Full Text Tax 1 Set 2

FULL TEXTS COMPILATION- TAX 1 (SET 2)
1999. He acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry but
BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS CITY and NATIONAL POWER its tax exemption period expired on September 22, 1998, six (6) years after its registration
CORPORATION, respondents. with the BOI on September 23, 1992. The city treasurer held that thereafter BPC became
liable to pay its business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced
from the date of its commercial operation on July 16, 1993, not from the date of its BOI
[G.R. No. 152771. April 28, 2004] registration in September 1992.[5] It furnished the city with a BOI letter[6] wherein BOI
designated July 16, 1993 as the start of BPCs income tax holiday as BPC was not able to
immediately operate due to force majeure. BPC claimed that the local tax holiday is
concurrent with the income tax holiday. In the alternative, BPC asserted that the city
NATIONAL POWER CORPORATION, petitioner, vs. HON. RICARDO R. ROSARIO, in his should collect the tax from the NPC as the latter assumed responsibility for its payment
capacity as Presiding Judge, RTC, Br. 66, Makati City; BATANGAS CITY under their BOT Agreement.
GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity as Chief Legal Officer, The matter was not put to rest. The city legal officer insisted[7] that BPCs tax holiday
Batangas City; and BENJAMIN PARGAS, in his capacity as City Treasurer, has already expired, while the city argued that it directed its tax claim to BPC as it is the
Batangas City, respondents. entity doing business in the city and hence liable to pay the taxes. The city alleged that
it was not privy to NPCs assumption of BPCs tax payment under their BOT Agreement as
DECISION the only parties thereto were NPC and BPC.
PUNO, J.: BPC adamantly refused to pay the tax claims and reiterated its position.[8] The city
was likewise unyielding on its stand.[9] On August 26, 1999, the NPC intervened.[10] While
admitting assumption of BPCs tax obligations under their BOT Agreement, NPC refused
Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of
to pay BPCs business tax as it allegedly constituted an indirect tax on NPC which is a
Civil Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its
tax-exempt corporation under its Charter.[11]
February 27, 2002 Decision in Civil Case No. 00-205.
In view of the deadlock, BPC filed a petition for declaratory relief [12] with the
The facts show that in the early 1990s, the country suffered from a crippling power
Makati Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling
crisis. Power outages lasted 8-12 hours daily and power generation was badly
that it was not bound to pay the business taxes imposed on it by the city. It alleged that
needed. Addressing the problem, the government, through the National Power
under the BOT Agreement, NPC is responsible for the payment of such taxes but as NPC
Corporation (NPC), sought to attract investors in power plant operations by providing
is exempt from taxes, both the BPC and NPC are not liable for its payment. NPC and
them with incentives, one of which was through the NPCs assumption of payment of
Batangas City filed their respective answers.
their taxes in the Build Operate and Transfer (BOT) Agreement.
On February 23, 2000, while the case was still pending, the city refused to issue a
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner
permit to BPC for the operation of its business unless it paid the assessed business taxes
NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to
amounting to close to P29M.
NPC and transfer its plant to the latter after ten (10) years of operation. Section 11.02 of
the BOT Agreement provided that NPC shall be responsible for the payment of all taxes In view of this supervening event, BPC, whose principal office is in Makati City, filed
that may be imposed on the power station, except income taxes and permit fees. a supplemental petition[13] with the Makati RTC to convert its original petition into an
Subsequently, Enron assigned its obligation under the BOT Agreement to petitioner action for injunction to enjoin the city from withholding the issuance of its business permit
Batangas Power Corporation (BPC). and closing its power plant. The city opposed on the grounds of lack of jurisdiction and
lack of cause of action.[14] The Supplemental Petition was nonetheless admitted by the
On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as
Makati RTC.
a pioneer enterprise. On September 23, 1992, the BOI issued a certificate of
registration[1] to BPC as a pioneer enterprise entitled to a tax holiday for a period of six On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held
(6) years. The construction of the power station in respondent Batangas City was then that: (1) BPC is liable to pay business taxes to the city; (2) NPCs tax exemption was
completed. BPC operated the station. withdrawn with the passage of R.A. No. 7160 (The Local Government Code); and,
(3) the 6-year tax holiday granted to pioneer business enterprises starts on the date of
On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer
registration with the BOI as provided in Section 133 (g) of R.A. No. 7160, and not on the
Teodulfo A. Deguito, sent a letter to BPC demanding payment of business taxes and
date of its actual business operations. [15]
penalties, commencing from the year 1994 as provided under Ordinance XI or the 1992
Batangas City Tax Code.[2] BPC refused to pay, citing its tax-exempt status as a pioneer BPC and NPC filed with this Court a petition for review on certiorari[16] assailing the
enterprise for six (6) years under Section 133 (g) of the Local Government Code (LGC).[3]
1
Makati RTC decision. The petitions were consolidated as they impugn the same
decision, involve the same parties and raise related issues.[17]
Page
On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax
claim[4] and demanded payment of business taxes from BPC only for the years 1998- In G.R. No. 152771, the NPC contends:
I from the date of registration, applies specifically to taxes imposed by the local
government, like the business tax imposed by Batangas City on BPC in the case at
bar. Reliance of BPC on the provision of Executive Order No. 226,[18] specifically Section
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
1, Article 39, Title III, is clearly misplaced as the six-year tax holiday provided therein
OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY RULED THAT
which commences from the date of commercial operation refers to income taxes
PETITIONER NPC HAS LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A.
imposed by the national government on BOI-registered pioneer firms. Clearly, it is the
7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH PRIVILEGE DESPITE THE
provision of the Local Government Code that should apply to the tax claim of Batangas
SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL
City against the BPC. The 6-year tax exemption of BPC should thus commence from the
LAW, CANNOT REPEAL A SPECIAL LAW AND THAT SECTION 13 OF R.A. 6395 (NPC LAW)
date of BPCs registration with the BOI on July 16, 1993 and end on July 15, 1999.
WAS NOT SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN SECTION 534 OF R.A.
7160, AMONG OTHERS. Anent the second issue, the records disclose that petitioner NPC did not oppose
BPCs conversion of the petition for declaratory relief to a petition for injunction or raise
II the issue of the alleged lack of jurisdiction of the Makati RTC over the petition for
injunction before said court. Hence, NPC is estopped from raising said issue before
us. The fundamental rule is that a party cannot be allowed to participate in a judicial
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
proceeding, submit the case for decision, accept the judgment only if it is favorable to
OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY OMITTED THE
him but attack the jurisdiction of the court when it is adverse.[19]
CLEAR PROVISION OF SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS
NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES FROM THE IMPOSITION Finally, on the third issue, petitioners insist that NPCs exemption from all taxes under
OF TAXES, FEES OR CHARGES OF ANY KIND. its Charter had not been repealed by the LGC. They argue that NPCs Charter is a
special law which cannot be impliedly repealed by a general and later legislation like
III the LGC. They likewise anchor their claim of tax-exemption on Section 133 (o) of the
LGC which exempts government instrumentalities, such as the NPC, from taxes imposed
by local government units (LGUs), citing in support thereof the case of Basco v.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK PAGCOR.[20]
OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY ADMITTED BPCs
SUPPLEMENTAL PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO We find no merit in these contentions. The effect of the LGC on the tax exemption
JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS) SOUGHT TO BE privileges of the NPC has already been extensively discussed and settled in the recent
ENJOINED. case of National Power Corporation v. City of Cabanatuan.[21] In said case, this Court
recognized the removal of the blanket exclusion of government instrumentalities from
In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it local taxation as one of the most significant provisions of the 1991 LGC. Specifically, we
liable for payment of business taxes even if it is undisputed that NPC has already stressed that Section 193 of the LGC,[22] an express and general repeal of all statutes
assumed payment thereof; and, 2) in ruling that BPCs 6-year tax holiday commenced granting exemptions from local taxes, withdrew the sweeping tax privileges previously
on the date of its registration with the BOI as a pioneer enterprise. enjoyed by the NPC under its Charter. We explained the rationale for this provision, thus:
The issues for resolution are: In recent years, the increasing social challenges of the times expanded the scope of
1. whether BPCs 6-year tax holiday commenced on the date of its BOI state activity, and taxation has become a tool to realize social justice and the equitable
registration as a pioneer enterprise or on the date of its actual distribution of wealth, economic progress and the protection of local industries as well
commercial operation as certified by the BOI; as public welfare and similar objectives. Taxation assumes even greater significance
with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer
2. whether the trial court had jurisdiction over the petition for injunction vested exclusively on Congress; local legislative bodies are now given direct authority to
against Batangas City; and, levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution, viz:
3. whether NPCs tax exemption privileges under its Charter were withdrawn
by Section 193 of the Local Government Code (LGC).
Section 5.- Each Local Government unit shall have the power to create its own sources
We find no merit in the petition. of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such
On the first issue, petitioners BPC and NPC contend that contrary to the impugned taxes, fees and charges shall accrue exclusively to the Local Governments.
decision, BPCs 6-year tax holiday should commence on the date of its actual
commercial operations as certified to by the BOI, not on the date of its BOI registration.
This paradigm shift results from the realization that genuine development can be
2
We disagree. Sec. 133 (g) of the LGC, which proscribes local government units achieved only by strengthening local autonomy and promoting decentralization of
Page
(LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years governance. For a long time, the countrys highly centralized government structure has
bred a culture of dependence among local government leaders upon the national
leadership. It has also dampened the spirit of initiative, innovation and imaginative On 12 September 1991, Republic Act No. 7160, otherwise known as the Local
resilience in matters of local development on the part of local government leaders. The Government Code of 1991, was enacted to take effect on 01 January 1992 enjoining
only way to shatter this culture of dependence is to give the LGUs a wider role in the local government units to create their own sources of revenue and to levy taxes, fees
delivery of basic services, and confer them sufficient powers to generate their own and charges, subject to the limitations expressed therein, consistent with the basic
sources for the purpose. To achieve this goal, x x x the 1987 Constitution mandates policy of local autonomy. Pursuant to the provisions of the Code, respondent province
Congress to enact a local government code that will, consistent with the basic policy of enacted Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing,
local autonomy, set the guidelines and limitations to this grant of taxing powers x x x. in part, as follows:
To recall, prior to the enactment of the x x x Local Government Code x x x, various Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a
measures have been enacted to promote local autonomy. x x x Despite these franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
initiatives, however, the shackles of dependence on the national government receipts, which shall include both cash sales and sales on account realized during the
remained. Local government units were faced with the same problems that hamper preceding calendar year within this province, including the territorial limits on any city
their capabilities to participate effectively in the national development efforts, among located in the province[1]
which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of
income, (c) limited authority to prioritize and approve development projects, (d) heavy
On the basis of the above ordinance, respondent Provincial Treasurer sent a
dependence on external sources of income, and (e) limited supervisory control over
demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO
personnel of national line agencies.
paid the tax, which then amounted to P19,520,628.42, under protest. A formal claim for
refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming
Considered as the most revolutionary piece of legislation on local autonomy, the LGC that the franchise tax it had paid and continued to pay to the National Government
effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax
to include taxes which were prohibited by previous laws x x x. Ordinance. MERALCO contended that the imposition of a franchise tax under Section
2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO,
contravened the provisions of Section 1 of P.D. 551 which read:
Neither can the NPC successfully rely on the Basco case[23] as this was decided
prior to the effectivity of the LGC, when there was still no law empowering local
government units to tax instrumentalities of the national government. Any provision of law or local ordinance to the contrary notwithstanding, the franchise
tax payable by all grantees of franchises to generate, distribute and sell electric current
Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 for light, heat and power shall be two per cent (2%) of their gross receipts received from
BOT Agreement, the LGC which removed NPCs tax exemption privileges had already the sale of electric current and from transactions incident to the generation, distribution
been in effect for six (6) months.Thus, while BPC remains to be the entity doing business and sale of electric current.
in said city, it is the NPC that is ultimately liable to pay said taxes under the provisions of
both the 1992 BOT Agreement and the 1991 Local Government Code.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly
IN VIEW WHEREOF, the petitions are DISMISSED. No costs. authorized representative on or before the twentieth day of the month following the
end of each calendar quarter or month, as may be provided in the respective franchise
SO ORDERED. or pertinent municipal regulation and shall, any provision of the Local Tax Code or any
other law to the contrary notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on earnings, receipts,
income and privilege of generation, distribution and sale of electric current.
MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA and BENITO R.
BALAZO, in his capacity as Provincial Treasurer of Laguna, respondents.
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed
by Governor Jose D. Lina. In denying the claim, respondents relied on a more recent
DECISION law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the old
decree invoked by petitioner.
VITUG, J.:
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta
On various dates, certain municipalities of the Province of Laguna including, Bian, Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a writ of
Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in preliminary injunction and/or temporary restraining order, against the Province of
effect, issued resolutions through their respective municipal councils granting franchise Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of
in favor of petitioner Manila Electric Company (MERALCO) for the supply of electric Laguna. Aside from the amount of P19,520,628.42 for which petitioner MERALCO had
3
light, heat and power within their concerned areas. On 19 January 1983, MERALCO was priority made a formal request for refund, petitioner thereafter likewise made additional
payments under protest on various dates totaling P27,669,566.91.
Page
likewise granted a franchise by the National Electrification Administration to operate an
electric light and power service in the Municipality of Calamba, Laguna.
The trial court, in its assailed decision of 30 September 1997, dismissed the The 1987 Constitution has a counterpart provision in the 1973 Constitution which did
complaint and concluded: come out with a similar delegation of revenue making powers to local governments.[5]
Under the regime of the 1935 Constitution no similar delegation of tax powers was
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is provided, and local government units instead derived their tax powers under a limited
hereby rendered in favor of the defendants and against the plaintiff, by: statutory authority. Whereas, then, the delegation of tax powers granted at that time by
statute to local governments was confined and defined (outside of which the power
1. Ordering the dismissal of the Complaint; and was deemed withheld), the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers subject only to specific
exceptions that the law might prescribe.
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable
and enforceable.[2] Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress may
In the instant petition, MERALCO assails the above ruling and brings up the provide statutory limitations and guidelines. The basic rationalefor the current rule is to
following issues; viz: safeguard the viability and self-sufficiency of local government units by directly granting
them general and broad tax powers. Nevertheless, the fundamental law did not intend
the delegation to be absolute and unconditional; the constitutional objective obviously
1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial is to ensure that, while the local government units are being strengthened and made
Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non- more autonomous,[6] the legislature must still see to it that (a) the taxpayer will not be
impairment clause of the Constitution and Section 1 of Presidential Decree No. 551. over-burdened or saddled with multiple and unreasonable impositions; (b) each local
government unit will have its fair share of available resources; (c) the resources of the
2. Whether Republic Act. No. 7160, otherwise known as the Local Government Code of national government will not be unduly disturbed; and (d) local taxation will be fair,
1991, has repealed, amended or modified Presidential Decree No. 551. uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and
3. Whether the doctrine of exhaustion of administrative remedies is applicable in this large the provisions of the now repealed Local Tax Code, which had been in effect
case.[3] since 01 July 1973, promulgated into law by Presidential Decree No. 231[7] pursuant to
the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code
The petition lacks merit. explicitly authorizes provincial governments, notwithstanding any exemption granted by
any law or other special law, x x x (to) impose a tax on businesses enjoying a
Prefatorily, it might be well to recall that local governments do not have franchise. Section 137 thereof provides:
the inherent power to tax[4] except to the extent that such power might be delegated to
them either by the basic law or by statute. Presently, under Article X of the 1987
Sec. 137. Franchise Tax Notwithstanding any exemption granted by any law or other
Constitution, a general delegation of that power has been given in favor of local
special law, the province may impose a tax on businesses enjoying a franchise, at a rate
government units. Thus:
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or realized, within its
Sec. 3. The Congress shall enact a local government code which shall provide for a territorial jurisdiction. In the case of a newly started business, the tax shall not exceed
more responsive and accountable local government structure instituted through a one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding
system of decentralization with effective mechanisms of recall, initiative, and calendar year, regardless of when the business started to operate, the tax shall be
referendum, allocate among the different local government units their powers, based on the gross receipts for the preceding calendar year, or any fraction thereof, as
responsibilities, and resources, and provide for the qualifications, election, appointment provided herein. (Underscoring supplied for emphasis)
and removal, term, salaries, powers and functions, and duties of local officials, and all
other matters relating to the organization and operation of the local units.
Indicative of the legislative intent to carry out the Constitutional mandate of
vesting broad tax powers to local government units, the Local Government Code has
xxxxxxxxx effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states:
Sec. 5. Each local government shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and limitations Section 193 Withdrawal of Tax Exemption Privileges Unless otherwise provided in this
as the Congress may provide, consistent with the basic policy of local autonomy. Such Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
taxes, fees and charges shall accrue exclusively to the local governments. whether natural or juridical, including government-owned or controlled corporations,
4
except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
Page
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.(Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing clause in its Section 534; thus: Those magic words, shall be in lieu of all taxes also excused the Cotabato Light and Ice
Plant Company from the payment of the tax imposed by Ordinance No. 7 of the City of
Cotabato (Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231).
Section 534. Repealing Clause. x x x.
So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company
(f) All general and special laws, acts, city charters, decrees, executive orders,
when it was required to pay the corporate franchise tax under Section 259 of the
proclamations and administrative regulations, or part or parts thereof which are
Internal Revenue Code as amended by R.A. No. 39 (Carcar Electric & Ice Plant vs.
inconsistent with any of the provisions of this Code are hereby repealed or modified
Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that such
accordingly. (Underscoring supplied for emphasis)[8]
exemption is part of the inducement for the acceptance of the franchise and the
rendition of public service by the grantee.[12]
To exemplify, in Mactan Cebu International Airport Authority vs. Marcos,[9] the
Court upheld the withdrawal of the real estate tax exemption previously enjoyed by
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
Mactan Cebu International Airport Authority. The Court ratiocinated:
Bienvenido V. Reyes, et al.,[13] the Court has held that the phrase in lieu of all taxes have
to give way to the peremptory language of the Local Government Code specifically
x x x These policy considerations are consistent with the State policy to ensure autonomy providing for the withdrawal of such exemptions, privileges, and that upon the
to local governments and the objective of the LGC that they enjoy genuine and effectivity of the Local Government Code all exemptions except only as provided
meaningful local autonomy to enable them to attain their fullest development as self- therein can no longer be invoked by MERALCO to disclaim liability for the local tax. In
reliant communities and make them effective partners in the attainment of national fine, the Court has viewed its previous rulings as laying stress more on the legislative
goals. The power to tax is the most effective instrument to raise needed revenues to intent of the amendatory law whether the tax exemption privilege is to be withdrawn or
finance and support myriad activities of local government units for the delivery of basic not rather than on whether the law can withdraw, without violating the Constitution, the
service essential to the promotion of the general welfare and the enhancement of tax exemption or not.
peace, progress, and prosperity of the people. It may also be relevant to recall that the
original reasons for the withdrawal of tax exemption privileges granted to government- While the Court has, not too infrequently, referred to tax exemptions contained in
owned and controlled corporations and all other units of government were that such special franchises as being in the nature of contracts and a part of the inducement for
privilege resulted in serious tax base erosion and distortions in the tax treatment of carrying on the franchise, these exemptions, nevertheless, are far from being strictly
similarly situated enterprises, and there was a need for these entities to share in the contractual in nature. Contractual tax exemptions, in the real sense of the term and
requirements of development, fiscal or otherwise, by paying the taxes and other where the non-impairment clause of the Constitution can rightly be invoked, are those
charges due from them.[10] agreed to by the taxing authority in contracts, such as those contained in government
bonds or debentures, lawfully entered into by them under enabling laws in which the
government, acting in its private capacity, sheds its cloak of authority and waives its
Petitioner in its complaint before the Regional Trial Court cited the ruling of this
governmental immunity. Truly, tax exemptions of this kind may not be revoked without
Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light Company,
impairing the obligations of contracts.[14] These contractual tax exemptions, however,
Inc.;[11] thus:
are not to be confused with tax exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview of the non-impairment
In an earlier case, the phrase shall be in lieu of all taxes and at any time levied, clause of the Constitution.[15] Indeed, Article XII, Section 11, of the 1987 Constitution, like
established by, or collected by any authority found in the franchise of the Visayan its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise
Electric Company was held to exempt the company from payment of the 5% tax on for the operation of a public utility shall be granted except under the condition that
corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan such privilege shall be subject to amendment, alteration or repeal by Congress as and
Electric Co. vs. David, 49 O.G. [No. 4] 1385) when the common good so requires.
WHEREFORE, the instant petition is hereby DISMISSED. No costs.

