1st set digested cases taxation law 1

7/23/2019 1st Set Digested cases Taxation Law 1

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THEORY AND BASIS OF TAXATION

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs. ALGUE, INC., and THE COURT OF TAXAPPEALS, respondents.

Facts: Algue, Inc. a domestic corporation engaged in engineering, construction and other allied activities,received a letter from the CIR assessing it in the total amount of P83,183.85 as delinquenc income ta!esfor the ears 1"58 and 1"5".Algue, Inc. #led a protest, claiming a deduction of P$5,%%%.%% as anordinar reasona&le or necessar e!pense. It contends that the said amount had &een legitimatel paid foractual services rendered. 'he pament (as in the form of promotional fees. 'hese (ere collected & thePaees for their (or) in the creation of the *egeta&le +il Investment Corporation of the Philippines and itssu&sequent purchase of the properties of the Philippine ugar -state evelopment Compan.

+n the other hand, CIR claims that these paments are #ctitious &ecause most of the paees are mem&ersof the same famil in control of Algue. It is argued that no indication (as made as to ho( such paments(ere made, (hether & chec) or in cash, and there is not enough su&stantiation of such paments. Inshort, the petitioner suggests a ta! dodge, an attempt to evade a legitimate assessment & involving animaginar deduction.

Iss!":/+0 the Collector of Internal Revenue correctl disallo(ed the P$5,%%%.%% deduction claimed &private respondent Algue as legitimate &usiness e!penses in its income ta! returns.

H"#d:'he claimed deduction & the private respondent (as permitted under the Internal Revenue Codeand should therefore not have &een disallo(ed & the petitioner.

-C. 3%. Deductions from gross income.In computing net income there shall &e allo(ed asdeductions 2

a4 -!penses

14 In general.All the ordinar and necessar e!penses paid or incurred during the ta!a&leear in carring on an trade or &usiness, including a reasona&le allo(ance for salaries orother compensation for personal services actuall rendered6 ... $$

and Revenue Regulations 0o. 7, ection $% 14, reading as follo(s

-C. $%. Compensation for personal services.

'a!es are the life&lood of the government and so should &e collected (ithout unnecessar hindrance +nthe other hand, such collection should &e made in accordance (ith la( as an ar&itrariness (ill negate thever reason for government itself. It is therefore necessar to reconcile the apparentl conicting interestsof the authorities and the ta!paers so that the real purpose of ta!ation, (hich is the promotion of thecommon good, ma &e achieved.

It is said that ta!es are (hat (e pa for civili9ation societ. /ithout ta!es, the government (ould &e

paral9ed for lac) of the motive po(er to activate and operate it. :ence, despite the natural reluctance tosurrender part of one;s hard earned income to the ta!ing authorities, ever person (ho is a&le to mustcontri&ute his share in the running of the government. 'he government for its part, is e!pected to respondin the form of tangi&le and intangi&le &ene#ts intended to improve the lives of the people and enhancetheir moral and material values. 'his sm&iotic relationship is the rationale of ta!ation and should dispethe erroneous notion that it is an ar&itrar method of e!action & those in the seat of po(er.


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G.R. N%. L&'($)$ Ma* $', ++)

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TOYO SHIPPING CO. LTD., -"-"s"nt"d/* SORIAMONT STEAMSHIP

FACTS: Private respondent is a foreign corporation that o(ns and operates tramper vessel >?* @ardenia.0A'RAchartered >?* @ardenia to load tons of ra( sugar in the Philippines.In 1"8%, the respondent paidthe required income and common carrier;s ta!es P1%$,1B7.$54 &ased on the e!pected gross receipts ofthe vessel.pon arriving, ho(ever, at @uimaras Port of Iloilo, the vessel found no sugar for loading. +n

anuar 1%, 1"81, 0A'RA and private respondent;s agent mutuall agreed to have the vessel sail forapan (ithout an cargo.

Claiming the prepament of income and common carrier;s ta!es as erroneous since no receipt (asreali9ed from the charter agreement, private respondent instituted a claim for ta! credit or refund of thesum P1%$,1B7.$5 &efore CIR. :o(ever, CIR failed to act promptl on the claim.

ISSUE: 0ON'o)o hipping Co. Dtd., is entitled to a refund or ta! credit for amounts representing prepament of income and common carrier;s ta!es

HELD: YES. Pursuant to section 7B &4 74 of the 0ational Internal Revenue Code, a resident foreigncorporation engaged in the transport of cargo is lia&le for ta!es depending on the amount of income itderives from sources (ithin the Philippines. 'hus, &efore such a ta! lia&ilit can &e enforced the ta!paer

must &e sho(n to have earned income sourced from the Philippines.

A claim for refund is in the nature of a claim for e!emption(and should &e construed instrictissimijuris against the ta!paer.In this case, the respondent has adduced suEcient evidence proving that itderived no receipt from its charter agreement (ith 0A'RA.

'he ta! (as paid (a &ac) in 1"8% and despite the clear sho(ing that it (as erroneousl paid, thegovernment succeeded in delaing its refund for #fteen 154 ears. After #fteen 154 long ears and thee!penses of litigation, the mone that (ill &e #nall refunded to the private respondent is Fust (orth adamaged nic)el. 'his is not, ho(ever, the )ind of success the government, especiall the


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for the succeeding ta!a&le ear, 1""%. u&sequentl, petitioner informed the


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Petitioner;s claim for refund?ta! credits of overpaid income ta! for 1"85 in the amount of P5,7"",$B"."5 ishere& denied for having &een #led &eond the reglementar period. 'he 1"8H claim for refund amountingto P73B,%$$.H" is li)e(ise denied since petitioner has opted and in all li)elihood automaticall credited thesame to the succeeding ear.

Petitioner relied on R>C 0o. $85 the circular that states that overpaid income ta!es are not covered &the t(oear prescriptive period under the ta! Code and that ta!paers ma claim refund or ta! credits fothe e!cess quarterl income ta! (ith the C $85, changing the prescriptive period oft(o ears to ten ears on claims of e!cess quarterl income ta! paments, such circular created a clearinconsistenc (ith the provision of ec. 73% of 1"$$ 0IRC. In so doing, the oreover, the 1"8$ annual corporate ta! return of the petitioner (as not oered as evidence to contovertsaid fact. 'hus, (e are &ound & the #ndings of fact & respondent courts, there &eing no sho(ing of grosserror or a&use on their part to distur& our reliance thereon.


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mandating an e!cessive increase in real propert ta!es & 1%%M to B%%M on improvements, and up to1%%M on land6 that an increase in the value of real propert &rought a&out & the revision of real propertvalues and assessments (ould necessaril lead to a proportionate increase in real propert ta!es6 thatsheer oppression is the result of increasing real propert ta!es at a period of time (hen harsh economicconditions prevail6 and that the increase in the mar)et values of real propert as reected in the scheduleof values (as &rought a&out onl & ination and economic recession.

'he intervenor Realt +(ners Association of the Philippines, Inc. R+AP4, (hich is the national associationof o(nerslessors, Foins Chave9 in his petition.

ISSUE: /+0 -!ecutive +rder 0o. $3 insofar as the revision of the assessments and the eectivit thereofare concerned, is unconstitutional.

HELD: N%.'he attac) on -!ecutive +rder 0o. $3 has no legal &asis as the general revision of assessmentsis a continuing process mandated & ection 71 of Presidential ecree 0o. BHB. If at all, it is Presidentialecree 0o. BHB (hich should &e challenged as constitutionall in#rm. :o(ever, Chave9 failed to raise ano&Fection against said decree. It (as R+AP (hich questioned the constitutionalit thereof.

/ithout -!ecutive +rder 0o. $3, the &asis for collection of real propert ta!es (ill still &e the 1"$8 revisionof propert values. Certainl, to continue collecting real propert ta!es &ased on valuations arrived atseveral ears ago, in disregard of the increases in the value of real properties that have occurred since

then, is not in consonance (ith a sound ta! sstem. =iscal adequac, (hich is one of the characteristics ofa sound ta! sstem, requires that sources of revenues must &e adequate to meet governmente!penditures and their variations.

Chave9 argues further that the unreasona&le increase in real propert ta!es &rought a&out & -!ecutive+rder 0o. $3 amounts to a con#scation of propert repugnant to the constitutional guarantee of dueprocess, invo)ing the cases of -rmita>alate :otel, et al. v. >aor of >anila and ison v. Ancheta, et al.

'he reliance on these t(o cases is certainl misplaced &ecause the due process requirement called fortherein applies to the Gpo(er to ta!.G -!ecutive +rder 0o. $3 does not impose ne( ta!es nor increaseta!es.

TAXES D7st7n8!7s1"d 9-% DEBT

G.R. N%. $);


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ISSUE: 0ON Phile! ?< allo(ed to refuse the pament of its ta! lia&ilities on the ground that it has apending ta! claim for refund or credit against the government (hich has not et &een granted.

