American Bible Society Set 3

7/28/2019 American Bible Society Set 3

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AMERICAN BIBLE SOCIETY, plaintiff-appellant,vs.CITY OF MANILA, defendant-appellee.

FELIX, J.:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doingbusiness in the Philippines through its Philippine agency established in Manila in November, 1898, with itsprincipal office at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation with powersthat are to be exercised in conformity with the provisions of Republic Act No. 409, known as the RevisedCharter of the City of Manila.

In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospelportions thereof (except during the Japanese occupation) throughout the Philippines and translating the sameinto several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informedplaintiff that it was conducting the business of general merchandise since November, 1945, without providingitself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, asamended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, thecorresponding permit and license fees, together with compromise covering the period from the 4th quarter of1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).

Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and payunder protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid theclosing of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paidto the defendant under protest the said permit and license fees in the aforementioned amount, giving at thesame time notice to the City Treasurer that suit would be taken in court to question the legality of theordinances under which, the said fees were being collected (Annex C), which was done on the same date byfiling the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be rendereddeclaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for such otherrelief and remedy as the court may deem just equitable.

Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the MunicipalBoard of the City of Manila by virtue of the power granted to it by section 2444, subsection (m-2) of theRevised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No.409, known as the Revised Charter of the City of Manila, and praying that the complaint be dismissed, withcosts against plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances.

Before trial the parties submitted the following stipulation of facts:

COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfullysubmit the following stipulation of facts:

1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila,Bibles, New Testaments, bible portions and bible concordance in English and other foreign languagesimported by it from the United States as well as Bibles, New Testaments and bible portions in the localdialects imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of1953 inclusive the sales made by the plaintiff were as follows:

xxxxxx

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated.

WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present

further evidence on their behalf. (Record on Appeal, pp. 15-16).

When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in thePhilippines since 1899, and that its parent society is in New York, United States of America; that its, contiguousreal properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to payany municipal license fee or tax before the war, nor does the American Bible Society in the United States payany license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it never made anyprofit from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order tomaintain its operating cost it obtains substantial remittances from its New York office and voluntarycontributions and gifts from certain churches, both in the United States and in the Philippines, which areinterested in its missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant


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retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination that biblesbearing the price of 70 cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellantat P1.30 each; those bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7each are sold here at P15 each; and those bearing the price of $11 each are sold here at P22 each, clearlyshow that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable.

After hearing the Court rendered judgment, the last part of which is as follows:

As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealingportions (o) of section 18 of Republic Act No. 409, although they seemingly differ in the way thelegislative intent is expressed, yet their meaning is practically the same for the purpose of taxing themerchandise mentioned in said legal provisions, and that the taxes to be levied by said ordinances is inthe nature of percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1,Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364).

IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that thiscase should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff.

Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Usfor the reason that the errors assigned to the lower Court involved only questions of law.

Appellant contends that the lower Court erred:

1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional;

2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under whichOrdinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of Republic ActNo. 409;

3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to bevalid under the new Charter of the City of Manila, must first be approved by the President of thePhilippines; and

4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, itcannot escape from the operation of said municipal ordinances under the cloak of religious privilege.

The issues. As may be seen from the proceeding statement of the case, the issues involved in the presentcontroversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos.3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions ofsaid ordinances are applicable or not to the case at bar.

Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercisethereof, and the free exercise and enjoyment of religious profession and worship, without discriminationor preference, shall forever be allowed. No religion test shall be required for the exercise of civil orpolitical rights.

Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, asrespectively amended, are unconstitutional and illegal in so far as its society is concerned, because theyprovide for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit:the distribution and sale of bibles and other religious literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisionsof the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records,show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permitin connection with the society's alleged business of distributing and selling bibles, etc. and to pay permit duesin the sum of P35 for the period covered in this litigation, plus the sum of P35 for compromise on account ofplaintiff's failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended. ThisOrdinance is of general application and not particularly directed against institutions like the plaintiff, and it doesnot contain any provisions whatever prescribing religious censorship nor restraining the free exercise andenjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows:

SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engagein any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or otherbusinesses, trades, or occupations for which a permit is required for the proper supervision and


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enforcement of existing laws and ordinances governing the sanitation, security, and welfare of thepublic and the health of the employees engaged in the business specified in said section 3hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THENECESSARY LICENSE FROM THE CITY TREASURER.

The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3of the Ordinance, and the record does not show that a permit is required therefor under existing laws andordinances for the proper supervision and enforcement of their provisions governing the sanitation, securityand welfare of the public and the health of the employees engaged in the business of the plaintiff. However,sections 3 of Ordinance 3000 contains item No. 79, which reads as follows:

79. All other businesses, trades or occupations notmentioned in this Ordinance, except those upon which theCity is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax saidbusiness, trade or occupation.

As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance

No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following:

SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City ofManila, as amended, there shall be paid to the City Treasurer for engaging in any of the businesses oroccupations below enumerated, quarterly, license fees based on gross sales or receipts realized duringthe preceding quarter in accordance with the rates herein prescribed: PROVIDED, HOWEVER, That aperson engaged in any businesses or occupation for the first time shall pay the initial license fee basedon the probable gross sales or receipts for the first quarter beginning from the date of the opening ofthe business as indicated herein for the corresponding business or occupation.

x x x x x x x x x

GROUP 2.

Retail dealers in new (not yet used) merchandise, which dealers are not yet subject tothe payment of any municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealersexclusively engaged in the sale of . . . books, including stationery.

x x x x x x x x x

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, asamended, are not imposed directly upon any religious institution but upon those engaged in any of thebusiness or occupations therein enumerated, such as retail "dealers in general merchandise" which, it isalleged, cover the business or occupation of selling bibles, books, etc.

Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal

body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of theCity of Manila:

(M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b)retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment ofany municipal tax.

For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in generalmerchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books,including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined totaltax of any debtor or manufacturer, or both, enumerated under these subsections (m-1) and (m-2),whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE

HUNDRED PESOS PER ANNUM.

and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted invirtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends thatsaid ordinances are longer in force and effect as the law under which they were promulgated has beenexpressly repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the RevisedManila Charter.

Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed theprovisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although


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Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way thelegislative intent was expressed, yet their meaning is practically the same for the purpose of taxing themerchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, asamended, are to be considered as still in full force and effect uninterruptedly up to the present.

Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute inits entirety and by the same enactment re-enact all or certain portions of the preexisting law. Of course,the problem created by this sort of legislative action involves mainly the effect of the repeal upon rightsand liabilities which accrued under the original statute. Are those rights and liabilities destroyed orpreserved? The authorities are divided as to the effect of simultaneous repeals and re-enactments.Some adhere to the view that the rights and liabilities accrued under the repealed act are destroyed,since the statutes from which they sprang are actually terminated, even though for only a very shortperiod of time. Others, and they seem to be in the majority, refuse to accept this view of the situation,and consequently maintain that all rights an liabilities which have accrued under the original statute are

preserved and may be enforced, since the re-enactment neutralizes the repeal, therefore, continuingthe law in force without interruption. (Crawford-Statutory Construction, Sec. 322).

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept oftaxation and is different from the provisions of Section 2444(m-2) that the former cannot be considered as asubstantial re-enactment of the provisions of the latter. We have quoted above the provisions of section2444(m-2) of the Revised Administrative Code and We shall now copy hereunder the provisions of Section 18,subdivision (o) of Republic Act No. 409, which reads as follows:

(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors,except those dealers who may be expressly subject to the payment of some other municipal tax underthe provisions of this section.

Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. Forpurposes of the tax on retail dealers, general merchandise shall be classified into four main classes:namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneousarticles. A separate license shall be prescribed for each class but where commodities of differentclasses are sold in the same establishment, it shall not be compulsory for the owner to secure more

than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealersshall pay the license tax as such, as may be provided by ordinance.

For purposes of this section, the term "General merchandise" shall include poultry and livestock,agricultural products, fish and other allied products.

The only essential difference that We find between these two provisions that may have any bearing on thecase at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer ormanufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of thearticles mentioned therein,shall not be in excess of P500 per annum, the corresponding section 18, subsection(o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retaildealer has to pay per annum. Hence, and in accordance with the weight of the authorities above referred to

that maintain that "all rights and liabilities which have accrued under the original statute are preserved and maybe enforced, since the reenactment neutralizes the repeal, therefore continuing the law in force withoutinterruption", We hold that the questioned ordinances of the City of Manila are still in force and effect.

Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the Presidentof the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows:

(ii) To tax, license and regulate any business, trade or occupation being conducted within the City ofManila,not otherwise enumerated in the preceding subsections, including percentage taxes based ongross sales or receipts, subject to the approval of the PRESIDENT, except amusement taxes .

but this requirement of the President's approval was not contained in section 2444 of the former Charter of the

City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel,the business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 ofRepublic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does not have to beapproved by the President to be effective, as it is not among those referred to in said subsection ( ii). Moreover,the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City ofManila under the authority granted to it by law.

The question that now remains to be determined is whether said ordinances are inapplicable, invalid orunconstitutional if applied to the alleged business of distribution and sale of bibles to the people of thePhilippines by a religious corporation like the American Bible Society, plaintiff herein.


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With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellantcontends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of thereligious profession and worship of appellant.

Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom ofreligious profession and worship. "Religion has been spoken of as a profession of faith to an active power thatbinds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of hisrelations to His Creator and to the obligations they impose of reverence to His being and character, andobedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the free exercise andenjoyment of religious profession and worship carries with it the right to disseminate religious information. Anyrestraints of such right can only be justified like other restraints of freedom of expression on the grounds thatthere is a clear and present danger of any substantive evil which the State has the right to prevent". (Taadaand Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license feeherein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature:

In the case ofMurdock vs. Pennsylvania, it was held that an ordinance requiring that a license beobtained before a person could canvass or solicit orders for goods, paintings, pictures, wares ormerchandise cannot be made to apply to members of Jehovah's Witnesses who went about from doorto door distributing literature and soliciting people to "purchase" certain religious books and pamphlets,all published by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five centseach, the "price" of the pamphlets five cents each. It was shown that in making the solicitations therewas a request for additional "contribution" of twenty-five cents each for the books and five cents eachfor the pamphlets. Lesser sum were accepted, however, and books were even donated in caseinterested persons were without funds.

On the above facts the Supreme Court held that it could not be said that petitioners were engaged incommercial rather than a religious venture. Their activities could not be described as embraced in theoccupation of selling books and pamphlets. Then the Court continued:

"We do not mean to say that religious groups and the press are free from all financial burdens ofgovernment. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct.444. We have here something quite different, for example, from a tax on the income of one who

engages in religious activities or a tax on property used or employed in connection with activities. It isone thing to impose a tax on the income or property of a preacher. It is quite another to exact a tax fromhim for the privilege of delivering a sermon. The tax imposed by the City of Jeannette is a flat licensetax, payment of which is a condition of the exercise of these constitutional privileges. The power to taxthe exercise of a privilege is the power to control or suppress its enjoyment. . . . Those who can tax theexercise of this religious practice can make its exercise so costly as to deprive it of the resourcesnecessary for its maintenance. Those who can tax the privilege of engaging in this form of missionaryevangelism can close all its doors to all those who do not have a full purse. Spreading religious beliefsin this ancient and honorable manner would thus be denied the needy. . . .

It is contended however that the fact that the license tax can suppress or control this activity isunimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax a flat

tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose alicense tax on the exercise of these freedom is indeed as potent as the power of censorship which thisCourt has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure todefray the expenses of policing the activities in question. It is in no way apportioned. It is flat license taxlevied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by theconstitutional liberties of press and religion and inevitably tends to suppress their exercise. That isalmost uniformly recognized as the inherent vice and evil of this flat license tax."

Nor could dissemination of religious information be conditioned upon the approval of an official ormanager even if the town were owned by a corporation as held in the case ofMarsh vs. State of

Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas (326U.S. 517). In the former case the Supreme Court expressed the opinion that the right to enjoy freedom

of the press and religion occupies a preferred position as against the constitutional right of propertyowners.

