EN BANC

RENATO V. DIAZ and G.R. No. 193007

AURORA MA. F. TIMBOL,
Petitioners, Present:
CORONA, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,
- versus - PERALTA,
BERSAMIN,*
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO,** JJ.
THE SECRETARY OF FINANCE
and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondents. July 19, 2011

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

DECISION
ABAD, J.:

May toll fees collected by tollway operators be subjected to value- added tax?

The Facts and the Case

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief[1] assailing the validity of the impending imposition of value-added tax (VAT)
by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as
regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored
the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic
Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of
Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the
Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past
administration.

Petitioners allege that the BIR attempted during the administration of President Gloria
Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in view of
the consistent opposition of Diaz and other sectors to such move. But, upon President Benigno C.
Aquino IIIs assumption of office in 2010, the BIR revived the idea and would impose the
challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll
fees within the meaning of sale of services that are subject to VAT; that a toll fee is a users tax,
not a sale of services; that to impose VAT on toll fees would amount to a tax on public service;
and that, since VAT was never factored into the formula for computing toll fees, its imposition
would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the
implementation of the VAT. The Court required the government, represented by respondents
Cesar V. Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares,
Commissioner of Internal Revenue, to comment on the petition within 10 days from notice.[2]
Later, the Court issued another resolution treating the petition as one for prohibition.[3]

On August 23, 2010 the Office of the Solicitor General filed the governments comment.[4] The
government avers that the NIRC imposes VAT on all kinds of services of franchise grantees,
including tollway operations, except where the law provides otherwise; that the Court should
seek the meaning and intent of the law from the words used in the statute; and that the imposition
of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars.[5]

The government also argues that petitioners have no right to invoke the non-impairment of
contracts clause since they clearly have no personal interest in existing toll operating agreements
(TOAs) between the government and tollway operators. At any rate, the non-impairment clause
cannot limit the States sovereign taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for
computing toll rates cannot exempt tollway operators from VAT. In any event, it cannot be
claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the
VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll fees
would have very minimal effect on motorists using the tollways.

In their reply[6] to the governments comment, petitioners point out that tollway operators cannot
be regarded as franchise grantees under the NIRC since they do not hold legislative franchises.
Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any excess
collection in an escrow account. But this would be illegal since only the Congress can modify
VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010
(BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants
entities that first become liable to VAT a transitional input tax credit of 2% on beginning
inventory. For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented

The case presents two procedural issues:

1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition;
and

2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.

The case also presents two substantive issues:

1. Whether or not the government is unlawfully expanding VAT coverage by including tollway
operators and tollway operations in the terms franchise grantees and sale of services under
Section 108 of the Code; and

2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not
a tax on services; b) will impair the tollway operators right to a reasonable return of investment
under their TOAs; and c) is not administratively feasible and cannot be implemented.

The Courts Rulings

A. On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition
rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave
their action. The government has sought reconsideration of the Courts resolution,[7] however,
arguing that petitioners allegations clearly made out a case for declaratory relief, an action over
which the Court has no original jurisdiction. The government adds, moreover, that the petition
does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not
exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll
fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate remedy in the
ordinary course of law against the BIR action in the form of an appeal to the Secretary of
Finance.

But there are precedents for treating a petition for declaratory relief as one for prohibition if the
case has far-reaching implications and raises questions that need to be resolved for the public
good.[8] The Court has also held that a petition for prohibition is a proper remedy to prohibit or
nullify acts of executive officials that amount to usurpation of legislative authority.[9]
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would
impact, not only on the more than half a million motorists who use the tollways everyday, but
more so on the governments effort to raise revenue for funding various projects and for reducing
budgetary deficits.

To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed,
could cause more mischief both to the tax-paying public and the government. A belated
declaration of nullity of the BIR action would make any attempt to refund to the motorists what
they paid an administrative nightmare with no solution. Consequently, it is not only the right, but
the duty of the Court to take cognizance of and resolve the issues that the petition raises.

Although the petition does not strictly comply with the requirements of Rule 65, the Court has
ample power to waive such technical requirements when the legal questions to be resolved are of
great importance to the public. The same may be said of the requirement of locus standi which is
a mere procedural requisite.[10]

B. On the Substantive Issues:

One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied,
assessed, and collected, according to Section 108, on the gross receipts derived from the sale or
exchange of services as well as from the use or lease of properties. The third paragraph of
Section 108 defines sale or exchange of services as follows:

The phrase sale or exchange of services means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in milling, processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land relative to their transport
of goods or cargoes; common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines to another place in the Philippines; sales of
electricity by generation companies, transmission, and distribution companies; services of
franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting
and all other franchise grantees except those under Section 119 of this Code and non-life
insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties. (Underscoring supplied)

It is plain from the above that the law imposes VAT on all kinds of services rendered in the
Philippines for a fee, including those specified in the list. The enumeration of affected services is
not exclusive.[11] By qualifying services with the words all kinds, Congress has given the term
services an all-encompassing meaning. The listing of specific services are intended to illustrate
how pervasive and broad is the VATs reach rather than establish concrete limits to its application.
Thus, every activity that can be imagined as a form of service rendered for a fee should be
deemed included unless some provision of law especially excludes it.

Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal basis for the services that tollway operators render.
Essentially, tollway operators construct, maintain, and operate expressways, also called tollways,
at the operators expense. Tollways serve as alternatives to regular public highways that meander
through populated areas and branch out to local roads. Traffic in the regular public highways is
for this reason slow-moving. In consideration for constructing tollways at their expense, the
operators are allowed to collect government-approved fees from motorists using the tollways
until such operators could fully recover their expenses and earn reasonable returns from their
investments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of
the tollway facilities over which the operator enjoys private proprietary rights[12] that its
contract and the law recognize. In this sense, the tollway operator is no different from the
following service providers under Section 108 who allow others to use their properties or
facilities for a fee:

1. Lessors of property, whether personal or real;

2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines.

It does not help petitioners cause that Section 108 subjects to VAT all kinds of services rendered
for a fee regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. This means that services to be subject to VAT need not fall under the
traditional concept of services, the personal or professional kinds that require the use of human
knowledge and skills.

And not only do tollway operators come under the broad term all kinds of services, they also
come under the specific class described in Section 108 as all other franchise grantees who are
subject to VAT, except those under Section 119 of this Code.

Tollway operators are franchise grantees and they do not belong to exceptions (the low-income
radio and/or television broadcasting companies with gross annual incomes of less than P10
million and gas and water utilities) that Section 119[13] spares from the payment of VAT. The
word franchise broadly covers government grants of a special right to do an act or series of acts
of public concern.[14]

Petitioners of course contend that tollway operators cannot be considered franchise grantees
under Section 108 since they do not hold legislative franchises. But nothing in Section 108
indicates that the franchise grantees it speaks of are those who hold legislative franchises.
Petitioners give no reason, and the Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some other government agency. The
latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local
authorities, as agents of the state, constitute as much a legislative franchise as though the grant
had been made by Congress itself.[15] The term franchise has been broadly construed as
referring, not only to authorizations that Congress directly issues in the form of a special law, but
also to those granted by administrative agencies to which the power to grant franchises has been
delegated by Congress.[16]

Tollway operators are, owing to the nature and object of their business, franchise grantees. The
construction, operation, and maintenance of toll facilities on public improvements are activities
of public consequence that necessarily require a special grant of authority from the state. Indeed,
Congress granted special franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the North and South Luzon
Expressways. Apart from Congress, tollway franchises may also be granted by the TRB,
pursuant to the exercise of its delegated powers under P.D. 1112.[17] The franchise in this case is
evidenced by a Toll Operation Certificate.[18]

Petitioners contend that the public nature of the services rendered by tollway operators excludes
such services from the term sale of services under Section 108 of the Code. But, again, nothing
in Section 108 supports this contention. The reverse is true. In specifically including by way of
example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-
covered businesses, Section 108 opens other companies rendering public service for a fee to the
imposition of VAT. Businesses of a public nature such as public utilities and the collection of
tolls or charges for its use or service is a franchise.[19]

Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the
course of congressional deliberations of the would-be law. As the Court said in South African
Airways v. Commissioner of Internal Revenue,[20] statements made by individual members of
Congress in the consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law. The congressional will is ultimately
determined by the language of the law that the lawmakers voted on. Consequently, the meaning
and intention of the law must first be sought in the words of the statute itself, read and
considered in their natural, ordinary, commonly accepted and most obvious significations,
according to good and approved usage and without resorting to forced or subtle construction.

Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount
to taxing a tax.[21] Actually, petitioners base this argument on the following discussion in
Manila International Airport Authority (MIAA) v. Court of Appeals:[22]

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by
the State. The term ports includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.

x x x The operation by the government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who
actually use the road through the toll fees they pay upon using the road. The tollway system is
even a more efficient and equitable manner of taxing the public for the maintenance of public
roads.
The charging of fees to the public does not determine the character of the property whether it is
for public dominion or not. Article 420 of the Civil Code defines property of public dominion as
one intended for public use. Even if the government collects toll fees, the road is still intended
for public use if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the
speed restrictions and other conditions for the use of the road do not affect the public character of
the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed users tax. This means taxing those among the public who actually use a public
facility instead of taxing all the public including those who never use the particular public
facility. A users tax is more equitable a principle of taxation mandated in the 1987 Constitution.
[23] (Underscoring supplied)

Petitioners assume that what the Court said above, equating terminal fees to a users tax must also
pertain to tollway fees. But the main issue in the MIAA case was whether or not Paraaque City
could sell airport lands and buildings under MIAA administration at public auction to satisfy
unpaid real estate taxes. Since local governments have no power to tax the national government,
the Court held that the City could not proceed with the auction sale. MIAA forms part of the
national government although not integrated in the department framework.[24] Thus, its airport
lands and buildings are properties of public dominion beyond the commerce of man under
Article 420(1)[25] of the Civil Code and could not be sold at public auction.

As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to
establish a rule that tollway fees are users tax, but to make the point that airport lands and
buildings are properties of public dominion and that the collection of terminal fees for their use
does not make them private properties. Tollway fees are not taxes. Indeed, they are not assessed
and collected by the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users tax, collectible
from motorists, for the construction and maintenance of certain roadways. The tax in such a case
goes directly to the government for the replenishment of resources it spends for the roadways.
This is not the case here. What the government seeks to tax here are fees collected from tollways
that are constructed, maintained, and operated by private tollway operators at their own expense
under the build, operate, and transfer scheme that the government has adopted for expressways.
[26] Except for a fraction given to the government, the toll fees essentially end up as earnings of
the tollway operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any
sense. A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures.[27] Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a reasonable
margin of income. Although toll fees are charged for the use of public facilities, therefore, they
are not government exactions that can be properly treated as a tax. Taxes may be imposed only
by the government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.[28]

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax
and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of
VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not
the sellers liability but merely the burden of the VAT.[29]

Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its
burden since the amount of VAT paid by the former is added to the selling price. Once shifted,
the VAT ceases to be a tax[30] and simply becomes part of the cost that the buyer must pay in
order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the
tollway operator. Under Section 105 of the Code, [31] VAT is imposed on any person who, in the
course of trade or business, sells or renders services for a fee. In other words, the seller of
services, who in this case is the tollway operator, is the person liable for VAT. The latter merely
shifts the burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed
as a users tax. VAT is assessed against the tollway operators gross receipts and not necessarily on
the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will
not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of
the toll fees that one has to pay in order to use the tollways.[32]

Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on
behalf of private investors in the tollway projects. She will neither be prejudiced by nor be
affected by the alleged diminution in return of investments that may result from the VAT
imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in
and right to recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely affected by
imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion
that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if
VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither
can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic
grounds.

Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make
the VAT on tollway operations impractical and incapable of implementation. They cite the fact
that, in order to claim input VAT, the name, address and tax identification number of the tollway
user must be indicated in the VAT receipt or invoice. The manner by which the BIR intends to
implement the VAT by rounding off the toll rate and putting any excess collection in an escrow
account is also illegal, while the alternative of giving change to thousands of motorists in order
to meet the exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on
tollway operations is not administratively feasible.[33]

Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax
system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid except to the extent that specific constitutional or statutory limitations are
impaired.[34] Thus, even if the imposition of VAT on tollway operations may seem burdensome
to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or
the Constitution.

Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway
operations. Any declaration by the Court that the manner of its implementation is illegal or
unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate
hearing provides some clue as to how the BIR intends to go about it,[35] the facts pertaining to
the matter are not sufficiently established for the Court to pass judgment on. Besides, any
concern about how the VAT on tollway operations will be enforced must first be addressed to the
BIR on whom the task of implementing tax laws primarily and exclusively rests. The Court
cannot preempt the BIRs discretion on the matter, absent any clear violation of law or the
Constitution.

For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which
directs toll companies to record an accumulated input VAT of zero balance in their books as of
August 16, 2010, the date when the VAT imposition was supposed to take effect. The issuance
allegedly violates Section 111(A)[36] of the Code which grants first time VAT payers a
transitional input VAT of 2% on beginning inventory.

In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of
negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to
charge VAT-inclusive toll fees which by now can no longer be collected. The tollway operators
agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway
operators who have not questioned the circulars validity. They are thus the ones who have a right
to challenge the circular in a direct and proper action brought for the purpose.

Conclusion

In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand
the VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of
the Code clearly states that services of all other franchise grantees are subject to VAT, except as
may be provided under Section 119 of the Code. Tollway operators are not among the franchise
grantees subject to franchise tax under the latter provision. Neither are their services among the
VAT-exempt transactions under Section 109 of the Code.

If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly
allege, then it would have been well for the law to clearly say so. Tax exemptions must be
justified by clear statutory grant and based on language in the law too plain to be mistaken.[37]
But as the law is written, no such exemption obtains for tollway operators. The Court is thus
duty-bound to simply apply the law as it is found.

Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive
prerogative of Congress. The Courts role is to merely uphold this legislative policy, as reflected
first and foremost in the language of the tax statute. Thus, any unwarranted burden that may be
perceived to result from enforcing such policy must be properly referred to Congress. The Court
has no discretion on the matter but simply applies the law.

The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the
Expanded Value-Added Tax law was passed. It is only now, however, that the executive has
earnestly pursued the VAT imposition against tollway operators. The executive exercises
exclusive discretion in matters pertaining to the implementation and execution of tax laws.
Consequently, the executive is more properly suited to deal with the immediate and practical
consequences of the VAT imposition.

WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of

Internal Revenues motion for reconsideration of its August 24, 2010 resolution, DISMISSES the
petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, and SETS
ASIDE the Courts temporary restraining order dated August 13, 2010.
SO ORDERED.
Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

PLANTERS PRODUCTS, INC., G.R. No. 166006

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
FERTIPHIL CORPORATION,
Respondent. March 14, 2008

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

DECISION

REYES, R.T., J.:

THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.

The principle is relevant in this petition for review on certiorari of the Decision[1] of the Court
of Appeals (CA) affirming with modification that of
the RTC in Makati City,[2] finding petitioner Planters Products, Inc. (PPI) liable to private
respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of Instruction
(LOI) No. 1465.

The Facts

Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws.[3] They are both engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.

On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI
No. 1465 which provided, among others, for the imposition of a capital recovery component
(CRC) on the domestic sale of all grades of fertilizers in the Philippines.[4] The LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag. This capital contribution
shall be collected until adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the Philippines.[5] (Underscoring
supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market
to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far
East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA
from July 8, 1985 to January 24, 1986.[6]
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With
the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI
No. 1465, but PPI refused to accede to the demand.[7]

Fertiphil filed a complaint for collection and damages[8] against FPA and PPI with the RTC in
Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law.
[9] Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used
the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer,[10] FPA, through the Solicitor General, countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in ensuring the stability of the fertilizer
industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI
because the burden imposed by the levy fell on the ultimate consumer, not the seller.

RTC Disposition

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

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant Planters Product, Inc., ordering the latter to pay the former:

1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorneys fees;
3) the cost of suit.

SO ORDERED.[11]
Ruling that the imposition of the P10 CRC was an exercise of the States inherent power of
taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be
levied for public purpose, viz.:

It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is
purportedly in the exercise of the power of taxation. It is a settled principle that the power of
taxation by the state is plenary. Comprehensive and supreme, the principal check upon its abuse
resting in the responsibility of the members of the legislature to their constituents. However,
there are two kinds of limitations on the power of taxation: the inherent limitations and the
constitutional limitations.

One of the inherent limitations is that a tax may be levied only for public purposes:

The power to tax can be resorted to only for a constitutionally valid public purpose. By the same
token, taxes may not be levied for purely private purposes, for building up of private fortunes, or
for the redress of private wrongs. They cannot be levied for the improvement of private property,
or for the benefit, and promotion of private enterprises, except where the aid is incident to the
public benefit. It is well-settled principle of constitutional law that no general tax can be levied
except for the purpose of raising money which is to be expended for public use. Funds cannot be
exacted under the guise of taxation to promote a purpose that is not of public interest. Without
such limitation, the power to tax could be exercised or employed as an authority to destroy the
economy of the people. A tax, however, is not held void on the ground of want of public interest
unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)

In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide
Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which, in
turn, remitted the amount to the defendant Planters Products, Inc. thru the latters depository
bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil
Corporation, which is a private domestic corporation, became poorer by the amount of
P6,698,144.00 and the defendant, Planters Product, Inc., another private domestic corporation,
became richer by the amount of P6,698,144.00.

Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is

quite evident that LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the
country and orders that the said amount should go to the defendant Planters Product, Inc. is
unlawful because it violates the mandate that a tax can be levied only for a public purpose and
not to benefit, aid and promote a private enterprise such as Planters Product, Inc.[12]
PPI moved for reconsideration but its motion was denied.[13] PPI then filed a notice of appeal
with the RTC but it failed to pay the requisite appeal docket fee. In a separate but related
proceeding, this Court[14] allowed the appeal of PPI and remanded the case to the CA for proper
disposition.

CA Decision

On November 28, 2003, the CA handed down its decision affirming with modification that of the
RTC, with the following fallo:

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED,
subject to the MODIFICATION that the award of attorneys fees is hereby DELETED.[15]

In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection was
the constitutionality of LOI No. 1465, thus:

The question then is whether it was proper for the trial court to exercise its power to judicially
determine the constitutionality of the subject statute in the instant case.

As a rule, where the controversy can be settled on other grounds, the courts will not resolve the
constitutionality of a law (Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to
avoid ruling on constitutional questions and to presume that the acts of political departments are
valid, absent a clear and unmistakable showing to the contrary.

However, the courts are not precluded from exercising such power when the following requisites
are obtaining in a controversy before it: First, there must be before the court an actual case
calling for the exercise of judicial review. Second, the question must be ripe for adjudication.
Third, the person challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity; and lastly, the
issue of constitutionality must be the very lis mota of the case (Integrated Bar of the Philippines
v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was primarily instituted for collection and damages. However, a
perusal of the complaint also reveals
that the instant action is founded on the claim that the levy imposed was an unlawful and
unconstitutional special assessment. Consequently, the requisite that the constitutionality of the
law in question be the very lis mota of the case is present, making it proper for the trial court to
rule on the constitutionality of LOI 1465.[16]

The CA held that even on the assumption that LOI No. 1465 was issued under the police power
of the state, it is still unconstitutional because it did not promote public welfare. The CA
explained:

In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said
law was an invalid exercise of the States power of taxation inasmuch as it violated the inherent
and constitutional prescription that taxes be levied only for public purposes. It reasoned out that
the amount collected under the levy was remitted to the depository bank of PPI, which the latter
used to advance its private interest.

On the other hand, appellant submits that the subject statutes passage was a valid exercise of
police power. In addition, it disputes the court a quos findings arguing that the collections under
LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by
law to hold in trust for millions of farmers, the stock ownership of PPI.

Of the three fundamental powers of the State, the exercise of police power has been
characterized as the most essential, insistent and the least limitable of powers, extending as it
does to all the great public needs. It may be exercised as long as the activity or the property
sought to be regulated has some relevance to public welfare (Constitutional Law, by Isagani A.
Cruz, p. 38, 1995 Edition).