HELD: NO.'a!es cannot &e su&Fect to compensation for the simple reason that the government and theta!paer are not creditors and de&tors of each other. ;'here is a material distinction &et(een a ta! andde&t. e&ts are due to the @overnment in its corporate capacit, (hile ta!es are due to the @overnment inits sovereign capacit. /e #nd no cogent reason to deviate from the aforementioned distinction. 'hecollection of a ta! cannot a(ait the results of a la(suit against the government.

/e fail to see the logic of Phile!;s claim for this is an outright disregard of the &asic principle in ta! la( thatta!es are the life&lood of the government and so should &e collected (ithout unnecessarhindrance. $3-videntl, to countenance Phile!;s (himsical reason (ould render ineective our ta!collection sstem. 'oo simplistic, it #nds no support in la( or in Furisprudence.

'o &e sure, (e cannot allo( Phile! to refuse the pament of its ta! lia&ilities on the ground that it has apending ta! claim for refund or credit against the government (hich has not et &een granted. It must &enoted that a distinguishing feature of a ta! is that it is compulsor rather than a matter o&argain. $):ence, a ta! does not depend upon the consent of the ta!paer. $'If an ta!paer can defer thepament of ta!es & raising the defense that it still has a pending claim for refund or credit, this (ouldadversel aect the government revenue sstem. A ta!paer cannot refuse to pa his ta!es (hen the faldue simpl &ecause he has a claim against the government or that the collection of the ta! is contingent

on the result of the la(suit it #led against the government. $;>oreover, Phile!;s theor that (ouldautomaticall appl its *A' input credit?refund against its ta! lia&ilities can easil give rise to confusion anda&use, depriving the government of authorit over the manner & (hich ta!paers credit and oset theirta! lia&ilities.

=inall, Phile! asserts that the


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FACTS: Petitioners see) to declare unconstitutional ection 3B of Repu&lic Act RA4 "13H, other(ise )no(nas the G-lectric Po(er Industr Reform Act of 7%%1G -PIRA4, imposing the niversal Charge, 1and Rule 18 ofthe Rules and Regulations IRR47(hich see)s to implement the said imposition. 'he contend that theniversal Charge has the characteristics of a ta! (hich is to &e collected from all electric endusers andselfgenerating entities and is collected to fund the operations of the 0PC. 'hat the po(er to ta! is strictla legislative function and as such, the delegation of said po(er to an e!ecutive or administrative agencli)e the -RC is unconstitutional, giving the same unlimited authorit.

ISSUE:

14 /hether or not, the niversal Charge imposed under ec. 3B of the -PIRA is a ta!6

74 /hether or not there is undue delegation of legislative po(er to ta! on the part of the -RC.7H

HELD:'he assailed niversal Charge is not a ta!, &ut an e!action in the e!ercise of the tate;s policepo(er. Pu&lic (elfare is surel promoted.

'o resolve the #rst issue, it is necessar to distinguish the tateNs po(er of ta!ation from the police po(er.

'he po(er to ta! is an incident of sovereignt and is unlimited in its range, ac)no(ledging in its ver

nature no limits, so that securit against its a&use is to &e found onl in the responsi&ilit of the legislature(hich imposes the ta! on the constituenc that is to pa it.3%It is &ased on the principle that ta!es are thelife&lood of the government, and their prompt and certain availa&ilit is an imperious need.31'hus, thetheor &ehind the e!ercise of the po(er to ta! emanates from necessit6 (ithout ta!es, governmentcannot ful#ll its mandate of promoting the general (elfare and (ell&eing of the people.37

+n the other hand, police po(er is the po(er of the state to promote pu&lic (elfare & restraining andregulating the use of li&ert and propert.33 It is the most pervasive, the least limita&le, and the mostdemanding of the three fundamental po(ers of the tate. 'he Fusti#cation is found in the Datinma!ims salus populi est suprema lexthe (elfare of the people is the supreme la(4 and sic utere tuo utalienum non laedas so use our propert as not to inFure the propert of others4. As an inherent attri&uteof sovereignt (hich virtuall e!tends to all pu&lic needs, police po(er grants a (ide panopl ofinstruments through (hich the tate, asparens patriae, gives eect to a host of its regulatorpo(ers.3B/e have held that the po(er to GregulateG means the po(er to protect, foster, promotepreserve, and control, (ith due regard for the interests, #rst and foremost, of the pu&lic, then of the utilitand of its patrons.35

'he conservative and pivotal distinction &et(een these t(o po(ers rests in the purpose for (hich thecharge is made. If generation of revenue is the primar purpose and regulation is merel incidental, theimposition is a ta!6 &ut if regulation is the primar purpose, the fact that revenue is incidentall raiseddoes not ma)e the imposition a ta!.3H

In e!acting the assailed niversal Charge through ec. 3B of the -PIRA, the tate;s police po(erparticularl its regulator dimension, is invo)ed. uch can &e deduced from ec. 3B (hich enumerates thepurposes for (hich the niversal Charge is imposed3$and (hich can &e ampl discerned as regulator incharacter. 'he -PIRA resonates such regulator

>oreover, it is a (ellesta&lished doctrine that the ta!ing po(er ma &e used as an implement of policepo(er.38

The econd Issue

'he principle of separation of po(ers ordains that each of the three &ranches of government has e!clusivecogni9ance of and is supreme in matters falling (ithin its o(n constitutionall allocated sphere. A logicalcorollar to the doctrine of separation of po(ers is the principle of nondelegation of po(ers, as e!pressedin the Datin ma!impotestas delegata non delegari potest (hat has &een delegated cannot &e delegated4
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'his is &ased on the ethical principle that such delegated po(er constitutes not onl a right &ut a dut to&e performed & the delegate through the instrumentalit of his o(n Fudgment and not through theintervening mind of another. B$ In the face of the increasing comple!it of modern life, delegation oflegislative po(er to various speciali9ed administrative agencies is allo(ed as an e!ception to thisprinciple.B8@iven the volume and variet of interactions in toda;s societ, it is dou&tful if the legislaturecan promulgate la(s that (ill deal adequatel (ith and respond promptl to the minutiae of everda life:ence, the need to delegate to administrative &odies the principal agencies tas)ed to e!ecute la(s intheir speciali9ed #elds the authorit to promulgate rules and regulations to implement a given statuteand eectuate its policies. All that is required for the valid e!ercise of this po(er of su&ordinate legislation

is that the regulation &e germane to the o&Fects and purposes of the la( and that the regulation &e not incontradiction to, &ut in conformit (ith, the standards prescri&ed & the la(. 'hese requirements aredenominated as the completeness test and the suEcient standard test.

nder the #rst test, the la( must &e complete in all its terms and conditions (hen it leaves the legislaturesuch that (hen it reaches the delegate, the onl thing he (ill have to do is to enforce it. 'he second testmandates adequate guidelines or limitations in the la( to determine the &oundaries of the delegate;sauthorit and prevent the delegation from running riot.B"

'he Court #nds that the -PIRA, read and appreciated in its entiret, in relation to ec. 3B thereof, iscomplete in all its essential terms and conditions, and that it contains suEcient standards.

SCOPE OF THE LEGISLATIVE TAXING PO0ER

ROXAS 6s CTA

FACTS: on Pedro Ro!as and ona Carmen Aala, panish su&Fects, transmitted to their grandchildren &hereditar succession the follo(ing properties

14 Agricultural lands (ith a total area of 1",%%% hectares, situated in the municipalit of 0asug&ualate, >anila6 and &ose paid to Roxas y Cia.rentals for the house in the sum of '(,%%%.%% a year.

34 hares of stoc)s in dierent corporations.

'o manage the a&ovementioned properties, said children, namel, Antonio Ro!as, -duardo Ro!as and oseRo!as, formed a partnership called Ro!as Compania.

CIR & CIR demanded from Ro!as Cia the pament of real estate dealer;s ta! &ased on the fact that Ro!as Cia. received house rentals from ose Ro!as.

Assessed de#cienc income ta!es against the Ro!as


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14 Is the gain derived from the sale of the 0asug&u farm lands an ordinar gain, hence 1%%Mta!a&leO74 Are the deductions for &usiness e!penses and contri&utions deducti&leO34 Is Ro!as Cia. lia&le for the pament of the #!ed ta! on real estate dealersO

HELD:

NASUGBU Fa-

NO. Ro!as Cia. cannot &e considered a real estate dealer for the sale in question. :ence, pursuant toection 3B of the 'a! Code the lands sold to the farmers are capital assets, and the gain derived from thesale thereof is capital gain, ta!a&le onl to the e!tent of 5%M.