"When we balance the constitutional rights of owners of property against those of the people to enjoyfreedom of press and religion, as we must here, we remain mindful of the fact that the latter occupy apreferred position. . . . In our view the circumstance that the property rights to the premises where thedeprivation of property here involved, took place, were held by others than the public, is not sufficient to

justify the State's permitting a corporation to govern a community of citizens so as to restrict theirfundamental liberties and the enforcement of such restraint by the application of a State statute."(Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306).


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Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides:

SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not betaxed under this Title in respect to income received by them as such

(e) Corporations or associations organized and operated exclusively forreligious, charitable, . . . oreducational purposes, . . .: Provided, however, That the income of whatever kind and character fromany of its properties, real or personal, or from any activity conducted for profit, regardless of thedisposition made of such income, shall be liable to the tax imposed under this Code;

Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax andsays that such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religiousand does not fall under the above legal provisions.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in someinstances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged inthe business or occupation of selling said "merchandise" for profit. For this reason We believe that theprovisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so itwould impair its free exercise and enjoyment of its religious profession and worship as well as its rights ofdissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before anyperson can engage in any of the businesses, trades or occupations enumerated therein, We do not find that itimposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religiouspractices. In the case ofColeman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows:

An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise,circulars, handbooks, advertising, or literature of any kind, whether said articles are being deliveredfree, or whether same are being sold within the city limits of the City of Griffin, without first obtainingwritten permission from the city manager of the City of Griffin, shall be deemed a nuisance andpunishable as an offense against the City of Griffin, does not deprive defendant of his constitutionalright of the free exercise and enjoyment of religious profession and worship, even though it prohibits

him from introducing and carrying out a scheme or purpose which he sees fit to claim as a part of hisreligious system.

It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied toplaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved hereinfor, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religiousprofession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No.3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealedfrom, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected from it. Without

pronouncement as to costs. It is so ordered.


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COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners,vs.BOTELHO SHIPPING CORPORATION and GENERAL SHIPPING CO., INC., respondents.

CONCEPCION, C.J.:

Appeal by the Government from a decision of the Court of Tax Appeals, reversing of the decisions of theCommissioner of Internal Revenue and the Commissioner of Customs, in Cases No. 956 and 957 of saidCourt, holding Botelho Shipping Corporation and General Shipping Co., Inc. hereinafter referred tocollectively as the Buyers liable for the payment of the sum of P483,433.00 and P494,824.00, respectively,as compensating taxes on the vessels "M/S Maria Rosello" and "M/S General Lim."

On August 30, 1960, the Reparations Commission of the Philippines hereinafter referred to as theCommission and Botelho Shipping Corporation hereinafter referred to as Botelho entered into a"Contract of Conditional Purchase and Sale of Reparations Goods," whereby the former agreed to sell toBotelho for P6,798,888.88 the vessel "M/S Maria Rosello," procured by the Commission from Japan, pursuantto the provisions of the Philippine-Japanese Reparations Agreement of May 9, 1956. On September 19, 1960,the Commission signed a similar contract with General Shipping Co., Inc. hereinafter referred to as GeneralShipping for the sale thereto of "M/S General Lim" at the price of P6,951,666.66. Both agreements, couchedin identical terms, except as to price, stipulated that:

a) The Reparations Commission "retains title to and ownership of the above described vessel until it isfully paid for." (Exh. "A", p. 2, both cases)

b) The stipulated purchase price of the M/S MARIA ROSELLO was to be paid by Botelho to theCommission under a deferred payment plan in 10 equal yearly installments of P717,333.49, bearing 3%interest per annum, beginning August 31, 1962 and August 31 of every year thereafter until the year1972, while the purchase price of the M/S GENERAL LIM was to be paid by General Shipping to theCommission under a deferred payment plan in 10 equal yearly installments of P723,132.68, bearing 3%interest per annum beginning September 30 of every year until the year 1972. (Exhs. 9, p. 4 and A-2,both cases) (See Respondents' brief, p. 4.)

Delivered in Japan to its respective buyers, acting on behalf of the Commission, the vessels, upon theirdeparture from Tokyo, on the maiden trip thereof to the Philippines, were issued, by the Philippine Vice-Consulin said city, provisional certificates of Philippine registry in the name of the Commission, so that the vesselscould proceed to the Philippines and secure therein the respective final registration document.

Upon arrival at the port of Manila, the Buyer filed the corresponding applications for registration of the vessels,but, the Bureau of Customs placed the same under custody and refused to give due course to saidapplications, unless the aforementioned sums of P483,433 and P494,824 be paid as compensating tax. As theCommissioner of Customs refused to reconsider the stand taken by his office, the Buyers simultaneously filedwith the Court of Tax Appeals their respective petitions for review, against the Commissioner of Customs andthe Commissioner of Internal Revenue hereinafter referred to collectively as Appellants with urgentmotion for suspension of the collection of said tax. After a joint hearing on this motion, the same was, on

October 31, 1960, granted by the Tax Court, upon the sum of a P500,000.00 bond by each one of the Buyers.

On June 17, 1961, while these cases were pending trial in said Court, Republic Act No. 3079 amendedRepublic Act No. 1789 the Original Reparations Act, under which the aforementioned contracts with theBuyers had been executed by exempting buyers of reparations goods acquired from the Commission, fromliability for the compensating tax. Moreover, section 20 of Republic Act No. 3079, provides:

x x x This Act shall take effect upon its approval, except that the amendment contained in Sectionseven hereof relating to the requirements of procurement orders including the requirement of downpayment by private applicant end-users shall not apply to procurement orders already duty issued andverified at the time of the passage of this amendatory Act, and except further that the amendmentcontained in Section ten relating to the insurance of the reparations goods by the end-users upon

delivery shall apply also to goods covered by contracts already entered into by the Commission andend-user prior to the approval of this amendatory Act as well as goods already delivered to the end-user, and except further that the amendments contained in Sections eleven and twelve hereof relatingto the terms of installment payments on capital goods disposed of to private parties, and the executionof a performance bond before delivery of reparations goods, shall not apply to contracts for theutilization of reparations goods already entered into by the Commission and the end-users prior to theapproval of this amendatory Act: Provided, That any end-user may apply for the renovation of hisutilization contract with the Commission in order to avail of any provision of this amendatory Act whichis more favorable to an applicant end-user than has heretofore been granted in like manner and to thesame extent as an end-user filing his application after the approval of this amendatory Act, and the


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Commission may agree to such renovation on condition that the end-user shall voluntarily assume allthe new obligations provided for in this amendatory Act.