Similarly, we ruled that the provision: shall be in lieu of all taxes of every name and
nature in the franchise of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) SO ORDERED.
exempts the Manila Railroad from payment of internal revenue tax for its importations of
coal and oil under Act No. 2432 and the Amendatory Acts of the Philippine Legislature
(Manila Railroad vs. Rafferty, 40 Phil. 224).
Republic of the Philippines
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. SUPREME COURT
1497) justified the exemption of the Philippine Railway Company from payment of the Manila
tax on its corporate franchise under Section 259 of the Internal Revenue Code, as
5
amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal Revenue, 91 Phil. EN BANC
Page
35).
Sec. 24: All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives, but the
G.R. No. 101273 July 3, 1992
Senate may propose or concur with amendments.
CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,

He contends that since the Constitution vests the authority to enact revenue
vs.
bills in Congress, the President may not assume such power by issuing
THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC
Executive Orders Nos. 475 and 478 which are in the nature of revenue-
AND DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE,
generating measures.
and THE ENERGY REGULATORY BOARD, respondents.
Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401
of the Tariff and Customs Code, which Section authorizes the President, according to
petitioner, to increase, reduce or remove tariff duties or to impose additional
FELICIANO, J.: duties only when necessary to protect local industries or products but not for the
purpose of raising additional revenue for the government.
On 27 November 1990, the President issued Executive Order No. 438 which imposed, in
addition to any other duties, taxes and charges imposed by law on all articles imported Thus, petitioner questions first the constitutionality and second the legality of Executive
into the Philippines, an additional duty of five percent (5%) ad valorem. This additional Orders Nos. 475 and 478, and asks us to restrain the implementation of those Executive
duty was imposed across the board on all imported articles, including crude oil and Orders. We will examine these questions in that order.
other oil products imported into the Philippines. This additional duty was subsequently
increased from five percent (5%) ad valorem to nine percent (9%) ad valorem by the
Before doing so, however, the Court notes that the recent promulgation of Executive
promulgation of Executive Order No. 443, dated 3 January 1991.
Order No. 507 did not render the instant Petition moot and academic. Executive Order
No. 517 which is dated 30 April 1992 provides as follows:
On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate
the process required by the Tariff and Customs Code for the imposition of a specific levy
Sec. 1. Lifting of the Additional Duty. — The additional duty in the
on crude oil and other petroleum products, covered by HS Heading Nos. 27.09, 27.10
nature of ad valorem imposed on all imported articles prescribed by
and 27.11 of Section 104 of the Tariff and Customs Code as amended. Accordingly, the
the provisions of Executive Order No. 443, as amended, is
Tariff Commission, following the procedure set forth in Section 401 of the Tariff and
hereby lifted; Provided, however, that the selected articles covered
Customs Code, scheduled a public hearing to give interested parties an opportunity to
by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and
be heard and to present evidence in support of their respective positions.
Customs Code, as amended, subject of Annex "A" hereof, shall
continue to be subject to the additional duty of nine (9%) percent ad
Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 valorem.
reducing the rate of additional duty on all imported articles from nine percent (9%) to
five percent (5%) ad valorem, except in the cases of crude oil and other oil products
Under the above quoted provision, crude oil and other oil products continue
which continued to be subject to the additional duty of nine percent (9%) ad valorem.
to be subject to the additional duty of nine percent (9%) ad valorem under
Executive Order No. 475 and to the special duty of P0.95 per liter of imported
Upon completion of the public hearings, the Tariff Commission submitted to the crude oil and P1.00 per liter of imported oil products under Executive Order No.
President a "Report on Special Duty on Crude Oil and Oil Products" dated 16 August 478.
1991, for consideration and appropriate action. Seven (7) days later, the President
issued Executive Order No. 478, dated 23 August 1991, which levied (in addition to the
Turning first to the question of constitutionality, under Section 24, Article VI of the
aforementioned additional duty of nine percent (9%) ad valorem and all other
Constitution, the enactment of appropriation, revenue and tariff bills, like all other bills is,
existing ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of
of course, within the province of the Legislative rather than the Executive Department. It
imported crude oil and P1.00 per liter of imported oil products.
does not follow, however, that therefore Executive Orders Nos. 475 and 478, assuming
they may be characterized as revenue measures, are prohibited to the President, that
In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the they must be enacted instead by the Congress of the Philippines. Section 28(2) of Article
validity of Executive Orders Nos. 475 and 478. He argues that Executive Orders Nos. 475 VI of the Constitution provides as follows:
and 478 are violative of Section 24, Article VI of the 1987 Constitution which provides as
6
follows:
(2) The Congress may, by law, authorize the President to fix within
Page
specified limits, and subject to such limitations and restrictions as it
may impose, tariff rates, import and export quotas, tonage and
wharfage dues, and other duties or imposts within the framework of imports of any commodity, as may be necessary; and (3) to impose
the national development program of the Government. (Emphasis an additional duty on all imports not exceeding ten (10) per cent ad
supplied) valorem, whenever necessary; Provided, That upon periodic
investigations by the Tariff Commission and recommendation of the
NEDA, the President may cause a gradual reduction of protection
There is thus explicit constitutional permission 1 to Congress to authorize the President
levels granted in Section One hundred and four of this Code,
"subject to such limitations and restrictions is [Congress] may impose" to fix "within
including those subsequently granted pursuant to this section.
specific limits" "tariff rates . . . and other duties or imposts . . ."
b. Before any recommendation is submitted to the President by the