Vast as the power is, however, it must be exercised within the limits set by the Constitution,
which requires the concurrence of a lawful subject and a lawful method. Thus, our courts have
laid down the test to determine the validity of a police measure as follows: (1) the interests of the
public generally, as distinguished from those of a particular class, requires its exercise; and (2)
the means employed are reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals (National Development Company v. Philippine Veterans
Bank, 192 SCRA 257 [1990]).
It is upon applying this established tests that We sustain the trial courts holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
governments commitment to support the successful rehabilitation and continued viability of PPI,
a private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There
is no way to treat the self-interest of a favored entity,
like PPI, as identical with the general interest of the countrys farmers or even the Filipino people
in general. Well to stress, substantive due process exacts fairness and equal protection disallows
distinction where none is needed. When a statutes public purpose is spoiled by private interest,
the use of police power becomes a travesty which must be struck down for being an arbitrary
exercise of government power. To rule in favor of appellant would contravene the general
principle that revenues derived from taxes cannot be used for purely private purposes or for the
exclusive benefit of private individuals.[17]

The CA did not accept PPIs claim that the levy imposed under LOI No. 1465 was for the benefit
of Planters Foundation, Inc., a foundation created to hold in trust the stock ownership of PPI. The
CA stated:

Appellant next claims that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of
farmers, the stock ownership of PFI on the strength of Letter of Undertaking (LOU) issued by
then Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in an
Opinion dated October 12, 1987, to wit:

2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include
in its fertilizer pricing formula a capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid capital is
estimated at approximately P206 million (subject to validation by Planters and Planters
Foundation) (such unpaid portion of the outstanding capital stock of Planters being hereafter
referred to as the Unpaid Capital), and subsequently for such capital increases as may be required
for the continuing viability of Planters.

The capital recovery component shall be in the minimum amount of P10 per bag, which will be
added to the price of all domestic sales of fertilizer in the Philippines by any importer and/or
fertilizer mother company. In this connection, the Republic hereby acknowledges that the
advances by Planters to Planters Foundation which were applied to the payment of the Planters
shares now held in trust by Planters Foundation, have been assigned to, among others, the
Creditors. Accordingly, the Republic, through FPA, hereby agrees to deposit the proceeds of the
capital recovery component in the special trust account designated in the notice dated April 2,
1985, addressed by counsel for the Creditors to Planters Foundation. Such proceeds shall be
deposited by FPA on or before the 15th day of each month.

The capital recovery component shall continue to be charged and collected until payment in full
of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts which may be outstanding from
time to time of the Unpaid Capital and/or the Subsidy Receivables and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its
debts, taking into account both its peso and foreign currency-denominated obligations. (Records,
pp. 42-43)

Appellants proposition is open to question, to say the least. The LOU issued by then Prime
Minister Virata taken together with the Justice Secretarys Opinion does not preponderantly
demonstrate that the collections made were held in trust in favor of millions of farmers.
Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this
Court is constrained to rely on what is explicitly provided in LOI 1465 that one of the primary
aims in imposing the levy is to support the successful rehabilitation and continued viability of
PPI.[18]

PPI moved for reconsideration but its motion was denied.[19] It then filed the present petition
with this Court.

Issues

Petitioner PPI raises four issues for Our consideration, viz.:

I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED
AND BE DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION
AND DAMAGES WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS
MOTA OF THE CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR
ENTITY WHICH HAS NO STANDING TO DO SO.

II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE
FERTILIZER SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING
A FOUNDATION CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS
THEIR STOCK OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT
TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.

III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS
REMITTED TO THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS
PURSUANT TO AN EFFECTIVE AND VALIDLY ENACTED LAW WHICH IMPOSED
DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE PRINCIPLE OF OPERATIVE
FACT PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.

IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO
APPLICATION IN THE INSTANT CASE.[20] (Underscoring supplied)

Our Ruling

We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to
resolve constitutional issues.

Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere
procedural technicality which may be waived.

PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465
because it does not have a personal and substantial interest in the case or will sustain direct
injury as a result of its enforcement.[21] It asserts that Fertiphil did not suffer any damage from
the CRC imposition because incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company.[22]

We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice has
been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires
a litigant to have a material interest in the outcome of a case. In private suits, locus standi
requires a litigant to be a real party in interest, which is defined as the
party who stands to be benefited or injured by the judgment in the suit or the party entitled to the
avails of the suit.[23]

In public suits, this Court recognizes the difficulty of applying the doctrine especially when
plaintiff asserts a public right on behalf of the general public because of conflicting public policy
issues. [24] On one end, there is the right of the ordinary citizen to petition the courts to be freed
from unlawful government intrusion and illegal official action. At the other end, there is the
public policy precluding excessive judicial interference in official acts, which may unnecessarily
hinder the delivery of basic public services.

In this jurisdiction, We have adopted the direct injury test to determine locus standi in public
suits. In People v. Vera,[25] it was held that a person who impugns the validity of a statute must
have a personal and substantial interest in the case such that he has sustained, or will sustain
direct injury as a result. The direct injury test in public suits is similar to the real party in interest
rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure.[26]

Recognizing that a strict application of the direct injury test may hamper public interest, this
Court relaxed the requirement in cases of transcendental importance or with far reaching
implications. Being a mere procedural technicality, it has also been held that locus standi may be
waived in the public interest.[27]

Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil
has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No.
1465. It was required, and it did pay, the P10 levy imposed for every bag of fertilizer sold on the
domestic market. It may be true that Fertiphil has passed some or all of the levy to the ultimate
consumer, but that does not disqualify it from attacking the constitutionality of the LOI or from
seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility
of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury to
Fertiphil.

Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled to
factor in its product the levy. The levy certainly rendered the fertilizer products of Fertiphil and
other domestic sellers much more expensive. The harm to their business consists not only in
fewer clients because of the increased price, but also in adopting alternative corporate strategies
to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered
all or part of the levy just to be competitive in the market. The harm occasioned on the business
of Fertiphil is sufficient injury for purposes of locus standi.

Even assuming arguendo that there is no direct injury, We find that the liberal policy consistently
adopted by this Court on locus standi must apply. The issues raised by Fertiphil are of paramount
public importance. It involves not only the constitutionality of a tax law but, more importantly,
the use of taxes for public purpose. Former President Marcos issued LOI No. 1465 with the
intention of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is
expressly named in the LOI as the direct beneficiary of the levy. Worse, the levy was made
dependent and conditional upon PPI becoming financially viable. The LOI provided that the
capital contribution shall be collected until adequate capital is raised to make PPI viable.

The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our
constitutional duty to squarely resolve the issue as the final arbiter of all justiciable
controversies. The doctrine of standing, being a mere procedural technicality, should be waived,
if at all, to adequately thresh out an important constitutional issue.

RTC may resolve constitutional issues; the constitutional issue was adequately raised in the
complaint; it is the lis mota of the case.

PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It asserts
that the constitutionality of the LOI cannot be collaterally attacked in a complaint for collection.
[28] Alternatively, the resolution of the constitutional issue is not necessary for a determination
of the complaint for collection.[29]

Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint. It
claims that the constitutionality of LOI No. 1465 is the very lis mota of the case because the trial
court cannot determine its claim without resolving the issue.[30]
It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute, presidential
decree or an executive order. This is clear from Section 5, Article VIII of the 1987 Constitution,
which provides:

SECTION 5. The Supreme Court shall have the following powers:

xxxx

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in:

(a) All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is
in question. (Underscoring supplied)

In Mirasol v. Court of Appeals,[31] this Court recognized the power of the RTC to resolve
constitutional issues, thus:

On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to
consider the constitutionality of a statute, presidential decree, or executive order. The
Constitution vests the power of judicial review or the power to declare a law, treaty, international
or executive agreement, presidential decree, order, instruction, ordinance, or regulation not only
in this Court, but in all Regional Trial Courts.[32]

In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,[33] this Court
reiterated:

There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court alone for even the regional trial
courts can take cognizance of actions assailing a specific rule or set of rules promulgated by
administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts.[34]

Judicial review of official acts on the ground of unconstitutionality may be sought or availed of
through any of the actions cognizable by courts of justice, not necessarily in a suit for declaratory
relief. Such review may be had in criminal actions, as in People v. Ferrer[35] involving the
constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as in Krivenko
v. Register of Deeds[36] involving the constitutionality of laws prohibiting aliens from acquiring
public lands. The constitutional issue, however, (a) must be properly raised and presented in the
case, and (b) its resolution is necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.[37]

Contrary to PPIs claim, the constitutionality of LOI No. 1465 was properly and adequately raised
in the complaint for collection filed with the RTC. The pertinent portions of the complaint allege:

6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in
the Philippines, is unlawful, unjust, uncalled for, unreasonable, inequitable and oppressive
because:
xxxx

(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the
expense and disadvantage of the other fertilizer importers/distributors who were themselves in
tight business situation and were then exerting all efforts and maximizing management and
marketing skills to remain viable;

xxxx

(e) It was a glaring example of crony capitalism, a forced program through which the PPI, having
been presumptuously masqueraded as the fertilizer industry itself, was the sole and anointed
beneficiary;
7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is
tantamount to illegal exaction amounting to a denial of due process since the persons of entities
which had to bear the burden of paying the CRC derived no benefit therefrom; that on the
contrary it was used by PPI in trying to regain its former despicable monopoly of the fertilizer
industry to the detriment of other distributors and importers.[38] (Underscoring supplied)

The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection.
Fertiphil filed the complaint to compel PPI to refund the levies paid under the statute on the
ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional
law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay the levy.
Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the
civil code principle against unjust enrichment. The refund is a mere consequence of the law
being declared unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does
not declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers the
refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.

The P10 levy under LOI No. 1465 is an exercise of the power of taxation.

At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of
taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer supply
and distribution in the country and for benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.

Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a
private company. The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues
that, even if the LOI is enacted under the police power, it is still unconstitutional because it did
not promote the general welfare of the people or public interest.

Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare,[39] while the power of taxation is the power to levy taxes to be used for public purpose.
The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The lawful subjects and lawful means tests are used to determine the validity
of a law enacted under the police power.[40] The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation
power. While it is true that the power of taxation can be used as an implement of police power,
[41] the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or
if revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax.[42]

In Philippine Airlines, Inc. v. Edu,[43] it was held that the imposition of a vehicle registration fee
is not an exercise by the State of its police power, but of its taxation power, thus:

It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the
Land Transportation and Traffic Code that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. x x x Fees may be properly regarded as taxes even though
they also serve as an instrument of regulation.

Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration
fees. The same provision appears as Section 59(b) in the Land Transportation Code. It is patent
therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on
the registration, operation or ownership of a motor vehicle as a tax or fee. x x x Simply put, if the
exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448
need not be an additional tax. Rep. Act 4136 also speaks of other fees such as the special permit
fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration
(Sec. 11). These are not to be understood as taxes because such fees are very minimal to be
revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes like the motor
vehicle registration fee and chauffeurs license fee. Such fees are to go into the expenditures of
the Land Transportation Commission as provided for in the last proviso of Sec. 61.[44]
(Underscoring supplied)

The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy,
no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag
of fertilizer by as much as five percent.[45] A plain reading of the LOI also supports the
conclusion that the levy was for revenue generation. The LOI expressly provided that the levy
was imposed until adequate capital is raised to make PPI viable.

Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not
for a public purpose. The levy was imposed to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private purposes or for the exclusive benefit of
private persons.[46] The reason for this is simple. The power to tax exists for the general
welfare; hence, implicit in its power is the limitation that it should be used only for a public
purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a
private purpose. As an old United States case bluntly put it: To lay with one hand, the power of
the government on the property of the citizen, and with the other to bestow it upon favored
individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery
because it is done under the forms of law and is called taxation.[47]

The term public purpose is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that public purpose should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may now be
used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.

While the categories of what may constitute a public purpose are continually expanding in light
of the expansion of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law
is only a mask to exact funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of public purpose.

The purpose of a law is evident from its text or inferable from other secondary sources. Here, We
agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public
purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. The
purpose is explicit from Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag. This capital contribution
shall be collected until adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the Philippines.[48] (Underscoring
supplied)

It is a basic rule of statutory construction that the text of a statute should be given a literal
meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise
capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They
were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI.
We find it utterly repulsive that a tax law would expressly name a private company as the
ultimate beneficiary of the taxes to be levied from the public. This is a clear case of crony
capitalism.

Second, the LOI provides that the imposition of the P10 levy was conditional and dependent
upon PPI becoming financially viable. This suggests that the levy was actually imposed to
benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially
viable. Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is
made indefinite. They are required to continuously pay the levy until adequate capital is raised
for PPI.

Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI.[49] This
proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to
give undue benefit and advantage to PPI.

Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding[50] dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that
PPI was in deep financial problem because of its huge corporate debts. There were pending
petitions for rehabilitation against PPI before the Securities and Exchange Commission. The
government guaranteed payment of PPIs debts to its foreign creditors. To fund the payment,
President Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding
read:

Republic of the Philippines

Office of the Prime Minister
Manila

LETTER OF UNDERTAKING

May 18, 1985

TO: THE BANKING AND FINANCIAL INSTITUTIONS

LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE CREDITORS)
OF PLANTERS PRODUCTS, INC. (PLANTERS)

Gentlemen:

This has reference to Planters which is the principal importer and distributor of fertilizer,
pesticides and agricultural chemicals in the Philippines. As regards Planters, the Philippine
Government confirms its awareness of the following: (1) that Planters has outstanding
obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently pending with the Securities
and Exchange Commission of the Philippines a petition filed at Planters own behest for the
suspension of payment of all its obligations, and a separate petition filed by Manufacturers
Hanover Trust Company, Manila Offshore Branch for the appointment of a rehabilitation
receiver for Planters.

In connection with the foregoing, the Republic of the Philippines (the Republic) confirms that it
considers and continues to consider Planters as a major fertilizer distributor. Accordingly, for and
in consideration of your expressed willingness to consider and participate in the effort to
rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the
successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and
obligates itself to the creditors and Planters, as follows:

xxxx
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include
in its fertilizer pricing formula a capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. (Planters Foundation), which unpaid capital is
estimated at approximately P206 million (subject to validation by Planters and Planters
Foundation) such unpaid portion of the outstanding capital stock of Planters being hereafter
referred to as the Unpaid Capital), and subsequently for such capital increases as may be required
for the continuing viability of Planters.

xxxx

The capital recovery component shall continue to be charged and collected until payment in full
of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c)
any carrying cost accruing from the date hereof on the amounts which may be outstanding from
time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the carrying cost
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its
debts, taking into account both its peso and foreign currency-denominated obligations.

REPUBLIC OF THE PHILIPPINES

By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance[51]

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the
corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the
stability of the fertilizer industry in the country. The letter of understanding and the plain text of
the LOI clearly indicate that the levy was exacted for the benefit of a private corporation.

All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465
was not for a public purpose. LOI No. 1465 failed to comply with the public purpose
requirement for tax laws.
The LOI is still unconstitutional even if enacted under the police power; it did not promote
public interest.

Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be
invalid for failing to comply with the test of lawful subjects and lawful means. Jurisprudence
states the test as follows: (1) the interest of the public generally, as distinguished from those of
particular class, requires its exercise; and (2) the means employed are reasonably necessary for
the accomplishment of the purpose and not unduly oppressive upon individuals.[52]
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. We quote with
approval the CA ratiocination on this point, thus:

It is upon applying this established tests that We sustain the trial courts holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
governments commitment to support the successful rehabilitation and continued viability of PPI,
a private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There
is no way to treat the self-interest of a favored entity, like PPI, as identical with the general
interest of the countrys farmers or even the Filipino people in general. Well to stress, substantive
due process exacts fairness and equal protection disallows distinction where none is needed.
When a statutes public purpose is spoiled by private interest, the use of police power becomes a
travesty which must be struck down for being an arbitrary exercise of government power. To rule
in favor of appellant would contravene the general principle that revenues derived from taxes
cannot be used for purely private purposes or for the exclusive benefit of private individuals.
(Underscoring supplied)

The general rule is that an unconstitutional law is void; the doctrine of operative fact is
inapplicable.

PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared
unconstitutional. It banks on the doctrine of operative fact, which provides that an
unconstitutional law has an effect before being declared unconstitutional. PPI wants to retain the
levies paid under LOI No. 1465 even if it is subsequently declared to be unconstitutional.

We cannot agree. It is settled that no question, issue or argument will be entertained on appeal,
unless it has been raised in the court a quo.[53] PPI did not raise the applicability of the doctrine
of operative fact with the RTC and the CA. It cannot belatedly raise the issue with Us in order to
extricate itself from the dire effects of an unconstitutional law.

At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law is
void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It
is, in legal contemplation, inoperative as if it has not been passed.[54] Being void, Fertiphil is not
required to pay the levy. All levies paid should be refunded in accordance with the general civil
code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil
Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall
not be excused by disuse or custom or practice to the contrary.

When the courts declare a law to be inconsistent with the Constitution, the former shall be void
and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of
equity and fair play.[55] It nullifies the effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of unconstitutionality is an operative fact and may
have consequences which cannot always be ignored. The past cannot always be erased by a new
judicial declaration.[56]

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden
on those who have relied on the invalid law. Thus, it was applied to a criminal case when a
declaration of unconstitutionality would put the accused in double jeopardy[57] or would put in
limbo the acts done by a municipality in reliance upon a law creating it.[58]

Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by Fertiphil
under LOI No. 1465. It unduly benefited from the levy. It was proven during the trial that the
levies paid were remitted and deposited to its bank account. Quite the reverse, it would be
inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the expense of
Fertiphil. Article 22 of the Civil Code explicitly provides that every person who, through an act
of performance by another comes into possession of something at the expense of the latter
without just or legal ground shall return the same to him. We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by
Fertiphil. WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated
November 28, 2003 is AFFIRMED.
EN BANC

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

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

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

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.

Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein
issued, without costs.chanroblesvirtualawlibrary chanrobles virtual law library

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted
this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920,
entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained,
in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction,
repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas - Gen. Araneta -
Gen. Lucban - Gen. Capinpin - Gen. Segundo - Gen. Delgado - Gen. Malvar - Gen. Lim)"; that,
at the time of the passage and approval of said Act, the aforementioned feeder roads were
"nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio
Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter
and Highway 54), which projected feeder roads "do not connect any government property or any
important premises to the main highway"; that the aforementioned Antonio Subdivision (as well
as the lands on which said feeder roads were to be construed) were private properties of
respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a
member of the Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a
letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to
the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council,
subject to the condition "that the donor would submit a plan of the said roads and agree to
change the names of two of them"; that no deed of donation in favor of the municipality of Pasig
was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said
council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00
appropriated therein for the construction of the projected feeder roads in question; that the
municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of
Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the
projected feeder roads in question were private property at the time of the passage and approval
of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction,
reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and,
therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because
its members were made to believe that the projected feeder roads in question were "public roads
and not private streets of a private subdivision"'; that, "in order to give a semblance of legality,
when there is absolutely none, to the aforementioned appropriation", respondents Zulueta
executed on December 12, 1953, while he was a member of the Senate of the Philippines, an
alleged deed of donation - copy of which is annexed to the petition - of the four (4) parcels of
land constituting said projected feeder roads, in favor of the Government of the Republic of the
Philippines; that said alleged deed of donation was, on the same date, accepted by the then
Executive Secretary; that being subject to an onerous condition, said donation partook of the
nature of a contract; that, such, said donation violated the provision of our fundamental law
prohibiting members of Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio,
for the construction of the projected feeder roads in question with public funds would greatly
enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside
from relieving him from the burden of constructing his subdivision streets or roads at his own
expense"; that the construction of said projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by the court, the respondents would
continue to execute, comply with, follow and implement the aforementioned illegal provision of
law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the
Filipino nation."chanrobles virtual law library

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared
unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary
of Public Works and Communications, the Director of the Bureau of Public Works and Highways
and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder
roads project, and from making and securing any new and further releases on the aforementioned
item of Republic Act No. 920, and the disbursing officers of the Department of Public Works and
Highways from making any further payments out of said funds provided for in Republic Act No.
920; and that pending final hearing on the merits, a writ of preliminary injunction be issued
enjoining the aforementioned parties respondent from making and securing any new and further
releases on the aforesaid item of Republic Act No. 920 and from making any further payments
out of said illegally appropriated funds.chanroblesvirtualawlibrary chanrobles virtual law library
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". In support to this motion,
respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should
represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code;
that said respondent is " not aware of any law which makes illegal the appropriation of public
funds for the improvements of . . . private property"; and that, the constitutional provision
invoked by petitioner is inapplicable to the donation in question, the same being a pure act of
liberality, not a contract. The other respondents, in turn, maintained that petitioner could not
assail the appropriation in question because "there is no actual bona fide case . . . in which the
validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he
has a personal and substantial interest" in said Act "and that its enforcement has caused or will
cause him a direct injury."chanrobles virtual law library

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

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

which is onerous, the donation in question is a contract; that said donation or contract is
"absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the
Civil Code of the Philippines, declares in existence and void from the very beginning contracts
"whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality
of said donation may not be contested, however, by petitioner herein, because his "interest are
not directly affected" thereby; and that, accordingly, the appropriation in question "should be
upheld" and the case dismissed.chanroblesvirtualawlibrary chanrobles virtual law library
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically
the allegations of fact made in the petition of appellant herein. According to said petition,
respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and
known as the Antonio Subdivision, certain portions of which had been reserved for the projected
feeder roads aforementioned, which, admittedly, were private property of said respondent when
Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition further alleges that the construction of
said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have
the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or
roads at his own expenses, 1 and would "greatly enhance or increase the value of the
subdivision" of said respondent. The lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a public purpose."chanrobles virtual law
library

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

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

The first proposition must be rejected most emphatically, it being inconsistent with the nature of
the Government established under the Constitution of the Republic of the Philippines and the
system of checks and balances underlying our political structure. Moreover, it is refuted by the
decisions of this Court invalidating legislative enactments deemed violative of the Constitution
or organic laws. 3 chanrobles virtual law library

As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:

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

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

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

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

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

chanrobles virtual law library

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

Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as
such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional
law.chanroblesvirtualawlibrary chanrobles virtual law library

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

The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for
the projected feeder roads in question, the legality thereof depended upon whether said roads
were public or private property when the bill, which, latter on, became Republic Act 920, was
passed by Congress, or, when said bill was approved by the President and the disbursement of
said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land
on which the projected feeder roads were to be constructed belonged then to respondent Zulueta,
the result is that said appropriation sought a private purpose, and hence, was null and void. 4 The
donation to the Government, over five (5) months after the approval and effectivity of said Act,
made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing,
the appropriation in question, did not cure its aforementioned basic defect. Consequently, a
judicial nullification of said donation need not precede the declaration of unconstitutionality of
said appropriation.chanroblesvirtualawlibrary chanrobles virtual law library

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions
set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only
those which are inherent in his person, including therefore, his right to the annulment of said
contract, even though such creditors are not affected by the same, except indirectly, in the
manner indicated in said legal provision.chanroblesvirtualawlibrary chanrobles virtual law
library

Again, it is well-stated that the validity of a statute may be contested only by one who will
sustain a direct injury in consequence of its enforcement. Yet, there are many decisions
nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, 5
upon the theory that "the expenditure of public funds by an officer of the State for the purpose of
administering an unconstitutional act constitutes a misapplication of such funds," which may be
enjoined at the request of a taxpayer. 6 Although there are some decisions to the contrary, 7 the
prevailing view in the United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute, the general rule is that not only persons individually affected, but
also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by
taxation and may therefore question the constitutionality of statutes requiring expenditure of
public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs.
Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that the
relationship of a taxpayer of the U.S. to its Federal Government is different from that of a
taxpayer of a municipal corporation to its government. Indeed, under the composite system of
government existing in the U.S., the states of the Union are integral part of the Federation from
an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty,
subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the
former represented the people of the respective States, and the people of each State has,
independently of that of the others, ratified said Constitution. In other words, the Federal
Constitution and the Federal statutes have become binding upon the people of the U.S. in
consequence of an act of, and, in this sense, through the respective states of the Union of which
they are citizens. The peculiar nature of the relation between said people and the Federal
Government of the U.S. is reflected in the election of its President, who is chosen directly, not by
the people of the U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Constitution).chanroblesvirtualawlibrary
chanrobles virtual law library

The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people
and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to
that existing between the people and taxpayers of each state and the government thereof, except
that the authority of the Republic of the Philippines over the people of the Philippines is more
fully direct than that of the states of the Union, insofar as the simple and unitary type of our
national government is not subject to limitations analogous to those imposed by the Federal
Constitution upon the states of the Union, and those imposed upon the Federal Government in
the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state public funds - which has been upheld
by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) - has greater application
in the Philippines than that adopted with respect to acts of Congress of the United States
appropriating federal funds.chanroblesvirtualawlibrary chanrobles virtual law library

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land
by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose
of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay
of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs.
Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases -
the importance of the issues therein raised - is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most
populated political subdivision, 8 and, the taxpayers therein bear a substantial portion of the
burden of taxation, in the Philippines.chanroblesvirtualawlibrary chanrobles virtual law library

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently
justify petitioners action in contesting the appropriation and donation in question; that this action
should not have been dismissed by the lower court; and that the writ of preliminary injunction
should have been maintained.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this
instance against respondent Jose C. Zulueta. It is so ordered.chanroblesvirtualawlibrary

EN BANC
G.R. No. L-23645 October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee, vs. ENRICO PALOMAR, in his capacity as

Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity as Secretary of Public
Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting Postmaster of
San Fernando, Pampanga, respondent-appellants.

Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero
and Solicitor Dominador L. Quiroz for respondents-appellants.

CASTRO, J.:

This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic
Act 2631,2 which provides as follows:

To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for
the period from August nineteen to September thirty every year the printing and issue of semi-
postal stamps of different denominations with face value showing the regular postage charge plus
the additional amount of five centavos for the said purpose, and during the said period, no mail
matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That no
such additional charge of five centavos shall be imposed on newspapers. The additional proceeds
realized from the sale of the semi-postal stamps shall constitute a special fund and be deposited
with the National Treasury to be expended by the Philippine Tuberculosis Society in carrying out
its noble work to prevent and eradicate tuberculosis.

The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and
10 (July 15, 1960). All these administrative orders were issued with the approval of the
respondent Secretary of Public Works and
Communications.chanroblesvirtualawlibrarychanrobles virtual law library

The pertinent portions of Adm. Order 3 read as follows:

Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at "5 +
5" centavos and another at "10 + 5" centavos, will soon be released for use by the public on their
mails to be posted during the same period starting with the year 1958.

xxx xxx xxxchanrobles virtual law library

During the period from August 19 to September 30 each year starting in 1958, no mail matter of
whatever class, and whether domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted for mailing unless it bears at
least one such semi-postal stamp showing the additional value of five centavos intended for the
Philippine Tuberculosis Society.chanroblesvirtualawlibrarychanrobles virtual law library

In the case of second-class mails and mails prepaid by means of mail permits or impressions of
postage meters, each piece of such mail shall bear at least one such semi-postal stamp if posted
during the period above stated starting with the year 1958, in addition to being charged the usual
postage prescribed by existing regulations. In the case of business reply envelopes and cards
mailed during said period, such stamp should be collected from the addressees at the time of
delivery. Mails entitled to franking privilege like those from the office of the President, members
of Congress, and other offices to which such privilege has been granted, shall each also bear one
such semi-postal stamp if posted during the said period.chanroblesvirtualawlibrarychanrobles
virtual law library

Mails posted during the said period starting in 1958, which are found in street or post-office mail
boxes without the required semi-postal stamp, shall be returned to the sender, if known, with a
notation calling for the affixing of such stamp. If the sender is unknown, the mail matter shall be
treated as nonmailable and forwarded to the Dead Letter Office for proper disposition.

Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:

In the case of the following categories of mail matter and mails entitled to franking privilege
which are not exempted from the payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash, for which official receipt
(General Form No. 13, A) shall be issued, instead of affixing the semi-postal stamp in the manner
hereinafter indicated:chanrobles virtual law library
1. Second-class mail. - Aside from the postage at the second-class rate, the extra charge of
five centavos for the Philippine Tuberculosis Society shall be collected on each separately-
addressed piece of second-class mail matter, and the total sum thus collected shall be entered in
the same official receipt to be issued for the postage at the second-class rate. In making such
entry, the total number of pieces of second-class mail posted shall be stated, thus: "Total charge
for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate from the
postage in both of the official receipt and the Record of
Collections.chanroblesvirtualawlibrarychanrobles virtual law library

2. First-class and third-class mail permits. - Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in addition to the
five-centavo extra charge intended for said society. The total extra charge thus received shall be
entered in the same official receipt to be issued for the postage collected, as in subparagraph
1.chanroblesvirtualawlibrarychanrobles virtual law library

3. Metered mail. - For each piece of mail matter impressed by postage meter under metered
mail permit issued by this Bureau, the extra charge of five centavos for said society shall be
collected in cash and an official receipt issued for the total sum thus received, in the manner
indicated in subparagraph 1.chanroblesvirtualawlibrarychanrobles virtual law library

4. Business reply cards and envelopes. - Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said society
shall be collected in cash on each reply card or envelope delivered, in addition to the required
postage which may also be paid in cash. An official receipt shall be issued for the total postage
and total extra charge received, in the manner shown in subparagraph
1.chanroblesvirtualawlibrarychanrobles virtual law library

5. Mails entitled to franking privilege. - Government agencies, officials, and other persons
entitled to the franking privilege under existing laws may pay in cash such extra charge intended
for said society, instead of affixing the semi-postal stamps to their mails, provided that such
mails are presented at the post-office window, where the five-centavo extra charge for said
society shall be collected on each piece of such mail matter. In such case, an official receipt shall
be issued for the total sum thus collected, in the manner stated in subparagraph
1.chanroblesvirtualawlibrarychanrobles virtual law library

Mail under permits, metered mails and franked mails not presented at the post-office window
shall be affixed with the necessary semi-postal stamps. If found in mail boxes without such
stamps, they shall be treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order
3, as amended, exempts "copies of periodical publications received for mailing under any class
of mail matter, including newspapers and magazines admitted as second-class mail."chanrobles
virtual law library

The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post
office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of
1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner.chanroblesvirtualawlibrarychanrobles virtual law library

In view of this development, the petitioner brough suit for declaratory relief in the Court of First
Instance of Pampanga, to test the constitutionality of the statute, as well as the implementing
administrative orders issued, contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of taxation. The lower court declared
the statute and the orders unconstitutional; hence this appeal by the respondent postal
authorities.chanroblesvirtualawlibrarychanrobles virtual law library

For the reasons set out in this opinion, the judgment appealed from must be reversed.

I.chanrobles virtual law library

Before reaching the merits, we deem it necessary to dispose of the respondents' contention that
declaratory relief is unavailing because this suit was filed after the petitioner had committed a
breach of the statute. While conceding that the mailing by the petitioner of a letter without the
additional anti-TB stamp was a violation of Republic Act 1635, as amended, the trial court
nevertheless refused to dismiss the action on the ground that under section 6 of Rule 64 of the
Rules of Court, "If before the final termination of the case a breach or violation of ... a statute ...
should take place, the action may thereupon be converted into an ordinary action."chanrobles
virtual law library

The prime specification of an action for declaratory relief is that it must be brought "before
breach or violation" of the statute has been committed. Rule 64, section 1 so provides. Section 6
of the same rule, which allows the court to treat an action for declaratory relief as an ordinary
action, applies only if the breach or violation occurs after the filing of the action but before the
termination thereof.3chanrobles virtual law library

Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing
of this action, then indeed the remedy of declaratory relief cannot be availed of, much less can
the suit be converted into an ordinary action.chanroblesvirtualawlibrarychanrobles virtual law
library

Nor is there merit in the petitioner's argument that the mailing of the letter in question did not
constitute a breach of the statute because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without the payment of the anti-TB
stamp. It is obvious that they can be guilty of violating the statute only if there are people who
use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere offer
constitutes a breach of the law, so in the matter of the anti-TB stamp the mere attempt to use the
mails without the stamp constitutes a violation of the statute. It is not required that the mail be
accepted by postal authorities. That requirement is relevant only for the purpose of fixing the
liability of postal officials.chanroblesvirtualawlibrarychanrobles virtual law library

Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit
was filed not only with respect to the letter which he mailed on September 15, 1963, but also
with regard to any other mail that he might send in the future. Thus, in his complaint, the
petitioner prayed that due course be given to "other mails without the semi-postal stamps which
he may deliver for mailing ... if any, during the period covered by Republic Act 1635, as
amended, as well as other mails hereafter to be sent by or to other mailers which bear the
required postage, without collection of additional charge of five centavos prescribed by the same
Republic Act." As one whose mail was returned, the petitioner is certainly interested in a ruling
on the validity of the statute requiring the use of additional stamps.

II.chanrobles virtual law library

We now consider the constitutional objections raised against the statute and the implementing
orders.chanroblesvirtualawlibrarychanrobles virtual law library

1. It is said that the statute is violative of the equal protection clause of the Constitution.
More specifically the claim is made that it constitutes mail users into a class for the purpose of
the tax while leaving untaxed the rest of the population and that even among postal patrons the
statute discriminatorily grants exemption to newspapers while Administrative Order 9 of the
respondent Postmaster General grants a similar exemption to offices performing governmental
functions. .chanroblesvirtualawlibrarychanrobles virtual law library

The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise
tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of applicable principles of
taxation.chanroblesvirtualawlibrarychanrobles virtual law library

To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions.4 This power has aptly been described as "of wide range and
flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification.6 The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and usages in
order to achieve an equitable distribution of the tax burden.7chanrobles virtual law library

That legislative classifications must be reasonable is of course undenied. But what the petitioner
asserts is that statutory classification of mail users must bear some reasonable relationship to the
end sought to be attained, and that absent such relationship the selection of mail users is
constitutionally impermissible. This is altogether a different proposition. As explained in
Commonwealth v. Life Assurance Co.:8

While the principle that there must be a reasonable relationship between classification made by
the legislation and its purpose is undoubtedly true in some contexts, it has no application to a
measure whose sole purpose is to raise revenue ... So long as the classification imposed is based
upon some standard capable of reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal protection of the law has been
afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441;
Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).

We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution
forbids. The remedy for unwise legislation must be sought in the legislature. Now, the
classification of mail users is not without any reason. It is based on ability to pay, let alone the
enjoyment of a privilege, and on administrative convinience. In the allocation of the tax burden,
Congress must have concluded that the contribution to the anti-TB fund can be assured by those
whose who can afford the use of the mails.chanroblesvirtualawlibrarychanrobles virtual law
library

The classification is likewise based on considerations of administrative convenience. For it is

now a settled principle of law that "consideration of practical administrative convenience and
cost in the administration of tax laws afford adequate ground for imposing a tax on a well
recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the single most
important and influential consideration that led the legislature to select mail users as subjects of
the tax is the relative ease and convenienceof collecting the tax through the post offices. The
small amount of five centavos does not justify the great expense and inconvenience of collecting
through the regular means of collection. On the other hand, by placing the duty of collection on
postal authorities the tax was made almost self-enforcing, with as little cost and as little
inconvenience as possible.chanroblesvirtualawlibrarychanrobles virtual law library

And then of course it is not accurate to say that the statute constituted mail users into a class.
Mail users were already a class by themselves even before the enactment of the statue and all
that the legislature did was merely to select their class. Legislation is essentially empiric and
Republic Act 1635, as amended, no more than reflects a distinction that exists in fact. As Mr.
Justice Frankfurter said, "to recognize differences that exist in fact is living law; to disregard
[them] and concentrate on some abstract identities is lifeless logic."10chanrobles virtual law
library

Granted the power to select the subject of taxation, the State's power to grant exemption must
likewise be conceded as a necessary corollary. Tax exemptions are too common in the law; they
have never been thought of as raising issues under the equal protection
clause.chanroblesvirtualawlibrarychanrobles virtual law library

It is thus erroneous for the trial court to hold that because certain mail users are exempted from
the levy the law and administrative officials have sanctioned an invidious discrimination
offensive to the Constitution. The application of the lower courts theory would require all mail
users to be taxed, a conclusion that is hardly tenable in the light of differences in status of mail
users. The Constitution does not require this kind of
equality.chanroblesvirtualawlibrarychanrobles virtual law library

As the United States Supreme Court has said, the legislature may withhold the burden of the tax
in order to foster what it conceives to be a beneficent enterprise.11 This is the case of newspapers
which, under the amendment introduced by Republic Act 2631, are exempt from the payment of
the additional stamp.chanroblesvirtualawlibrarychanrobles virtual law library
As for the Government and its instrumentalities, their exemption rests on the State's sovereign
immunity from taxation. The State cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly construed.12 Administrative Order 9 of the
respondent Postmaster General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but a restatement of this well-
known principle of constitutional law.chanroblesvirtualawlibrarychanrobles virtual law library

The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the
exclusion of other diseases which, it is said, are equally a menace to public health. But it is never
a requirement of equal protection that all evils of the same genus be eradicated or none at all.13
As this Court has had occasion to say, "if the law presumably hits the evil where it is most felt, it
is not to be overthrown because there are other instances to which it might have been
applied."14chanrobles virtual law library

2. The petitioner further argues that the tax in question is invalid, first, because it is not
levied for a public purpose as no special benefits accrue to mail users as taxpayers, and second,
because it violates the rule of uniformity in taxation.chanroblesvirtualawlibrarychanrobles virtual
law library

The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say that
the only benefit to which the taxpayer is constitutionally entitled is that derived from his
enjoyment of the privileges of living in an organized society, established and safeguarded by the
devotion of taxes to public purposes. Any other view would preclude the levying of taxes except
as they are used to compensate for the burden on those who pay them and would involve the
abandonment of the most fundamental principle of government - that it exists primarily to
provide for the common good.15chanrobles virtual law library

Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be measured by the weight of the mail or the extent of
the service rendered. We have said that considerations of administrative convenience and cost
afford an adequate ground for classification. The same considerations may induce the legislature
to impose a flat tax which in effect is a charge for the transaction, operating equally on all
persons within the class regardless of the amount involved.16 As Mr. Justice Holmes said in
sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100 face
value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again equality
in this sense has to yield to practical considerations and usage. There must be a fixed and
indisputable mode of ascertaining a stamp tax. In another sense, moreover, there is equality.
When the taxes on two sales are equal, the same number of shares is sold in each case; that is to
say, the same privilege is used to the same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on
checks, irrespective of income or earning capacity, and many others, illustrate the necessity and
practice of sometimes substituting count for weight ...17

According to the trial court, the money raised from the sales of the anti-TB stamps is spent for
the benefit of the Philippine Tuberculosis Society, a private organization, without appropriation
by law. But as the Solicitor General points out, the Society is not really the beneficiary but only
the agency through which the State acts in carrying out what is essentially a public function. The
money is treated as a special fund and as such need not be appropriated by law.18chanrobles
virtual law library

3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is one of the
grounds on which the lower court invalidated Republic Act 1631, as amended, namely, that it
constitutes an undue delegation of legislative power.chanroblesvirtualawlibrarychanrobles virtual
law library

Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain
classes of mail matters (such as mail permits, metered mails, business reply cards, etc.), the five-
centavo charge may be paid in cash instead of the purchase of the anti-TB stamp. It further states
that mails deposited during the period August 19 to September 30 of each year in mail boxes
without the stamp should be returned to the sender, if known, otherwise they should be treated as
nonmailable.chanroblesvirtualawlibrarychanrobles virtual law library

It is true that the law does not expressly authorize the collection of five centavos except through
the sale of anti-TB stamps, but such authority may be implied in so far as it may be necessary to
prevent a failure of the undertaking. The authority given to the Postmaster General to raise funds
through the mails must be liberally construed, consistent with the principle that where the end is
required the appropriate means are given.19chanrobles virtual law library

The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the
additional charge but also that of the regular postage. In the case of business reply cards, for
instance, it is obvious that to require mailers to affix the anti-TB stamp on their cards would be to
make them pay much more because the cards likewise bear the amount of the regular
postage.chanroblesvirtualawlibrarychanrobles virtual law library

It is likewise true that the statute does not provide for the disposition of mails which do not bear
the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in the mails
unless it bears such semi-postal stamp" is a declaration that such mail matter is nonmailable
within the meaning of section 1952 of the Administrative Code. Administrative Order 7 of the
Postmaster General is but a restatement of the law for the guidance of postal officials and
employees. As for Administrative Order 9, we have already said that in listing the offices and
entities of the Government exempt from the payment of the stamp, the respondent Postmaster
General merely observed an established principle, namely, that the Government is exempt from
taxation.chanroblesvirtualawlibrarychanrobles virtual law library

ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.chanroblesvirtualawlibrarychanrobles virtual law library

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., Plaintiff-Appellant, v.

MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant
appellees.
Sabido, Sabido & Associates for appellant.chanrobles virtual law library

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant
Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No.
3294, which was certified to Us by the Court of Appeals on October 6, 1969, as involving only
pure questions of law, challenging the power of taxation delegated to municipalities under the
Local Autonomy Act (Republic Act No. 2264, as amended, June 19,
1959).chanroblesvirtualawlibrarychanrobles virtual law library

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines,
Inc., commenced a complaint with preliminary injunction before the Court of First Instance of
Leyte for that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the
Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to
declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null
and void.chanroblesvirtualawlibrarychanrobles virtual law library

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which
state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and
the production tax rates imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by
the latter of the provisions of said Ordinance No. 27, series of
1962.chanroblesvirtualawlibrarychanrobles virtual law library

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962,
levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of
a centavo for every bottle of soft drink corked." 2 For the purpose of computing the taxes due,
the person, firm, company or corporation producing soft drinks shall submit to the Municipal
Treasurer a monthly report, of the total number of bottles produced and corked during the month.
3 chanrobles virtual law library
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962,
levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of
this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity." 4 For the purpose of computing the taxes due, the person, fun company,
partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a
monthly report of the total number of gallons produced or manufactured during the month. 5
chanrobles virtual law library

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production
tax.' chanrobles virtual law library

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due
under the oft the said Ordinances; and to pay the costs." chanrobles virtual law library

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of
1948, as amended.chanroblesvirtualawlibrarychanrobles virtual law library

There are three capital questions raised in this appeal:

1. - Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive? chanrobles virtual law library

2. - Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific
taxes? chanrobles virtual law library

3. - Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a

matter of right to every independent government, without being expressly conferred by the
people. 6 It is a power that is purely legislative and which the central legislative body cannot
delegate either to the executive or judicial department of the government without infringing upon
the theory of separation of powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice.
8 By necessary implication, the legislative power to create political corporations for purposes of
local self-government carries with it the power to confer on such local governmental agencies the
power to tax. 9 Under the New Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides:
"Each local government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that
Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to
enact and vest in local governments the power of local
taxation.chanroblesvirtualawlibrarychanrobles virtual law library

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it
is said that the taxing power may be delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to impose and collect taxes as the legislature may
deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of
public policy the State has not deemed wise to tax for more general purposes. 10 This is not to
say though that the constitutional injunction against deprivation of property without due process
of law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose;
(2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is
within the jurisdiction of the government levying the tax; and (4) in the assessment and
collection of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due
process is usually violated where the tax imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and
arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not
violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax
will result in an injury rather than a benefit to such taxpayer. Due process does not require that
the property subject to the tax or the amount of tax to be raised should be determined by judicial
inquiry, and a notice and hearing as to the amount of the tax and the manner in which it shall be
apportioned are generally not necessary to due process of law. 12 chanrobles virtual law library

There is no validity to the assertion that the delegated authority can be declared unconstitutional
on the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. 13 The
reason is that the State has exclusively reserved the same for its own prerogative. Moreover,
double taxation, in general, is not forbidden by our fundamental law, since We have not adopted
as part thereof the injunction against double taxation found in the Constitution of the United
States and some states of the Union. 14 Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same
jurisdiction for the same purpose, 16 but not in a case where one tax is imposed by the State and
the other by the city or municipality. 17 chanrobles virtual law library

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose practically the same tax
rate. The thesis proceeds from its assumption that both ordinances are valid and legally
enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was approved on
September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of one-
sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume contents of the
bottle used. When it was discovered that the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted
Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances
clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a
centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan
in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18
Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce
Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting
Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of
the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows
that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the
Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter
are inconsistent with the provisions of the former." chanrobles virtual law library

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage
or a specific tax. Undoubtedly, the taxing authority conferred on local governments under
Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting
those which are mentioned therein." As long as the text levied under the authority of a city or
municipal ordinance is not within the exceptions and limitations in the law, the same comes
within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio
firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the prohibition
against municipalities and municipal districts to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the
provisions of the National Internal Revenue Code." For purposes of this particular limitation, a
municipal ordinance which prescribes a set ratio between the amount of the tax and the volume
of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the
municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under
Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in
any form based thereon. The tax is levied on the produce (whether sold or not) and not on the
sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio between the
volume of sales and the amount of the tax. 21 chanrobles virtual law library

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars
and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil,
diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming
drugs. 22Soft drink is not one of those specified.chanroblesvirtualawlibrarychanrobles virtual
law library

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23cannot be
considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the
tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in
determining the reates of imposable taxes. 25 This is in line with the constutional policy of
according the widest possible autonomy to local governments in matters of local taxation, an
aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the
amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance
No. 27 if the purpose of the law to further strengthen local autonomy were to be realized.
28chanrobles virtual law library

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than
ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on
manufacturers, producers, importers and dealers of soft drinks and/or mineral waters under
Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29appears not to affect the resolution of the validity of Ordinance No. 27.
Municipalities are empowered to impose, not only municipal license taxes upon persons engaged
in any business or occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a
municipality.chanroblesvirtualawlibrarychanrobles virtual law library

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known
as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of
the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23,
same series, is hereby declared of valid and legal effect. Costs against petitioner-
appellant.chanroblesvirtualawlibrarychanrobles virtual law library

SO ORDERED.

EN BANC

[G.R. No. L-22814. August 28, 1968.]

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., Plaintiff-Appellant, v. CITY OF
BUTUAN, MEMBERS OF THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY
TREASURER, all of the CITY OF BUTUAN, Defendants-Appellees.

Sabido, Sabido & Associates, for Plaintiff-Appellant.

The City Attorney of Butuan City for Defendants-Appellees.

SYLLABUS

1. TAXATION; MUNICIPAL TAXATION; ORDINANCE 110 OF THE CITY OF BUTUAN,

INVALID. Ordinance 110 of the City of Butuan, as amended by Ordinance No. 122, imposes
a tax of P0.10 per case of 24 bottles of soft drinks or carbonated drinks only upon "any agent
and/or consignee of any person, association, partnership, company or corporation engaged in
selling . . . soft drinks or carbonated drinks." Viewed from this angle, the tax partakes of the
nature of an import duty which is beyond defendants authority to impose by express provision
of law. For, as a consequence of such measure, merchants engaged in the sale thereof are not
subject to the tax unless they are agents and/or consignees of another dealer, who, in the very
nature of things, must be one engaged in business outside the City. Besides, the tax would not be
applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also that the tax "shall be based and computed
from the cargo manifest or bill of lading . . . showing the number of cases" not sold but
received by the taxpayer, the intention to limit the application of the ordinance to soft drinks
brought into the city from outside thereof becomes apparent.

2. ID.; ID.; ID.; SAID ORDINANCE VIOLATES THE RULE ON UNIFORMITY OF

TAXATION. Even if Ordinance 110 of the City of Butuan were regarded as a tax on the sale
of the beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for
or on behalf of other merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or merchants established outside
the City of Butuan, would be exempt from the disputed tax.
3. ID.; ID.; ID.; CONDITIONS FOR VALID CLASSIFICATION NOT MET BY
QUESTIONED ORDINANCE. The uniformity essential to the valid exercise of the power of
taxation does not require identity or equality under all circumstances, or negate the authority to
classify the objects of taxation. The classification made in the exercise of this authority, to be
valid, must, however, be reasonable and this requirement is not deemed satisfied unless: (1) it is
based upon substantial distinctions which make real differences; (2) these are germane to the
purpose of the legislation or ordinance; (3) the classification applies, not only to present
conditions, but, also, to future conditions substantially identical to those of the present; and (4)
the classification applies equally to all those who belong to the same class. These conditions are
not fully met by the ordinance in question. Indeed, if its purpose were merely to levy a burden
upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by
dealers other than agents are consignees of producers or merchants established outside the City
of Butuan should be exempt from the tax.

DECISION

CONCEPCION, C.J.:

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing
plaintiffs complaint, with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices
and principal place of business in Quezon City. The defendants are the City of Butuan, its City
Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the
sums paid by it to the City of Butuan hereinafter referred to as the City and collected by
the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No.
122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement
thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the
effect:jgc:chanrobles.com.ph

"1. That plaintiffs warehouse in the City of Butuan serves as a storage for its products the
"Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities in
the Province of Agusan. These "Pepsi-Cola" soft drinks are bottled in Cebu City and shipped to
the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuan and all
municipalities of Agusan.

"2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was
subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of
Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits
"A" and "B", respectively.

"3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10
per case of 24 bottles of Pepsi- Cola and the plaintiff paid under protest the amount of P4,926.63
from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30,
1961.

"4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that it may later on pay until the termination of this case
on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax
imposed is excessive and that it is unconstitutional.

"5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has
prepared a form to be accomplished by the plaintiff for the computation of the tax. A cop(y) of
the form is enclosed herewith as Exhibit "C."

"6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July
30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-
5." In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be
increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciation
which the company claims to be P3,052.62. This is in accordance with the findings of the
representative of the undersigned City Attorney who verified the records of the plaintiff.

"7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was
increased to P1.92 which price is uniform throughout the Philippines. Said increase was made
due to the increase in the production cost of its manufacture.

"8. That the parties reserve the right to submit arguments on the constitutionality and illegality of
Ordinance No. 110, as amended of the City of Butuan in their respective memoranda.
"x x x"

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the
purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any
dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates.
Section 3 prescribes a tax of P0.10 per 24 bottles of the soft drinks and carbonated beverages
therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning
of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes
"shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be
based and computed from the cargo manifest or bill of lading or any other record showing the
number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received
within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the
taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal
to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City
Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or
carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks,
liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived therefrom "shall be allotted as follows: 40% for
Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund."cralaw
virtua1aw library

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the
nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and
confiscatory; (4) it is highly unjust and discriminatory; and (5) Section 2 of Republic Act No.
2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative
powers.

The second and last objections are manifestly devoid of merit. Indeed independently of
whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts
of Congress, amounts to double taxation, on which we need not and do not express any opinion
double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as
part thereof, the injunction against double taxation found in the Constitution of the United States
and of some States of the Union. 1 Then, again, the general principle against delegation of
legislative powers, in consequence of the theory of separation of powers 2 is subject to one well-
established exception, namely: legislative powers may be delegated to local governments to
which said theory does not apply 3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles" of soft
drinks or carbonated drinks in the production and sale of which plaintiff is engaged or less
than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.

The first and the fourth objections merit, however, serious consideration. In this connection, it is
noteworthy that the tax prescribed in Section 3 of Ordinance No. 110, as originally approved,
was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would
seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by
Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any
person, association, partnership, company or corporation engaged in selling . . . soft drinks or
carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No.
122:jgc:chanrobles.com.ph

". . . Definition of the Term Consignee or Agent. For purposes of this Ordinance, a
consignee or agent shall mean any person, association, partnership, company or corporation who
acts in the place of another by authority from him or one entrusted with the business of another
or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every
month for resale, either retail or wholesale."cralaw virtua1aw library

As a consequence, merchants engaged in the sale of soft drinks or carbonated drinks, are not
subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very
nature of things, must be one engaged in business outside the City. Besides, the tax would not be
applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or
shipped to him every month. When we consider, also, that the tax "shall be based and computed
from the cargo manifest or bill of lading . . . showing the number of cases" not sold but
"received" by the taxpayer, the intention to limit the application of the ordinance to soft drinks
and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed
from this angle, the tax partakes of the nature of an import duty, which is beyond defendants
authority to impose by express provision of law. 4

Even, however, if the burden in question were regarded as a tax on the sale of said beverages, it
would still be invalid, as discriminatory, and hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales, and even if the same exceeded those made by said agents
or consignees of producers or merchants established outside the City of Butuan, would be
exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects
of taxation. 5 The classification made in the exercise of this authority, to be valid, must, however,
be reasonable 6 and this requirement is not deemed satisfied unless: (1) it is based upon
substantial distinctions which make real differences; (2) these are germane to the purpose of the
legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and (4) the classification applies
equally to all those who belong to the same class. 7

These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were
merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason
why sales thereof by dealers other than agents or consignees of producers or merchants
established outside the City of Butuan should be exempt from the tax.

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered
annulling Ordinance No. 110, as amended by Ordinance 122, and sentencing the City of Butuan
to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with
interest thereon at the legal rate from the date of the promulgation of this decision, in addition to
the costs, and defendants herein are, accordingly, restrained and prohibited permanently from
enforcing said Ordinance, as amended. It is so ordered.

THIRD DIVISION

[G.R. No. 127316. October 12, 2000.]

LIGHT RAIL TRANSIT AUTHORITY, Petitioner, v. CENTRAL BOARD OF ASSESSMENT
APPEALS, BOARD OF ASSESSMENT APPEALS OF MANILA and the CITY ASSESSOR
OF MANILA, Respondents.

DECISION

PANGANIBAN, J.:

The Light Rail Transit Authority and the Metro Transit Organization function as service-oriented
business entities, which provide valuable transportation facilities to the paying public. In the
absence, however, of any express grant of exemption in their favor, they are subject to the
payment of real property taxes.chanrob1es virtua1 1aw 1ibrary

The Case

In the Petition for Review before us, the Light Rail Transit Authority (LRTA) challenges the
November 15, 1996 Decision 1 of the Court of Appeals (CA) in CA-GR SP No. 38137, which
disposed as follows:chanrob1es virtual 1aw library

WHEREFORE, premises considered, the appealed decision (dated October 15, 1994) of the
Central Board of Assessment Appeals is hereby AFFIRMED, with costs against the petitioner." 2

The affirmed ruling of the Central Board of Assessment Appeals (CBAA) upheld the June 26,
1992 Resolution of the Board of Assessment Appeals of Manila, which had declared petitioners
carriageways and passenger terminals as improvements subject to real property taxes.

The Facts
The undisputed facts are quoted by the Court of Appeals (CA) from the CBAA ruling, as
follows: 3

1. The LRTA is a government-owned and controlled corporation created and organized

under Executive Order No. 603, dated July 12, 1980 . . . primarily responsible for the
construction, operation, maintenance and/or lease of light rail transit system in the Philippines,
giving due regard to the [reasonable requirements] of the public transportation of the country
(LRTA v. The Hon. Commission on Audit, G.R. No. 88365);

"2. . . . [B]y reason of . . . Executive Order 603, LRTA acquired real properties . . .
constructed structural improvements, such as buildings, carriageways, passenger terminal
stations, and installed various kinds of machinery and equipment and facilities for the purpose of
its operations;chanrob1es virtua1 1aw 1ibrary

"3. . . . [F]or . . . an effective maintenance, operation and management, it entered into a

Contract of Management with the Meralco Transit Organization (METRO) in which the latter
undertook to manage, operate and maintain the Light Rail Transit System owned by the LRTA
subject to the specific stipulations contained in said agreement, including payments of a
management fee and real property taxes (Addl Exhibit "I", Records)

"4. That it commenced its operations in 1984, and that sometime that year, Respondent-
Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting of lands,
buildings, carriageways and passenger terminal stations, machinery and equipment which he
considered real propert[y] under the Real Property Tax Code, to commence with the year 1985;

"5. That [petitioner] paid its real property taxes on all its real property holdings, except the
carriageways and passenger terminal stations including the land where it is constructed on the
ground that the same are not real properties under the Real Property Tax Code, and if the same
are real propert[y], these . . . are for public use/purpose, therefore, exempt from realty taxation,
which claim was denied by the Respondent-Appellee City Assessor of Manila; and

"6. . . . [Petitioner], aggrieved by the action of the Respondent-Appellee City Assessor, filed
an appeal with the Local Board of Assessment Appeals of Manila . . .. Appellee, herein, after due
hearing, in its resolution dated June 26, 1992, denied [petitioners] appeal, and declared that
carriageways and passenger terminal stations are improvements, therefore, are real propert[y]
under the Code, and not exempt from the payment of real property tax.chanrob1es virtua1 1aw
1ibrary
"A motion for reconsideration filed by [petitioner] was likewise denied."cralaw virtua1aw library

The CA Ruling

The Court of Appeals held that petitioners carriageways and passenger terminal stations
constituted real property or improvements thereon and, as such, were taxable under the Real
Property Tax Code. The appellate court emphasized that such pieces of property did not fall
under any of the exemptions listed in Section 40 of the aforementioned law. The reason was that
they were not owned by the government or any government-owned corporation which, as such,
was exempt from the payment of real property taxes. True, the government owned the real
property upon which the carriageways and terminal stations were built. However, they were still
taxable because beneficial use had been transferred to petitioner, a taxable entity.chanrob1es
virtua1 1aw 1ibrary

The CA debunked the argument of petitioner that carriageways and terminals were intended for
public use. The former agreed, instead, with the CBAA. The CBAA had concluded that since
petitioner was not engaged in purely governmental or public service, the latters endeavors were
proprietary. Indeed, petitioner was deemed as a profit-oriented endeavor, serving as it did, only
the paying public.

Hence, this Petition. 4

The Issues

In its Memorandum, 5 petitioner urges the Court to resolve the following matters:chanrob1es
virtual 1aw library

"I
The Honorable Court of Appeals erred in not holding that the carriageways and terminal stations
of petitioner are not improvements for purposes of the Real Property Tax Code.

"II

The Honorable Court of Appeals erred in not holding that being attached to national roads owned
by the national government, subject carriageways and terminal stations should be considered
property of the national government.chanrob1es virtua1 1aw 1ibrary

"III

The Honorable Court of Appeals erred in not holding that payment of charges or fares in the
operation of the light rail transit system does not alter the nature of the subject carriageways and
terminal stations as devoted for public use.

"IV

The Honorable Court of Appeals erred in failing to consider the view advanced by the
Department of Finance, which takes charge of the overall collection of taxes, that subject
carriageways and terminal stations are not subject to realty taxes.chanrob1es virtua1 1aw 1ibrary

"V

The Honorable Court of Appeals erred in failing to consider that payment of the realty taxes
assessed is not warranted and should the legality of the questioned assessment be upheld, the
amount of the realty taxes assessed would far exceed the annual earnings of petitioner, a
government corporation."cralaw virtua1aw library
The foregoing all point to one main issue: whether petitioners carriageways and passenger
terminal stations are subject to real property taxes.chanrob1es virtua1 1aw 1ibrary

The Courts Ruling

The Petition has no merit.

Main Issue:chanrob1es virtual 1aw library

May Real Property Taxes be Assessed and Collected?

The Real Property Tax Code, 6 the law in force at the time of the assailed assessment in 1984,
mandated that "there shall be levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property such as lands, buildings, machinery and
other improvements affixed or attached to real property not hereinafter specifically exempted." 7

Petitioner does not dispute that its subject carriageways and stations may be considered real
property under Article 415 of the Civil Code. However, it resolutely argues that the same are
improvements, not of its properties, but of the government-owned national roads to which they
are immovably attached. They are thus not taxable as improvements under the Real Property Tax
Code. In essence, it contends that to impose a tax on the carriageways and terminal stations
would be to impose taxes on public roads.