Invoking the provisions of this section 20, the Buyers applied, therefore, for the renovation of their utilizationscontracts with the Commission, which granted the application, and, then, filed with the Tax Court, theirsupplemental petitions for review. Subsequently, the parties submitted Stipulations of Fact and, after a jointtrial, at which they introduced additional evidence, said Court rendered the appealed decision, reversing thedecisions herein Appellants, and declared said Buyers exempt from the compensating tax sought to beassessed against the vessels aforementioned. Hence, these appeals by the Government G.R. No. L-21633refers to the case as regards "M/S Maria Rosello," whereas "M/S General Lim" is the subject-matter of G.R.No. L-21634.

It seems clear that, under Republic Act No. 1789 pursuant to which the contracts of Conditional Purchaseand Sale in question had been executed the vessels "M/S Maria Rosello" and "M/S General Lim" weresubject to compensating tax. Indeed, Section 14 of said Act provides that "reparations goods obtained byprivate parties shall be exempt onlyfrom the payment of customs duties, consular fees and the special importtax." Although this Section was amended by R.A. No. 3079, to include the compensating tax" among theexemptions enumerated therein, such amendment took place, not only after the contracts involved in theseappeals had been perfected and partly consummated, but, also, after the corresponding compensating tax hadbecome due and payment thereof demanded by Appellants herein. It is, moreover, obvious that said additionalexemption should not and cannot be given retroactive operation, in the absence of a manifest intent ofCongress to do this effect. The issue in the cases at bar hinges on whether or not such intent is clear.

Appellants maintain the negative, upon the ground that a tax exemption must be clear and explicit; that there isno express provision for the retroactivity of the exemption, established by Republic Act No. 3079, from thecompensating tax; that the favorable provisions, which are referred to in section 20 thereof, cannot include theexemption from compensating tax; and, that Congress could not have intended any retroactive exemption,considering that the result thereof would be prejudicial to the Government.

The inherent weakness of the last ground becomes manifest when we consider that, if true, there could be notax exemption of any kind whatsoever, even if Congress should wish to create one, because every suchexemption implies a waiver of the right to collect what otherwise would be due to the Government, and, in this

sense, is prejudicial thereto. In fact, however, tax exemptions may and do exist, such as the one prescribed insection 14 of Republic Act No. 1789, as amended by Republic Act No. 3079, which, by the way, is "clear andexplicit," thus, meeting the first ground of appellant's contention. It may not be amiss to add that no taxexemption like any other legal exemption or exception is given without any reason therefor. In much thesame way as other statutory commands, its avowed purpose is some public benefit or interest, which the law-making body considers sufficient to offset the monetary loss entitled in the grant of the exemption. Indeed,section 20 of Republic Act No. 3079 exacts a valuable consideration for the retroactivity of its favorableprovisions, namely, the voluntary assumption, by the end-user who bought reparations goods prior to June 17,1961 of "all the newobligations provided for in" said Act.

The argument adduced in support of the third ground is that the view adopted by the Tax Court would operateto grant exemption to particular persons, the Buyers herein. It should be noted, however, that there is no

constitutional injunction against granting tax exemptions to particular persons. In fact, it is not unusual to grantlegislative franchises to specific individuals or entities, conferring tax exemptions thereto. What thefundamental law forbids is the denial of equal protection, such as through unreasonable discrimination orclassification.1wph1.t

Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, notparticularpersons, but persons belonging to a particularclass. Indeed, appellants do not assail theconstitutionality of said section 14, insofar as it grants exemptions to end-users who, afterthe approval ofRepublic Act No. 3079, on June 17, 1961, purchased reparations goods procured by the Commission. Fromthe viewpoint of Constitutional Law, especially the equal protection clause, there is no difference between thegrant of exemption to said end-users, and the extension of the grant to those whose contracts of purchase andsale mere made beforesaid date, under Republic Act No. 1789.

It is true that Republic Act No. 3079 does not explicitly declare that those who purchased reparations goodsprior to June 17, 1961, are exempt from the compensating tax. It does not say so, because they do notreallyenjoy such exemption, unless they comply with the proviso in Section 20 of said Act, by applying for therenovation of their respective utilization contracts, "in order to avail ofanyprovision of the Amendatory Actwhich is more favorable" to the applicant. In other words, it is manifest, from the language of said section 20,that the same intended to give such buyers the opportunity to be treated "in like manner and to the sameextent as an end-user filing his application after this approval of this Amendatory Act." Like the "most-favored-nation-clause" in international agreements, the aforementioned section 20 thus seeks, notto discriminate or tocreate an exemption or exception, but to abolish the discrimination, exemption or exception that wouldotherwise result, in favor of the end-user who bought after June 17, 1961 and against one who bought prior


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thereto. Indeed, it is difficult to find a substantial justification for the distinction between the one and the other.As correctly held by the Tax Court in Philippine Ace Lines, Inc. v. Commissioner of Internal Revenue (C.T.A.Nos. 964 and 984, January 25, 1963), and reiterated in the cases under consideration:

x x x In providing that the favorable provision of Republic Act No. 3079 shall be available to applicantsfor renovation of their utilization contracts, on condition that said applicants shall voluntarily assume allthe new obligations provided in the new law, the law intends to place persons who acquired reparationsgoods before the enactment of the amendatory Act on the same footing as those who acquirereparations goods after its enactment. This is so because of the provision that once an application forrenovation of a utilization contract has been approved, the favorable provisions of said Act shall beavailable to the applicant "in like manner and to the same extent, as an end-user filing his applicationalter the approval of this amendatory Act." To deny exemption from compensating tax to one whoseutilization contract has been renovated, while granting the exemption to one who files an application foracquisition of reparations goods after the approval of the new law, would be contrary to the expressmandate of the new law, that they both be subject to the same privileges in like manner and to thesame extent. It would be manifest distortion of the literal meaning and purpose of the new law.

Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed in toto, without anypronouncement as to costs. It is so ordered.