The relevant congressional statute is the Tariff and Customs Code of the Philippines, and
NEDA pursuant to the provisions of this section, except in the
Sections 104 and 401, the pertinent provisions thereof. These are the provisions which the
imposition of an additional duty not exceeding ten (10) per cent ad
President explicitly invoked in promulgating Executive Orders Nos. 475 and 478. Section
valorem, the Commission shall conduct an investigation in the course
104 of the Tariff and Customs Code provides in relevant part:
of which they shall hold public hearings wherein interested parties
shall be afforded reasonable opportunity to be present, produce
Sec. 104. All tariff sections, chapters, headings and subheadings and evidence and to be heard. The Commission shall also hear the views
the rates of import duty under Section 104 of Presidential Decree No. and recommendations of any government office, agency or
34 and all subsequent amendments issued under Executive Orders instrumentality concerned. The Commission shall submit their findings
and Presidential Decrees are hereby adopted and form part of this and recommendations to the NEDA within thirty (30) days after the
Code. termination of the public hearings.
There shall be levied, collected, and paid upon all imported articles c. The power of the President to increase or decrease rates of import
the rates of duty indicated in the Section under this section except as duty within the limits fixed in subsection "a" shall include the authority
otherwise specifically provided for in this Code: Provided, that, the to modify the form of duty. In modifying the form of duty, the
maximum rate shall not exceed one hundred per cent ad valorem. corresponding ad valorem or specific equivalents of the duty with
respect to imports from the principal competing foreign country for
The rates of duty herein provided or subsequently fixed pursuant to the most recent representative period shall be used as bases.
Section Four Hundred One of this Code shall be subject to periodic
investigation by the Tariff Commission and may be revised by the d. The Commissioner of Customs shall regularly furnish the Commission
President upon recommendation of the National Economic and a copy of all customs import entries as filed in the Bureau of Customs.
Development Authority. The Commission or its duly authorized representatives shall have
access to, and the right to copy all liquidated customs import entries
xxx xxx xxx and other documents appended thereto as finally filed in the
Commission on Audit.
(Emphasis supplied)
e. The NEDA shall promulgate rules and regulations necessary to carry
out the provisions of this section.
Section 401 of the same Code needs to be quoted in full:
f. Any Order issued by the President pursuant to the provisions of this

Sec. 401. Flexible Clause. — section shall take effect thirty (30) days after promulgation, except in
the imposition of additional duty not exceeding ten (10) per cent ad
a. In the interest of national economy, general welfare and/or valorem which shall take effect at the discretion of the President.
national security, and subject to the limitations herein prescribed, the (Emphasis supplied)
President, upon recommendation of the National Economic and
Development Authority (hereinafter referred to as NEDA), is hereby Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in
empowered: (1) to increase, reduce or remove existing protective Sections 104 and 401 of the Tariff and Customs Code, by contending that the President
rates of import duty (including any necessary change in is authorized to act under the Tariff and Customs Code only "to protect local industries
classification). The existing rates may be increased or decreased but and products for the sake of the national economy, general welfare and/or national
in no case shall the reduced rate of import duty be lower than the security." 2 He goes on to claim that:
7
basic rate of ten (10) per cent ad valorem, nor shall the increased
Page
rate of import duty be higher than a maximum of one hundred
(100) per cent ad valorem; (2) to establish import quota or to ban
E.O. Nos. 478 and 475 having nothing to do whatsoever with the In the fourth place, petitioner's concept which he urges us to build into our constitutional
protection of local industries and products for the sake of national and customs law, is a stiflingly narrow one. Section 401 of the Tariff and Customs Code
economy, general welfare and/or national security. On the contrary, establishes general standards with which the exercise of the authority delegated by that
they work in reverse, especially as to crude oil, an essential product provision to the President must be consistent: that authority must be exercised in "the
which we do not have to protect, since we produce only minimal interest of national economy, general welfare and/or national security." Petitioner,
quantities and have to import the rest of what we need. however, insists that the "protection of local industries" is the only permissible objective
that can be secured by the exercise of that delegated authority, and that therefore
"protection of local industries" is the sum total or the alpha and the omega of "the
These Executive Orders are avowedly solely to enable the
national economy, general welfare and/or national security." We find it extremely
government to raise government finances, contrary to Sections 24
difficult to take seriously such a confined and closed view of the legislative standards
and 28 (2) of Article VI of the Constitution, as well as to Section 401 of
and policies summed up in Section 401. We believe, for instance, that the protection of
the Tariff and Customs Code. 3 (Emphasis in the original)
consumers, who after all constitute the very great bulk of our population, is at the very
least as important a dimension of "the national economy, general welfare and national
The Court is not persuaded. In the first place, there is nothing in the language of either security" as the protection of local industries. And so customs duties may be reduced or
Section 104 or of 401 of the Tariff and Customs Code that suggest such a sharp and even removed precisely for the purpose of protecting consumers from the high prices
absolute limitation of authority. The entire contention of petitioner is anchored on just and shoddy quality and inefficient service that tariff-protected and subsidized local
two (2) words, one found in Section 401 (a)(1): "existing protective rates of import duty," manufacturers may otherwise impose upon the community.
and the second in the proviso found at the end of Section 401 (a): "protection levels
granted in Section 104 of this Code . . . . " We believe that the words "protective" and
It seems also important to note that tariff rates are commonly established and the
''protection" are simply not enough to support the very broad and encompassing
corresponding customs duties levied and collected upon articles and goods which are
limitation which petitioner seeks to rest on those two (2) words.
not found at all and not produced in the Philippines. The Tariff and Customs Code is
replete with such articles and commodities: among the more interesting examples
In the second place, petitioner's singular theory collides with a very practical fact of are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5,
which this Court may take judicial notice — that the Bureau of Customs which 5.14); Olives (Chapter 7, Notes); truffles or European fungi growing under the soil on tree
administers the Tariff and Customs Code, is one of the two (2) principal traditional roots (Chapter 7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter
generators or producers of governmental revenue, the other being the Bureau of 16, 16.01); aircraft (Chapter 88, 88.0l); special diagnostic instruments and apparatus for
Internal Revenue. (There is a third agency, non-traditional in character, that generates human medicine and surgery (Chapter 90, Notes); X-ray generators; X-ray tubes;
lower but still comparable levels of revenue for the government — The Philippine X-ray screens, etc. (Chapter 90, 90.20); etc. In such cases, customs duties may be seen
Amusement and Games Corporation [PAGCOR].) to be imposed either for revenue purposes purely or perhaps, in certain cases, to
discourage any importation of the items involved. In either case, it is clear that customs
In the third place, customs duties which are assessed at the prescribed tariff rates are duties are levied and imposed entirely apart from whether or not there are any
very much like taxes which are frequently imposed for both revenue-raising and for competing local industries to protect.
regulatory purposes. 4 Thus, it has been held that "customs duties" is "the name given
to taxes on the importation and exportation of commodities, the tariff or tax assessed Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may
upon merchandise imported from, or exported to, a foreign country." 5 The levying of be conceded to be substantially moved by the desire to generate additional public
customs duties on imported goods may have in some measure the effect of protecting revenues, are not, for that reason alone, either constitutionally flawed, or legally infirm
local industries — where such local industries actually exist and are producing under Section 401 of the Tariff and Customs Code. Petitioner has not successfully
comparable goods. Simultaneously, however, the very same customs duties inevitably overcome the presumptions of constitutionality and legality to which those Executive
have the effect of producing governmental revenues. Customs duties like internal Orders are entitled. 7
revenue taxes are rarely, if ever, designed to achieve one policy objective only. Most
commonly, customs duties, which constitute taxes in the sense of exactions the
The conclusion we have reached above renders it unnecessary to deal with petitioner's
proceeds of which become public funds 6 — have either or both the generation of
additional contention that, should Executive Orders Nos. 475 and 478 be declared
revenue and the regulation of economic or social activity as their moving purposes and
unconstitutional and illegal, there should be a roll back of prices of petroleum products
frequently, it is very difficult to say which, in a particular instance, is the dominant or
equivalent to the "resulting excess money not be needed to adequately maintain the
principal objective. In the instant case, since the Philippines in fact produces ten (10) to
Oil Price Stabilization Fund (OPSF)." 8
fifteen percent (15%) of the crude oil consumed here, the imposition of increased tariff
rates and a special duty on imported crude oil and imported oil products may be seen
to have some "protective" impact upon indigenous oil production. For the effective, WHEREFORE, premises considered, the Petition for Certiorari, Prohibition
price of imported crude oil and oil products is increased. At the same time, it cannot be and Mandamus is hereby DISMISSED for lack of merit. Costs against petitioner.
gainsaid that substantial revenues for the government are raised by the imposition of
8
such increased tariff rates or special duty.
Page
SO ORDERED.
FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner, Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the
vs. proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
COLON HERITAGE REALTY CORPORATION, operator of Oriente Group Theaters, stadia and other places of amusement, an amusement tax at the rate of thirty percent
represented by ISIDORO A. CANIZARES, Respondent. (30%) of the gross receipts from admission fees.4
x-----------------------x Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be
deducted and withheld by their proprietors, lessees, or operators and paid to the city
treasurer before the gross receipts are divided between said proprietor, lessees,
FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,
operators, and the distributors of the cinematographic films.
vs.
CITY OF CEBU and SM PRIME HOLDINGS, INC., Respondents.
Almost a decade later, or on June 7, 2002, Congress passed RA 9167,5 creating the Film
Development Council qf the Philippines (FDCP) and abolishing the Film Development
DECISION
Foundation of the Philippines, Inc. and the Film Rating Board. Secs. 13 and 14 of RA 9167
provided for the tax treatment of certain graded films as follows:
VELASCO, JR., J.:
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading
The Constitution is the basic law to which all laws must conform; no act shall be valid if it from the Council pursuant to Sections 11 and 12 of this Act shall be entitled to the
conflicts with the Constitution. In the discharge of their defined functions, the three following privileges:
departments of government have no choice but to yield obedience to the commands
of the Constitution. Whatever limits it imposes must be observed. 1
a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer to an
incentive equivalent to the amusement tax imposed and collected on the graded films
The Case by cities and municipalities in Metro Manila and other highly urbanized and
independent component cities in the Philippines pursuant to Sections 140 to 151 of
Once again, We are called upon to resolve a clash between the Inherent taxing power Republic Act No. 7160 at the following rates:
of the legislature and the constitutionally-delegated power to tax of local governments
in these consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of 1. For grade "A" films - 100% of the amusement tax collected on such
Court seeking the reversal of the Decision dated September 25, 2012 of the Regional film; and
Trial Court (RTC), Branch 5 in Cebu City, in Civil Case No. CEB-35601, entitled Colon
Heritage Realty Corp., represented by Isidoro Canizares v. Film Development Council of
2. For grade "B" films - 65% of the amusement tax collected on such
the' Philippines, and Decision dated October 24, 2012 of the RTC, Branch 14 in Cebu
films. The remaining thirty-five (35%) shall accrue to the funds of the
City, in Civil Case No. CEB-35529, entitled City of Cebu v. Film Development Council of
Council.
the Philippines, collectively declaring Sections 13 and 14 of Republic Act No. (RA) 9167
invalid and unconstitutional.
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the
amusement tax on the graded film which may otherwise accrue to the cities and
The Facts
municipalities in Metropolitan Manila and highly urbanized and independent
component cities in the Philippines pursuant to Section 140 of Republic Act. No. 7160
The facts are simple and undisputed. during the period the graded film is exhibited, shall be deducted and withheld by the
proprietors, operators or lessees of theaters or cinemas and remitted within thirty (30)
Sometime in 1993, respondent City of Cebu, in its exercise of its power to impose days from the termination of the exhibition to the Council which shall reward the
amusement taxes under Section 140 of the Local Government Code2 (LGC) anchored corresponding amusement tax to the producers of the graded film within fifteen (15)
on the constitutional policy on local autonomy,3 passed City Ordinance No. LXIX days from receipt thereof.
otherwise known as the "Revised Omnibus Tax Ordinance of the City of Cebu (tax
ordinance)." Central to the case at bar are Sections 42 and 43, Chapter XI thereof Proprietors, operators and lessees of theaters or cinemas who fail to remit the
which require proprietors, lessees or operators of theatres, cinemas, concert halls, amusement tax proceeds within the prescribed period shall be liable to a surcharge
circuses, boxing stadia, and other places of amusement, to pay an amusement tax equivalent to five percent (5%) of the amount due for each month of delinquency
equivalent to thirty percent (30%) of the gross receipts of admission fees to the Office of which shall be paid to the Council. (emphasis added)
the City Treasurer of Cebu City. Said provisions read:
9
According to petitioner, from the time RA 9167 took effect up to the present, all the
Page
CHAPTER XI - Amusement Tax cities and municipalities in Metro Manila, as well as urbanized and independent
component cities, with the sole exception of Cebu City, have complied with the Similarly, Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-35601 (Colon
mandate of said law. Heritage v. FDCP), seeking to declare Sec. 14 of RA 9167 as unconstitutional.
Accordingly, petitioner, through the Office of the Solicitor General, sent on January 2009 On May 25, 2010, the RTC, Branch 14 issued a temporary restraining order (TRO)
demand letters for unpaid amusement tax reward (with 5% surcharge for each month of restraining and enjoining FDCP, et al. from, inter alia:
delinquency) due to the producers of the Grade "A" or "B" films to the following cinema
proprietors and operators in Cebu City:
(a) Collecting amusement tax incentive award in the City of Cebu and from
imposing surcharges thereon;
Amusement
Tax Reward Number (b) Demanding from the owners, proprietors, and lessees of theaters and
Cinema (with 5% of CEB cinemas located and operated within Cebu City, payment of said amusement
Period Covered
Proprietor/Operator surcharge for Graded tax incentive award which should have been deducted, withheld, and
each moth of Films remitted to FDCP, etc. by the owners, etc., or being operated within Cebu City
delinquency) and imposing surcharges on the unpaid amount; and
Prime Holdings Inc. 76,836,807.08 89 Sept. 11, 2003 - Nov. 4, 2008