'his is an isolated transaction (ith its peculiar circumstances in spite of the fact that there (ere hundredsof vendees. It should &e &orne in mind that the sale of the 0asug&u farm lands to the ver farmers (hotilled them for generations (as not onl in consonance (ith, &ut more in o&edience to the request andpursuant to the polic of our @overnment to allocate lands to the landless. It (as the &ounden dut of the@overnment to pa the agreed compensation after it had persuaded Ro!as Cia. to sell its haciendas, andto su&sequentl su&divide them among the farmers at ver reasona&le terms and prices. :o(ever, the@overnment could not compl (ith its dut for lac) of funds. +&ligingl, Ro!as Cia. shouldered the@overnment;s &urden, (ent out of its (a and sold lands directl to the farmers in the same (a andunder the same terms as (ould have &een the case had the @overnment done it itself. =or thismagnanimous act, the municipal council of 0asug&u passed a resolution e!pressing the people;s gratitude

'he po(er of ta!ation is sometimes called also the po(er to destro. 'herefore it should &e e!ercised (ithcaution to minimi9e inFur to the proprietar rights of a ta!paer. It must &e e!ercised fairl, equall anduniforml, lest the ta! collector )ill the Ghen that las the golden eggG. And, in order to maintain thegeneral pu&lic;s trust and con#dence in the @overnment this po(er must &e used Fustl and nottreacherousl. It does not conform (ith +ur sense of Fustice in the instant case for the @overnment topersuade the ta!paer to lend it a helping hand and later on to penali9e him for dul ans(ering the urgencall.

DISA!"#D D#D$%&I!'S

Claimed as representation e!penses. 'ic)ets to a &anquet given in honor of ergio +smena6 an >iguel&eer given as gifts to various persons.

'he evidence does not sho( such lin) &et(een the e!penses and the &usiness of Ro!as Cia.

Contri&utions to the Christmas funds of the Pasa Cit Police, Pasa Cit =iremen and


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A group of citi9ens ma &e classi#ed as an association organi9ed e!clusivel for charita&le purposes

mentioned in ection 3%h4 of the 'a! Code.

F7="d ta= %n -"a# "stat" d"a#"-s > -"nt 7n t1" 1%!s" YES. Ro!as Cia is a real state dealer in this instance, as de#ned & la(.

PHILIPPINE HEALTH CARE PROVIDERS, INC.,vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: CIR sent P:ID:-AD': a formal demand letter and the corresponding assessment noticesdemanding the pament of de#cienc ta!es. 'he de#cienc Qdocumentar stamp ta! '4 assessment(as imposed on petitionerNs health care agreement (ith the mem&ers of its health care program claimedas a contract of insurance su&Fect to ' under ection 185 of the 1""$ 'a! Code.

Petitioner protested the assessment in a letter.

ISSUE: /+0 P:ID:-AD': is an insurance compan and hence lia&le on ' on its health care agreements.

HELD: In a decision dated une 17, 7%%8, the Court denied the petition and aErmed the CANs decision. /eheld that petitionerNs health care agreement during the pertinent period (as in the nature of nonlifeinsurance (hich is a contract of indemnit, citing +4 and not an insurance compan is irrelevant &ecause contracts &et(een companies li)epetitioner and the &ene#ciaries under their plans are treated as insurance contracts. >oreover, ' is nota ta! on the &usiness transacted &ut an e!cise on the privilege, opportunit or facilit oered at e!changesfor the transaction of the &usiness.

na&le to accept our verdict, petitioner #led the present motion for reconsideration and supplementalmotion for reconsideration, asserting the follo(ing arguments

+ral arguments (ere held in +, engaged in the &usiness of insurance during the pertinentta!a&le earsO /e rule that it (as not. S 0+ PR+=I' derived
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=rom the language of ection 185, it is evident that t% -"!7s7t"smust concur &efore the ' canappl, namel 14 the document must &e a %#7c* %9 7ns!-anc" %- an %/#78at7%n 7n t1" nat!-" %97nd"n7t*and74t1" a"- s1%!#d /" t-ansact7n8 t1" /!s7n"ss %9accident, #delit, emploerNslia&ilit, plate, glass, steam &oiler, &urglar, elevator, automatic sprin)ler, or other &ranchof 7ns!-anc" e!cept life, marine, inland, and #re insurance4.

T1" P%"- T% Ta= Is N%t T1" P%"- T% D"st-%*

As a general rule, the po(er to ta! is an incident of sovereignt and is unlimited in its rangeac)no(ledging in its ver nature no limits, so that securit against its a&use is to &e found onl in theresponsi&ilit of the legislature (hich imposes the ta! on the constituenc (ho is to pa it. 51o potentindeed is the po(er that it (as once opined that Gthe po(er to ta! involves the po(er to destro.G57

Petitioner claims that the assessed ' to date (hich amounts to P3$H million53is (a &eond its net(orth ofP75" million.5BRespondent never disputed these assertions. @iven the realities on the groundimposing the ' on petitioner (ould &e highl oppressive. It is not the purpose of the government tothrottle private &usiness. +n the contrar, the government ought to encourage privateenterprise.55Petitioner, Fust li)e an concern organi9ed for a la(ful economic activit, has a right tomaintain a legitimate &usiness.5HAs aptl held in Roxas, et al. v. CTA, et al.5$

'he po(er of ta!ation is sometimes called also the po(er to destro. 'herefore it should &e e!ercised (ith

caution to minimi9e inFur to the proprietar rights of a ta!paer. It must &e e!ercised fairl, equall anduniforml, lest the ta! collector )ill the Ghen that las the golden egg.G58

Degitimate enterprises enFo the constitutional protection not to &e ta!ed out of e!istence. Incurring losses&ecause of a ta! imposition ma &e an accepta&le consequence &ut )illing the &usiness of an entit isanother matter and should not &e allo(ed. It is counterproductive and ultimatel su&versive of thenationNs thrust to(ards a &etter econom (hich (ill ultimatel &ene#t the maForit of our people.5"

In vie( of petitionerNs availment of the &ene#ts of QRA "8B%, and (ithout conceding the merits of this caseas discussed a&ove, -"s%nd"nt c%nc"d"s t1at s!c1 ta= an"st* "=t7n8!7s1"s t1" ta= #7a/7#7t7"s%9 "t7t7%n"-. 'his admission, ho(ever, is not meant to preclude a revocation of the amnest granted incase it is found to have &een granted under circumstances amounting to ta! fraud under ection 1% of said

amnest la(.H7-mphasis supplied4

'he rate of ' under ection 185 is equivalent to 17.5M of the premium charged.$BIts imposition (ilelevate the cost of health care services. 'his (ill in turn necessitate an increase in the mem&ership feesresulting in either placing health services &eond the reach of the ordinar (age earner or driving theindustr to the ground. At the end of the da, neither side (ins, considering the indispensa&ilit of theservices oered & :>+s.

PO0ER %9 !d7c7a# R"67" 7n Ta=at7%n

G.R. N%. L&$2;; A!8!st 3, +(( THE COMMISSIONER OF INTERNAL REVENUE vs. LINGAYENGULF ELECTRIC PO0ER CO., INC. , CTA

FACTS:'he respondent ta!paer, Dingaen @ulf -lectric Po(er Co., Inc., operates an electric po(er plantserving the adFoining municipalities of Dingaen and


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franchise ta!. +n April 3%, 1"5$, the


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true that the private respondents municipal franchises (ere o&tained under Act 0o. HH$ $of thePhilippine Commission, &ut these original franchises have &een replaced & a ne( legislativefranchise, i.e. R.A. 0o. 38B3.

/e do not have the authorit to inquire into the (isdom of such act. =urthermore, the 5M franchise ta!rate provided in ection 75" of the 'a! Code (as never intended to have a universal application. 3/e notethat the said ection 75" of the 'a! Code e!pressl allo(s the pament of ta!es at rates lo(er than 5M(hen the charter granting the franchise of a grantee, li)e the one granted to the private respondent undeection B of R.A. 0o. 38B3, precludes the imposition of a higher ta!. R.A. 0o. 38B3 did not onl #! and

specif a franchise ta! of 7M on its gross receipts, &ut made it Gin lieu of an and all ta!es, all la(s to thecontrar not(ithstanding,G thus, leaving no room for dou&t regarding the legislative intent. GCharters orspecial la(s granted and enacted & the Degislature are in the nature of private contracts. 'he do notconstitute a part of the machiner of the general government. 'he are usuall adopted after carefuconsideration of the private rights in relation (ith resultant &ene#ts to the tate ... in passing a speciacharter the attention of the Degislature is directed to the facts and circumstances (hich the act or charteris intended to meet. 'he Degislature consider sic4 and ma)e sic4 provision for all the circumstances of aparticular case.G ) In vie( of the foregoing, (e #nd no reason to distur& the respondent court;s rulingupholding the constitutionalit of the la( in question.

3. @iven its validit, should the said la( &e applied retroactivel so as to render uncollecti&le the ta!esin question (hich (ere assessed &efore its enactmentO 'he question of (hether a statute operates

retrospectivel or onl prospectivel depends on the legislative intent. In the instant case, Act 0o.38B3 provides that Geective ... upon the date the original franchise (as granted, no other ta!and?or licenses other than the franchise ta! of t(o per centum on the gross receipts ... shall &ecollected, an provision to the contrar not(ithstanding.G Repu&lic Act 0o. 38B3 thereforespeci#call provided for the retroactive eect of the la(.