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ERNESTO M. MACEDA, petitioner,vs.HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON.VICENTE JAYME, ETC., ET AL., respondents.

NOCON, J.:

Just like lightning which does strike the same place twice in some instances, this matter of indirect taxexemption of the private respondent National Power Corporation (NPC) is brought to this Court a second time.Unfazed by the Decision We promulgated on May 31, 1991 1petitioner Ernesto Maceda asks this Court toreconsider said Decision. Lest We be criticized for denying due process to the petitioner. We have decided totake a second look at the issues. In the process, a hearing was held on July 9, 1992 where all partiespresented their respective arguments. Etched in this Court's mind are the paradoxical claims by both petitionerand private respondents that their respective positions are for the benefit of the Filipino people.

I

A Chronological review of the relevant NPC laws, specially with respect to its tax exemption provisions, at therisk of being repetitious is, therefore, in order.

On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power Corporation, apublic corporation, mainly to develop hydraulic power from all water sources in the Philippines. 2The sum ofP250,000.00 was appropriated out of the funds in the Philippine Treasury for the purpose of organizing theNPC and conducting its preliminary work. 3The main source of funds for the NPC was the flotation of bonds inthe capital markets 4and these bonds

. . . issued under the authority of this Act shall be exempt from the payment of all taxes by theCommonwealth of the Philippines, or by any authority, branch, division or political subdivisionthereof and subject to the provisions of the Act of Congress, approved March 24, 1934,otherwise known as the Tydings McDuffle Law, which facts shall be stated upon the face of saidbonds. . . . . 5

On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the initialoperations of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction ofany hydraulic power project was to be decided by the NPC Board. 6The provision on tax exemption in relationto the issuance of the NPC bonds was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the bond'sprincipal and interest in "gold coins" but adding that payment could be made in United States dollars. 7Theprovision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee,absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. 8He was alsoauthorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development

(IBRD) for NPC loans for the accomplishment of NPC's corporate objectives 9and for the reconstruction anddevelopment of the economy of the country. 10It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributionsand restrictions of the Republic of the Philippines, its provinces, cities and municipalities. 11

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur othertypes of indebtedness, aside from indebtedness incurred by flotation of bonds. 12As to the pertinent taxexemption provision, the law stated as follows:

To facilitate payment of its indebtedness, the National Power Corporation shall be exempt fromall taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its

provinces, cities and municipalities. 13

On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, thePresident of the Philippines was authorized to negotiate, contract and guarantee loans with the Export-ImportBank of of Washigton, D.C., U.S.A., or any other international financial institution. 14The tax provision forrepayment of these loans, as stated in R.A. No. 357, was not amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes.As enacted, the law states as follows:


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To facilitate payment of its indebtedness, the National Power Corporation shall be exempt fromall taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions ofthe Republic of the Philippines, its provinces, cities, and municipalities. 15

On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by theincreased indebtedness 16should bear the National Economic Council's stamp of approval. The tax exemptionprovision related to the payment of this total indebtedness was not amended nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC wasauthorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17The taxprovision related to the repayment of these loans was not amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31, 2000. 18Alllaws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly repealed. 19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a stockcorporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares having a parvalue of P100.00 each, with said capital stock wholly subscribed to by the Government. 20No tax exemptionwas incorporated in said Act.

On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital stock toP250,000,000.00 with the increase to be wholly subscribed by the Government. 21No tax provision wasincorporated in said Act.

On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to P300,000,000.00,the increase to be wholly subscribed by the Government. No tax provision was incorporated in said Act. 22

On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, asamended. Declared as primary objectives of the nation were:

Declaration of Policy. Congress hereby declares that (1) the comprehensive development,utilization and conservation of Philippine water resources for all beneficial uses, including power

generation, and (2) the total electrification of the Philippines through the development of powerfrom all sources to meet the needs of industrial development and dispersal and the needs ofrural electrification are primary objectives of the nation which shall be pursued coordinately andsupported by all instrumentalities and agencies of the government, including the financialinstitutions. 23

Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority to incurDomestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:

The bonds issued under the authority of this subsection shall be exempt from the payment of all

taxes by the Republic of the Philippines, or by any authority, branch, division or politicalsubdivision thereof which facts shall be stated upon the face of said bonds. . . . 24

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of theprincipal, interest and other charges thereon, as well as the importation of machinery,equipment, materials and supplies by the Corporation, paid from the proceeds of any loan,credit or indebtedeness incurred under this Act, shall also be exempt from all taxes, fees,imposts, other charges and restrictions, including import restrictions, by the Republic of thePhilippines, or any of its agencies and political subdivisions. 25

A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and tax exemptions of NPC as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment, aswell as excess revenues from its operation, for expansion. To enable the Corporation to pay itsindebtedness and obligations and in furtherance and effective implementation of the policyenunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in anycourt or administrative proceedings in which it may be a party, restrictions and duties to the


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Republic of the Philippines, its provinces, cities, and municipalities and other governmentagencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the NationalGovernment, its provinces, cities, municipalities and other government agencies andinstrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees onimport of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalitiesand other government agencies and instrumentalities, on all petroleum products used by theCorporation in the generation, transmission, utilization, and sale of electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued declaring that the electrificationof the entire country was one of the primary concerns of the country. And in connection withthis, it was specifically stated that:

The setting up of transmission line grids and the construction of associated generation facilitiesin Luzon, Mindanao and major islands of the country, including the Visayas, shall be the

responsibility of the National Power Corporation (NPC) as the authorized implementing agencyof the State. 27

xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a single integratedsystem all generating facilities supplying electric power to the entire area embraced by any gridset up by the NPC. 28

On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its roleunder aforesaid P.D. No. 40. Its authorized capital stock was raised to P2,000,000,000.00, 29its total domesticindebtedness was pegged at a maximum of P3,000,000,000.00 at any one time, 30and the NPC was

authorized to borrow a total of US$1,000,000,000.0031

in foreign loans.