(c) Filing any suit due to or arising from the failure of the owners, etc., of
Ayala Center Cinemas 43,435,718.23 70 May 14, 2003 - Nov. 4, 2008 theaters or cinemas within Cebu City, to deduct, withhold, and remit the
incentive to FDCP.
Colon Heritage Realty 8,071,267.00 50 Aug. 11, 2004-Nov. 4, 2008
Corp.
Meanwhile, on August 13, 2010, SM Prime Holdings, Inc. moved for leave to file and
Eden Theater 428,938.25 4 May 5, 2005 - Sept. 2, 2008 admit attached comment-in-intervention and was later granted.6
Cinema Theater 3,100,354.80 22 Feb. 18, 2004-Oct. 7, 2008

Rulings of the Trial Courts
Visaya Cineplex Corp. 17,582,521.89 86 June 25, 2005 - Oct. 21, 2008
In City of Cebu v. FDCP, the RTC, Branch 14 issued the challenged Decision7 declaring
Ultra Vistarama Cinema 68,821.60 2 July 2 - 22, 2008 Secs. 13 and 14 of RA 9167 unconstitutional, disposing as follows:
Cebu Central Realty Corp. 9,853,559.69 48 Jan. 1, 2004 - Oct. 21, 2008
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of petitioner
City of Cebu against respondent Film Development Council of the Philippines, as
In said letters, the proprietors and cinema operators, including private respondent Colon follows:
Heritage Realty Corp. (Colon Heritage), operator of the Oriente theater, were given ten
(10) days from receipt thereof to pay the aforestated amounts to FDCP. The demand,
however, fell on deaf ears. 1. Declaring Sections 13 and 14 of the (sic) Republic Act No. 9167 otherwise
known as an Act Creating the Film Development Council of the Philippines,
Defining its Powers and Functions, Appropriating Funds Therefor and for other
Meanwhile, on March 25, 2009, petitioner received a letter from Regal Entertainment, purposes, as violative of Section 5 Article X of the 1997 (sic) Philippine
Inc., inquiring on the status of its receivables for tax rebates in Cebu cinemas for all their Constitution; Consequently
A and B rate films along with those which it co-produced with GMA films. This was
followed by a letter from
2. Declaring that defendant Film Development Council of the Philippines
(FDCP) cannot collect under Sections 13 and 14 of R.A. 9167 as of the finality of
Star Cinema ABS-CBN Film Productions, Inc., requesting the immediate remittance of its the decision in G.R. Nos. 203754 and 204418;
amusement tax rewards for its graded films for the years 2004-2008.
3. Declaring that Intervenor SM Cinema Corporation has the obligation to