B. 'he last issue to &e resolved is (hether or not the private respondent is lia&le for the #!ed andde#cienc percentage ta!es in the amount of P3,%75."H i.e. for the period from anuar 1, 1"BH to=e&ruar 7", 1"B84 &efore the approval of its municipal franchises. As aforestated, the franchises(ere approved & the President onl on =e&ruar 7B, 1"B8. 'herefore, &efore the said date, theprivate respondent (as lia&le for the pament of percentage and #!ed ta!es as seller of light, heatand po(er 2 (hich as the petitioner claims, amounted to P3,%75."H. 'he legislative franchise R.A

0o. 38B34 e!empted the grantee from all )inds of ta!es other than the 7M ta! from the date theoriginal franchise *as granted. 'he e!emption, therefore, did not cover the period &efore thefranchise (as granted, i.e. &efore =e&ruar 7B, 1"B8.

COMMISSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitioners, vs. HON.UDGE APOLINARIO B. SANTOS

FACTS: Detter of Authorit (as issued to . >arco and e(elr arco T Co., Inc. #led (ith

the R'C Pasig a petition for declarator relief (ith (rit of preliminar inFunction and?or temporarrestraining order against herein petitioners and Revenue Regional irector =elicidad D. *ira doc)eted asCivil Case 0o. 5H$3H4 praing that ections 17H, 17$a4 and &4 and 15%a4 of the 0ational InternaRevenue Code and :dg. 0o. $1.%1, $1.%7, $1.%3, and $1.%B, Chapter $1 of the 'ari and Customs Code ofthe Philippines &e declared unconstitutional and void, and that the Commissioner of Internal Revenue andCustoms &e prevented or enFoined from issuing mission orders and other orders of similar nature. .

ISSUE: /+0 R'C can declare a la( certain provisions of the 'ari T Customs Code and the 0ationaInternal Revenue Code4 inoperative and (ithout force and eect or other(ise unconstitutionalO If it canunder (hat circumstancesO


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HELD:'here is no dou&t in the Court;s mind, despite protestations to the contrar, that respondent Fudgeencroached upon matters properl falling (ithin the province of legislative functions. In citing as &asis forhis decision unproven comparative data pertaining to dierences &et(een ta! rates of various Asiancountries, and concluding that the Fe(elr industr in the Philippines suers as a result, the respondent

Fudge too) it upon himself to supplant legislative polic regarding Fe(elr ta!ation. In advocating thea&olition of local ta! and dut on Fe(elr simpl &ecause other countries have adopted such policies, therespondent Fudge overloo)ed the fact that such matters are not for him to decide. 'here are reasons (h

Fe(elr, a nonessential item, is ta!ed as it is in this countr, and these reasons, deli&erated upon & ourlegislature, are &eond the reach of Fudicial questioning. As held in +acasiano vs. #ational ousing

Authority )

'he polic of the courts is to avoid ruling on constitutional questions and to presume thatthe acts of the political departments are valid in the a&sence of a clear and unmista)a&lesho(ing to the contrar. 'o dou&t is to sustain. 'his presumption is &ased on the doctrine ofseparation of po(ers (hich enFoins upon each department a &ecoming respect for the actsof the other departments. The theory is that as the joint act of Congress and the 'resident ofthe 'hilippines, a la* has "een carefully studied and determined to "e in accordance *iththe fundamental lo* "efore it *as -nally enacted. emphasis ours4

/hat (e see here is a de&ate on the /I+> of the la(s in question. 'his is a matter on (hich the R'C isnot competent to rule. 'As Coole o&served Ge&ata&le questions are for the legislature to decide. 'he

courts do not sit to resolve the merits of conicting issues.G ;InAngara vs. lectoralCommission, (ustice Daurel made it clear that Gthe Fudiciar does not pass upon questions of (isdom

Fustice or e!pedienc of legislation.G And #ttingl so, for in the e!ercise of Fudicial po(er, (e are allo(edonl Gto settle actual controversies involving rights (hich are legall demanda&le and enforcea&leG, andma not annul an act of the political departments simpl &ecause (e feel it is un(ise or impractical. +'hisis not to sa that Regional 'rial Courts have no po(er (hatsoever to declare a la( unconstitutional.In&.+. Tuason andCo. v. Court of Appeals, $


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su&Fects of ta!ation, and it has &een repeatedl held that Ginequalities (hich result from a singling out orone particular class for ta!ation, or e!emption, infringe no constitutional limitation.

Nat!-" %9 t1" P%"- %9 Ta=at7%n > S!/"ct t% C%nst7t!t7%na# and In1"-"nt L77tat7%ns

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITYvs. HON. FERDINAND . MARCOS, 7n 17scaac7t* as t1" P-"s7d7n8 !d8" %9 t1" R"87%na# T-7a# C%!-t, B-anc1 $CIAA isa governmentcontrolled corporation (hose ta! e!emption privilege has &een (ithdra(n & virtue ofections 1"3 and 73B of the Docal @overnmental Code that too) eect on anuar 1, 1""7

As the Cit of Ce&u (as a&out to issue a (arrant of lev against the properties of petitioner, the latter (ascompelled to pa its ta! account Gunder protestG and thereafter #led a Petition for eclarator Relief (iththe Regional 'rial Court of Ce&u,


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=inall, even if the petitioner (as originall not a ta!a&le person for purposes of real propert ta!, in lightof the forgoing disquisitions, it had alread &ecome even if it &e conceded to &e an GagencG orGinstrumentalitG of the @overnment, a ta!a&le person for such purpose in vie( of the (ithdra(al in thelast paragraph of ection 73B of e!emptions from the pament of real propert ta!es, (hich, as earlieradverted to, applies to the petitioner.

'hus, reading together ection 133, 737 and 73B of the D@C, (e conclude that as a general rule, as laiddo(n in ection 133 the ta!ing po(ers of local government units cannot e!tend to the lev of inter aliaGta!es, fees, and charges of an )ind of the 0ational @overnment, its agencies and instrumentalties, and

local government unitsG6 ho(ever, pursuant to ection 737, provinces, cities, municipalities in the>etropolitan >anila Area ma impose the real propert ta! e!cept on, inter alia, Greal propert o(ned &the Repu&lic of the Philippines or an of its political su&divisions e!cept (hen the &ene#cial used thereofhas &een granted, for consideration or other(ise, to a ta!a&le personG, as provided in item a4 of the #rstparagraph of ection 73B.

As to ta! e!emptions or incentives granted to or presentl enFoed & natural or Furidical personsincluding governmento(ned and controlled corporations, ection 1"3 of the D@C prescri&es the generarule, vi2., the are *ithdra*nupon the eectivit of the D@C, e!cept upon the eectivit of theD@C, except those granted to local (ater districts, cooperatives dul registered under R.A. 0o. H"38, nonstoc) and nonpro#t hospitals and educational institutions, and unless other(ise provided in the D@C. 'helatter proviso could refer to ection 73B, (hich enumerates the properties e!empt from real propert ta!.

oreover, even as the realpropert is o(ned & the Repu&lic of the Philippines, or an of its political su&divisions covered & item a4of the #rst paragraph of ection 73B, the e!emption is (ithdra(n if the &ene#cial use of such propert has&een granted to ta!a&le person for consideration or other(ise.

ince the last paragraph of ection 73B unequivocall (ithdre(, upon the eectivit of the D@Ce!emptions from real propert ta!es granted to natural or Furidical persons, including governmento(nedor controlled corporations, e!cept as provided in the said section, and the petitioner is, undou&tedl, agovernmento(ned corporation, it necessaril follo(s that its e!emption from such ta! granted it inection 1B of its charter, R.A. 0o. H"58, has &een (ithdra(n. An claim to the contrar can onl &e

Fusti#ed if the petitioner can see) refuge under an of the e!ceptions provided in ection 73B, &ut notunder ection 133, as it no( asserts, since, as sho(n a&ove, the said section is quali#ed & ection 737and 73B.

In short, the petitioner can no longer invo)e the general rule in ection 133 that the ta!ing po(ers of thelocal government units cannot e!tend to the lev of

o4 ta!es, fees, or charges of an )ind on the 0ational @overnment, its agencies, orinstrumentalities, and local government units.

As a general rule, the po(er to ta! is an incident of sovereignt and is unlimited in its rangeac)no(ledging in its ver nature no limits, so that securit against its a&use is to &e found onl in the

responsi&ilit of the legislature (hich imposes the ta! on the constituenc (ho are to pa it. 0everthelesseective limitations thereon ma &e imposed & the people through their Constitutions.2+ur Constitutionfor instance, provides that the rule of ta!ation shall &e uniform and equita&le and Congress shall evolve aprogressive sstem of ta!ation.3o potent indeed is the po(er that it (as once opined that Gthe po(er tota! involves the po(er to destro.G)*eril, ta!ation is a destructive po(er (hich interferes (ith thepersonal and propert for the support of the government. Accordingl, ta! statutes must &e construedstrictl against the government and li&erall in favor of the ta!paer.'


