprovisions giving them the power to propose or concur with amendments.


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revenue measures of its own without such bills. After a revenue bill is passed and sent over to it bythe House, however, the Senate certainly can pass its own version on the same subject matter. Thisfollows from the coequality of the two chambers of Congress.

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

The power of the Senate to propose or concur with amendments is apparentlywithout restriction. It would seem that by virtue of this power, the Senate canpractically re-write a bill required to come from the House and leave only a trace ofthe original bill. For example, a general revenue bill passed by the lower house of theUnited States Congress contained provisions for the imposition of an inheritance tax .This was changed by the Senate into a corporation tax. The amending authority ofthe Senate was declared by the United States Supreme Court to be sufficiently broadto enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55L. ed. 389].

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

(1961))

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

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

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

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

(1) to endorse the bill without changes; (2) to make changes in the bill omitting oradding sections or altering its language; (3) to make and endorse an entirely new billas a substitute, in which case it will be known as a committee bill; or (4) to make noreport at all.

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

To except from this procedure the amendment of bills which are required to originate in the Houseby prescribing that the number of the House bill and its other parts up to the enacting clause must be


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preserved although the text of the Senate amendment may be incorporated in place of the originalbody of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S.No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as anywhich the Senate could have made.

II. S. No. 1630a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that

S. No. 1630 is an independent and distinct bill. Hence their repeated references to its certificationthat it was passed by the Senate "in substitution of S.B.No.1129, taking into considerationP.S.Res. No. 734 and H.B.No.11197," implying that there is something substantially different betweenthe reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they concludethat R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses ofCongress."

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

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

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. Whenthe House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bankdeposits), were referred to a conference committee, the question was raised whether the two billscould be the subject of such conference, considering that the bill from one house had not been

passed by the other and vice versa. As Congressman Duran put the question:

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

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

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


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

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinctand unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention thatbecause the President separately certified to the need for the immediate enactment of thesemeasures, his certification was ineffectual and void. The certification had to be made of the version

of the same revenue bill which at the momentwas being considered. Otherwise, to follow petitioners'theory, it would be necessary for the President to certify as many bills as are presented in a house ofCongress even though the bills are merely versions of the bill he has already certified. It is enoughthat he certifies the bill which, at the time he makes the certification, is under consideration. Since onMarch 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified.For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediateenactment because it was the one which at that time was being considered by the House. This billwas later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decisionthat the phrase

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