Because of the persistent refusal of the proprietors and cinema operators to remit the remit the amusement taxes, withheld on graded cinema films to respondent
said amounts as FDCP demanded, on one hand, and Cebu City's assertion of a claim FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of
on the amounts in question, the city finally filed on May 18, 2009 before the RTC, Branch
10
the decision in G.R. Nos. 203754 and 204418;
14 a petition for declaratory relief with application for a writ of preliminary injunction,
docketed as Civil Case No. CEB-35529 (City of Cebu v. FDCP). In said petition, Cebu City
Page
sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional. 4. Declaring that after the finality of the decision in G.R. Nos. 203 754 and
204418, all amusement taxes withheld and those which may be collected by
Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be (3) Directing respondent to refund all the amounts paid by petitioner, by way
remitted to petitioner Cebu City pursuant to City Ordinance LXIX, Chapter XI, of amusement tax, plus the legal rate of interest thereof, until the whole
Section 42. amount is paid in full.
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Notify parties and counsels of this order.
Cebu, said amount shall be remitted by the City of Cebu to petitioner FDCP within thirty
(30) days from finality of this decision in G.R. Nos. 203754 and 204418 without interests
SO ORDERED.
and surcharges.
The Issue
SO ORDERED.
Undeterred by two defeats, petitioner has come directly to this Court, presenting the
According to the court, what RA 9167 seeks to accomplish is the segregation of the
singular issue: whether or not the RTC (Branches 5 and 14) gravely erred in declaring
amusement taxes raised and collected by Cebu City and its subsequent transfer to
Secs. 13 and 14 of RA 9167 invalid for being unconstitutional.
FDCP. The court concluded that this arrangement cannot be classified as a tax
exemption but is a confiscatory measure where the national government extracts
money from the local government's coffers and transfers it to FDCP, a private agency, Anent Sec. 13,12 FDCP concedes that the amusement taxes assessed in RA 9167 are to
which in turn, will award the money to private persons, the film producers, for having be given to the producers of graded films who are private persons. Nevertheless,
produced graded films. according to FDCP, this particular tax arrangement is not a violation of the rule on the
use of public funds for RA 9167 was enacted for a public purpose, that is, the promotion
and support of the "development and growth of the local film industry as a medium for
The court further held that Secs. 13 and 14 of RA 9167 are contrary to the basic policy in
the upliftment of aesthetic, cultural, and social values for the better understanding and
local autonomy that all taxes, fees, and charges imposed by the LGUs shall accrue
appreciation of the Filipino identity" as well as the "encouragement of the production of
exclusively to them, as articulated in A1iicle X,. Sec. 5 of the 1987 Constitution. This edict,
quality films that will promote the growth and development' of the local film
according to the court, is a limitation upon the rule-making power of Congress when it
industry."13 Moreover, FDCP suggests that "even if the resultant effect would be a certain
provides guidelines and limitations on the local government unit's (LGU's) power of
loss of revenue, [LGUs] do not feel deprived nor bitter for they realize that the benefits
taxation. Therefore, when Congress passed this "limitation," if went beyond its legislative
for the film industry, the fortification of our values system, and the cultural boost for the
authority, rendering the questioned provisions unconstitutional.
nation as a whole, far outweigh the pecuniary cost they would shoulder by backing this
law."14 Finally, in support of its stance, FDCP invites attention to the following words of
By the same token, in Colon Heritage v. FDCP, the RTC, Branch 5, in its Decision of former Associate Justice Isagani A. Cruz: "[t]he mere fact that the tax will be directly
September 25, 2012, also ruled against the constitutionality of said Secs. 13 and 14 of RA enjoyed by a private individual does not make it invalid so long as some link to the
9167 for the following reasons: (a) while Congress, through the enactment of RA 9167, public welfare is established."15
may have amended Secs. 140(a)8 and 1519 of the LGC, in the exercise of its plenary
power to amend laws, such power must be exercised within constitutional parameters;
As regards Sec. 1416 of RA 9167, FDCP is of the position that Sec. 5, Article X of the
(b) the assailed provision violates the constitutional directive that taxes should accrue
Constitution does not change the doctrine that municipal corporations only possess
exclusively to the LGU concerned; (c) the Constitution, through its Art. X, Sec. 5,10 directly
delegated, not inherent, powers of taxation and that the power to tax is still primarily
conferred LGUs with authority to levy taxes-the power is no longer delegated by the
vested in the Congress. Thus, wielding its power to impose limitations on this delegated
legislature; (d) In CIR v. SM Prime Holdings,11 the Court ruled that amusement tax on
power, Congress further restricted the LGU's power to impose amusement taxes via
cinema/theater operators or proprietors remain with the LGU, amusement tax, being, by
Secs. 13 and 14 of RA 9167-an express and real intention of Congress to further contain
nature, a local tax. The fallo of the questioned judgment reads:
the LGU's delegated taxing power. It, therefore, cannot be construed as an undue
limitation since it is well within the power of Congress to make such restriction.
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of Furthermore, the LGC is a mere statute which Congress can amend, which it in fact did
petitioner, as follows: when it enacted RA 916417 and, later, the questioned law, RA 9167.18
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional; This, according to FDCP, evinces the overriding intent of Congress to remove from the
LGU' s delegated taxing power all revenues from amusement taxes on grade "A" or "B"
films which would otherwise accrue to the cities and municipalities in Metropolitan
(2) The obligation to remit amusement taxes for the graded films to respondent
Manila and highly urbanized and independent component cities in the Philippines
is ordered extinguished;
11
pursuant to Secs. 140 and 151 of the LGC.
Page
In fine, it is petitioner's posture that the inclusion in RA 9167 of the questioned provisions the taxpayer will not be over-burdened or saddled with multiple and unreasonable
was a valid exercise of the legislature's power to amend laws and an assertion of its impositions; (b) each LGU will have its fair share of available resources; ( c) the resources
constitutional authority to set limitations on the LGU' s authority to tax. of the national government will not be unduly disturbed; and ( d) local taxation will be
fair, uniform, and just.28
The Court's Ruling
In conformity to the dictate of the fundamental law for the legislature to "enact a local
government code which shall provide for a more responsive and accountable local
We find no reason to disturb the assailed rulings.
government structure instituted through a system of decentralization,"29 consistent with
the basic policy of local autonomy, Congress enacted the LGC, Book II of which
Local fiscal autonomy and the constitutionally-delegated power to tax governs local taxation and fiscal matters and sets forth the guidelines and limitations for
the exercise of this power. In Pelizloy Realty Corporation v. The Province of
The power of taxation, being an essential and inherent attribute of sovereignty, belongs, Benguet,30 the Court alluded to the fundamental principles governing the taxing powers
as a matter of right, to every independent government, and needs no express of LGUs as laid out in Section 130 of the LGC, to wit:
conferment by the people before it can be exercised. It is purely legislative and, thus,
cannot be delegated to the executive and judicial branches of government without 1. Taxation shall be uniform in each LGU.
running afoul to the theory of separation of powers. It, however, can be delegated to
municipal corporations, consistent with the principle that legislative powers may be
2. Taxes, fees, charges and other impositions shall:
delegated to local governments in respect of matters of local concern.19 The authority
of provinces, cities, and municipalities to create their own sources of revenue and to
levy taxes, therefore, is not inherent and may be exercised only to the extent that such a. be equitable and based as far as practicable on the taxpayer's
power might be delegated to them either by the basic law or by statute.20 Under the ability to pay;
regime of the 1935 Constitution, there was no constitutional provision on the delegation
of the power to tax to municipal corporations. They only derived such under a limited
b. be levied and collected only for public purposes;
statutory authority, outside of which, it was deemed withheld.21 Local governments,
thus, had very restricted taxing powers which they derive from numerous tax laws. This
highly-centralized government structure was later seen to have arrested the growth and c. not be unjust, excessive, oppressive, or confiscatory;
efficient operations of LG Us, paving the way for the adoption of a more decentralized
system which granted LGUs local autonomy, both administrative and fiscal autonomy.22 d. not be contrary to law, public policy, national economic policy, or
in the restraint of trade.
Material to the case at bar is the concept and scope of local fiscal autonomy. In
Pimentel v. Aguirre,23 fiscal autonomy was defined as "the power [of LGUs] to create 3. The collection of local taxes, fees, charges and other impositions shall in no
their own sources of revenue in addition to their equitable share in the national taxes case be let to any private person.
released by the national government, as well as the power to allocate their resources in
accordance with their own priorities. It extends to the preparation of their budgets, and
local officials in tum have to work within the constraints thereof." 4. The revenue collected pursuant to the provisions of the LGC shall inure solely
to the benefit of, and be subject to the disposition by, the LGU levying the tax,
fee, charge or other imposition unless otherwise specifically provided by the
With the adoption of the 1973 Constitution,24 and later the 1987 Constitution, municipal LGC.
corporations were granted fiscal autonomy via a general delegation of the power to
tax.25 Section 5, Article XI of the 1973 Constitution gave LGUs the "power to create its
own sources of revenue and to levy taxes, subject to such limitations as may be 5. Each LGU shall, as far as practicable, evolve a progressive system of
provided by law.'' This authority was further strengthened in the 1987 Constitution, taxation.
through the inclusion in Section 5, Article X thereof of the condition that " [s]uch taxes,
fees, and charges shall accrue exclusively to local governments."26 It is in the application of the adverted fourth rule, that is-all revenue collected pursuant
to the provisions of the LGC shall inure solely to the benefit of, and be subject to the
Accordingly, under the present Constitution, where there is neither a grant nor a disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
prohibition by statute, the tax power of municipal corporations must be deemed to exist specifically provided by the LGC-upon which the present controversy grew.
although Congress may provide statutory limitations and guidelines.27 The basic
12
rationale for the current rule on local fiscal autonomy is the strengthening of LGUs and RA 9167 violates local fiscal autonomy
the safeguarding of their viability and self-sufficiency through a direct grant of general
and broad tax powers. Nevertheless, the fundamental law did not intend the
Page
It is beyond cavil that the City of Cebu had the authority to issue its City Ordinance No.
delegation to be absolute and unconditional. The legislature must still see to it that (a)
LXIX and impose an amusement tax on cinemas pursuant to Sec. 140 in relation to Sec.
151 of the LGC. Sec. 140 states, among other things, that a "province may levy an corresponding amusement tax to the producers of the graded film within fifteen (15)
amusement tax to be collected from the proprietors, lessees, or operators of theaters, days from receipt thereof.
cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a
rate of not more than thirty percent (30%) of the gross receipts from admission fees." By
Proprietors, operators and lessees of theaters or cinemas who fail to remit the
operation of said Sec. 151,31 extending to them the authority of provinces and
amusement tax proceeds within the prescribed period shall be liable to a surcharge
municipalities to levy certain taxes, fees, and charges, cities, such as respondent city
equivalent to five percent (5%) of the amount due for each month of delinquency
government, may therefore validly levy amusement taxes subject to the parameters set
which shall be paid to the Council.
forth under the law. Based on this authority, the City of Cebu passed, in 1993, its Revised
Omnibus Tax Ordinance,32 Chapter XI, Secs. 42 and 43 of which reads:
Considering the amendment, the present rule is that ALL amusement taxes levied by
covered cities and municipalities shall be 2iven by proprietors, operators or lessees of
CHAPTER XI - Amusement Tax
theatres and cinemas to FDCP, which shall then reward said amount to the producers of
graded films in this wise:
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
1. For grade "A" films, ALL amusement taxes collected by ALL covered LGUs on
stadia and other places of amusement, an amusement tax at the rate of thirty percent
said films shall be given to the producer thereof. The LGU, therefore, is entitled
(30%) of the gross receipts from admission fees.33
to NOTHING from its own imposition.
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be
2. For grade "B" films, SIXTY FIVE PERCENT (65%) of ALL amusement taxes derived
deducted and withheld by their proprietors, lessees, or operators and paid to the city
by ALL covered LGUs on said film shall be given to the producer thereof. In this
case, however, the LGU is still NOT entitled to any portion of the imposition, in
view of Sec. 16 of RA 9167 which provides that the remaining 35% may be
expended for the Council's operational expenses. Thus: Section 16. Funding. -
Then, after almost a decade of cities reaping benefits from this imposition, Congress, The Executive Secretary shall immediately include in the Office of the
through RA 9167, amending Section 140 of the LGC,34 among others, transferred this President's program the implementation of this Act, the funding of which shall
income from the cities and municipalities in Metropolitan Manila and highly urbanized be included in the annual General Appropriations Act.
and independent component cities, such as respondent City of Cebu, to petitioner
FDCP, which proceeds will ultimately be rewarded to the producers of graded films. We
To augment the operational expenses of the Council, the Council may:
reproduce anew Secs. 13 and 14 of RA 9167, thus:
a. Utilize the remaining thirty-five (35%) percent of the amusement tax collected during
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading
the period of grade "B" film is exhibited, as provided under Sections 13 and 14 hereof x x
from the Council pursuant to Sections 11 and 12 of this Act shall be entitled to the
x.
following privileges: a. Amusement tax reward. - A grade "A" or "B" film shall entitle its
producer to an incentive equivalent to the amusement tax imposed and collected on
the graded films by cities and municipalities in Metro Manila and other highly urbanized For petitioner, the amendment is a valid legislative manifestation of the intention to
and independent component cities in the Philippines pursuant to Sections 140 to 151 of remove from the grasp of the taxing power of the covered LGUs all revenues from
Republic Act No. 7160 at the following rates: amusement taxes on grade "A" or "B" films which would otherwise accrue to them. An
evaluation of the provisions in question, however, compels Us to disagree.
1. For grade "A" films - 100% of the amusement tax collected on such film; and
RA 9167, Sec. 14 states:
2. For grade "B" films - 65% of the amusement tax collected on such films. The
remaining thirty-five (35%) shall accrue to the funds of the Council. Section 14. Amusement Tax Deduction and Remittance. - All revenue from the
Section 14. Amusement Tax Deduction and Remittance. -All revenue from the
during the period the graded film is exhibited, shall be deducted and withheld by the
13
days from the termination of the exhibition to the Council which shall reward the
during the period the graded film is exhibited, shall be deducted and withheld by the
corresponding amusement tax to the producers of the graded film within fifteen (15)
days from receipt thereof.
Page
days from the termination of the exhibition to the Council which shall reward the
A reading of the challenged provision reveals that the power to impose amusement (l) Taxes, fees or charges for the registration of motor vehicles and for the
taxes was NOT removed from the covered LGUs, unlike what Congress did for the taxes issuance of all kinds of licenses or permits for the driving thereof, except
enumerated in Sec. 133, Article X of the LGC,35 which lays down the common limitations tricycles;
on the taxing powers of LGUs. Thus:
(m) Taxes, fees, or other charges on Philippine products actually exported,
Section 133. Common Limitations on the Taxing Powers of Local Government Units. - except as otherwise provided herein;
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises
and cooperatives duly registered under R.A. No. 6810 and Republic Act
(a) Income tax, except when levied on banks and other financial institutions; Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as
the "Cooperative Code of the Philippines" respectively; and
(b) Documentary stamp tax;
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units. (emphasis ours)
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein;
From the above, the difference between Sec. 133 and the questioned amendment of
Sec. 140 of the LGC by RA 9167 is readily revealed. In Sec. · 133, what Congress did was
(d) Customs duties, registration fees of vessel and wharfage on wharves,
to prohibit the levy by LGUs of the enumerated taxes. For RA 9167, however, the
tonnage dues, and all other kinds of customs fees, charges and dues except
covered LGUs were deprived of the income which they will otherwise be collecting
wharfage on wharves constructed and maintained by the local government
should they impose amusement taxes, or, in petitioner's own words, "Section 14 of [RA
unit concerned;
9167] can be viewed as an express and real intention on the part of Congress to
remove from the LGU's delegated taxing power, all revenues from the amusement taxes
(e) Taxes, fees, and charges and other impositions upon goods carried into or on graded films which would otherwise accrue to [them] pursuant to Section 140 of the
out of, or passing through, the territorial jurisdictions of local government units [LGC]."36
in the guise of charges for wharfage, tolls for bridges or otherwise, or other
taxes, fees, or charges in any form whatsoever upon such goods or
In other words, per RA 9167, covered LGUs still have the power to levy amusement
merchandise;
taxes, albeit at the end of the day, they will derive no revenue therefrom. The same,
however, cannot be said for FDCP and the producers of graded films since the amounts
(f) Taxes, fees or charges on agricultural and aquatic products when sold by thus levied by the LGUs which should rightfully accrue to them, they being the taxing
marginal farmers or fishermen; authority-will be going to their coffers. As a matter of fact, it is only through the exercise
by the LGU of said power that the funds to be used for the amusement tax reward can
(g) Taxes on business enterprises certified to by the Board of Investments as be raised. Without said imposition, the producers of graded films will receive nothing
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the owners, proprietors and lessees of cinemas operating within the territory of the
from the date of registration; covered LGU.
(h) Excise taxes on articles enumerated under the national Internal Revenue Taking the resulting scheme into consideration, it is apparent that what Congress did in
Code, as amended, and taxes, fees or charges on petroleum products; this instance was not to exclude the authority to levy amusement taxes from the taxing
power of the covered LGUs, but to earmark, if not altogether confiscate, the income to
be received by the LGU from the taxpayers in favor of and for transmittal to FDCP,
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or instead of the taxing authority. This, to Our mind, is in clear contravention of the
similar transactions on goods or services except as otherwise provided herein; constitutional command that taxes levied by LGUs shall accrue exclusively to said LGU
and is repugnant to the power of LGUs to apportion their resources in line with their
(j) Taxes on the gross receipts of transportation contractors and persons priorities.
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code; It is a basic precept that the inherent legislative powers of Congress, broad as they may
be, are limited and confined within the four walls of the Constitution.37 Accordingly,
14
(k) Taxes on premiums paid by way or reinsurance or retrocession; whenever the legislature exercises its power to enact, amend, and repeal laws, it should
do so without going beyond the parameters wrought by the organic law.
Page
In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the Similarly, the LGC provides as follows:
income from the amusement taxes levied by the covered LGUs did not and will under
no circumstance accrue to them, not even partially, despite being the taxing authority
Section 140. Amusement Tax. –
therefor. Congress, therefore, clearly overstepped its plenary legislative power, the
amendment being violative of the fundamental law's guarantee on local autonomy, as
echoed in Sec. 130(d) of the LGC, thus: Section 130. Fundamental Principles. - The (a) The province may levy an amusement tax to be collected from the
following fundamental principles shall govern the exercise of the taxing and other proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses,
revenue-raising powers of local government units: boxing stadia, and other places of amusement at a rate of not more than
thirty percent (30%) of the gross receipts from admission fees.
xxxx
(b) In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the provincial
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the
treasurer before the gross receipts are divided between said proprietors,
benefit of, and be subject to the disposition by, the local government unit levying the
lessees, or operators and the distributors of the cinematographic films.
tax, fee, charge or other imposition unless otherwise specifically provided herein x x x.
Simply put, both the burden and incidence of the amusement tax are borne by the
Moreover, in Pimentel,38 the Court elucidated that local fiscal autonomy includes the
proprietors, lessors, and operators, not by the producers of the graded films. The transfer
power of LGUs to allocate their resources in accordance with their own priorities. By
of the amount to the film producers is actually a monetary reward given to them for
earmarking the income on amusement taxes imposed by the LGUs in favor of FDCP and
having produced a graded film, the funding for which was taken by the national
the producers of graded films, the legislature appropriated and distributed the LGUs'
government from the coffers of the covered LGUs. Without a doubt, this is not an
funds-as though it were legally within its control-under the guise of setting a limitation on
exemption from payment of tax.
the LGUs' exercise of their delegated taxing power. This, undoubtedly, is a usurpation of
the latter's exclusive prerogative to apportion their funds, an impermissible intrusion into
the LGUs' constitutionally-protected domain which puts to naught the guarantee of Declaration by the RTC, Branch 5 of the
fiscal autonomy to municipal corporations enshrined in our basic law. entire RA 9167 as unconstitutional
Grant of amusement tax reward incentive: Noticeably, the RTC, Branch 5, in its September 25, 2012 Decision in Colon Heritage v.
FDCP, ruled against the constitutionality of the entire law, not just the assailed Sec. 14.
The fallo of the judgment reads:
not a tax exemption
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of