The relevant tax exemption provision for these foreign loans states as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of theprincipal, interest and other charges thereon, as well as the importation of machinery,equipment, materials, supplies and services, by the Corporation, paid from the proceeds of anyloan, credit or indebtedness incurred under this Act, shall also be exempt from all direct andindirect taxes, fees, imposts, other charges and restrictions, including import restrictionspreviously and presently imposed, and to be imposed by the Republic of the Philippines, or anyof its agencies and political subdivisions. 32(Emphasis supplied)

Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:

(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the Republicof the Philippines, its provinces, cities, municipalities and other government agencies andinstrumentalities including the taxes, duties, fees, imposts and other charges provided for underthe Tariff and Customs Code of the Philippines, Republic Act Numbered Nineteen HundredThirty-Seven, as amended, and as further amended by Presidential Decree No. 34 datedOctober 27, 1972, and Presidential Decree No. 69, dated November 24, 1972, and costs andservice fees in any court or administrative proceedings in which it may be a party;

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectlybythe Republic of the Philippines, its provinces, cities, municipalities and other governmentagencies and instrumentalities, on all petroleum products used by the Corporation in thegeneration, transmission, utilization and sale of electric power. 33(Emphasis supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of electricity toits different customers. 34No tax exemption provision was amended, deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated annually tocover the unpaid subscription of the Government in the NPC authorized capital stock, which amount would be


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taken from taxes accruing to the General Funds of the Government, proceeds from loans, issuance of bonds,treasury bills or notes to be issued by the Secretary of Finance for this particular purpose. 35

On May 27, 1976 P.D. No. 938 was issued

(I)n view of the accelerated expansion programs for generation and transmission facilities whichincludes nuclear power generation, the present capitalization of National Power Corporation(NPC) and the ceilings for domestic and foreign borrowings are deemed insufficient; 36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter, the non-profitcharacter of NPC has not been fully utilized because of restrictive interpretation of the taxingagencies of the government on said provisions; 37

xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared objective of totalelectrification of the country, further amendments of certain sections of Republic Act No. 6395,as amended by Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38

Thus NPC's capital stock was raised to P8,000,000,000.00, 39the total domestic indebtedness ceiling wasincreased to P12,000,000,000.00, 40the total foreign loan ceiling was raised to US$4,000,000,000.00 41andSection 13 of R.A. No. 6395, was amended to read as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment aswell as excess revenues from its operation, for expansion. To enable the Corporation to pay toits indebtedness and obligations and in furtherance and effective implementation of the policyenunciated in Section one of this Act, the Corporation, including its subsidiaries, is herebydeclared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costsand service fees including filing fees, appeal bonds, supersedeas bonds, in any court oradministrative proceedings. 42

II

On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931 andExecutive Order No. 93 (S'86).

On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to importsas follows:

WHEREAS, importations by certain government agencies, including government-owned orcontrolled corporation, are exempt from the payment of customs duties and compensating tax;and

WHEREAS, in order to reduce foreign exchange spending and to protect domestic industries, itis necessary to restrict and regulate such tax-free importations.

NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of thepowers vested in me by the Constitution, and do hereby decree and order the following:

Sec. 1. All importations of any government agency, including government-owned or controlledcorporations which are exempt from the payment of customs duties and internal revenue taxes,shall be subject to the prior approval of an Inter-Agency Committee which shall insurecompliance with the following conditions:

(a) That no such article of local manufacture are available in sufficient quantity and comparablequality at reasonable prices;

(b) That the articles to be imported are directly and actually needed and will be used exclusivelyby the grantee of the exemption for its operations and projects or in the conduct of its functions;and

(c) The shipping documents covering the importation are in the name of the grantee to whomthe goods shall be delivered directly by customs authorities.


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xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the tax-free importation ofgovernment agencies in accordance with the conditions set forth in Section 1 hereof and theregulations to be promulgated to implement the provisions of this Decree. Provided, however,That any government agency or government-owned or controlled corporation, or any localmanufacturer or business firm adversely affected by any decision or ruling of the Inter-AgencyCommittee may file an appeal with the Office of the President within ten days from the date ofnotice thereof. . . . .

xxx xxx xxx

Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all generaland special laws and decrees are hereby amended accordingly.

xxx xxx xxx

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a National Budget that is an

instrument of national development, reflective of national objectives, strategies and plans. Thebudget shall be supportive of and consistent with the socio-economic development plan andshall be oriented towards the achievement of explicit objectives and expected results, to ensurethat funds are utilized and operations are conducted effectively, economically and efficiently.The national budget shall be formulated within a context of a regionalized government structureand of the totality of revenues and other receipts, expenditures and borrowings of all levels ofgovernment-owned or controlled corporations. The budget shall likewise be prepared within thecontext of the national long-term plan and of a long-term budget program. 43

In line with such policy, the law decreed that

All units of government, including government-owned or controlled corporations, shall pay income taxes,

customs duties and other taxes and fees are imposed under revenues laws: provided, that organizationsotherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the GeneralFund in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by theSecretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically beconsidered as both revenue and expenditure of the General Fund. 44

The law also declared that

[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which areinconsistent with the provisions of the Decree are hereby repealed and/or modifiedaccordingly. 45

On July 11, 1984, most likely due to the economic morass the Government found itself in after the Aquinoassassination, P.D. No. 1931 was issued to reiterate that:

WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of taxprivileges to any government-owned or controlled corporation and all other units ofgovernment; 46

and since there was a

. . . need for government-owned or controlled corporations and all other units of governmentenjoying tax privileges to share in the requirements of development, fiscal or otherwise, bypaying the duties, taxes and other charges due from them. 47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptionsfrom the payment of duties, taxes, fees, imposts and other charges heretofore granted in favorof government-owned or controlled corporations including their subsidiaries, are herebywithdrawn.

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon therecommendation of the Fiscal Incentives Review Board created under Presidential Decree No.


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776, is hereby empowered to restore, partially or totally, the exemptions withdrawn by Section 1above, any applicable tax and duty, taking into account, among others, any or all of thefollowing:

1) The effect on the relative price levels;

2) The relative contribution of the corporation to the revenue generation effort;

3) The nature of the activity in which the corporation is engaged in; or

4) In general the greater national interest to be served.

xxx xxx xxx

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees,executive orders, administrative orders, rules, regulations or parts thereof which are inconsistentwith this Decree are hereby repealed, amended or modified accordingly.