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instrumentalit, the rigid rule of construction does not appl &ecause the practical eect of the e!emptionis merel to reduce the amount of mone that has to &e handled & the government in the course of itsoperations.$

'he po(er to ta! is primaril vested in the Congress6 ho(ever, in our Furisdiction, it ma &e e!ercised &local legislative &odies, no longer merel & virtue of a valid delegation as &efore, &ut pursuant to directauthorit conferred & ection 5, Article J of the Constitution. $$nder the latter, the e!ercise of the po(erma &e su&Fect to such guidelines and limitations as the Congress ma provide (hich, ho(ever, must &econsistent (ith the &asic polic of local autonom.

'here can &e no question that under ection 1B of R.A. 0o. H"58 the petitioner is e!empt from thepament of realt ta!es imposed & the 0ational @overnment or an of its political su&divisions, agenciesand instrumentalities. 0evertheless, since ta!ation is the rule and e!emption therefrom the e!ception, thee!emption ma thus &e (ithdra(n at the pleasure of the ta!ing authorit. 'he onl e!ception to this rule is(here the e!emption (as granted to private parties &ased on material consideration of a mutual nature(hich then &ecomes contractual and is thus covered & the nonimpairment clause of the Constitution.$2

'he D@C, enacted pursuant to ection 3, Article J of the constitution provides for the e!ercise & locagovernment units of their po(er to ta!, the scope thereof or its limitations, and the e!emption fromta!ation.

LU5ON STEVEDORING CORPORATION vs. COURT OF TAX APPEALS and t1" HONORABLECOMMISSIONER OF INTERNAL REVENUE

FACTS: In 1"H1 and 1"H7, for the repair and maintenance of its tug&oats, imported various engine partsand other equipment for (hich it paid, under protest, the assessed compensating ta!. na&le to secure ata! refund from the Commissioner of Internal Revenue, on anuar 7, 1"HB, it #led a Petition for Revie(Rollo, pp. 1B184 (ith the Court of 'a! Appeals.

ISSUE: 0ON petitioner;s tug&oatsG can &e interpreted to &e included in the term Gcargo vesselsG forpurposes of the ta! e!emption provided for in ection 1"% of the 0ational Internal Revenue Code, asamended & Repu&lic Act 0o. 31$H.

HELD:In order that the importations in question ma &e declared e!empt from the compensating ta!, it isindispensa&le that the requirements of the amendator la( &e complied (ith, namel 14 the engines andspare parts must &e used & the importer himself as a passenger and?or cargo, vessel6 and 74 the saidpassenger and?or cargo vessel must &e used in coast(ise or oceangoing navigation.

'he amendator provisions of Repu&lic Act 0o. 31$H limit ta! e!emption from the compensating ta! toimported items to &e used & the importer himself as operator of passenger and?or cargo vessel

Petitioner;s tug&oats clearl do not fall under the categories of passenger and?or cargo vessels. 'hus, it is acardinal principle of statutor construction that (here a provision of la( spea)s categoricall, the need fointerpretation is o&viated, no plausi&le pretense &eing entertained to Fustif noncompliance. All that has to&e done is to appl it in ever case that falls (ithin its terms.

ESSENTIAL C1a-act"-7st7cs %9 TAX

OSE DE BORA 6s VICENTE G. GELLA, ET AL.,respondentsappellants.

FACTS:ose de


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limited negotia&ilit under ection 7, Repu&lic Act 0o. 3%B, as amended & Repu&lic Act 8%%, and in thecase of the cit treasurer of >anila on the further ground that he (as ordered not to accept them & thecit maor, for (hich reason anila and Pasa Cit, each one of (hich having a distinct and separate personalit from ourRepu&lic. /ith regard to the certi#cates, the creditor is the appellee (hile the de&tor is the Repu&lic of thePhilippines. And (ith regard to the ta!es, the creditors are the Cit of >anila and Pasa Cit (hile thede&tor is the appellee. It appears, therefore, that each one of the o&ligors concerning the t(o o&ligations isnot at the same time the principal creditor of the other. It cannot also &e said for certain that thecerti#cates are alread due. Although on their faces the certi#cates issued to appellee state that the areredeema&le on une 18, 1"58, et the la( does not sa that the are redeema&le from its approval on une18, 1"B8 &ut G(ithin ten ears from the date of issuanceG of the certi#cates. 'here is no certaint,therefore, (hen the certi#cates are reall redeema&le (ithin the meaning of the la(. ince the requisitesfor the accomplishment of legal compensation cannot &e ful#lled, the latter cannot ta)e place (ith regardto the t(o o&ligations as found & the court a 1uo.


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TAN TIONG BIO, ET AL., vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: +n anuar 31, 1"B8, the sndicate again (rote the Collector requesting the refund of P1,1%3.78representing alleged e!cess pament of sales ta! due to the adFustment and reduction of the purchaseprice in the amount of P31,577.18. aid letter (as referred to an agent for veri#cation and report. +neptem&er 18, 1"51, after a thorough investigation of the facts and circumstances surrounding thetransaction, the agent reported 14 that ee :ong Due purchased the surplus goods as trustee for theCentral ndicate (hich (as in the process of organi9ation at the time of the &idding6 74 that it (as therepresentatives of the Central ndicate that removed the surplus goods from their &ase at Dete on=e&ruar 71, 1"B$6 34 that the sndicate must have reali9ed a gross pro#t of 18.8M from its sales thereofand B4 that if the sales ta! (ere to &e assessed on its gross sales it (ould still &e lia&le for the amount ofP33,$"$.88 as de#cienc sales ta! and surcharge in addition to the amount of PB3,$5%.%% (hich thecorporation had deposited in the name of ee :ong Due as estimated sales ta! due from the latter.


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disproportionate and unfair to them. :o(ever, in the #nal analsis it is not so as (e (ill no( sho(.Immediatel after the incorporation of the ndicate, as the evidence sho(s, ee :ong Due (asmade to e!ecute a deed of transfer under the guise of a contract of sale, conveing full andcomplete o(nership of the G>ster PileG to the ne(l organi9ed corporation. o (e have, on theface of the Articles of Incorporation and -!hi&it 13, a corporation (ith assets (orth onl P5%,%%%.%%cash o(ning properties (orth over a million pesos. +&viousl, the incorporators of the ndicateparticularl those four (ho advanced enormous sums to ee :ong Due, are not ordinar&usinessmen (ho could easil &e ta)en for a ride. /ith the precipitated e!ecution of the Geed ofaleG & ee :ong Due in favor of the ndicate, transferring and conveing o(nership over the

entire pile to the latter, the recoupment of their advances from the ne(l acquired assets of thecorporation (as suEcientl secured, and at the same time, & ma)ing the document appear to &e adeed of sale instead of a deed of transfer as it should &e under Article 18"1 of the 0e( Civil Code,the have reduced at least attempted to4 their sales ta! lia&ilit (ith the argument that ee :ongDue (as the original GpurchaserG or GimporterG of the goods and therefore the ta!a&le sale (as thaone made & him to the ndicate and not the sales made & the latter to the pu&lic. After goingover the Articles of Incorporation of the Central ndicate and the other circumstances of this case(e dra( the conclusion that it (as organi9ed Fust for this particular transaction that its life span(as e!pressl limited to t(o 74 ears from and after the date of incorporation Fust to give it time todispose of the G>ster PileG to the pu&lic and then liquidate all its assets among the sevenincorporatorsstoc)holders as in fact it (as done on August 15, 1"B86 that from the ver start, theseven $4 incorporators had intended it to &e a closed corporation (ithout the least intention of

ever selling to other persons the remaining authori9ed capital stoc) of P3%%,%%%.%% stilunsu&scri&ed6 and, that upon its liquidation, the seven $4 incorporators composing it got muchmore than their investments including those (ho advanced P1,181,%%%.%% to the =DC for thecorporation.

7. ince the Central ndicate, as (e have alread pointed out, (as the importer of the surplus goods inquestion, it (as its dut under ection 183 of the Internal Revenue Code to #le a return of its gross sales(ithin 7% das after the end of each quarter in order that the oEce of the internal revenue ma assess thesales ta! that ma &e due thereon, &ut, as the record sho(s, the Central ndicate failed to #le an returnof its quarterl sales on the prete!t that it (as ee :ong Due (ho imported the surplus goods and itmerel purchased them from said importer.

2. It should &e stated at the outset that it (as petitioners themselves (ho caused their su&stitution asparties in the present case, &eing the successorsininterest of the defunct sndicate, (hen the appealedthis case to the upreme Court for (hich reason the latter Court declared that Gthe respondent Court of 'a!Appeals should have allo(ed the su&stitution of its former oEcers and directors is partiesappellants, sincethe are proper parties in interest insofar as the ma &e and in fact are4 held personall lia&le for theunpaid de#cienc assessments made & the Collector of Internal Revenue against the defunct ndicate.GIn fact, &ecause of this directive their su&stitution (as eected. 'he cannot, therefore, &e no( heard tocomplain if the are made responsi&le for the ta! lia&ilit of the defunct sndicate (hose representationthe assumed and (hose assets (ere distri&uted among them.