It was argued that subject Sec. 13 is a grant by Congress of an exemption from
petitioner, as follows:
amusement taxes in favor of producers of graded films. Without question, this Court has
previously upheld the power of Congress to grant exemptions over the power of LGUs to
impose taxes.39 This amusement tax reward, however, is not, as the lower court posited, (1) Declaring Republic Act No. 9167 as invalid and unconstitutional;
a tax exemption. Exempting a person or entity from tax is to relieve or to excuse that
person or entity from the burden of the imposition. Here, however, it cannot be said that (2) The obligation to remit amusement taxes for the graded films to respondent
an exemption from amusement taxes was granted by Congress to the producers of is ordered extinguished;
graded films. Take note that the burden of paying the amusement tax in question is on
the proprietors, lessors, and operators of the theaters and cinemas that showed the
graded films. Thus, per City Ordinance No. LXIX: CHAPTER XI - Amusement Tax (3) Directing respondent to refund all the amounts paid by petitioner, by way
of amusement tax, plus the legal rate of interest thereof, until the whole
amount is paid in full.
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the
proprietors, lessees, or operators of theaters, cinemas, concert halls,, circuses, boxing
stadia and other places of amusement, an amusement tax at the rate of thirty percent In this regard, it is well to emphasize that if it appears that the rest of the law is free from
(30%) of the gross receipts from admission fees. the taint of unconstitutionality, then it should remain in force and effect if said law
contains a separability clause. A separability clause is a legislative expression of intent
that the nullity of one provision shall not invalidate the other provisions of the act. Such a
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be
15
clause is not, however, controlling and the courts, in spite of it, may invalidate the whole
deducted and withheld by their proprietors, lessees, or operators and paid to the city statute where what is left, after the void part, is not complete and workable.40
Page
In this case, not only does RA 9167 have a separability clause, contained in Section 23 (3) Directing respondent to refund all the amounts paid by petitioner, by way
thereof which reads: of amusement tax, plus the legal rate of interest thereof, until the whole
amount is paid in full.
Section 23. Separability Clause. -If, for any reason, any provision of this Act, or any part
thereof, is declared invalid or unconstitutional, all other sections or provisions not As regards the refund, the Court cannot subscribe to this position.
affected thereby shall remain in force and effect.
It is a well-settled rule that an unconstitutional act is not a law; it . confers no rights; it
it is also true that the constitutionality of the entire law was not put m question in any of imposes no duties; it affords no protection; it creates no office; it is inoperative as if it has
the said cases. not been passed at all. Applying this principle, the logical conclusion would be to order
the return of all the amounts remitted to FDCP and given to the producers of graded
films, by all of the covered cities, which actually amounts to hundreds of millions, if not
Moreover, a perusal of RA 9167 easily reveals that even with the removal of Secs. 13 and
billions. In fact, just for Cebu City, the aggregate deficiency claimed by FDCP is ONE
14 of the law, the remaining provisions can survive as they mandate other matters like a
HUNDRED FIFTY NINE MILLION THREE HUNDRED SEVENTY SEVEN THOUSAND NINE HUNDRED
cinema evaluation system, an incentive and reward system, and local and international
EIGHTY-EIGHT PESOS AND FIFTY FOUR CENTAVOS (₱159,377,988.54). Again, this amount
film festivals and activities that "will promote the growth and development of the local
represents the unpaid amounts to FDCP by eight cinema operators or proprietors in only
film industry and promote its participation in both domestic and foreign markets," and to
one covered city.
"enhance the skills and expertise of Filipino talents."41
An exception to the above rule, however, is the doctrine of operative fact, which
Where a part of a statute is void as repugnant to the Constitution, while another part is
applies as a matter of equity and fair play. This doctrine nullifies the effects of an
valid, the valid portion, if separable from the invalid, may stand-and be enforced. The
unconstitutional law or an executive act by recognizing that the existence of a statute
exception to this is when the parts of a statute are so mutually dependent and
prior to a determination of unconstitutionality is an operative fact and may have
connected, as conditions, considerations, inducements, or compensations for each
consequences that cannot always be ignored. It applies when a declaration of
other, as to warrant a belief that the legislature intended them as a whole, in which
unconstitutionality will impose an undue burden on those who have relied on the invalid
case, the nullity of one part will vitiate the rest.42
law.45
Here, the constitutionality of the rest of the provisions of RA 9167 was never put in
In Hacienda Luisita v. PARC, the Court elucidated the meaning and scope of the
question. Too, nowhere in the assailed judgment of the RTC was it explicated why the
operative fact doctrine, viz:
entire law was being declared as unconstitutional.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein

It is a basic tenet that courts cannot go beyond the issues in a case,43 which the RTC,
it is stated that a legislative or executive act, prior to its being declared as
Branch 5 did when it declared RA 9167 unconstitutional. This being the case, and in view
unconstitutional by the courts, is valid and must be complied with, thus:
of the elementary rule that every statute is presumed valid,44 the declaration by the R
TC, Branch 5 of the entirety of RA 9167 as unconstitutional, is improper.
xxx xxx xxx
Amounts paid by Colon Heritage
need not be returned This doctrine was reiterated in the more recent case of City of Makati v. Civil Service
Commission, wherein we ruled that:
Having ruled that the questioned provisions are unconstitutional, the RTC, Branch 5, in
Colon Heritage v. FDCP, ordered the return of all amounts paid by respondent Colon Moreover, we certainly cannot nullify the City Government's order of suspension, as we
Heritage to FDCP by way of amusement tax. Thus: have no reason to do so, much less retroactively apply such nullification to deprive
private respondent of a compelling and valid reason for not filing the leave application.
For as we have held, a void act though in law a mere scrap of paper nonetheless
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of
confers legitimacy upon past acts or omissions done in reliance thereof. Consequently,
petitioner, as follows:
the existence of a statute or executive order prior to its being adjudged void is an
operative fact to which legal consequences are attached. It would indeed be ghastly
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional; unfair to prevent private respondent from relying upon the order of suspension in lieu of
a formal leave application.
16
(2) The obligation to remit amusement taxes for the graded films to respondent
is ordered extinguished; The applicability of the operative fact doctrine to executive acts was further explicated
Page
by this Court in Rieta v. People, thus:
Petitioner contends that his arrest by virtue of Arrest . Search and Seizure Order (ASSO) Here, to order FDCP and the producers of graded films which may have already
No. 4754 was invalid, as the law upon which it was predicated-General Order No. 60, received the amusement tax incentive reward pursuant to the questioned provisions of
issued by then President Ferdinand E. Marcos - was subsequently declared by the Court, RA 9167, to return the amounts received to the respective taxing authorities would
in Tanada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence certainly impose a heavy, and possibly crippling, financial burden upon them who
obtained pursuant thereto is inadmissible in evidence. merely, and presumably in good faith, complied with the legislative fiat subject of this
case. For these reasons, We are of the considered view that the application of the
doctrine of operative facts in the case at bar is proper so as not to penalize FDCP for
We do not agree. In Tanada, the Court addressed the possible effects of its declaration
having complied with the legislative command in RA 9167, and the producers of
of the invalidity of various presidential issuances.1a\^/phi1 Discussing therein how such
graded films who have already received their tax cut prior to this Decision for having
a declaration might affect acts done on a presumption of their validity, the Court said:
produced top-quality films.
" ... In similar situations in the past this Court had taken the pragmatic and realistic
With respect to the amounts retained by the cinema proprietors due to petitioner FDCP,
course set forth in Chicot County Drainage District vs. Baxter Bank to wit:
said proprietors are required under the law to remit the same to petitioner. Obeisance
to the rule of law must always be protected and preserved at all times and the
'The courts below have proceeded on the theory that the Act of Congress, having been unjustified refusal of said proprietors cannot be tolerated. The operative fact doctrine
found to be unconstitutional, was not a law; that it was inoperative, conferring no rights equally applies to the non-remittance by said proprietors since the law produced legal
and imposing no duties, and hence affording no basis for the challenged decree. . . . It effects prior to the declaration of the nullity of Secs. 13 and 14 in these instant petitions.
is quite clear, however, that such broad statements as to the effect of a determination It can be surmised, however, that the proprietors were at a loss whether or not to remit
of unconstitutionality must be taken with qualifications. The actual existence of a said amounts to FDCP considering the position of the City of Cebu for them to remit the
statute, prior to [the determination of its invalidity], is an operative fact and may have amusement taxes directly to the local government. For this reason, the proprietors shall
consequences which cannot justly be ignored. The past cannot always be erased by a not be liable for surcharges.
new judicial declaration. The effect of the subsequent ruling as to invalidity may have to
be considered in various aspects – with respect to particular conduct, private and
In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167,
official. Questions of rights claimed to have become vested, of status, of prior
all amusement taxes remitted to petitioner FDCP prior to the date of the finality of this
determinations deemed to have finality and acted upon accordingly, of public policy
decision shall remain legal and valid under the operative fact doctrine. Amusement
in the light of the nature both of the statute and of its previous application, demand
taxes due to petitioner but unremitted up to the finality of this decision shall be remitted
examination. These questions are among the most difficult of those which have
to petitioner within thirty (30) days from date of finality. Thereafter, amusement taxes
engaged the attention of courts, state and federal, and it is manifest from numerous
previously covered by RA 9167 shall be remitted to the local governments.
decisions that an all-inclusive statement of a principle of absolute retroactive invalidity
cannot be justified.'
WHEREFORE, premises considered, the consolidated petitions are hereby PARTIALLY
GRANTED. The questioned Decision of the RTC, Branch 5 of Cebu City in Civil Case No.
xxx xxx xxx
CEB-35601 dated September 25, 2012 and that of the R TC, Branch 14, Cebu City in Civil
Case No. CEB-35529 dated October 24, 2012, collectively declaring Sections 13 and 14
"Similarly, the implementation/ enforcement of presidential decrees prior to their of Republic Act No. 9167 invalid and unconstitutional, are hereby AFFIRMED with
publication in the Official Gazette is 'an operative fact which may have consequences MODIFICATION.
which cannot be justly ignored. The past cannot always be erased by a new judicial
declaration ... that an all-inclusive statement of a principle of absolute retroactive
As modified, the decisions of the lower courts shall read:
invalidity cannot be justified."
1. Civil Case No. CEB-35601 entitled Colon Heritage Realty Corp. v. Film Development
The Chicot doctrine cited in Tanada advocates that, prior to the nullification of a
Council of the Philippines:
statute, there is an imperative necessity of taking into account its actual existence as an
operative fact negating the acceptance of "a principle of absolute retroactive
invalidity." Whatever was done while the legislative or the executive act was in WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of Colon
operation should be duly recognized and presumed to be valid in all respects. The ASSO Heritage Realty Corp. and against the Film Development council of the Philippines, as
that was issued in 1979 under General Order No. 60 - long before our Deeision n Taiiada follows: 1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as an
and the arrest of petitioner - is an operative fact that can no longer be disturbed or Act Creating the Film Development Council of the Philippines, Defining its Powers and
simply ignored. (citations omitted; emphasis in the original.) Functions, Appropriating Funds therefor arid for other purposes, as invalid and
unconstitutional;
17
Bearing in mind that PARC Resolution No. 89-12-2-an executive act-was declared invalid
in the instant case, the operative fact doctrine is clearly applicable.46
Page
2. Declaring that the Film Development Council of the Philippines cannot SECRETARY OF FINANCE CESAR V. PURISIMA and COMMISSIONER OF INTERNAL REVENUE
collect under Sections 13 and 14 of R.A. 9167 as of the finality of the decision in KIM S. JACINTO-HENARES, Petitioners
G.R. Nos. 203754 and 204418; vs.
PHILIPPINE TOBACCO INSTITUTE, INC., Respondent
3. Declaring that Colon Heritage Realty Corp. has the obligation to remit the
amusement taxes withheld on graded cinema films to FDCP under Sections 13 DECISION
and 14 of R.A. 9167 for taxes due prior to the finality of this Decision, without
surcharges;
CARPIO,, J.:
4. Declaring that upon the finality of this decision, all amusement taxes
This is a petition for review on certiorari 1 assailing the Decision2 dated 7 October 2013 of
withheld and those which may be collected by Colon Heritage Realty Corp.
the Regional Trial Court (RTC) of Las Piñas City, Branch 253 in SCA Case No. 13-0003. The
on graded films shown in its cinemas in Cebu City shall be remitted to Cebu
RTC declared null and void certain portions of Revenue Regulations No. 17-20123 (RR 17-
City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
2012) and Revenue Memorandum Circular No. 90-20124 (RMC 90-2012) and ordered
petitioners to cease and desist from implementing Section 11 of RR 17-2012 and RMC 90-
2. Civil Case No. CEB-35529 entitled City of Cebu v. Film Development Council of the 2012 which refer to cigarettes packed by-machine.
Philippines:
The Facts
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of the City of
Cebu against the Film development Council of the Philippines, as follows:
On 20 December 2012, President Benigno S. Aquino III signed Republic Act No.
103515 (RA 10351), otherwise known as the Sin Tax Reform Law. RA 10351 restructured
1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as the excise tax on alcohol and tobacco products by amending pertinent provisions of
an Act Creating the Film Development Council of the Philippines, Defining its Republic Act No. 8424, 6 known as the Tax Reform Act of 1997 or the National Internal
Powers and Functions, Appropriating Funds therefor and for other purposes, Revenue Code of 1997 (NIRC).
void and unconstitutional;
Section 5 of RA 10351, which amended Section 145(C) of the NIRC, increased the excise
2. Declaring that the Film Development Council of the Philippines cannot tax rate of cigars and cigarettes and allowed cigarettes packed by machine to be
collect under Sections 13 and 14 of R.A. 9167 as of the finality of this Decision; packed in other packaging combinations of not more than 20. The relevant portions
state:
3. Declaring that Intervenor SM Cinema Corporation has the obligation to
remit the amusement taxes, withheld on graded cinema films to respondent SEC. 5. Section 145 of the National Internal Revenue Code of 1997, as amended by
FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of Republic Act No. 9334, is hereby further amended to read as follows:
this Decision, without surcharges;
SEC. 145. Cigars and Cigarettes. –
4. Declaring that after the finality of this Decision, all amusement taxes withheld
and those which may be collected by Intervenor SM on graded films shown in
xxxx
SM Cinemas in Cebu City shall be remitted to petitioner Cebu City pursuant to
City Ordinance LXIX, Chapter XI, Section 42.
(C) Cigarettes Packed by Machine.- There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of
Cebu, said amount shall be remitted by the City of Cebu to petitioner FDCP within thirty
(30) days from finality of this decision in G.R. Nos. 203754 and 204418 without interests Effective on January 1, 2013
and surcharges. Since Sections 13 and 14 of Republic Act No. 9167 were declared void
and unconstitutional, all remittances of amusement taxes pursuant to said Sections 13 (1) If the net retail price (excluding the excise tax and the
and 14 of said law prior to the date of finality of this Decision shall remain valid and value-added tax) is Eleven pesos and fifty centavos (₱11.50)
legal. Cinema proprietors who failed to remit said amusement taxes to petitioner FDCP and below per pack, the tax shall be Twelve pesos (₱12.00)
18
prior to the date of finality of this Decision are obliged to remit the same, without per pack; and
surcharges, to petitioner FDCP under the doctrine of operative fact.
Page
(2) If the net retail price (excluding the excise tax and the
SO ORDERED. value-added tax) is more than Eleven pesos and fifty
centavos (₱11.50) per pack, the tax shall be Twenty-five xxxx
pesos (₱25.00) per pack.
On 21 December 2012, the Secretary of Finance, upon the recommendation of the
Effective on January l, 2014 Commissioner of Internal Revenue (CIR), issued RR 17-2012. Section 11 of RR 17-2012
imposes an excise tax on individual cigarette pouches of 5's and l0's even if they are
bundled or packed in packaging combinations not exceeding 20 cigarettes. The
provision states:
value-added tax) is Eleven pesos and fifty centavos (₱11.50)
and below per pack, the tax shall be Seventeen pesos
(₱17.00) per pack; and SEC. 11. Revised Provisions for the Manner of Packaging of Cigarettes. - All Cigarettes
whether packed by hand or packed by machine shall only be packed in twenties (20s
), and through other packaging combinations which shall result to not more than twenty
sticks of cigarettes: Provided, That, in case of cigarettes packed in not more than
value-added tax) is more than Eleven pesos and fifty
twenty sticks, whether in S sticks, 10 sticks and other packaging combinations below 20
centavos (₱11.50) per pack, the tax shall be Twenty-seven
sticks, the net retail price of each individual package of 5s, 10s, etc. shall be the basis of
imposing the tax rate prescribed under the Act.
Effective on January 1, 2015

Pursuant to Section 11ofRR17-2012, the CIR issued RMC 90-2012 dated 27 December
2012. Annex "D-1" of RMC 90-2012 provides for the initial classifications in tabular form,
(1) If the net retail price (excluding the excise tax and the effective 1 January 2013, of locally manufactured cigarette brands packed by machine
value-added tax) is Eleven pesos and fifty centavos (₱11.50) according to the tax rates prescribed under RA 10351 based on the (1) 2010 Bureau of
and below per pack, the tax shall be Twenty-one pesos (₱2 l Internal Revenue (BIR) price survey of these products, and (2) suggested net retail price
.00) per pack; and declared in the latest sworn statement filed by the local manufacturer or importer.
Some relevant portions provide:
value-added tax) is more than Eleven pesos and fifty Annex "D-1"
centavos (₱211.50) per pack, the tax shall be Twenty-eight
LIST OF LOCALLY MANUFACTURED CIGARETTE BRANDS
AS OF DECEMBER 2012
Effective on January 1, 2016
1. List of brands Based on 2010 BIR Price Survey
value-added tax) is Ele1·rn pesos and fifty centavos
(₱211.50) and below pet pack, the tax shall be Twenty-five BRAND NAMES Content/Unit Net Retail Price
pesos (₱225.00) per pack; and (pack) (Based on 2010
Price Survey)
value-added tax) is more than Eleven pesos and fifty
centavos (₱211.50) per pack, the tax shall be Twenty-nine A. Cigarettes Packed by Machine
A. I. Net Retail Price (NRP) is Php 11.50 per Pack and below
Effective on January 1, 2017, the tax on all cigarettes packed by machine shall be Thirty 1. Astro Filter King 20 sticks/pack 10
xxxx
The rates of tax imposed under this subsection shall be increased by four percent (4%)
22. Fortune Int'l Extra Filter King 20 sticks/pack 10
every year thereafter effective on January 1, 2018, through revenue regulations issued
19
by the Secretary of Finance. 23. Fortune Int'l Extra Filter King
10 sticks/pack 6
Page
Duly registered cigarettes packed by machine shall only be packed in twenties and (10*s)
other packaging combinations of not more than twenty.
The tax rates imposed by RA No. 10351 should be imposed on the whole packaging
xxxx
combination of 20's, regardless of whether they are packed by pouches of 2xl0's or 4x5's,
etc.
44. Marlboro Filter (2x10's) Flip Top* 10 sticks/pack 8.27 12.00
45. Marlboro Filter KS (5's)* 5 sticks/pouch 4.11