On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grantof tax exemption to other government and private entities without benefit of review by the Fiscal Incentives

Review Board, to wit:

WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and October 14,1984, respectively, withdrew the tax and duty exemption privileges, including the preferential taxtreatment, of government and private entities with certain exceptions, in order that therequirements of national economic development, in terms of fiscals and other resources, maybe met more adequately;

xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were restored by the FiscalIncentives Review Board (FIRB), a number of affected entities, government and private, had

their tax and duty exemption privileges restored or granted by Presidential action without benefitor review by the Fiscal Incentives Review Board (FIRB);

xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better provided where necessary byexplicit subsidy and budgetary support rather than tax and duty exemption privileges if only toimprove the fiscal monitoring aspects of government operations.

It was thus ordered that:

Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax andduty incentives granted to government and private entities are hereby withdrawn, except:

a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the Government of the Republicof the Philippines is a signatory;

c) those enjoyed by enterprises registered with:

(i) the Board of Investment pursuant to Presidential Decree No. 1789, asamended;

(ii) the Export Processing Zone Authority, pursuant to Presidential Decree No. 66as amended;

(iii) the Philippine Veterans Investment Development Corporation IndustrialAuthority pursuant to Presidential Decree No. 538, was amended.


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d) those enjoyed by the copper mining industry pursuant to the provisions of Letter ofInstructions No. 1416;

e) those conferred under the four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the FiscalIncentives Review Board.

Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, asamended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant ofsubsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax andduty exemptions or preferential treatment in taxation, indicating the source of funding therefor,eligible beneficiaries and the terms and conditions for the grant thereof taking into considerationthe international commitment of the Philippines and the necessary precautions such that thegrant of subsidies does not become the basis for countervailing action.

Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall takeinto account any or all of the following considerations:

a) the effect on relative price levels;

b) relative contribution of the beneficiary to the revenue generation effort;

c) nature of the activity the beneficiary is engaged; and

d) in general, the greater national interest to be served.

xxx xxx xxx

Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with thisExecutive Order are hereby repealed or modified accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48upon the promulgation of the rules and regulations, to beissued by the Ministry of Finance. 49Said rules and regulations were promulgated and published in the OfficialGazetteon February 23, 1987. These became effective on the 15th day after promulgation 50in the OfficialGasetter, 51which 15th day was March 10, 1987.

III

Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in theirTAXATION I course, which fro convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:


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a. Direct Tax the where the person supposed to pay the tax really paysit. WITHOUTtransferring the burden to someone else.

Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's tax),residence tax, immigration tax

b. Indirect Tax that where the tax is imposed upon goods BEFOREreaching the consumerwho ultimately pays for it, not as a tax, but as a part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and thetariff and customs indirect taxes (import duties, special import tax and other dues) 52

IV

To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to thefollowing:

(1) What kind of tax exemption privileges did NPC have?

(2) For what periods in time were these privileges being enjoyed?

(3) If there are taxes to be paid, who shall pay for these taxes?

V

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms oftaxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380, does notexpressly include "indirect taxes."

His point is not well-taken.

A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was tobe completely tax exempt from all forms of taxes

direct and indirect.

NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon itscreation by virtue of C.A. No. 120.

When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to becompletely tax exempt.

After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it wasagain specifically exempted from all types of taxes "to facilitate payment of its indebtedness." Even when theceilings for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the

NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No. 987, asabove stated. The exemption was, however, restored by R.A. No. 6395.

Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Itssection 13(d) is the starting point of this bone of contention among the parties. For easy reference, it isreproduced as follows:

[T]he Corporation is hereby declared exempt:

xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of thePhilippines, its provinces, cities, municipalities and other government agencies andinstrumentalities, on all petroleum products used by the Corporation in the generation,transmission, utilization, and sale of electric power.

P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:

xxx xxx xxx


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(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectlybythe Republic of the Philippines, its provinces, cities, municipalities and other governmentagencies and instrumentalities, on all petroleum products used by the Corporation in thegeneration, transmission, utilization and sale of electric power. (Emphasis supplied)

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows:

The Corporation shall be non-profit and shall devote all its returns from its capital investment aswell as excess revenues from its operation, for expansion. To enable the Corporation to pay itsindebtedness and obligations and in furtherance and effective implementation of the policyenunciated in Section one of this Act, the Corporation, including its subsidiaries, is herebydeclared exempt from the payment ofALL FORMS OFtaxes, duties, fees, imposts as well ascosts and service fees including filing fees, appeal bonds, supersedeas bonds, in any court oradministrative proceedings. (Emphasis supplied)

Petitioner reminds Us that:

[I]t must be borne in mind that Presidential Decree Nos. 380and 938 were issued by one man, acting as such the Executive and Legislative. 53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been very easyfor him to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his intentionwere to preserve the indirect tax exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. Itshould be noted that section 13, R.A. No. 6395, provided for tax exemptions for the following items:

13(a) : court or administrative proceedings;

13(b) : income, franchise, realty taxes;

13(c) : import of foreign goods required for its operations and projects;

13(d) : petroleum products used in generation of electric power.

P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions.

This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment orissuance as narrated above in part I hereof. President Marcos must have considered all the NPC statutes fromC.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55witha very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.

One common theme in all these laws is that the NPC must be enable to pay its indebtedness 56which, as ofP.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreignloans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to beachieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to pay thegovernment share in its capital stock P.D. No. 758 was issued mandating that P200 Million would beappropriated annually to cover the said unpaid subscription of the Government in NPC's authorized capitalstock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruingto the General Fund of the Government. It does not stand to reason then that former President Marcos would

order P200 Million to be taken partially or totally from tax money to be used to pay the Governmentsubscription in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other.

The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the phrase"All FORMS OF" is supported by the fact that he did not do the same for the tax exemption provision for theforeign loans to be incurred.