In the second place, there is good authorit to the eect that the creditor of a dissolved corporation mafollo( its assets once the passed into the hands of the stoc)holders. 'hus, recogni9ed are the follo(ing

rules in American Furisprudence 'he dissolution of a corporation does not e!tinguish the de&ts due oro(ing to it ac/illiams v. -!celsier Coal Co. Q1"7B 7"8 =ed. 38B4. An inde&tedness of a corporationto the federal government for income and e!cess pro#t ta!es is not e!tinguished & the dissolution of thecorporation Uuinn v. >cDeudon, 157 Ar). 7$1, 738 ./., 374.

And it has &een stated, (ith reference to the eect of dissolution upon ta!es due from a corporation, Gthatthe hands of the government cannot, of course, collect ta!es from a defunct corporation, it loses there&none of its rights to assess ta!es (hich had &een due from the corporation, and to collect them frompersons, (ho & reason of transactions (ith the corporation, hold propert against (hich the ta! can &eenforced and that the legal death of the corporation no more prevents such action than (ould the phsica


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death of an individual prevent the government from assessing ta!es against him and collecting them fromhis administrator, (ho holds the propert (hich the decedent had formerl possessedG /onder


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of the anti'< stamps, undou&tedl, the single most important and inuential consideration that led thelegislature to select mail users as su&Fects of the ta! is the relative ease and convenienceof collecting theta! through the post oEces. 'he small amount of #ve centavos does not Fustif the great e!pense andinconvenience of collecting through the regular means of collection. +n the other hand, & placing the dutof collection on postal authorities the ta! (as made almost selfenforcing, (ith as little cost and as littleinconvenience as possi&le.

And then of course it is not accurate to sa that the statute constituted mail users into a class. >ail users(ere alread a class & themselves even &efore the enactment of the statue and all that the legislature did

(as merel to select their class. Degislation is essentiall empiric and Repu&lic Act 1H35, as amended, nomore than reects a distinction that e!ists in fact. As >r. ustice =ran)furter said, Gto recogni9e dierencesthat e!ist in fact is living la(6 to disregard Qthem and concentrate on some a&stract identities is lifelesslogic.G1%

7. 'he petitioner further argues that the ta! in question is invalid, #rst, &ecause it is not levied for a pu&licpurpose as no special &ene#ts accrue to mail users as ta!paers, and second, &ecause it violates the ruleof uniformit in ta!ation.

'he eradication of a dreaded disease is a pu&lic purpose, &ut if & pu&lic purpose the petitioner means&ene#t to a ta!paer as a return for (hat he pas, then it is suEcient ans(er to sa that the onl &ene#tto (hich the ta!paer is constitutionall entitled is that derived from his enFoment of the privileges of

living in an organi9ed societ, esta&lished 0or is the rule of uniformit and equalit of ta!ation infringed &the imposition of a at rate rather than a graduated ta!. A ta! need not &e measured & the (eight of themail or the e!tent of the service rendered. /e have said that considerations of administrative convenienceand cost aord an adequate ground for classi#cation. 'he same considerations ma induce the legislatureto impose a at ta! (hich in eect is a charge for the transaction, operating equall on all persons (ithinthe class regardless of the amount involved.

0ALTER LUT5, as !d7c7a# Ad7n7st-at%- %9 t1" Int"stat" Estat" %9 t1" d"c"as"d Ant%n7% a*"L"d"sa,plaintiappellant, vs.. ANTONIO ARANETA, as t1" C%##"ct%- %9 Int"-na#R"6"n!",defendantappellee.

FACTS:'his case (as initiated in the Court of =irst Instance of 0egros +ccidental to test the legalit of the

ta!es imposed & Common(ealth Act 0o. 5H$, other(ise )no(n as the ugar AdFustment Act.

Plainti, /alter Dut9, in his capacit as udicial Administrator of the Intestate -state of Antonio ameDedesma, see)s to recover from the Collector of Internal Revenue the sum of P1B,HHH.B% paid & theestate as ta!es, under section 3 of the Act, for the crop ears 1"B81"B" and 1"B"1"5%6 alleging thatsuch ta! is unconstitutional and void, &eing levied for the aid and support of the sugar industr e!clusivel(hich in plainti;s opinion is not a pu&lic purpose for (hich a ta! ma &e constitutioall levied. 'he actionhaving &een dismissed & the Court of =irst Instance, the plaintifs appealed the case directl to this Courtudiciar Act, section 1$4.

ISSUE: /+0 the ta! imposed is valid

HELD: YES. +nce it is conceded, as it must, that the protection and promotion of the sugar industr is amatter of pu&lic concern, it follo(s that the Degislature ma determine (ithin reasona&le &ounds (hat isnecessar for its protection and e!pedient for its promotion. :ere, the legislative discretion must &eallo(ed full pla, su&Fect onl to the test of reasona&leness6 and it is not contended that the meansprovided in section H of the la( a&ove quoted4 &ear no relation to the o&Fective pursued or are oppressivein character. If o&Fective and methods are ali)e constitutionall valid, no reason is seen (h the state manot lev ta!es to raise funds for their prosecution and attainment. 'a!ation ma &e made the implement ofthe state;s police po(er.

'hat the ta! to &e levied should &urden the sugar producers themselves can hardl &e a ground ofcomplaint6 indeed, it appears rational that the ta! &e o&tained precisel from those (ho are to &e


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&ene#ted from the e!penditure of the funds derived from it. At an* -at", 7t 7s 7n1"-"nt 7n t1" %"- t%ta= t1at a stat" /" 9-"" t% s"#"ct t1" s!/"cts %9 ta=at7%n, and 7t 1as /""n -""at"d#* 1"#d t1atJ7n"!a#7t7"s 17c1 -"s!#t 9-% a s7n8#7n8 %!t %9 %n" a-t7c!#a- c#ass 9%- ta=at7%n, %- "="t7%n7n9-7n8" n% c%nst7t!t7%na# #77tat7%nJ.

=rom the point of vie( (e have ta)en it appears of no moment that the funds raised under the ugarta&ili9ation Act, no( in question, should &e e!clusivel spent in aid of the sugar industr, since it is thatver enterprise that is &eing protected. It ma &e that other industries are also in need of similarprotection6 that the legislature is not required & the Constitution to adhere to a polic of Gall or none.G As

ruled in >innesota e! rel. Pearson vs. Pro&ate Court, 3%" . . 7$%, 8B D. -d. $BB, Gif the la( presuma&lhits the evil (here it is most felt, it is not to &e overthro(n &ecause there are other instances to (hich itmight have &een applied6G and that Gthe legislative authorit, e!erted (ithin its proper #eld, need notem&race all the evils (ithin its reachG.

-ven from the standpoint that the Act is a pure ta! measure, it cannot &e said that the devotion of ta!mone to e!perimental stations to see) increase of eEcienc in sugar production, utili9ation of &products and solution of allied pro&lems, as (ell as to the improvements of living and (or)ing conditions insugar mills or plantations, (ithout an part of such mone &eing channeled directl to private persons,constitutes e!penditure of ta! mone for private purposes.

'he decision appealed from is aErmed, (ith costs against appellant. o ordered.

PLANTERS PRODUCTS, INC.,vs. FERTIPHIL CORPORATION

FACTS: Petitioner PPI and private respondent =ertiphil are private corporations incorporated underPhilippine la(s.3'he are &oth engaged in the importation and distri&ution of fertili9ers, pesticides andagricultural chemicals.+n une 3, 1"85, then President =erdinand >arcos, e!ercising his legislative po(ers,issued D+I 0o. 1BH5 (hich provided, among others, for the imposition of a capital recover componentCRC4 on the domestic sale of all grades of fertili9ers in the Philippines.B

Pursuant to the D+I, =ertiphil paid P1% for ever &ag of fertili9er it sold in the domestic mar)et to the=ertili9er and Pesticide Authorit =PA4. =PA then remitted the amount collected to the =ar -ast a)ati. Itquestioned the constitutionalit of D+I 0o. 1BH5 for &eing unFust, unreasona&le, oppressive, invalid and anunla(ful imposition that amounted to a denial of due process of la(."=ertiphil alleged that the D+I solelfavored PPI, a privatel o(ned corporation, (hich used the proceeds to maintain its monopol of thefertili9er industr.

ISSUE: 0ON D+I 1BH5, &eing a la( implemented for the purpose of assuring the fertili9er suppl anddistri&ution in the countr, and for &ene#ting a foundation created & la( to hold in trust for millions offarmers their stoc) o(nership in PPI constitutes a valid legislation pursuant to the e!ercise of ta!ation andpolice po(er for pu&lic purposes.

HELD: NOPE .'he constitutionalit of D+I 0o. 1BH5 is also the ver lis mota of the complaint forcollection. =ertiphil #led the complaint to compel PPI to refund the levies paid under the statute on theground that the la( imposing the lev is unconstitutional. 'he thesis is that an unconstitutional la( is void.It has no legal eect.


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surel cannot order PPI to refund =ertiphil if it does not declare the D+I unconstitutional. It is theunconstitutionalit of the D+I (hich triggers the refund. 'he issue of constitutionalit is the ver lis mota ofthe complaint (ith the R'C.