SO ORDERED.8 12.00
xxxx
Hence, the instant petition filed by the Secretary of Finance and the CIR through the
61. Miller Filter Silver KS SP 20 sticks/pack Office of the Solicitor12.00
10.27 General.
xxxx Meanwhile, in a Resolution dated 9 June 2014, this Court issued a temporary restraining
order against PTI and the RTC. The dispositive portion states:
63. Miller Filter Silver –(5’s) KS Pouch* 5 sticks/pouch 2.88 12.00
xxxx NOW, THEREFORE, effective immediately and continuing until further orders from this
Court, You, the respondent, the RTC, Br. 253, Las Piñas City, their representatives, agents
76. Philip Morris Menthol KS FTB-(10's)* 10 sticks/pack or other persons acting
6.25 on their behalf are hereby RESTRAINED from enforcing the
12.00
assailed Decision dated 7 October 2013 of the RTC, Br. 253, Las Piñas City in SCA Case
77. Philip Morris Menthol-(5's) 100's 10's No. 13-0003.
5 sticks/pouch 3.84 12.00
Pouch*
x x x x9
xxxx
The Issue
* NRP is converted into individual package of 5s or 1 Os pursuant to Section 11
of RR No. 17-2012 Whether or not the RTC erred in nullifying Section 11of RR17-2012 andAnnex"D-1"of RMC
90-2012 in imposing excise tax to packaging combinations of 5's, l0's, etc. not exceeding
PMFTC, Inc., a member of respondent Philippine Tobacco Institute, Inc. (PTI), paid the 20 cigarette sticks packed by machine.
excise taxes required under RA 10351, RR 17-2012, and RMC 90-2012 in order to
withdraw cigarettes from its manufacturing facilities. However, on 16 January 2012, The Court's Ruling
PMFTC wrote the CIR prior to the payment of the excise taxes stating that payment was
being made under protest and without prejudice to its right to question said issuances
through remedies available under the law. The petition lacks merit.
As a consequence, on 26 February 2013, PTI filed a petition7 for declaratory relief with an Petitioners contend that RA10351 imposes the excise tax per pack," regardless of the
application for writ of preliminary injunction with the RTC. PTI sought to have RR 17-2012 content or number of cigarette stick so each pack. Thus, the RTC erred in ruling that
and RMC 90-2012 declared null and void for allegedly violating the Constitution and RR17-2012 and RMC 90-2012 have gone beyond the plain meaning of RAl0351.
imposing tax rates not authorized by RA 103 51. PTI stated that the excise tax rate of Petitioners assert that the two regulations merely clarify the tax rates set out in RA10351
either ₱12 or ₱25 under RA 10351 should be imposed only on cigarettes packed by but have neither amended nor added any new taxes. Petitioners maintain that the
machine in packs of 20's or packaging combinations of 20's and should not be imposed excise tax rates imposed by RA10351 on cigarettes packed by machine are based on
on cigarette pouches of 5's and 10's. the net retail price per pack. The pack, therefore, is the unit on which the tax rates are
imposed and is understood to be the packaging unit that reaches the ultimate
consumer. Each pack of 5, 10, or 20 cigarettes is meant to be sold at retail individually.
In a Decision dated 7 October 2013, the RTC granted the petition for declaratory relief. On the other bind, bundles of smaller packs resulting in 20 cigarettes are meant to be
The dispositive portion of the Decision states: sold whole sale. Thus, petitioners insist that the excise tax imposable on a bundle of 20 is
computed on the net retail price of each individual pack or pouch of the bundle and
WHEREFORE, premised on the foregoing, the Petition for Declaratory Relief is GRANTED. not on the bundle as one unit.
The assailed portions of Revenue Regulation 17-2012 and Revenue Memorandum
Circular 90-2012 are declared NULL AND VOID and OF NO FORCE AND EFFECT.
20
PTI, on the otherhand, contends that RA10351 allows a cigarette manufacturer to adopt
Respondents are to immediately cease and desist from implementing Sec. 11 of packaging combinations, such as the bundling of four pouches with five sticks per pack
Revenue Regulation 17-2012 and Revenue Memorandum Circular 90-2012 insofar as the (4x5's),or two pouches of ten sticks per pack (2x10’s),provided that such packaging
Page
cigarettes packed by machine are concerned. combination does not exceed 20 sticks. Thus, individual cigarette pouches of 5's and
10's bundled together in to a single packaging of not more than 20 sticks are Section 145(C) of the NIRC is clear that the excise tax on cigarettes packed by machine
considered as one pack and should be subjected to excise tax only once. Otherwise, a is imposed per pack."Per pack"was not given a clear definition by the NIRC. However, a
cigarette pouch of 5's,for example, will be subjected to an excise tax of ₱48.00 since the "pack" would normally refer to a number of individual components packaged as a
BIR Will Impose An Individual excise tax of ₱12.00 upon each and every pouch of 5's. unit.10 Under the same provision, cigarette manufacturers are permitted to bundle
While the same brand in a pack of 20's will only be subjected to an excise tax rate of cigarettes packed by machine in the maximum number of 20 sticks and aside from 20's,
₱12.00.Thus, PTI maintainsthatSection11ofRR17-2012andAnnex"D-1"pertaining to the law also allows packaging combinations of not more than 20's-it can be 4 pouches
Cigarettes Packed by Machine of RMC90-2012 disregarded the clear provision of of 5cigarette sticks in a pack (4x5's), 2 pouches of 10 cigarette sticks in a pack
RA10351 and imposed excise tax on each cigarette pouches of 5's and 10's regard less (2x10's),etc.
of whether they are packed together into 20 sticks per pack. As a result, the affected
cigarette brands that
Based on this maximum packaging and allowable combinations, the BIR, with RA10351
as basis, issued RR17-2012. Section11of RR17-2012, which provides for the manner of
Should have been taxed only either ₱12.00 or ₱25.00 per pack are subjected to a packaging cigarettes, states:
different and higher excise tax rate not provided in RA10351. Further, PTI asserts that
petitioners did not publish or circulate notices of the then proposed RR17 2012 or
SEC. 11. Revised Provisions for the Manner of Packaging of Cigarettes.-All Cigarettes
conduct a hearing to afford interested parties the opportunity to submit their views prior
whether packed by hand or packed by machine shall only be packed in twenties (20s),
to the issuance of RR17-2012 which deprived it of its due process rights.
and through other packaging combinations which shall result to not more than twenty
sticks of cigarettes: Provided, That, in case of cigarettes packed in not more than
The pertinent portions of Section145(C) of the NIRC, as amended by Section 5 of twenty sticks,whether in 5 sticks, 10 sticks and other packaging combinations below 20
RA10351, state: sticks, the net retail price of each individual package of 5s,10s, etc. shall be the basis of
imposing the tax rate prescribed under the Act.(Emphasis supplied)
SEC. 5 Section 145 of the National Internal Revenue Code of 1997,as amended by
Republic Act No.9334, is hereby further amended to read as follows: The BIR also released RMC90-2012, specifically Annex "D-1" on Cigarettes Packed by
Machine, in accordance with RA10351 and RR17-2012, showing in tabular form the
different brands of locally-manufactured cigarettes packed by machine with the brand
SEC. 145. Cigars and Cigarettes.–
names, content/unit (pack), net retail price,and the applicable excise tax rates
effective1January 2013.The net retail price of some brand names was converted in to
xxxx individual packages of 5's or10's pursuant to Section 11 of RR17-2012.
(C)Cigarettes Packed by Machine.-There shall believed, assessed and collected on The RTC, in its Decision dated 7October 2013, ruled in favor of PTI and declared that
cigarettes packed by machine a tax at the rates prescribed below: RA10351intends to tax the packs of 20's as awhole, regardless of
Effective on January 1, 2013 Whether They Are further repacked by10'sor5's, as long as they total 20sticks in all.Thus,
the tax rate tobe imposed shall only be either for a net retail price of(1)less than
(1)If the net retail price (excluding the excise tax and the ₱11.50,or(2) morethan P11.50,applying the two excise tax rates from 2013 until 2016 as
value-added tax) is Eleven pesos and fifty centavos (₱11.50) mentioned under RA10351.
and below per pack, the tax shall be Twelve pesos (₱112.00)
per pack; and The RTC added" that the fact the law allows' packaging combinations,' as long as they
will not exceed a total of 20 sticks, is indicative of the law makers' foresight that these
(2)If the net retail price (excluding the excise tax and the combinations shall be sold at retail individually.Yet,the law makers did not specify in the
value-added tax) is more than Eleven pesos and fifty law that the tax rate shall be imposed on each packaging combination."Thus, the RTC
centavos (₱11.50) per pack, the tax shall be Twenty-five concluded that the interpretation made by the Secretary of Finance and the CIR has
pesos (₱125.00) per pack. no basis in the law.
xxxx We agree.
In the laws preceding RA10351-RA8240 11 and RA9334,12 both amendments to the excise
21
Duly registered cigarettes packed by machine shall only be packed in twenties and
other packaging combinations of not more than twenty. tax rates provisions of the NIRC dealing with cigarettes packed by machine, which took
effect in 1997 and 2005, respectively, provided that all" duly registered or existing brands
Page
of cigarettes or new brands there of packed by machine shall only be packed in
x x x x (Emphasis supplied) twenties."
The confusion set in when RA 10351 amended the NIRC once again in 2012 and Sen. Recto: Okay.
introduced packaging combinations to cigarettes packed by machine, providing that"
duly registered cigarettes packed by machine shall only be packed in twenties and
Sen. P. Cayetano:Can I ask a question about that? When you say that you can have
other packaging combinations of not more than twenty."
numbers divisible, I guess, by five, so you have five, 10, 15, 20, right? So you can have
two or four packaged together for tax purposes.And then for retail purposes, you can
Thereafter, RR17 2012 followed, where the BIR, in Section 11, reiterated the provision in divide that up. Is that what we're saying?
the NIRC that cigarettes shall only be packed in 20's and in other packaging
combinations which shall not exceed 20 sticks. However, the BIR added" xxx That, in
xxxx
case of cigarettes packed in not more than twenty sticks, whether in 5 sticks, 10 sticks
and other packaging combinations below 20 sticks, the net retail price of each
individual package of 5s,10s,etc. shall be the basis of imposing the tax rate xxx." Ms.Jacinto-Henares:Yes.
The basis of RR17 2012 is RA 10351. RA 10351, in amending Section 145 (C) of the NIRC xxxx
provided that "duly registered cigarettes packed by machine shall only be packed in
twenties and other packaging combinations of not more than twenty.' However, now Sen.A. Cayetano: Mr. Chair. Mr. Chair. The point is, we're taxing by pack. If they sell less
here is it mentioned that the other packaging combinations of not more than 20 will be than 20, that's advantageous to the government. So, if they want to pack it by 10 but
imposed individual tax rates based on its different packages of 5's, 10's,etc. In such a not combine it, we will tax them twice. So, it's good for the government. But if you allow
case, a cigarette pack of 20's will only be subjected to an excise tax rate of P 12.00 per combinations without limiting it to20, they will pack three of 10’s together and you will
pack as opposed to packaging combinations of 5's or 10's which will be subjected to a be taxing 30’s and the government will be getting less. So it's an irony that our problem
higher excise tax rate of ₱24.00 for10's and ₱48.00 for 5's. now with the sin tax is our sin tax.
During the Bicameral Conference Committee on the Disagreeing Provisions of Senate So, can I propose this wording, In twenties and other packaging combinations not more
Bill No.3299 and House Bill No.5727 dealing with the Sin Tax bills of the l5th Congress, than20ornotmorethan20ornotmorethan20sticks.
before these bills were enacted into RA10351, our law makers and Kim S.Jacinto-
Henares, the CIR at the time, deliberated on the packaging of cigarettes.
Therelevantexcerptsstate: Ms.Jacinto-Henares:Yes,Sir.13
Rep. Villafuerte: Just appoint of clarification. The Senate says,' twenties.' Okay, that's From the above discussion, it can be gleaned that the lawmakers intended to impose
very reasonable. But can twopacks put together in tens, is that prohibited? Because in the excise tax on every pack of cigarettes that come in 20 sticks. Individual pouches or
rural areas, they don't necessarily have to sell. packaging combinations of 5'sand l0's for retail purposes are allowed and will be
subjected to the same excise tax rate as long as they are bundled together by not
more than 20 sticks. Thus, by issuing Section11of RR17-2012 andAnnex"D-1"on Cigarettes
The Chairman (Sen.Drilon): Can we ask our resource person, Congressman? Packed by Machine of RMC90-2012, the BIR went beyond the express provisions of
RA10351.
Ms. Jacinto-Henares: No, sir, as long as they take the two ten packs together or four, five
packs together, that is consideredtwenty. It is an elementary rule in administrative law that administrative rules and regulations
enacted by administrative bodies to implement the law which they are entrusted to
Rep. Villafuerte: Okay. As long as the twenty packs is paid even if they are separable in enforce have the force of law and are entitled to great weight and respect. However,
packaging for retail purposes, that's allowed. Because I got the impression from some these implementations of the law must not override, supplant,or modify the law but must
people that that is being prohibited that's why I sought to clarify. remain consistent with the law they intend to implement. It is only Congress which has
the power to repeal or amend the law.
The Chairman (Sen. Drilon): On record, yes.
In this case, Section 11 of RR17-2012 and Annex"D-1" on Cigarettes Packed by Machine
of RMC90-2012 clearly contravened the provisions of RA10351.1âwphi1 It is a well-settled
xxxx
principle that are venue regulation cannot amend the law it seeks to implement. In
Commissioner of Internal Revenue v. Seagate Technology (Philippines), 14 we held that a
Sen. Recto: But you could have five, five, five, five and put a tape. mere administrative issuance, like a BIR regulation, cannot amend the law; the former
22
cannot purport to do any more than implement the latter. The courts will not
countenance an administrative regulation that overrides the statute it seeks to
Ms. Jacinto-Henares: Yeah. But it should be taped together.
Page
implement.
In the present case, area ding of Section 11 of RR17-2012 and Annex"D-1" on Cigarettes
Packed by Machine of RMC 90-2012 reveals that they are not simply regulations to
implement RA10351. They are amendatory provisions which require cigarette
manufacturers to be liable to pay for more tax than the law, RA10351, allows. The BIR, in
issuing these revenue regulations, created an additional tax liability for packaging
combinations smaller than 20 cigarette sticks. In so doing, the BIR amended the law, an
act beyond the power of the BIR to do.
In sum, we agree with the ruling of the RTC that Section 11 of RR17-2012 and Annex"D-1"
on Cigarettes Packed by Machine of RMC 90-2012 are null and void. Excise tax on
cigarettes packed by machine shall be imposed on the packaging combination of 20
cigarette sticks as a whole and not to individual packaging combinations or pouches of
5's, 10's,etc.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 7 October 2013 of
the Regional Trial Court of Las Piñas City, Branch253 in SCA Case No.13-0003.
SO ORDERED.
23
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WHEREFORE, the instant petition is hereby DISMISSED. No costs.

CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,

b. Before any recommendation is submitted to the President by the

f. Any Order issued by the President pursuant to the provisions of this

Prime Holdings Inc. 76,836,807.08 89 Sept. 11, 2003 - Nov. 4, 2008

Cinema Theater 3,100,354.80 22 Feb. 18, 2004-Oct. 7, 2008

3. Declaring that Intervenor SM Cinema Corporation has the obligation to

WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of

The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein

Effective on January 1, 2015

45. Marlboro Filter KS (5's)* 5 sticks/pouch 4.11

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