The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:

The loans, credits and indebtedness contracted under this subsection and the payment of theprincipal, interest and other charges thereon, as well as the importation of machinery,


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equipment, materials and supplies by the Corporation, paid from the proceeds of any loan,credit or indebtedness incurred under this Act, shall also be exempt from all taxes, fees,imposts, other charges and restrictions, including import restrictions, by the Republic of thePhilippines, or any of its agencies and political subdivisions. 57

The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and the payment of theprincipal, interest and other charges thereon, as well as the importation of machinery,equipment, materials, supplies and services, by the Corporation, paid from the proceeds of anyloan, credit or indebtedness incurred under this Act, shall also be exempt from all direct andindirecttaxes, fees, imposts, other charges and restrictions, including importrestrictions previously and presently imposed, and to be imposedby the Republic of thePhilippines, or any of its agencies and political subdivisions. 58(Emphasis supplied)

P.D. No. 938 did not amend the same 59and so the tax exemption provision in Section 8 (b), R.A. No. 6395, asamended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do onlywith loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NOOTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is with the expressmention of "directand indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees,imposts, other charges . . . to be imposed" in the future surely, an indication that the lawmakers wanted theNPC to be exempt from ALL FORMS of taxes direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and indirecttaxes under P.D. No. 938.

VI

Five (5) years on into the now discredited New Society, the Government decided to rationalize governmentreceipts and expenditures by formulating and implementing a National Budget. 60The NPC, being agovernment owned and controlled corporation had to be shed off its tax exemption status privileges under P.D.

No. 1177. It was, however, allowed to ask for a subsidy from the General Fund in the exact amount oftaxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It allowed,however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importationprivileges under its Section 1, subject to the prior approval of an Inter-Agency Committed created by virtue ofsaid P.D. No. 882. It is presumed that the NPC, being the special creation of the State, was allowed tocontinue its tax-free importations.

This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's taxexemption privileges by P.D. No. 1177 61only in his Common Reply/Comment to private Respondents'"Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the motion for

Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss this taxexemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in opinion No. 133 (S'77). 62A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the petitionat bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges. 63Applyingby analogy Pulido vs. Pablo,64the court declares that the matter of P.D. No. 1177 abolishing NPC's taxexemption privileges was not seasonably invoked 65by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privilegesas this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of anygovernment-owned or controlled corporation (GOCC). NPC included, was reiterated in the fourth whereasclause of P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistentwith Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with

recommending the partial or total restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.

The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in Section 23,P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had to submit to the Officeof the President its request for the P200 million mandated by P.D. No. 758 to be appropriated annually by theGovernment to cover its unpaid subscription to the NPC authorized capital stock and that under Section 22, ofthe same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget forreview due to capital inputs of the government (P.D. No. 758) and to the national government's guarantee ofthe domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.


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There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly foundthemselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that the Secretary ofFinance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the taxpayment/tax subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it gotfrom the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay.

In his memorandum filed July 16, 1992, petitioner submits:

[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty and taxexemptions, whether direct or indirect. And so there was nothing to be withdrawn or to berestored under P.D. No. 1931, issued on June 11, 1984. This is evident from sections 1 and 2 ofsaid P.D. No. 1931, which reads:

"Section 1. The provisions of special or general law to the contrarynotwithstanding, all exemptions from the payment of duties, taxes, fees, importsand other charges heretofore granted in favor of government-owned or controlledcorporations including their subsidiaries are hereby withdrawn."

Sec. 2. The President of the Philippines and/or the Minister of Finance, upon therecommendation of the Fiscal Incentives Review Board created under P.D. No.

776, is hereby empowered to restore partially or totally, the exemptionswithdrawn by section 1 above. . . .

Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it hadalready lost all its tax exemptions privilege with the issuance of P.D. No. 1177 seven (7) yearsearlier or on July 30, 1977, there were no tax exemptions to be withdrawn by section 1 whichcould later be restored by the Minister of Finance upon the recommendation of the FIRB underSection 2 of P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and 1-86, were allillegally and validly issued since FIRB acted beyond their statutory authority by creating and notmerely restoring the tax exempt status of NPC. The same is true for FIRB Res. No. 17-87 whichrestored NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and taxexemptions but allowed the President upon recommendation of the FIRB to restore those

abolished.

The Court disagrees.

Applying by analogy the weight of authority that:

When a revised and consolidated act re-enacts in the same or substantially the same terms theprovisions of the act or acts so revised and consolidated, the revision and consolidation shall betaken to be a continuation of the former act or acts, although the former act or acts may beexpressly repealed by the revised and consolidated act; and all rightsand liabilities under the former act or acts are preserved and may be enforced. 66

the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section 23, P.D.No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No. 1931 was deemedto be a continuation of the first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D.No. 177, on the subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section 2 withits institution of the FIRB recommendation of partial/total restoration of tax exemption privileges.

The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax exemptionprivileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had topay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, itdid, and the same were granted under FIRB Resolutions Nos. 10-85 67and 1-86 68as approved by the Ministerof Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both legallyand validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax exemption statusbut merely restored it. 69

Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamousAmendment No. 6 70as there was no showing that President Marcos' encroachment on legislative prerogativeswas justified under the then prevailing condition that he could legislate "only if the Batasang Pambansa 'failedor was unable to act inadequately on any matter that in his judgment required immediate action' to meet the'exigency'. 71


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Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the InterimBatasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos')

judgment required immediate action, but also when there existed a grave emergency or a threat or thereof. Itmust be remembered that said Presidential Decree was issued only around nine (9) months after thePhilippines unilaterally declared a moratorium on its foreign debt payments 72as a result of the economic crisistriggered by loss of confidence in the government brought about by the Aquino assassination. The Philippineswas then trying to reschedule its debt payments. 73One of the big borrowers was the NPC 74which had a US$2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. 75From all indications, it must havebeen this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his

Amendment 6 power.76

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed withoutthe concurrence of a majority of all the members of the Batasang Pambansa" 77does not apply as said P.D.No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His

Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6 authority.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Aquino. Itssection 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was grantedunder FIRB Resolution No. 17-87 78dated June 24, 1987 which restored NPC's tax exemption privilegeseffective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79There is no indication,however, from the records of the case whether or not similar approvals were given by then President Marcosfor FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice"might have occurred when the Minister of Finance approved his own recommendation as Chairman of theFiscal Incentives Review Board as what happened in Zambales Chromate vs. Court of Appeals 80when theSecretary of Agriculture and Natural Resources approved a decision earlier rendered by him when he was theDirector of Mines, 81and inAn

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