'he P1% lev under D+I 0o. 1BH5 is too e!cessive to serve a mere regulator purpose. 'he lev, no dou&t(as a &ig &urden on the seller or the ultimate consumer. It increased the price of a &ag of fertili9er & asmuch as #ve percent.B5A plain reading of the D+I also supports the conclusion that the lev (as forrevenue generation. 'he D+I e!pressl provided that the lev (as imposed Guntil adequate capital is raisedto ma)e PPI via&le.G

'a!es are e!acted onl for a pu&lic purpose. 'he P1% lev is unconstitutional &ecause it (as not for apu&lic purpose. 'he lev (as imposed to give undue &ene#t to PPI.

An inherent limitation on the po(er of ta!ation is pu&lic purpose. 'a!es are e!acted onl for a pu&licpurpose. 'he cannot &e used for purel private purposes or for the e!clusive &ene#t of privatepersons.BH'he reason for this is simple. 'he po(er to ta! e!ists for the general (elfare6 hence, implicit inits po(er is the limitation that it should &e used onl for a pu&lic purpose. It (ould &e a ro&&er for thetate to ta! its citi9ens and use the funds generated for a private purpose. As an old nited tates case&luntl put it G'o la (ith one hand, the po(er of the government on the propert of the citi9en, and (iththe other to &esto( it upon favored individuals to aid private enterprises and &uild up private fortunes, isnonetheless a ro&&er &ecause it is done under the forms of la( and is called ta!ation.GB$

'he term Gpu&lic purposeG is not de#ned. It is an elastic concept that can &e hammered to #t modernstandards. urisprudence states that Gpu&lic purposeG should &e given a &road interpretation. It does notonl pertain to those purposes (hich are traditionall vie(ed as essentiall government functions, such as&uilding roads and deliver of &asic services, &ut also includes those purposes designed to promote socia

Fustice. 'hus, pu&lic mone ma no( &e used for the relocation of illegal settlers, lo(cost housing andur&an or agrarian reform.

/hile the categories of (hat ma constitute a pu&lic purpose are continuall e!panding in light of thee!pansion of government functions, the inherent requirement that ta!es can onl &e e!acted for a pu&licpurpose still stands. Pu&lic purpose is the heart of a ta! la(. /hen a ta! la( is onl a mas) to e!act fundsfrom the pu&lic (hen its true intent is to give undue &ene#t and advantage to a private enterprise, that

la( (ill not satisf the requirement of Gpu&lic purpose.G

'he purpose of a la( is evident from its te!t or infera&le from other secondar sources. :ere, /e agree(ith the R'C and that CA that the lev imposed under D+I 0o. 1BH5 (as not for a pu&lic purpose. /e agree(ith the R'C that the imposition of the lev (as an e!ercise & the tate of its ta!ation po(er. /hile it istrue that the po(er of ta!ation can &e used as an implement of police po(er,B1the primar purpose of thelev is revenue generation. If the purpose is primaril revenue, or if revenue is, at least, one of the real andsu&stantial purposes, then the e!action is properl called a ta!.

Police po(er and the po(er of ta!ation are inherent po(ers of the tate. 'hese po(ers are distinct andhave dierent tests for validit. Police po(er is the po(er of the tate to enact legislation that mainterfere (ith personal li&ert or propert in order to promote the general (elfare, 3"(hile the po(er of

ta!ation is the po(er to lev ta!es to &e used for pu&lic purpose. 'he main purpose of police po(er is theregulation of a &ehavior or conduct, (hile ta!ation is revenue generation. 'he Gla(ful su&FectsG and Gla(fumeansG tests are used to determine the validit of a la( enacted under the police po(er.B%'he po(er ofta!ation, on the other hand, is circumscri&ed & inherent and constitutional limitations.

In1"-"nt L77tat7%ns > N%n&DELEGABILITY

CONGRESSMAN ENRI4UE T. GARCIA KS"c%nd D7st-7ct %9 Bataan vs. THE EXECUTIVE SECRETARY

FACTS: +n 7$ 0ovem&er 1""%, the President issued -!ecutive +rder 0o. B38 (hich imposed, in additionto an other duties, ta!es and charges imposed & la( on all articles imported into the Philippines, an
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additional dut of #ve percent 5M4 ad valorem. 'his additional dut (as imposed across the &oard on allimported articles, including crude oil and other oil products imported into the Philippines. 'his additionaldut (as su&sequentl increased from #ve percent 5M4 ad valoremto nine percent "M4 ad valorem&the promulgation of -!ecutive +rder 0o. BB3, dated 3 anuar 1""1.

+n 7B ul 1""1, the epartment of =inance requested the 'ari Commission to initiate the processrequired & the 'ari and Customs Code for the imposition of a speci#c lev on crude oil and otherpetroleum products, covered & : :eading 0os. 7$.%", 7$.1% and 7$.11 of ection 1%B of the 'ari andCustoms Code as amended. Accordingl, the 'ari Commission, follo(ing the procedure set forth in ection

B%1 of the 'ari and Customs Code, scheduled a pu&lic hearing to give interested parties an opportunit to&e heard and to present evidence in support of their respective positions.

>eantime, -!ecutive +rder 0o. B$5 (as issued & the President, on 15 August 1""1 reducing the rate ofadditional dut on all imported articles from nine percent "M4 to #ve percent 5M4 ad valorem, e!cept inthe cases of crude oil and other oil products (hich continued to &e su&Fect to the additional dut of ninepercent "M4 ad valorem.

pon completion of the pu&lic hearings, the 'ari Commission su&mitted to the President a GReport onpecial ut on Crude +il and +il ProductsG dated 1H August 1""1, for consideration and appropriateaction. even $4 das later, the President issued -!ecutive +rder 0o. B$8, dated 73 August 1""1, (hichlevied in addition to the aforementioned additional dut of nine percent "M4 ad valoremand all othe

e!isting ad valoremduties4 a special duty of P%."5 per liter or P151.%5 per &arrel of imported crude oil andP1.%% per liter of imported oil products.

In the present Petition for Certiorari, Prohi&ition and+andamus,petitioner assails the validit of -!ecutive+rders 0os. B$5 and B$8. :e argues that -!ecutive +rders 0os. B$5 and B$8 are violative of ection 7B,Article *I of the 1"8$ Constitution (hich provides as follo(s

ec. 7B All appropriation, revenue or tari &ills, &ills authori9ing increase of the pu&lic de&t&ills of local application, and private &ills shall originate e!clusivel in the :ouse oRepresentatives, &ut the enate ma propose or concur (ith amendments.

:e contends that since the Constitution vests the authorit to enact revenue &ills in Congress, the

President ma not assume such po(er & issuing -!ecutive +rders 0os. B$5 and B$8 (hich are inthe nature of revenuegenerating measures.

Petitioner further argues that -!ecutive +rders 0o. B$5 and B$8 contravene ection B%1 of the 'ari andCustoms Code, (hich ection authori9es the President, according to petitioner, to increase, reduce orremove tari duties or to impose additional duties only (hen necessar to protect local industries orproducts &ut not for the purpose of raising additional revenue for the government.

ISSUE: =irst the constitutionalit and second the legalit of -!ecutive +rders 0os. B$5 and B$8, and as)sus to restrain the implementation of those -!ecutive +rders.

HELD:'urning #rst to the question of constitutionalit, under ection 7B, Article *I of the Constitution, theenactment of appropriation, revenue and tari &ills, li)e all other &ills is, of course, (ithin the province ofthe Degislative rather than the -!ecutive epartment. It does not follo(, ho(ever, that therefore -!ecutive+rders 0os. B$5 and B$8, assuming the ma &e characteri9ed as revenue measures, are prohi&ited to thePresident, that the must &e enacted instead & the Congress of the Philippines.

'here is thus e!plicit constitutional permission to Congress to authori9e the President Gsu&Fect to suchlimitations and restrictions is QCongress ma imposeG to #! G(ithin speci#c limitsG Gtari rates . . . andother duties or imposts . . .G


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'he relevant congressional statute is the 'ari and Customs Code of the Philippines, and ections 1%B andB%1, the pertinent provisions thereof. 'hese are the provisions (hich the President e!plicitl invo)ed inpromulgating -!ecutive +rders 0os. B$5 and B$8.

Petitioner, ho(ever, see)s to avoid the thrust of the delegated authori9ations found in ections 1%B andB%1 of the 'ari and Customs Code, & contending that the President is authori9ed to act under the 'ariand Customs Code only 3to protect local industries and products for the sa)e of the national econom,general (elfare and?or national securit.G$

'he Court is not persuaded. In the #rst place, there is nothing in the language of either ection 1%B or ofB%1 of the 'ari and Customs Code that suggest such a sharp and a&solute limitation of authorit. 'heentire contention of petitioner is anchored on Fust t(o 74 (ords, one found in ection B%1 a414Ge!istingprotective rates of import dut,G and the second in the proviso found at the end of ection B%1a4 3protection levels granted in ection 1%B of this Code . . . . G /e &elieve that the (ords GprotectiveGand ;;protectionG are simpl not enough to support the ver &road and encompassing limitation (hichpetitioner see)s to rest on those t(o 74 (ords.