The argument does not persuade. We quote with approval the solicitor generals astute comment
on this matter:jgc:chanrobles.com.ph

"There is no point in clarifying the concept of industrial accession to determine the nature of the
property when what is fundamentally important for purposes of tax classification is to determine
the character of the property subject [to] tax. The character of tax as a property tax must be
determined by its incidents, and from the natural and legal effect thereof. It is irrelevant to
associate the carriageways and/or the passenger terminals as accessory improvements when the
view of taxability is focused on the character of the property. The latter situation is not a novel
issue as it has already been resolved by this Honorable Court in the case of City of Manila v. IAC
(GR No. 71159, November 15, 1989) wherein it was held:chanrob1es virtual 1aw library

The New Civil Code divides the properties into property for public and patrimonial property
(Art. 423), and further enumerates the property for public use as provincial road, city streets,
municipal streets, squares, fountains, public waters, public works for public service paid for by
said [provinces], cities or municipalities; all other property is patrimonial without prejudice to
provisions of special laws. (Art. 424, Province of Zamboanga v. City of Zamboanga, 22 SCRA
1334 [1968])chanrob1es virtua1 1aw 1ibrary

x x x

. . .while the following are corporate or proprietary property in character, viz: municipal water
works, slaughter houses, markets, stables, bathing establishments, wharves, ferries and fisheries.
Maintenance of parks, golf courses, cemeteries and airports, among others, are also recognized
as municipal or city activities of a proprietary character (Dept. of Treasury v. City of Evansville;
60 NE 2nd 952)"

"The foregoing enumeration in law does not specify or include carriageway or passenger
terminals as inclusive of properties strictly for public use to exempt petitioners properties from
taxes. Precisely, the properties of petitioner are not exclusively considered as public roads being
improvements placed upon the public road, and this separability nature of the structure in itself
physically distinguishes it from a public road. Considering further that carriageways or passenger
terminals are elevated structures which are not freely accessible to the public, vis-a-vis roads
which are public improvements openly utilized by the public, the former are entirely different
from the latter.chanrob1es virtua1 1aw 1ibrary

"The character of petitioners property, be it an improvements as otherwise distinguished by

petitioner, needs no further classification when the law already classified it as patrimonial
property that can be subject to tax. This is in line with the old ruling that if the public works is
not for such free public service, it is not within the purview of the first paragraph of Art. 424 if
the New Civil Code." 8

Though the creation of the LRTA was impelled by public service to provide mass
transportation to alleviate the traffic and transportation situation in Metro Manila its operation
undeniably partakes of ordinary business. Petitioner is clothed with corporate status and
corporate powers in the furtherance of its proprietary objectives. 9 Indeed, it operates much like
any private corporation engaged in the mass transport industry. Given that it is engaged in a
service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial
property subject to tax, notwithstanding its claim of being a government-owned or controlled
corporation.

True, petitioners carriageways and terminal stations are anchored, at certain points, on public
roads. However, it must be emphasized that these structures do not form part of such roads, since
the former have been constructed over the latter in such a way that the flow of vehicular traffic
would not be impeded. These carriageways and terminal stations serve a function different from
that of the public roads. The former are part and parcel of the light rail transit (LRT) system
which, unlike the latter, are not open to use by the general public. The carriageways are
accessible only to the LRT trains, while the terminal stations have been built for the convenience
of LRTA itself and its customers who pay the required fare.chanrob1es virtua1 1aw 1ibrary

Basis of Assessment

Is Actual Use of

Real Property

Under the Real Property Tax Code, real property is classified for assessment purposes on the
basis of actual use, 10 which is defined as "the purpose for which the property is principally or
predominantly utilized by the person in possession of the property." 11

Petitioner argues that it merely operates and maintains the LRT system, and that the actual users
of the carriageways and terminal stations are the commuting public. It adds that the public use
character of the LRT is not negated by the fact that revenue is obtained from the latters
operations.

We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible
only to those who pay the required fare. It is thus apparent that petitioner does not exist solely for
public service, and that the LRT carriageways and terminal stations are not exclusively for public
use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those
carriageways and terminal stations in its public utility business and earns money
therefrom.chanrob1es virtua1 1aw 1ibrary

Petitioner Not Exempt from

Payment of Real Property Taxes

In any event, there is another legal justification for upholding the assailed CA Decision. Under
the Real Property Tax Code, real property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or controlled corporation so exempt by its
charter, provided, however, that this exemption shall not apply to real property of the
abovenamed entities the beneficial use of which has been granted, for consideration or otherwise,
to a taxable person." 12

Executive Order No. 603, the charter of petitioner, does not provide for any real estate tax
exemption in its favor. Its exemption is limited to direct and indirect taxes, duties or fees in
connection with the importation of equipment not locally available, as the following provision
shows:jgc:chanrobles.com.ph

"ARTICLE 4

TAX AND DUTY EXEMPTIONS

Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. The
importation of equipment, machineries, spare parts, accessories and other materials, including
supplies and services, used directly in the operations of the Light Rails Transit System, not
obtainable locally on favorable terms, out of any funds of the authority including, as stated in
Section 7 above, proceeds from foreign loans credits or indebtedness, shall likewise be exempted
from all direct and indirect taxes, customs duties, fees, imposts, tariff duties, compensating taxes,
wharfage fees and other charges and restrictions, the provisions of existing laws to the contrary
notwithstanding." chanrob1es virtua1 1aw 1ibrary
Even granting that the national government indeed owns the carriageways and terminal stations,
the exemption would not apply because their beneficial use has been granted to petitioner, a
taxable entity.

Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly
construed against the claimant. 13 LRTA has not shown its eligibility for exemption; hence, it is
subject to the tax.chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against the petitioner.

SO ORDERED.

FIRST DIVISION

G.R. No. 181756, June 15, 2015

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner, v. CITY
OF LAPU-LAPU AND ELENA T. PACALDO, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions,
issued a decade apart, on the power of local government units to collect real property taxes from
airport authorities located within their area, and the nature or the juridical personality of said
airport authorities.

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the October 8, 2007 Decision1 of the Court of
Appeals (Cebu City) in CA-G.R. SP No. 01360 and the February 12, 2008 Resolution2 denying
petitioners motion for reconsideration.

THE FACTS

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on

July 31, 1990 under Republic Act No. 69583 to undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City x x x and such other airports as may be
established in the Province of Cebu. It is represented in this case by the Office of the Solicitor
General.

Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and
existing under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo
was impleaded in her capacity as the City Treasurer of respondent City.

Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision
of Republic Act No. 6958:chanRoblesvirtualLawlibrary
Section 14. Tax Exemptions. The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities:
Provided, That no tax exemption herein granted shall extend to any subsidiary which may be
organized by the Authority.chanroblesvirtuallawlibrary
On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International
Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of
Republic Act No. 7160 (The Local Government Code of 1991), petitioner was no longer exempt
from real estate taxes. The Court held:chanRoblesvirtualLawlibrary
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. x x x.chanroblesvirtuallawlibrary
On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport in the amount of P162,058,959.52.
Petitioner complained that there were discrepancies in said Statement of Real Estate Tax as
follows:chanRoblesvirtualLawlibrary
(a) [T]he statement included lots and buildings not found in the inventory of petitioners real
properties;

(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double
assessment;

(c) [There were] double entries pertaining to the same lots; and

(d) [T]he statement included lots utilized exclusively for governmental purposes.5
Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in
the amount of P151,376,134.66. Petitioner averred that this amount covered real estate taxes on
the lots utilized solely and exclusively for public or governmental purposes such as the airfield,
runway and taxiway, and the lots on which they are situated.6chanrobleslaw

Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly, which
was later increased to six million pesos (P6,000,000.00) monthly. As of December 2003,
petitioner had paid respondent City a total of P275,728,313.36.7chanrobleslaw
Upon request of petitioners General Manager, the Secretary of the Department of Justice (DOJ)
issued Opinion No. 50, Series of 1998,8 and we quote the pertinent portions of said Opinion
below:chanRoblesvirtualLawlibrary
You further state that among the real properties deemed transferred to MCIAA are the airfield,
runway, taxiway and the lots on which the runway and taxiway are situated, the tax declarations
of which were transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed
real estate taxes on these properties invoking the provisions of the Local Government Code.

It is your view that these properties are not subject to real property tax because they are
exclusively used for airport purposes. You said that the runway and taxiway are not only used by
the commercial airlines but also by the Philippine Air Force and other government agencies. As
such and in conjunction with the above interpretation of Section 15 of R.A. No. 6958, you
believe that these properties are considered owned by the Republic of the Philippines. Hence,
this request for opinion.

The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield,
runway, taxiway and the lots on which the runway and taxiway are situated) are owned by the
Republic of the Philippines.

xxxx

Under the Law on Public Corporations, the legislature has complete control over the property
which a municipal corporation has acquired in its public or governmental capacity and which is
devoted to public or governmental use. The municipality in dealing with said property is subject
to such restrictions and limitations as the legislature may impose. On the other hand, property
which a municipal corporation acquired in its private or proprietary capacity, is held by it in the
same character as a private individual. Hence, the legislature in dealing with such property, is
subject to the constitutional restrictions concerning property (Martin, Public Corporations
[1997], p. 30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil.
446]). The same may be said of properties transferred to the MCIAA and used for airport
purposes, such as those involved herein. Since such properties are of public dominion, they are
deemed held by the MCIAA in trust for the Government and can be alienated only as may be
provided by law.

Based on the foregoing, it is our considered opinion that the properties used for airport purposes,
such as the airfield, runway and taxiway and the lots on which the runway and taxiway are
located, are owned by the State or by the Republic of the Philippines and are merely held in trust
by the MCIAA, notwithstanding that certificates of titles thereto may have been issued in the
name of the MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the
City Treasurer of Lapu-Lapu dated August 3, 1998,9 which reads:chanRoblesvirtualLawlibrary
The distinction as to which among the MCIAA properties are still considered owned by the
State or by the Republic of the Philippines, such as the resolution in the above-cited DOJ
Opinion No. 50, for purposes of real property tax exemption is hereby deemed tenable
considering that the subject airfield, runway, taxiway and the lots on which the runway and
taxiway are situated appears to be the subject of real property tax assessment and collection of
the city government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction
of Lapu-Lapu City.

Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his 1st
Indorsement dated May 18, 1998, advanced that this Department (DOF) interposes no objection
to the request of Mactan Cebu International Airport Authority for exemption from payment of
real property tax on the property used for airport purposes mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject
airfield, runway, taxiway and the lots on which the runway and taxiway are situated, from the
Taxable Roll to the Exempt Roll of real properties.

The City Treasurer thereat should be informed on the action taken for his immediate appropriate
action. (Emphases added.)
Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax
Balances up to the year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that
the statement again included the lots utilized solely and exclusively for public purpose such as
the airfield, runway, and taxiway and the lots on which these are built. Respondent Pacaldo then
issued Notices of Levy on 18 sets of real properties of petitioner.10chanrobleslaw

Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu
City with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of
preliminary injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then
issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent City from issuing
a warrant of levy against petitioners properties and from selling them at public auction for
delinquency in realty tax obligations. The petition likewise prayed for a declaration that the
airport terminal building, the airfield, runway, taxiway and the lots on which they are situated are
exempted from real estate taxes after due hearing. Petitioner based its claim of exemption on
DOJ Opinion No. 50.

The RTC issued an Order denying the motion for extension of the TRO. Thus, on December 10,
2003, respondent City auctioned 27 of petitioners properties. As there was no interested bidder
who participated in the auction sale, respondent City forfeited and purchased said properties. The
corresponding Certificates of Sale of Delinquent Property were issued to respondent
City.12chanrobleslaw

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax, an
additional tax for the SEF, and penalty interest from petitioner.13chanrobleslaw

The RTC issued an Order14 on December 28, 2004 granting petitioners application for a writ of
preliminary injunction. The pertinent portions of the Order are quoted
below:chanRoblesvirtualLawlibrary
The supervening legal issue has rendered it imperative that the matter of the consolidation of the
ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the Court
that great prejudice and damage will be suffered by petitioner if it were to lose its dominion over
these properties now when the most important legal issue has still to be resolved by the Court.
Besides, the respondents and the intervenor have not sufficiently shown cause why petitioners
application should not be granted.

WHEREFORE, the foregoing considered, petitioners application for a writ of preliminary

injunction is granted. Consequently, upon the approval of a bond in the amount of one million
pesos (P1,000,000.00), let a writ of preliminary injunction issue enjoining the respondents, the
intervenor, their agents or persons acting in [their] behalf, to desist from consolidating and
exercising ownership over the properties of the petitioner.chanroblesvirtuallawlibrary
However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an
Order15 dated December 5, 2005. The RTC reasoned as follows:chanRoblesvirtualLawlibrary
The respondent City, in the course of the hearing of its motion, presented to this Court a certified
copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25
whereof authorized the collection of a rate of one and one-half (1 ) [per centum] from owners,
executors or administrators of any real estate lying within the jurisdiction of the City of Lapu-
Lapu, based on the assessed value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local
Government Code of 1991), to the mind of the Court this ordinance is still a valid and effective
ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules and Regulations
of RA 7160 x x x.

xxxx

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law
which provides:chanRoblesvirtualLawlibrary
In case of failure to pay the basic real property tax or any other tax levied under this Title upon
the expiration of the periods as provided in Section 250, or when due, as the case may be, shall
subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the
unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided,
however, That in no case shall the total interest on the unpaid tax or portion thereof exceed
thirty-six (36) months.chanroblesvirtuallawlibrary
This difference does not however detract from the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that respondent City can only
collect an interest of 2% per month on the unpaid tax. Consequently, respondent City [has] to
recompute the petitioners tax liability.

It is also the Courts perception that respondent City can still collect the additional 1% tax on real
property without an ordinance to this effect. It may be recalled that Republic Act No. 5447 has
created the Special Education Fund which is constituted from the proceeds of the additional tax
on real property imposed by the law. Respondent City has collected this tax as mandated by this
law without any ordinance for the purpose, as there is no need for it. Even when RA 5447 was
amended by PD 464 (Real Property Tax Code), respondent City had continued to collect the tax,
as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3)
and b(2) which concern the allocation of the additional tax, considering that under RA 7160, the
proceeds of the additional 1% tax on real property accrue exclusively to the Special Education
Fund. Nevertheless, RA 5447 has not been totally repealed; there is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since RA 5447 is still in force and
effect, and the declared policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax imposed.

As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant
petition, the Court deems it proper, at this stage of the proceedings, not to treat this issue, as it
involves facts which are yet to be established.

x x x [T]he Courts issuance of a writ of preliminary injunction may appear to be a futile gesture
in the light of Section 263 of RA 7160. x x x.

xxxx

It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the
one-year period, ownership fully vests on the local government unit concerned. Thus, when in
the present case petitioner failed to redeem the parcels of land acquired by respondent City, the
ownership thereof became fully vested on respondent City without the latter having to perform
any other acts to perfect its ownership. Corollary thereto, ownership on the part of respondent
City has become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents motion for

reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of preliminary injunction issued by this Court is hereby
lifted.chanroblesvirtuallawlibrary
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with
urgent prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-
G.R. SP No. 01360. The Court of Appeals (Cebu City) issued a TRO17 on January 5, 2006 and
shortly thereafter, issued a writ of preliminary injunction18 on February 17, 2006.

RULING OF THE COURT OF APPEALS

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007,
holding that petitioner is a government-owned or controlled corporation and its properties are
subject to realty tax. The dispositive portion of the questioned Decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which
they are situated NOT EXEMPT from the real estate tax imposed by the respondent City of
Lapu-Lapu;

We DECLARE the imposition and collection of the real estate tax, the additional levy for the
Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city can only collect an interest of 2%
per month on the unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;

We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture
and purchase of the subject property by the respondent City of Lapu-Lapu as NULL and VOID.
However, petitioner MCIAAs property is encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of the Local Government Code.19
Petitioner filed a Motion for Partial Reconsideration20 of the questioned Decision covering only
the portion of said decision declaring that petitioner is a GOCC and, therefore, not exempt from
the realty tax and special education fund imposed by respondent City. Petitioner cited Manila
International Airport Authority v. Court of Appeals21 (the 2006 MIAA case) involving the City
of Paraaque and the Manila International Airport Authority. Petitioner claimed that it had been
described by this Court as a government instrumentality, and that it followed as a logical
consequence that petitioner is exempt from the taxing powers of respondent City of Lapu-
Lapu.22 Petitioner alleged that the 1996 MCIAA case had been overturned by the Court in the
2006 MIAA case. Petitioner thus prayed that it be declared exempt from paying the realty tax,
special education fund, and interest being collected by respondent City.

On February 12, 2008, the Court of Appeals denied petitioners motion for partial
reconsideration in the questioned Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case
and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the questioned
Decision: We find that our position is in line with the coherent and cohesive interpretation of
the relevant provisions of the Local Government Code on local taxation enunciated in the [1996
MCIAA] case which to our mind is more elegant and rational and provides intellectual clarity
than the one provided by the Supreme Court in the [2006] MIAA case.23chanrobleslaw

In the questioned Decision, the Court of Appeals held that petitioners airport terminal building,
airfield, runway, taxiway, and the lots on which they are situated are not exempt from real estate
tax reasoning as follows:chanRoblesvirtualLawlibrary
Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional
mandate of local autonomy, all natural and juridical persons, including government-owned or
controlled corporations (GOCCs), instrumentalities and agencies, are no longer exempt from
local taxes even if previously granted an exemption. The only exemptions from local taxes are
those specifically provided under the Code itself, or those enacted through subsequent
legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the
exercise by local government units of their power to tax, the scope thereof or its limitations, and
the exemptions from local taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units. x x x.

xxxx

The above-stated provision, however, qualified the exemption of the National Government, its
agencies and instrumentalities from local taxation with the phrase unless otherwise provided
herein.

Section 232 of the LGC provides for the power of the local government units (LGUs for brevity)
to levy real property tax. x x x.

xxxx

Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions granted to natural and juridical persons, including government-
owned and controlled corporations, except as provided therein. x x x.
xxxx

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x
x.24 (Citations omitted.)
The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the
2006 MIAA case, it finds and rules that:chanRoblesvirtualLawlibrary
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the
National Government, its agencies and instrumentalities as the same is qualified by Sections 193,
232 and 234 which otherwise provided; and

b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)

The Court of Appeals ratiocinated in the following manner:chanRoblesvirtualLawlibrary
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by
persons, whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the
effectivity of the Code. Further, the last paragraph of Section 234 of the Code also unequivocally
withdrew, upon the Codes effectivity, exemptions from payment of real property taxes
previously granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical
person, it follows that its exemption from such tax granted under Section 14 of R.A. 6958 has
been withdrawn.

xxxx

From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation, unless
otherwise provided in the Code. On the other hand, Section 232 otherwise provided insofar as
it allowed local government units to levy an ad valorem real property tax, irrespective of who
owned the property. At the same time, the imposition of real property taxes under Section 232 is,
in turn, qualified by the phrase not hereinafter specifically exempted. The exemptions from
real property taxes are enumerated in Section 234 of the Code which specifically states that only
real properties owned by the Republic of the Philippines or any of its political subdivisions are
exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the
exceptions under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its
agencies and instrumentalities under Section 133 is qualified by Sections 232 and 234, and
accordingly, the only relevant exemption now applicable to these bodies is what is now provided
under Section 234(a) of the Code. It may be noted that the express withdrawal of previously
granted exemptions to persons from the payment of real property tax by the LGC does not even
make any distinction as to whether the exempt person is a governmental entity or not. As
Sections 193 and 234 of the Code both state, the withdrawal applies to all persons, including
GOCCs, thus encompassing the two classes of persons recognized under our laws, natural
persons and juridical persons.

xxxx

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already
been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.

xxxx

Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case
that MIAA (and also petitioner MCIAA) is not a government-owned or controlled corporation
but an instrumentality based on Section 2(10) of the Administrative Code of 1987 appears to be
unsound. In the [2006 MIAA] case, the majority justifies MIAAs purported exemption on
Section 133(o) of the Local Government Code which places agencies and instrumentalities: as
generally exempt from the taxation powers of the LGUs. It further went on to hold that By
express mandate of the Local Government Code, local governments cannot impose any kind of
tax on national government instrumentalities like the MIAA. x x x.26 (Citations omitted.)
The Court of Appeals further cited Justice Tingas dissent in the 2006 MIAA case as well as
provisions from petitioner MCIAAs charter to show that petitioner is a GOCC.27 The Court of
Appeals wrote:chanRoblesvirtualLawlibrary
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal
relations. Under its charter, it has the power to acquire, possess and incur obligations. It also has
the power to contract in its own name and to acquire title to movable or immovable property.
More importantly, it may likewise exercise powers of a corporation under the Corporation Code.
Moreover, based on its own allegation, it even recognized itself as a GOCC when it alleged in its
petition for prohibition filed before the lower court that it is a body corporate organized and
existing under Republic Act No. 6958 x x x.
We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can
no longer challenge the tax-exempt character of the properties since it is estopped from doing so
when respondent City of Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr., had long
ago conceded that petitioners properties are exempt from real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest H.
Weigel, Jr., petitioners subject properties, specifically the runway and taxiway, as exempt from
taxes. However, as astutely pointed out by the respondent city it can never be in estoppel,
particularly in matters involving taxes. It is a well-known rule that erroneous application and
enforcement of the law by public officers do not preclude subsequent correct application of the
statute, and that the Government is never estopped by mistake or error on the part of its
agents.28 (Citations omitted.)
The Court of Appeals established the following:chanRoblesvirtualLawlibrary
a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for
the imposition of realty tax against petitioner MCIAA;

b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is
authorized by law, Republic Act No. 5447; and

c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is
likewise [sanctioned] by respondent Citys ordinance.29
The Court of Appeals likewise held that respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided
for the imposition of real property tax. The relevant provision reads:chanRoblesvirtualLawlibrary
Chapter 5 Tax on Real Property Ownership

Section 25. RATE OF TAX. - A rate of one and one-half (1 ) percentum shall be collected from
owners, executors or administrators of any real estate lying within the territorial jurisdiction of
the City of Lapu-Lapu, based on the assessed value as shown in the latest revision.30
The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of
the LGC, it remained in force and effect, citing Section 529 of the LGC and Article 278 of the
LGCs Implementing Rules and Regulations.31chanrobleslaw

As regards the Special Education Fund, the Court of Appeals held that respondent City can still
collect the additional 1% tax on real property even without an ordinance to this effect, as this is
authorized by Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real
Property Tax Code), which does not require an enabling tax ordinance. The Court of Appeals
affirmed the RTCs ruling that Republic Act No. 5447 was still in force and effect
notwithstanding the passing of the LGC, as the latter only partially repealed the former law.
What Section 534 of the LGC repealed was Section 3 a(3) and b(2) of Republic Act No. 5447,
and not the entire law that created the Special Education Fund.32 The repealed provisions
referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco and
the percentage remittances to the taxing authority concerned. The Court of Appeals, citing The
Commission on Audit of the Province of Cebu v. Province of Cebu,33 held that [t]he failure to
add a specific repealing clause particularly mentioning the statute to be repealed indicates that
the intent was not to repeal any existing law on the matter, unless an irreconcilable inconsistency
and repugnancy exists in the terms of the new and the old laws.34 The Court of Appeals quoted
the RTCs discussion on this issue, which we reproduce below:chanRoblesvirtualLawlibrary
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force and
effect, and the declared policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax imposed.35
Regarding the penalty interest, the Court of Appeals found that Section 30 of Ordinance No. 44
of respondent City provided for a penalty surcharge of 25% of the tax due for a given year. Said
provision reads:chanRoblesvirtualLawlibrary
Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to pay the tax provided for
under this Chapter within the time fixed in Section 27, shall subject the taxpayer to a surcharge
of twenty-five percent (25%), without interest.36
The Court of Appeals however declared that after the effectivity of the Local Government Code,
the respondent City could only collect penalty surcharge up to the extent of 72%, covering a
period of three years or 36 months, for the entire delinquent property.37 This was lower than the
25% per annum surcharge imposed by Ordinance No. 44.38 The Court of Appeals affirmed the
findings of the RTC in the decision quoted below:chanRoblesvirtualLawlibrary
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the
25% penalty collected is higher than the 2% allowed under Sec. 255 of the said law which
provides:ChanRoblesVirtualawlibrary

xxxx
This difference does not however detract from the essential enforceability and effectivity of
Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing
Rules and Regulations. The outcome of this disparity is simply that respondent City can only
collect an interest of 2% per month on the unpaid tax. Consequently, respondent city will have to
[recompute] the petitioners tax liability.39
It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that
respondent City has the power to impose real property taxes over petitioner, it is also evident
and categorical that, under Republic Act No. 6958, the properties of petitioner MCIAA may not
be conveyed or transferred to any person or entity except to the national government.40 The
relevant provisions of the said law are quoted below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. The Authority shall have the following functions,
powers and duties:ChanRoblesVirtualawlibrary

xxxx

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government[.]

Section 13. Borrowing Power. The Authority may, in accordance with Section 21, Article XII
of the Constitution and other existing laws, rules and regulations on local or foreign borrowing,
raise funds, either from local or international sources, by way of loans, credit or securities, and
other borrowing instruments with the power to create pledges, mortgages and other voluntary
liens or encumbrances on any of its assets or properties, subject to the prior approval of the
President of the Philippines.

All loans contracted by the Authority under this section, together with all interests and other
sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of the
Authority and shall rank equally with one another, but shall have priority over any other claim or
charge on the revenue and assets of the Authority: Provided, That this provision shall not be
construed as a prohibition or restriction on the power of the Authority to create pledges,
mortgages and other voluntary liens or encumbrances on any asset or property of the Authority.
The payment of the loans or other indebtedness of the Authority may be guaranteed by the
National Government subject to the approval of the President of the
Philippines.chanroblesvirtuallawlibrary
The Court of Appeals concluded that it is clear that petitioner MCIAA is denied by its charter
the absolute right to dispose of its property to any person or entity except to the national
government and it is not empowered to obtain loans or encumber its property without the
approval of the President.41 The questioned Decision contained the following
conclusion:chanRoblesvirtualLawlibrary
With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested
exclusively on Congress. LGUs, through its local legislative bodies, are now given direct
authority to levy taxes, fees and other charges pursuant to Article X, Section 5 of the 1987
Constitution. And one of the most significant provisions of the LGC is the removal of the blanket
inclusion of instrumentalities and agencies of the national government from the coverage of local
taxation. The express withdrawal by the Code of previously granted exemptions from realty
taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs)
such as the petitioner Mactan-Cebu International Airport Authority. Thus, petitioner MCIAA
became a taxable person in view of the withdrawal of the realty tax exemption that it previously
enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and categorically held in
the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by persons,
natural or juridical, are consistent with the State policy to ensure autonomy to local governments
and the objective of the Local Government Code that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.

However, in the case at bench, petitioner MCIAAs charter expressly bars the alienation or
mortgage of its property to any person or entity except to the national government. Therefore,
while petitioner MCIAA is a taxable person for purposes of real property taxation, respondent
City of Lapu-Lapu is prohibited from seizing, selling and owning these properties by and
through a public auction in order to satisfy petitioner MCIAAs tax liability.42 (Citations
omitted.)
In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied
petitioners motion for reconsideration based on the following
grounds:chanRoblesvirtualLawlibrary
First, the MCIAA case remains the controlling law on the matter as the same is the established
precedent; not the MIAA case but the MCIAA case since the former, as keenly pointed out by the
respondent City of Lapu-Lapu, has not yet attained finality as there is still yet a pending motion
for reconsideration filed with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be
similarly invoked in the case at bench. The said case cannot be considered as the law of the
case. The law of the case doctrine has been defined as that principle under which
determinations of questions of law will generally be held to govern a case throughout all its
subsequent stages where such determination has already been made on a prior appeal to a court
of last resort. It is merely a rule of procedure and does not go to the power of the court, and will
not be adhered to where its application will result in an unjust decision. It relates entirely to
questions of law, and is confined in its operation to subsequent proceedings in the same case.
According to said doctrine, whatever has been irrevocably established constitutes the law of the
case only as to the same parties in the same case and not to different parties in an entirely
different case. Besides, pending resolution of the aforesaid motion for reconsideration in the
MIAA case, the latter case has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in petitioners motion for
reconsideration, this Court resolves to deny the same as the matters raised therein had already
been exhaustively discussed in the decision sought to be reconsidered, and that no new matters
were raised which would warrant the modification, much less reversal, thereof.43 (Emphasis
added, citations omitted.)
PETITIONERS THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a government-
owned or controlled corporation, but is a government instrumentality like the Manila
International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the
Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by
respondent City.44chanrobleslaw

Petitioner alleges that Republic Act No. 6958 placed a limitation on petitioners administration
of its assets and properties as it provides under Section 4(e) that any asset in the international
airport important to national security cannot be alienated or mortgaged by petitioner or
transferred to any entity other than the National Government.45chanrobleslaw

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the
following:chanRoblesvirtualLawlibrary
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY
THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS EXEMPT FROM
PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY OF LAPU-LAPU.

II

THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL

BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY
ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.

III

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX

WITHOUT ANY APPROPRIATE ORDINANCE.

IV

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR

THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING
ORDINANCE.

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY

ORDINANCE MANDATING ITS IMPOSITION.46
Petitioner claims the following similarities with MIAA:
MCIAA belongs to the same class and performs identical functions as MIAA;

MCIAA is a public utility like MIAA;

MIAA was organized to operate the international and domestic airport in Paranaque City for
public use, while MCIAA was organized to operate the international and domestic airport in
Mactan for public use.

Both are attached agencies of the Department of Transportation and Communications.47

Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No.
903).

Section 3 of Executive Order No. 903 provides:chanRoblesvirtualLawlibrary

Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body
corporate to be known as the Manila International Airport Authority which shall be attached to
the Ministry of Transportation and Communications. The principal office of the Authority shall
be located at the New Manila International Airport. The Authority may establish such offices,
branches, agencies or subsidiaries as it may deem proper and necessary; x x
x.chanroblesvirtuallawlibrary
Section 2 of Republic Act No. 6958 reads:chanRoblesvirtualLawlibrary
Section 2. Creation of the Mactan-Cebu International Airport Authority. There is hereby
established a body corporate to be known as the Mactan-Cebu International Airport Authority
which shall be attached to the Department of Transportation and Communications. The principal
office of the Authority shall be located at the Mactan International Airport, Province of Cebu.

The Authority may have such branches, agencies or subsidiaries as it may deem proper and
necessary.chanroblesvirtuallawlibrary
As to MIAAs purposes and objectives, Section 4 of Executive Order No. 903
reads:chanRoblesvirtualLawlibrary
Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and
objectives:ChanRoblesVirtualawlibrary

(a) To help encourage and promote international and domestic air traffic in the Philippines as a
means of making the Philippines a center of international trade and tourism and accelerating the
development of the means of transportation and communications in the country;

(b) To formulate and adopt for application in the Airport internationally acceptable standards of
airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and
domestic air travel.chanroblesvirtuallawlibrary
Petitioner claims that the above purposes and objectives are analogous to those enumerated in its
charter, specifically Section 3 of Republic Act No. 6958, which
reads:chanRoblesvirtualLawlibrary
Section 3. Primary Purposes and Objectives. The Authority shall principally undertake the
economical, efficient and effective control, management and supervision of the Mactan
International Airport in the Province of Cebu and the Lahug Airport in Cebu City, hereinafter
collectively referred to as the airports, and such other airports as may be established in the
Province of Cebu. In addition, it shall have the following objectives:ChanRoblesVirtualawlibrary

(a) To encourage, promote and develop international and domestic air traffic in the central
Visayas and Mindanao regions as a means of making the regions centers of international trade
and tourism, and accelerating the development of the means of transportation and
communications in the country; and

(b) To upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.chanroblesvirtuallawlibrary
The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903
are:ChanRoblesVirtualawlibrary

Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers
and duties:chanRoblesvirtualLawlibrary
(a)
To formulate, in coordination with the Bureau of Air Transportation and other appropriate
government agencies, a comprehensive and integrated policy and program for the Airport and to
implement, review and update such policy and program periodically;
(b)
To control, supervise, construct, maintain, operate and provide such facilities or services as shall
be necessary for the efficient functioning of the Airport;
(c)
To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the Airport, and to control and/or supervise as may be necessary
the construction of any structure or the rendition of any services within the Airport;
(d)
To sue and be sued in its corporate name;
(e)
To adopt and use a corporate seal;
(f)
To succeed by its corporate name;
(g)
To adopt its by-laws, and to amend or repeal the same from time to time;
(h)
To execute or enter into contracts of any kind or nature;
(i)
To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein;
(j)
To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(k)
To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works,
appliances, facilities or concessions or for any service provided by the Authority, subject to the
approval of the Minister of Transportation and Communications in consultation with the Minister
of Finance, and subject further to the provisions of Batas Pambansa Blg. 325 where applicable;
(l)
To invest its idle funds, as it may deem proper, in government securities and other evidences of
indebtedness of the government;
(m)
To provide services, whether on its own or otherwise, within the Airport and the approaches
thereof, which shall include but shall not be limited to, the following:
(1)
Aircraft movement and allocation of parking areas of aircraft on the ground;
(2)
Loading or unloading of aircrafts;
(3)
Passenger handling and other services directed towards the care, convenience and security of
passengers, visitors and other airport users; and
(4)
Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n)
To perform such other acts and transact such other business, directly or indirectly necessary,
incidental or conducive to the attainment of the purposes and objectives of the Authority,
including the adoption of necessary measures to remedy congestion in the Airport; and
(o)
To exercise all the powers of a corporation under the Corporation Law, insofar as these powers
are not inconsistent with the provisions of this Executive Order.
Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision quoted below:chanRoblesvirtualLawlibrary
Section 4. Functions, Powers and Duties. The Authority shall have the following functions,
powers and duties:ChanRoblesVirtualawlibrary

(a) To formulate a comprehensive and integrated development policy and program for the
airports and to implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the airports;

(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the airports, and to control and supervise the construction of any
structure or the rendition of any service within the airports;

(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines,
insofar as those powers are not inconsistent with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government;

(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works,
appliances, facilities or concessions, or for any service provided by the Authority;

(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the use
of airport premises for such measures as may be necessary to make the Authority more effective
and efficient in the discharge of its assigned tasks;

(i) To invest its idle funds, as it may deem proper, in government securities and other evidences
of indebtedness; and

(j) To provide services, whether on its own or otherwise, within the airports and the approaches
thereof as may be necessary or in connection with the maintenance and operation of the airports
and their facilities.chanroblesvirtuallawlibrary
Petitioner claims that like MIAA, it has police authority within its premises, as shown in their
respective charters quoted below:chanRoblesvirtualLawlibrary
EO 903, Sec. 6. Police Authority. The Authority shall have the power to exercise such police
authority as may be necessary within its premises to carry out its functions and attain its purposes
and objectives, without prejudice to the exercise of functions within the same premises by the
Ministry of National Defense through the Aviation Security Command (AVSECOM) as provided
in LOI 961: Provided, That the Authority may request the assistance of law enforcement
agencies, including request for deputization as may be required. x x x.

R.A. No. 6958, Section 5. Police Authority. The Authority shall have the power to exercise
such police authority as may be necessary within its premises or areas of operation to carry out
its functions and attain its purposes and objectives: Provided, That the Authority may request the
assistance of law enforcement agencies, including request for deputization as may be required. x
x x.chanroblesvirtuallawlibrary
Petitioner pointed out other similarities in the two charters, such as:ChanRoblesVirtualawlibrary

1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section
15, Executive Order No. 903; Section 12, Republic Act No. 6958);

2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903;
Section 14, Republic Act No. 6958);

3. Both MCIAA and MIAA are required to submit to the President an annual report generally
dealing with their activities and operations (Section 14, Executive Order No. 903; Section 11,
Republic Act No. 6958); and

4. Both have borrowing power subject to the approval of the President (Section 16, Executive
Order No. 903; Section 13, Republic Act No. 6958).48chanrobleslaw

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006
MIAA case, placed it in the same class as MIAA and considered it as a government
instrumentality.

Petitioner submits that since it is also a government instrumentality like MIAA, the following
conclusion arrived by the Court in the 2006 MIAA case is also applicable to
petitioner:chanRoblesvirtualLawlibrary
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to [t]axes, fees or
charges of any kind by local governments. The only exception is when MIAA leases its real
property to a taxable person as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions ports x x x constructed by the State, which
includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever
that the Airport Lands and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.49 (Emphases added.)
Petitioner insists that its properties consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated are not subject to real property tax because they
are actually, solely and exclusively used for public purposes.50 They are indispensable to the
operation of the Mactan International Airport and by their very nature, these properties are
exempt from tax. Said properties belong to the State and are merely held by petitioner in trust. As
earlier mentioned, petitioner claims that these properties are important to national security and
cannot be alienated, mortgaged, or transferred to any entity except the National Government.

Petitioner prays that judgment be rendered:chanRoblesvirtualLawlibrary

a)
Declaring petitioner exempt from paying real property taxes as it is a government
instrumentality;
b)
Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic
real property tax, the additional tax for the SEF and the penalty interest for its failure to pass the
corresponding tax ordinances; and
c)
Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real
property taxes as they are used solely and exclusively for public purpose.51
In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling
has overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O. Tingas dissent in the
MIAA ruling, as follows:chanRoblesvirtualLawlibrary
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local
Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan
and in this case are similarly situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded charters. And the fact that the
majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda
evinces an intent to go against the Courts jurisprudential trend adopting the philosophy of
expanded local government rule under the Local Government Code.

x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings
can stand together. Following basic principles in statutory construction, Mactan will be deemed
as giving way to this new ruling.

xxxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the
MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly
engaged in the business of operating an airport. They are the owners of airport properties they
respectively maintain and hold title over these properties in their name. These entities are both
owned by the State, and denied by their respective charters the absolute right to dispose of their
properties without prior approval elsewhere. Both of them are not empowered to obtain loans or
encumber their properties without prior approval the prior approval of the President.52 (Citations
omitted.)
Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on
respondent Citys part that it must have a tax measure to be able to impose a tax or special
assessment. Petitioner avers that assuming that it is a non-exempt entity or that its airport lands
and buildings are not exempt, it was only upon the effectivity of Ordinance No. 070-2007 on
January 1, 2008 that respondent City could properly impose the basic real property tax, the
additional tax for the SEF, and the interest in case of nonpayment.53chanrobleslaw

Petitioner filed its Memorandum54 on June 17, 2009.

RESPONDENTS THEORY

In their Comment,55 respondents point out that petitioner partially moved for a reconsideration
of the questioned Decision only as to the issue of whether petitioner is a GOCC or not. Thus,
respondents declare that the other portions of the questioned decision had already attained
finality and ought not to be placed in issue in this petition for certiorari. Thus, respondents
discussed the other issues raised by petitioner with reservation as to this objection.
Respondents summarized the issues and the grounds relied upon as
follows:chanRoblesvirtualLawlibrary
STATEMENT OF THE ISSUES

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT

FROM PAYING REAL PROPERTY TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL

EDUCATION FUND AND PENALTY INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,

TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT
FROM REALTY TAXES

GROUNDS RELIED UPON

PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES

TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY

TAXES

ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

CITY CAN COLLECT REALTY TAX AND INTEREST

CITY CAN COLLECT SEF

MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE

RELIEF

MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56

Respondents claim that the mere mention of MCIAA in the MIAA v. [Court of Appeals] case
does not make it the controlling case on the matter.57 Respondents further claim that the 1996
MCIAA case where this Court held that petitioner is a GOCC is the controlling jurisprudence.
Respondents point out that petitioner and MIAA are two very different entities. Respondents
argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on DOJ
Opinion No. 50.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the government,
still the following statement in the 1996 MCIAA case applies:chanRoblesvirtualLawlibrary
Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.58
Respondents argue that MCIAA properties such as the terminal building, taxiway and runway are
not exempt from real property taxation. As discussed in the 1996 MCIAA case, Section 234 of
the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision
also provides that the transfer of ownership of the land to petitioner was absolute and petitioner
cannot evade payment of taxes.59chanrobleslaw

Even if the following issues were not raised by petitioner in its motion for reconsideration of the
questioned Decision, and thus the ruling pertaining to these issues in the questioned decision had
become final, respondents still discussed its side over its objections as to the propriety of
bringing these up before this Court.

1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest.

Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).

The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the Omnibus Tax Ordinance,
wherein the imposition of real property tax was made. This Ordinance was in force and effect by
virtue of Article 278 of the IRR of Republic Act No. 7160.60chanrobleslaw

Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real
property taxes, special education fund and further provided for the payment of interest and
surcharges. Thus, the issue is pass and is moot and academic.
3. Respondent City can collect Special Education Fund.
The LGC does not require the enactment of an ordinance for the collection of the SEF.

Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not
be covered by ordinance. Besides, the City has enacted the Revenue Code containing provisions
for the levy and collection of the SEF.61
Furthermore, respondents aver that:ChanRoblesVirtualawlibrary

1. Collection of taxes is beyond the ambit of injunction.

Respondents contend that the petition only questions the denial of the writ of preliminary
injunction by the RTC and the Court of Appeals. Petitioner failed to show irreparable injury.

Comparing the alleged damage that may be caused petitioner and the direct affront and challenge
against the power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive
relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under protest.
Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of
Republic Act No. 7160. Section 252 of Republic Act No. 716062 requires that the taxpayers
protest can only be entertained if the tax is first paid under protest.63
Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that the
1996 MCIAA case is still good law, as shown by the following cases wherein it was quoted:
National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92
(2007)];

Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];

Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785 (2008)]; and

The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the 1996 MCIAA case could hardly mean that
the doctrine has breathed its last and that the 1996 MCIAA case stands as precedent and is
controlling on petitioner MCIAA.65chanrobleslaw
Respondents allege that the issue for consideration is whether it is proper for petitioner to raise
the issue of whether it is not liable to pay real property taxes, special education fund (SEF),
interests and/or surcharges.66 Respondents argue that the Court of Appeals was correct in
declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway, and runway.
Respondent City relies on the following grounds:chanRoblesvirtualLawlibrary
The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;

MCIAA is a corporation;

Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991
authorizes the collection of real property taxes (etc.) from MCIAA;

Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from
realty taxes, special education fund and interest;

Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from
MCIAA; [and]

Estoppel does not lie against the government.67

THIS COURTS RULING

The petition has merit. The petitioner is an instrumentality of the government; thus, its properties
actually, solely and exclusively used for public purposes, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they are situated, are not subject to real
property tax and respondent City is not justified in collecting taxes from petitioner over said
properties.

DISCUSSION

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and
that petitioner is a GOCC. The 2006 MIAA case governs.
The Court of Appeals reliance on the 1996 MCIAA case is misplaced and its staunch refusal to
apply the 2006 MIAA case is patently erroneous. The Court of Appeals, finding for respondents,
refused to apply the ruling in the 2006 MIAA case on the premise that the same had not yet
reached finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is still good
law.68chanrobleslaw

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of
cases,69 still, in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan
ruling. The 2006 MIAA case had, since the promulgation of the questioned Decision and
Resolution, reached finality and had in fact been either affirmed or cited in numerous cases by
the Court.70 The decision became final and executory on November 3, 2006.71 Furthermore, the
2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by
a Division. Hence, the 1996 MCIAA case should be read in light of the subsequent and
unequivocal ruling in the 2006 MIAA case.

To recall, in the 2006 MIAA case, we held that MIAAs airport lands and buildings are exempt
from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality
of the national government, with its real properties being owned by the Republic of the
Philippines, and these are exempt from real estate tax. Specifically referring to petitioner, we
stated as follows:chanRoblesvirtualLawlibrary
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they are
not government-owned or controlled corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal relationship and status of
government entities.72 (Emphases ours.)
In the 2006 MIAA case, the issue before the Court was whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws.73 We quote the
extensive discussion of the Court that led to its finding that MIAAs lands and buildings were
exempt from real estate tax imposed by local governments:chanRoblesvirtualLawlibrary
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation

xxxx

There is no dispute that a government-owned or controlled corporation is not exempt from real
estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13)
of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned
or controlled corporation as follows:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or

non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x.chanroblesvirtuallawlibrary
A government-owned or controlled corporation must be organized as a stock or non-stock
corporation. MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. x x x

xxxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code defines a stock corporation as one whose capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x. MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as one where no part of its income is
distributable as dividends to its members, trustees or officers. A non-stock corporation must
have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.
MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference
is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government instrumentality as
follows:chanRoblesvirtualLawlibrary
SEC. 2. General Terms Defined. - x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x.chanroblesvirtuallawlibrary
When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,
police authority and the levying of fees and charges. At the same time, MIAA exercises all the
powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order.

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
separate and autonomous body will make its operation more financially viable.

Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they are
not government-owned or controlled corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal relationship and status of
government entities.74 (Emphases ours, citations omitted.)
The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the
local governments as against the national government or its
instrumentality:chanRoblesvirtualLawlibrary
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:chanRoblesvirtualLawlibrary
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - 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:ChanRoblesVirtualawlibrary

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. x x x.chanroblesvirtuallawlibrary
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power subject to such guidelines and limitations as the
Congress may provide.

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies with greater force when
local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. x x x.

xxxx

There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.

There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that unless otherwise provided in the
Code, local governments cannot tax national government instrumentalities. x x x.75 (Emphases
ours, citations omitted.)
The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic
and belong to the public domain. The Court said:chanRoblesvirtualLawlibrary
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned
by the State or the Republic of the Philippines. x x x.

xxxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned
by the State. The term ports includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the
State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. x x x.

xxxx

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed users tax. This means taxing those among the public who actually use a public
facility instead of taxing all the public including those who never use the particular public
facility. A users tax is more equitable - a principle of taxation mandated in the 1987
Constitution.

The Airport Lands and Buildings of MIAA x x x are properties of public dominion because they
are intended for public use. As properties of public dominion, they indisputably belong to the
State or the Republic of the Philippines.76 (Emphases supplied, citations omitted.)
The Court also held in the 2006 MIAA case that airport lands and buildings are outside the
commerce of man.
As properties of public dominion, the Airport Lands and Buildings are outside the commerce of
man. The Court has ruled repeatedly that properties of public dominion are outside the commerce
of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that
properties devoted to public use are outside the commerce of man,
thus:ChanRoblesVirtualawlibrary

xxxx

The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, x x x.
xxxx

The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale
of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw
from public use the Airport Lands and Buildings. x x x.

xxxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable. Since
the Airport Lands and Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the
Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:chanRoblesvirtualLawlibrary
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. - (1)
The President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;
xxxx
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public use, they are properties of public dominion, owned
by the Republic and outside the commerce of man.77
Thus, the Court held that MIAA is merely holding title to the Airport Lands and Buildings in
trust for the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code
[which] allows instrumentalities like MIAA to hold title to real properties owned by the
Republic.78chanrobleslaw

The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held
that said provision exempts from real estate tax any [r]eal property owned by the Republic of
the Philippines.79 The Court emphasized, however, that portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real estate tax. The Court
further held:chanRoblesvirtualLawlibrary
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing [t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x. The real properties owned by the Republic
are titled either in the name of the Republic itself or in the name of agencies or instrumentalities
of the National Government. The Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or instrumentalities of the national government.
Such real properties remain owned by the Republic and continue to be exempt from real estate
tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person. MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA the
beneficial use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. x x x.80
Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila
International Airport Authority v. City of Pasay,81 thus:chanRoblesvirtualLawlibrary
The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Paraaque City while this case involved airport
lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.

xxxx

The definition of instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase includes x x x government-owned or controlled
corporations which means that a government instrumentality may or may not be a
government-owned or controlled corporation. Obviously, the term government
instrumentality is broader than the term government-owned or controlled corporation. x x x.

xxxx

The fact that two terms have separate definitions means that while a government
instrumentality may include a government-owned or controlled corporation, there may be a
government instrumentality that will not qualify as a government-owned or controlled
corporation.

A close scrutiny of the definition of government-owned or controlled corporation in Section

2(13) will show that MIAA would not fall under such definition. MIAA is a government
instrumentality that does not qualify as a government-owned or controlled corporation. x x
x.

xxxx

Thus, MIAA is not a government-owned or controlled corporation but a government

instrumentality which is exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to the limitations enumerated in
Section 133 of the Local Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.

Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended
for public use, and as such are exempt from real property tax under Section 234(a) of the Local
Government Code. However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real property tax. In this case,
only those portions of the NAIA Pasay properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Pasay. (Emphases added, citations omitted.)
The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also
mentioned several other government instrumentalities, among which was the Philippine Fisheries
Development Authority. Thus, applying the 2006 MIAA ruling, the Court, in Philippine Fisheries
Development Authority v. Court of Appeals,82 held:chanRoblesvirtualLawlibrary
On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of real
property tax, except those portions which have been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the
instrumentalities of the national government. x x x.

xxxx

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority
has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or
voting shares. Hence, it is not a stock corporation. Neither [is it] a non-stock corporation because
it has no members.

The Authority is actually a national government instrumentality which is defined as an agency of

the national government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. When the law vests
in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.
Thus, the Authority which is tasked with the special public function to carry out the
governments policy to promote the development of the countrys fishing industry and improve
the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic
products, exercises the governmental powers of eminent domain, and the power to levy fees and
charges. At the same time, the Authority exercises the general corporate powers conferred by
laws upon private and government-owned or controlled corporations.

xxxx

In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. When local governments invoke the
power to tax on national government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there must be clear language in
the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek to tax national
government instrumentalities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons. In case the Authority fails to pay the real
property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax
delinquency. x x x.

xxxx

In sum, the Court finds that the Authority is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with
respect to those portions which are leased to private entities. Notwithstanding said tax
delinquency on the leased portions of the IFPC, the latter or any part thereof, being a property of
public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy
the tax delinquency through means other than the sale at public auction of the IFPC. (Citations
omitted.)
Another government instrumentality specifically mentioned in the 2006 MIAA case was the
Philippine Ports Authority (PPA). Hence, in Curata v. Philippine Ports Authority,83 the Court
held that the PPA is similarly situated as MIAA, and ruled in this
wise:chanRoblesvirtualLawlibrary
This Courts disquisition in Manila International Airport Authority v. Court of Appeals ruling
that MIAA is not a government-owned and/or controlled corporation (GOCC), but an
instrumentality of the National Government and thus exempt from local taxation, and that its real
properties are owned by the Republic of the Philippines is instructive. x x x. These findings
are squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise not a
GOCC for not having shares of stocks or members. Second, the docks, piers and buildings it
administers are likewise owned by the Republic and, thus, outside the commerce of man. Third,
PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a government
instrumentality, an agency of the government vested with corporate powers to perform efficiently
its governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and
such may not be garnished absent an allocation by its Board or by statutory grant. If the PPA
funds cannot be garnished and its properties, being government properties, cannot be levied via a
writ of execution pursuant to a final judgment, then the trial court likewise cannot grant
discretionary execution pending appeal, as it would run afoul of the established jurisprudence
that government properties are exempt from execution. What cannot be done directly cannot be
done indirectly. (Citations omitted.)
In Government Service Insurance System v. City Treasurer and City Assessor of the City of
Manila84 the Court found that the GSIS was also a government instrumentality and not a GOCC,
applying the 2006 MIAA case even though the GSIS was not among those specifically
mentioned by the Court as similarly situated as MIAA. The Court
said:chanRoblesvirtualLawlibrary
GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International
Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a
Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability
of GSIS for real estate taxes. x x x.

xxxx

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public dominion
and, hence, outside the commerce of man, the rationale underpinning the disposition in that case
is squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while
created under CA 186 as a non-stock corporation, a status that has remained unchanged even
when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted
Sec. 193 of the LGC, a GOCC following the teaching of Manila International Airport Authority,
for, like MIAA, GSISs capital is not divided into unit shares. Also, GSIS has no members to
speak of. And by members, the reference is to those who, under Sec. 87 of the Corporation Code,
make up the non-stock corporation, and not to the compulsory members of the system who are
government employees. Its management is entrusted to a Board of Trustees whose members are
appointed by the President.

Second, the subject properties under GSISs name are likewise owned by the Republic. The
GSIS is but a mere trustee of the subject properties which have either been ceded to it by the
Government or acquired for the enhancement of the system. This particular property arrangement
is clearly shown by the fact that the disposal or conveyance of said subject properties are either
done by or through the authority of the President of the Philippines. x x x. (Emphasis added,
citations omitted.)
All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should
be classified as a government instrumentality, as its properties are being used for public
purposes, and should be exempt from real estate taxes. This is not to derogate in any way the
delegated authority of local government units to collect realty taxes, but to uphold the
fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying all
the jurisprudence that have exempted from said taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006 MIAA ruling or not.

To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock
corporation, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Like MIAA, petitioner MCIAA has capital under
its charter but it is not divided into shares of stock. It also has no stockholders or voting shares.
Republic Act No. 6958 provides:chanRoblesvirtualLawlibrary
Section 9. Capital. The [Mactan-Cebu International Airport] Authority shall have an authorized
capital stock equal to and consisting of:ChanRoblesVirtualawlibrary

(a) The value of fixed assets (including airport facilities, runways and equipment) and such other
properties, movable and immovable, currently administered by or belonging to the airports as
valued on the date of the effectivity of this Act;

(b) The value of such real estate owned and/or administered by the airports; and

(c) Government contribution in such amount as may be deemed an appropriate initial balance.
Such initial amount, as approved by the President of the Philippines, which shall be more or less
equivalent to six (6) months working capital requirement of the Authority, is hereby authorized
to be appropriated in the General Appropriations Act of the year following its enactment into
law.chanroblesvirtuallawlibrary
Thereafter, the government contribution to the capital of the Authority shall be provided for in
the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines, and are outside the commerce of man.
This, unless petitioner leases its real property to a taxable person, the specific property leased
becomes subject to real property tax; in which case, only those portions of petitioners properties
which are leased to taxable persons like private parties are subject to real property tax by the City
of Lapu-Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the
2006 MIAA case, and we quote:chanRoblesvirtualLawlibrary
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)
of the Introductory Provisions of the Administrative Code because it is not organized as a stock
or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. x x x.

xxxx

The term ports x x x constructed by the State includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a)
of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to [t]axes, fees or
charges of any kind by local governments. The only exception is when MIAA leases its real
property to a taxable person as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions ports x x x constructed by the State, which
includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever
that the Airport Lands and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.85 (Emphases added.)
WHEREFORE, we hereby GRANT the petition. We REVERSE and SET ASIDE the Decision
dated October 8, 2007 and the Resolution dated February 12, 2008 of the Court of Appeals (Cebu
City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:
Petitioners properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.VOID all the
real property tax assessments, including the additional tax for the special education fund and the
penalty interest, as well as the final notices of real property tax delinquencies, issued by the City
of Lapu-Lapu on petitioners properties, except the assessment covering the portions that
petitioner has leased to private parties.NULL and VOID the sale in public auction of 27 of
petitioners properties and the eventual forfeiture and purchase of the said properties by
respondent City of Lapu-Lapu. We likewise declare VOID the corresponding Certificates of Sale
of Delinquent Property issued to respondent City of Lapu-Lapu
EN BANC

MANILA INTERNATIONAL G.R. No. 155650

AIRPORT AUTHORITY,
Petitioner, Present:

PANGANIBAN, C.J.,
PUNO,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO MORALES,
CALLEJO, SR.,
AZCUNA,
COURT OF APPEALS, CITY OF TINGA,
PARAAQUE, CITY MAYOR OF CHICO-NAZARIO,
PARAAQUE, SANGGUNIANG GARCIA, and
PANGLUNGSOD NG PARAAQUE, VELASCO, JR., JJ.
CITY ASSESSOR OF PARAAQUE,
and CITY TREASURER OF Promulgated:
PARAAQUE,
Respondents. July 20, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I ON

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila International Airport Authority (MIAA
Charter). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 909[1] and 298[2] amended the MIAA Charter.

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

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

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Paraaque for the taxable years 1992 to 2001. MIAAs real estate tax delinquency is broken down
as follows:

TAX DECLARATION
TAXABLE YEAR
TAX DUE
PENALTY
TOTAL
E-016-01370
1992-2001
19,558,160.00
11,201,083.20
30,789,243.20
E-016-01374
1992-2001
111,689,424.90
68,149,479.59
179,838,904.49
E-016-01375
1992-2001
20,276,058.00
12,371,832.00
32,647,890.00
E-016-01376
1992-2001
58,144,028.00
35,477,712.00
93,621,740.00
E-016-01377
1992-2001
18,134,614.65
11,065,188.59
29,199,803.24
E-016-01378
1992-2001
111,107,950.40
67,794,681.59
178,902,631.99
E-016-01379
1992-2001
4,322,340.00
2,637,360.00
6,959,700.00
E-016-01380
1992-2001
7,776,436.00
4,744,944.00
12,521,380.00
*E-016-013-85
1998-2001
6,444,810.00
2,900,164.50
9,344,974.50
*E-016-01387
1998-2001
34,876,800.00
5,694,560.00
50,571,360.00
*E-016-01396
1998-2001
75,240.00
33,858.00
109,098.00
GRAND TOTAL

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

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.00[6]

On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque
threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The
OGCC pointed out that Section 206 of the Local Government Code requires persons exempt
from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA
Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition
and injunction, with prayer for preliminary injunction or temporary restraining order. The
petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against,
and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as
CA-G.R. SP No. 66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond
the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002
MIAAs motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA
filed on 5 December 2002 the present petition for review.[7]

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

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this
Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining
Order. The motion sought to restrain respondents the City of Paraaque, City Mayor of Paraaque,
Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of
Paraaque (respondents) from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public auction the
Airport Lands and Buildings. Respondents received the TRO on the same day that the Court
issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the
conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the
directive issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor
General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in
the name of MIAA. However, MIAA points out that it cannot claim ownership over these
properties since the real owner of the Airport Lands and Buildings is the Republic of the
Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for
the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use
and public service, the ownership of these properties remains with the State. The Airport Lands
and Buildings are thus inalienable and are not subject to real estate tax by local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section
234 of the Local Government Code because the Airport Lands and Buildings are owned by the
Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax
itself. MIAA points out that the reason for tax exemption of public property is that its taxation
would not inure to any public advantage, since in such a case the tax debtor is also the tax
creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the
tax exemption privileges of government-owned and-controlled corporations upon the effectivity
of the Local Government Code. Respondents also argue that a basic rule of statutory construction
is that the express mention of one person, thing, or act excludes all others. An international
airport is not among the exceptions mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos[8] where
we held that the Local Government Code has withdrawn the exemption from real estate tax
granted to international airports. Respondents further argue that since MIAA has already paid
some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands
and Buildings are exempt from real estate tax.

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

The Courts Ruling

We rule that MIAAs Airport Lands and Buildings are exempt from real estate tax imposed by
local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the

National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.

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

Respondents argue that MIAA, being a government-owned or controlled corporation, is not
exempt from real estate tax. Respondents claim that the deletion of the phrase any government-
owned or controlled so exempt by its charter in Section 234(e) of the Local Government Code
withdrew the real estate tax exemption of government-owned or controlled corporations. The
deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the
entities exempt from real estate tax.

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

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

(13) Government-owned or controlled corporation refers to any agency organized as a stock or

non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be organized as a stock or non-stock

corporation. MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. Section 10 of the MIAA Charter[9] provides:

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

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

(b) That the amount of P605 million as of December 31, 1986 representing about seventy
percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be
remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended,
shall be converted into the equity of the National Government in the Authority. Thereafter, the
Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code[10] defines a stock corporation as one whose capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x. MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as one where no part of its income is
distributable as dividends to its members, trustees or officers. A non-stock corporation must have
members. Even if we assume that the Government is considered as the sole member of MIAA,
this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit
20% of its annual gross operating income to the National Treasury.[11] This prevents MIAA
from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.
MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference
is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government instrumentality as follows:

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

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,[12]
police authority[13] and the levying of fees and charges.[14] At the same time, MIAA exercises
all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.[15]

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
separate and autonomous body[16] will make its operation more financially viable.[17]

Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they are
not government-owned or controlled corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal relationship and status of
government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. 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:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. (Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power subject to such guidelines and limitations as the
Congress may provide.[18]

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies with greater force when
local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its operations.
For these reasons, provisions granting exemptions to government agencies may be construed
liberally, in favor of non tax-liability of such agencies.[19]
There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.

There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that unless otherwise provided in the
Code, local governments cannot tax national government instrumentalities. As this Court held in
Basco v. Philippine Amusements and Gaming Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the supremacy of the National Government over local governments.

Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power
on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the
United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the accomplishment of
them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax as
a tool for regulation (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the power to destroy (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it. [20]

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned
by the State or the Republic of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like roads, canals, rivers, torrents, ports and bridges constructed by the State, are owned by
the State. The term ports includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.

The charging of fees to the public does not determine the character of the property whether it is
of public dominion or not. Article 420 of the Civil Code defines property of public dominion as
one intended for public use. Even if the government collects toll fees, the road is still intended
for public use if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the
speed restrictions and other conditions for the use of the road do not affect the public character of
the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed users tax. This means taxing those among the public who actually use a public
facility instead of taxing all the public including those who never use the particular public
facility. A users tax is more equitable a principle of taxation mandated in the 1987 Constitution.
[21]
The Airport Lands and Buildings of MIAA, which its Charter calls the principal airport of the
Philippines for both international and domestic air traffic,[22] are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are outside
the commerce of man. The Court has ruled repeatedly that properties of public dominion are
outside the commerce of man. As early as 1915, this Court already ruled in Municipality of
Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said towns or provinces.

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could
not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so
to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce, as was
decided by the supreme court of Spain in its decision of February 12, 1895, which says:
Communal things that cannot be sold because they are by their very nature outside of commerce
are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc.
(Emphasis supplied) [23]

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed
of or even leased by the municipality to private parties. While in case of war or during an
emergency, town plazas may be occupied temporarily by private individuals, as was done and as
was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary
occupation or use must also cease, and the town officials should see to it that the town plazas
should ever be kept open to the public and free from encumbrances or illegal private
constructions.[24] (Emphasis supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.[25]

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale
of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber[26] the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public
Land Law or Commonwealth Act No. 141, which remains to this day the existing general law
governing the classification and disposition of lands of the public domain other than timber and
mineral lands,[27] provide:

SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources,
the President may designate by proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-
public uses or purposes when the public interest requires it, including reservations for highways,
rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or
lequas communales, public parks, public quarries, public fishponds, working mens village and
other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three
shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other
disposition until again declared alienable under the provisions of this Act or by proclamation of
the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable. Since
the Airport Lands and Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the
Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by
law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public use, they are properties of public dominion, owned
by the Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to
hold title to real properties owned by the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the
Government is authorized by law to be conveyed, the deed of conveyance shall be executed in
behalf of the government by the following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any
political subdivision or of any corporate agency or instrumentality, by the executive head of the
agency or instrumentality. (Emphasis supplied)

In MIAAs case, its status as a mere trustee of the Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.[28]

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
Buildings from the Bureau of Air Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. x x x x

The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of
Lands and other appropriate government agencies shall undertake an actual survey of the area
transferred within one year from the promulgation of this Executive Order and the corresponding
title to be issued in the name of the Authority. Any portion thereof shall not be disposed through
sale or through any other mode unless specifically approved by the President of the Philippines.
(Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable, belonging to the
Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all equipment which are
necessary for the operation of crash fire and rescue facilities, are hereby transferred to the
Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. The Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport
Lands and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport accommodation
and service comparable with the best airports in the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro
Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing
high standards of accommodation and service within the context of a financially viable
operation, will best be achieved by a separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772,
the President of the Philippines is given continuing authority to reorganize the National
Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA
was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The
purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights
over MIAAs assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings shall not be disposed
through sale or through any other mode unless specifically approved by the President of the
Philippines. This only means that the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil Code, only the owner has the right to
x x x dispose of a thing. Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA
does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA
Charter, the President is the only one who can authorize the sale or disposition of the Airport
Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the
Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any [r]eal property
owned by the Republic of the Philippines. Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of
the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person;

x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing [t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x. The real properties owned by the Republic
are titled either in the name of the Republic itself or in the name of agencies or instrumentalities
of the National Government. The Administrative Code allows real property owned by the
Republic to be titled in the name of agencies or instrumentalities of the national government.
Such real properties remain owned by the Republic and continue to be exempt from real estate
tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency
or instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person. MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA the
beneficial use of the Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court
ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.[29]

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of all persons, whether natural or
juridical upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since
the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is
not exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay
down the explicit proposition that the withdrawal of realty tax exemption applies to all persons.
The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit
provision.

The term All persons encompasses the two classes of persons recognized under our laws, natural
and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is
not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and
underscoring in the original)

The minority posits that the determinative test whether MIAA is exempt from local taxation is its
status whether MIAA is a juridical person or not. The minority also insists that Sections 193 and
234 may be examined in isolation from Section 133(o) to ascertain MIAAs claim of exemption.
The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons [u]nless otherwise provided in this
Code. Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. 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:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind
of tax on national government instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and instrumentalities. The taxing powers of
local governments do not extend to the national government, its agencies and instrumentalities,
[u]nless otherwise provided in this Code as stated in the saving clause of Section 133. The saving
clause refers to Section 234(a) on the exception to the exemption from real estate tax of real
property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons
are subject to tax by local governments. The minority insists that the juridical persons exempt
from local taxation are limited to the three classes of entities specifically enumerated as exempt
in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives
duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and
educational institutions. It would be belaboring the obvious why the MIAA does not fall within
any of the exempt entities under Section 193. (Emphasis supplied)

The minoritys theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national
government, which itself is a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193. Under
this theory, local governments can impose any kind of local tax, and not only real estate tax, on
the national government.

Under the minoritys theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax. Some of
the national government instrumentalities vested by law with juridical personalities are: Bangko
Sentral ng Pilipinas,[30] Philippine Rice Research Institute,[31] Laguna Lake
Development Authority,[32] Fisheries Development Authority,[33] Bases Conversion
Development Authority,[34] Philippine Ports Authority,[35] Cagayan de Oro Port Authority,[36]
San Fernando Port Authority,[37] Cebu Port Authority,[38] and Philippine National Railways.
[39]

The minoritys theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities. Where the law does not distinguish,
courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national
government instrumentality under Section 133(o) of the Local Government Code. Section 133(o)
is the specific provision of law prohibiting local governments from imposing any kind of tax on
the national government, its agencies and instrumentalities.

Section 133 of the Local Government Code starts with the saving clause [u]nless otherwise
provided in this Code. This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments
may tax the national government, its agencies and instrumentalities only if the Local
Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of
the Code, which makes the national government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government
Code provides:

SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the
real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.

x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The
exception to this exemption is when the government gives the beneficial use of the real property
to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to any other
tax. The justification for the exception to the exemption is that the real property, although owned
by the Republic, is not devoted to public use or public service but devoted to the private gain of a
taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted
rule of construction, in case of conflict the subsequent provisions should prevail. Therefore,
MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to
instrumentalities under Section 133(o) of the Local Government Code being qualified by
Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand,
and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less
has any one presented a persuasive argument that there is such a conflict. The minoritys
assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two
reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193 states
[u]nless otherwise provided in this Code. By its own words, Section 193 admits the superiority
of other provisions of the Local Government Code that limit the exercise of the taxing power in
Section 193. When a provision of law grants a power but withholds such power on certain
matters, there is no conflict between the grant of power and the withholding of power. The
grantee of the power simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled Common Limitations on the Taxing Powers of Local Government
Units. Section 133 limits the grant to local governments of the power to tax, and not merely the
exercise of a delegated power to tax. Section 133 states that the taxing powers of local
governments shall not extend to the levy of any kind of tax on the national government, its
agencies and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the common limitations on the taxing powers of local governments,
Section 133 logically prevails over Section 193 which grants local governments such taxing
powers. By their very meaning and purpose, the common limitations on the taxing power prevail
over the grant or exercise of the taxing power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national government, its agencies and
instrumentalities a gross absurdity.

Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the
saving clause in Section 133 stating [u]nless otherwise provided in this Code. This exception
which is an exception to the exemption of the Republic from real estate tax imposed by local
governments refers to Section 234(a) of the Code. The exception to the exemption in Section
234(a) subjects real property owned by the Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real estate tax if the beneficial use of such
property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase
government-owned or controlled corporation is not controlling. The minority points out that
Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are
not controlling when it provides:

SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole,
or a particular statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is flawed.
The minoritys argument is a non sequitur. True, Section 2 of the Administrative Code recognizes
that a statute may require a different meaning than that defined in the Administrative Code.
However, this does not automatically mean that the definition in the Administrative Code does
not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that
unless the specific words x x x of a particular statute shall require a different meaning, the
definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase government-owned or controlled
corporation differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase
government-owned or controlled corporation differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase
government-owned or controlled corporation. The Administrative Code, however, expressly
defines the phrase government-owned or controlled corporation. The inescapable conclusion is
that the Administrative Code definition of the phrase government-owned or controlled
corporation applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code incorporates in a
unified document the major structural, functional and procedural principles and rules of
governance. Thus, the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless
a statute expressly provides for a different status and relationship for a specific government unit
or entity, the provisions of the Administrative Code prevail.

The minority also contends that the phrase government-owned or controlled corporation should
apply only to corporations organized under the Corporation Code, the general incorporation law,
and not to corporations created by special charters. The minority sees no reason why government
corporations with special charters should have a capital stock. Thus, the minority declares:

I submit that the definition of government-owned or controlled corporations under the

Administrative Code refer to those corporations owned by the government or its instrumentalities
which are created not by legislative enactment, but formed and organized under the Corporation
Code through registration with the Securities and Exchange Commission. In short, these are
GOCCs without original charters.

xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are
not empowered to declare dividends or alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and
existing legislations. It will also result in gross absurdities.

First, the Administrative Code definition of the phrase government-owned or controlled

corporation does not distinguish between one incorporated under the Corporation Code or under
a special charter. Where the law does not distinguish, courts should not distinguish.

Second, Congress has created through special charters several government-owned corporations
organized as stock corporations. Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter[40] of the Land Bank of the
Philippines provides:

SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million common shares with a par value of ten pesos each,
which shall be fully subscribed by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each, which shall be issued in accordance with the
provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter[41] of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share.
These shares are available for subscription by the National Government. Upon the effectivity of
this Charter, the National Government shall subscribe to Twenty-Five Million common shares of
stock worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special
charters are the Philippine Crop Insurance Corporation,[42] Philippine International Trading
Corporation,[43] and the Philippine National Bank[44] before it was reorganized as a stock
corporation under the Corporation Code. All these government-owned corporations organized
under special charters as stock corporations are subject to real estate tax on real properties owned
by them. To rule that they are not government-owned or controlled corporations because they are
not registered with the Securities and Exchange Commission would remove them from the reach
of Section 234 of the Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The
first condition is that the government-owned or controlled corporation must be established for
the common good. The second condition is that the government-owned or controlled corporation
must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution
provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or controlled corporations may be
created or established by special charters in the interest of the common good and subject to the
test of economic viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create government-owned or controlled

corporations through special charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic viability. The test of
economic viability applies only to government-owned or controlled corporations that perform
economic or commercial activities and need to compete in the market place. Being essentially
economic vehicles of the State for the common good meaning for economic development
purposes these government-owned or controlled corporations with special charters are usually
organized as stock corporations just like ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing

governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not
the government-owned or controlled corporations referred to in Section 16, Article XII of the
1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities known as government-owned or
controlled corporations must meet the test of economic viability because they compete in the
market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their income
to meet operating expenses solely from commercial transactions in competition with the private
sector. The intent of the Constitution is to prevent the creation of government-owned or
controlled corporations that cannot survive on their own in the market place and thus merely
drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers
money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.

Therefore, when we insert the phrase ECONOMIC VIABILITY together with the common good,
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committees consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of ECONOMIC VIABILITY OR THE
ECONOMIC TEST, together with the common good.[45]

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase in the interest of the common good and subject to the test of
economic viability. The addition includes the ideas that they must show capacity to function
efficiently in business and that they should not go into activities which the private sector can do
better. Moreover, economic viability is more than financial viability but also includes capability
to make profit and generate benefits not quantifiable in financial terms.[46] (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The non-
economic viability of rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that are usually organized under
their special charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of government-owned or controlled corporations
in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create
MIAA to compete in the market place. MIAA does not compete in the market place because
there is no competing international airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and international airport of the Philippines. The
operation of an international airport requires the presence of personnel from the following
government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold departure
orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;

3. The quarantine office of the Department of Health, to enforce health measures against the
spread of infectious diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal
diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of
terrorists and the escape of criminals, as well as to secure the airport premises from terrorist
attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to

authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the
airport; and

7. The MIAA, to provide the proper premises such as runway and buildings for the
government personnel, passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an
international airport.

MIAA performs an essential public service that every modern State must provide its citizens.
MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees[47] and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:

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

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure, MIAA
remains a government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code. More importantly, as long as MIAA renders essential public services, it
need not comply with the test of economic viability. Thus, MIAA is outside the scope of the
phrase government-owned or controlled corporations under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of the phrase government-owned or
controlled corporation as merely clarificatory or illustrative. This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of government-owned or controlled corporations.
The Administrative Code defines what constitutes a government-owned or controlled
corporation. To belittle this phrase as clarificatory or illustrative is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)

of the Introductory Provisions of the Administrative Code because it is not organized as a stock
or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth. (Emphasis supplied)

The term ports x x x constructed by the State includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a)
of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to [t]axes, fees or
charges of any kind by local governments. The only exception is when MIAA leases its real
property to a taxable person as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions ports x x x constructed by the State, which
includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever
that the Airport Lands and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court
of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE
the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from
the real estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax
assessments, including the final notices of real estate tax delinquencies, issued by the City of
Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority,
except for the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands
and Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.

EN BANC

[G.R. NO. 163072 : April 2, 2009]

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, v. CITY OF PASAY,

SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY
TREASURER OF PASAY, and CITY ASSESSOR OF PASAY, Respondents.
DECISION

CARPIO, J.:

This is a Petition for Review on Certiorari 1 of the Decision2 dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy
Aquino International Airport (NAIA) Complex under Executive Order No. 903 (EO 903),3
otherwise known as the Revised Charter of the Manila International Airport Authority. EO 903
was issued on 21 July 1983 by then President Ferdinand E. Marcos. Under Sections 34 and 225
of EO 903, approximately 600 hectares of land, including the runways, the airport tower, and
other airport buildings, were transferred to MIAA. The NAIA Complex is located along the
border between Pasay City and Paraaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the
City of Pasay for the taxable years 1992 to 2001. MIAA's real property tax delinquency for its
real properties located in NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay
properties) is tabulated as follows:

TAX DECLA-RATION TAXABLE YEAR TAX DUE PENALTY TOTAL

A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18
A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98
A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20
A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44
A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85
A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28
A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58
A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36
A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33
A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13
A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00
GRAND TOTAL P642,747,726.20 P373,466,110.13 P1,016,213,836.33
On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and
warrants of levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy
on 28 August 2001. Thereafter, the City Mayor of Pasay threatened to sell at public auction the
NAIA Pasay properties if the delinquent real property taxes remain unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and
injunction with prayer for preliminary injunction or temporary restraining order. The petition
sought to enjoin the City of Pasay from imposing real property taxes on, levying against, and
auctioning for public sale the NAIA Pasay properties.

On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the
City of Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a
motion for reconsideration, which the Court of Appeals denied. Hence, this petition.

The Court of Appeals' Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local
Government Code, which took effect on 1 January 1992, withdrew the exemption from payment
of real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under Republic
Act No. 6938, non-stock and non-profit hospitals and educational institutions. Since MIAA is a
government-owned corporation, it follows that its tax exemption under Section 21 of EO 903 has
been withdrawn upon the effectivity of the Local Government Code.

The Issue

The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from
real property tax.
The Court's Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited
Sections 193 and 234 of the Local Government Code which read:

SECTION 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code.

SECTION 234. Exemptions from Real Property Tax. - The following are exempted from
payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise to a
taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-
profit or religious cemeteries and all lands, buildings and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938;
andcralawlibrary

(e) Machinery and equipment used for pollution control and environment protection.
Except as provided herein, any exemption from payment of real property tax previously granted
to, or presently enjoyed by, all persons, whether natural or juridical, including all government-
owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.

The Court of Appeals held that as a government-owned corporation, MIAA's tax exemption
under Section 21 of EO 903 has already been withdrawn upon the effectivity of the Local
Government Code in 1992.

In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court
already resolved the issue of whether the airport lands and buildings of MIAA are exempt from
tax under existing laws. The 2006 MIAA case originated from a petition for prohibition and
injunction which MIAA filed with the Court of Appeals, seeking to restrain the City of
Paraaque from imposing real property tax on, levying against, and auctioning for public sale the
airport lands and buildings located in Paraaque City. The only difference between the 2006
MIAA case and this case is that the 2006 MIAA case involved airport lands and buildings located
in Paraaque City while this case involved airport lands and buildings located in Pasay City. The
2006 MIAA case and this case raised the same threshold issue: whether the local government can
impose real property tax on the airport lands, consisting mostly of the runways, as well as the
airport buildings, of MIAA. In the 2006 MIAA case, this Court held:

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)

of the Introductory Provisions of the Administrative Code because it is not organized as a stock
or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a)
of the Local Government Code.7 (Emphasis in the original)

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a
"government-owned or controlled corporation." Obviously, the term government
"instrumentality" is broader than the term "government-owned or controlled corporation."
Section 2(10) provides:

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

(10) Instrumentality refers to any agency of the national Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. This term includes regulatory agencies, chartered institutions and
government-owned or controlled corporations.

The term "government-owned or controlled corporation" has a separate definition under Section
2(13)8 of the Introductory Provisions of the Administrative Code of 1987:

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

(13) Government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: Provided, That government-owned or controlled
corporations may further be categorized by the department of Budget, the Civil Service
Commission, and the Commission on Audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such corporations.

The fact that two terms have separate definitions means that while a government
"instrumentality" may include a "government-owned or controlled corporation," there may be a
government "instrumentality" that will not qualify as a "government-owned or controlled
corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section

2(13) will show that MIAA would not fall under such definition. MIAA is a government
"instrumentality" that does not qualify as a "government-owned or controlled corporation." As
explained in the 2006 MIAA case:

A government-owned or controlled corporation must be "organized as a stock or non-stock

corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. x x x

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.

xxx

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is
distributable as dividends to its members, trustees or officers." A non-stock corporation must
have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers."
MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?cralawred

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference
is that MIAA is vested with corporate powers. x x x

When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,
police authority and the levying of fees and charges. At the same time, MIAA exercises "all the
powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."9

Thus, MIAA is not a government-owned or controlled corporation but a government

instrumentality which is exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to the limitations enumerated in
Section 133 of the Local Government Code.10 Under Section 133(o)11 of the Local Government
Code, local government units have no power to tax instrumentalities of the national government
like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.

Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended
for public use, and as such are exempt from real property tax under Section 234(a) of the Local
Government Code. However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real property tax.12 In this case,
only those portions of the NAIA Pasay properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002
and the Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. We
DECLARE the NAIA Pasay properties of the Manila International Airport Authority EXEMPT
from real property tax imposed by the City of Pasay. We declare VOID all the real property tax
assessments, including the final notices of real property tax delinquencies, issued by the City of
Pasay on the NAIA Pasay properties of the Manila International Airport Authority, except for the
portions that the Manila International Airport Authority has leased to private parties.

No costs.

SO ORDERED.