In the third place, customs duties (hich are assessed at the prescri&ed tari rates are ver much li)e ta!es(hich are frequentl imposed for &oth revenueraising and for regulator purposes. 3'hus, it has &eenheld that Gcustoms dutiesG is Gthe name given to taxes on the importation and e!portation of commoditiesthe tari or ta! assessed upon merchandise imported from, or e!ported to, a foreign countr.G )'he

leving of customs duties on imported goods ma have in some measure the eect of protecting locaindustries 2 (here such local industries actuall e!ist and are producing compara&le goodsimultaneousl, ho(ever, the ver same customs duties inevita&l have the eect of producinggovernmental revenues. Customs duties li)e internal revenue ta!es are rarel, if ever, designed to achieveone polic o&Fective onl. >ost commonl, customs duties, (hich constitute ta!es in the sense of e!actionsthe proceeds of (hich &ecome pu&lic funds '2 have either or &oth the generation of revenue and theregulation of economic or social activit as their moving purposes and frequentl, it is ver diEcult to sa(hich, in a particular instance, is the dominant or principal o&Fective. In the instant case, since thePhilippines in fact produces ten 1%4 to #fteen percent 15M4 of the crude oil consumed here, theimposition of increased tari rates and a special dut on imported crude oil and imported oil products ma&e seen to have some GprotectiveG impact upon indigenous oil production. =or the eective, price ofimported crude oil and oil products is increased. At the same time, it cannot &e gainsaid that su&stantial

revenues for the government are raised & the imposition of such increased tari rates or special dut.

In the fourth place, petitioner;s concept (hich he urges us to &uild into our constitutional and customs la(is a stiingl narro( one. ection B%1 of the 'ari and Customs Code esta&lishes general standards (ith(hich the e!ercise of the authorit delegated & that provision to the President must &e consistent thatauthorit must &e e!ercised in Gthe interest of national econom, general (elfare and?or national securit.Petitioner, ho(ever, insists that the Gprotection of local industriesG is the onlypermissi&le o&Fective thatcan &e secured & the e!ercise of that delegated authorit, and that therefore Gprotection of locaindustriesG is the sum total or the alpha and the omega of Gthe national econom, general (elfare and?ornational securit.G /e #nd it e!tremel diEcult to ta)e seriousl such a con#ned and closed vie( of thelegislative standards and policies summed up in ection B%1. /e &elieve, for instance, that the protectionof consumers, (ho after all constitute the ver great &ul) of our population, is at the ver least as

important a dimension of Gthe national econom, general (elfare and national securitG as the protectionof local industries. And so customs duties ma &e reduced or even removed precisel for the purpose ofprotecting consumers from the high prices and shodd qualit and ineEcient service that tariprotectedand su&sidi9ed local manufacturers ma other(ise impose upon the communit.

CONSTITUTIONAL LIMITATIONS

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

'he valueadded ta! *A'4 is levied on the sale, &arter or e!change of goods and properties as (ell as onthe sale or e!change of services. It is equivalent to 1%M of the gross selling price or gross value in mone


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of goods or properties sold, &artered or e!changed or of the gross receipts from the sale or e!change ofservices. Repu&lic Act 0o. $$1H see)s to (iden the ta! &ase of the e!isting *A' sstem and enhance itsadministration & amending the 0ational Internal Revenue Code.

FACTS:'olentino and other petitioners questioned the constitutionalit of RA $$1H other(ise )no(n as the-*A' Da(. RA $$1H sought to (iden the ta! &ase of the e!isting *A' sstem and enhance its administration& amending the 0ational Internal Revenue Code.'he original draft of RA $$1H :ouse


28/53

:ouse can &e e!pected to &e more sensitive to the local needs and pro&lems. +n the other hand, thesenators, (ho are elected at large, are e!pected to approach the same pro&lems from the nationaperspective.


29/53

or leave it; &asis, (ith the onl alternative that if it is not approved & &oth houses, another conferencecommittee must &e appointed. Art. *I, ec 7H74 must &e construed as referring onl to &ills introduced forthe #rst time in either house of Congress, not to the conference committee report.

En-%##"d B7## D%ct-7n"

11. An enrolled cop of a &ill is conclusive not onl of its provisions &ut also of its due enactment.

17. +n the mere allegation that the Conference Committee WsurreptitiouslN inserted provisions into a &ill

(hich it had prepared, the court should decline to go &ehind the enrolled cop of the &ill. 'o disregard theGenrolled &illG rule in such case (ould &e to disregard the respect due to a coequal &ranch of ourgovernment.

On" B7##, On" S!/"ct -!#"

13. Art. I*, ec 7H14 provides that G-ver &ill passed & Congress shall em&race onl one su&Fect (hich

shall &e e!pressed in the title thereof.G

1B. 'he amendment of ec. 1%3 of the 0IRC (hich removed the *A' e!emption of PAD4 is fairl

em&raced in the title of RA $$1H. 'he title states that the purpose of the statute is to e!pand the *A'

sstem, and one (a of doing this is to (iden its &ase & (ithdra(ing some of the e!emptions granted

&efore.

15. It is suEcient if the title e!presses the general su&Fect of the statute and all its provisions are germaneto the general su&Fect thus e!pressed Congressional =ranchise su&Fect to amendment.

1H. ec 1%3 *at -!emptions4 of the 0IRC (as amended & RA $$1H. 'he eect of the amendment is to

remove the e!emption granted to PAD, as far as the *A' is concerned.

1$. 'his is (ithin the po(er of Congress to do under Art. JII, ec 11 of the Constitution, (hich provides


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that the grant of a franchise for the operation of a pu&lic utilit is su&Fect to amendment, alteration orrepeal & Congress (hen the common good so requires.

F-""d% %9 S""c1 and %9 t1" P-"ss KVAT %n P-7nt P!/#7cat7%ns

18. Repu&lic Act 0o. $$1H amended ec 1%3 & deleting par. f4 (ith the result that print media &ecame

su&Fect to the *A' (ith respect to all aspects of their operations.

1". If the press is no( required to pa a valueadded ta! on its transactions, it is not &ecause it is &eing

singled out, much less targeted, for special treatment &ut onl &ecause of the removal of the e!emption

previousl granted to it & la(. +ther transactions, li)e(ise previousl granted e!emption, have &een

delisted as part of the scheme to e!pand the &ase and the scope of the *A' sstem. 'he la( (ould

perhaps &e open to the charge of discriminator treatment if the onl privilege (ithdra(n had &een that

granted to the press.


31/53

73. Congress shall Vevolve a progressive sstem of ta!ationL has &een interpreted to mean that Vdirect

ta!es are to &e preferred and as much as possi&le and indirect ta!es should &e minimi9ed.L

7B. /hat Congress is required & the Constitution to do is to Gevolve a progressive sstem of ta!ation.G

'hese provisions are put in the Constitution as moral incentives to legislation, not as Fudiciall enforcea&lerights.

N%n&7a7-"nt %9 C%nt-acts

75. As to the contention that the imposition of the *A' on the sales and leases of real estate & virtue of

contracts entered into prior to the eectivit of the la( (ould violate the constitutional provision that G0o

la( impairing the o&ligation of contracts shall &e passed,G it is enough to sa that the parties to a contract

cannot fetter the e!ercise of the ta!ing po(er of the tate. =or not onl are e!isting la(s read intocontracts in order to #! o&ligations as &et(een parties, &ut the reservation of essential attri&utes ofsovereign po(er is also read into contracts as a &asic postulate of the legal order.

7H. 'he Contract Clause has never &een thought as a limitation on the e!ercise of the tate;s po(er of

ta!ation save onl (here a ta! e!emption has &een granted for a valid consideration.

SISON 6s ANCHETA

FACTS:'he success of the challenge posed in this suit for declarator relief or prohi&ition proceeding onthe validit of ection I of


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petitioner, therefore, there is a transgression of &oth the equal protection and due process clauses 'of theConstitution as (ell as of the rule requiring uniformit in ta!ation.

ISSUE: /+0 ec 1 of

arshall;s famous dictum (as &rushed a(a & one stro)e of >r. ustice:olmess pen ;'he po(er to ta! is not the po(er to destro (hile this Court sits.G ;o it is in thePhilippines.

3. 'his Court then is left (ith no choice. 'he Constitution as the fundamental la( overrides an legislativeor e!ecutive, act that runs counter to it. In an case therefore (here it can &e demonstrated that thechallenged statutor provision 2 as petitioner here alleges 2 fails to a&ide & its command, then thisCourt must so declare and adFudge it null. 'he inFur thus is centered on the question of (hether theimposition of a higher ta! rate on ta!a&le net income derived from &usiness or profession than on

compensation is constitutionall in#rm.

B, 'he diEcult confronting petitioner is thus apparent. :e alleges ar&itrariness. A mere allegation, ashere. does not suEce. 'here must &e a factual foundation of such unconstitutional taint. Considering thatpetitioner here (ould condemn such a provision as void or its face, he has not made out a case. 'his ismerel to adhere to the authoritative doctrine that (ere the due process and equal protection clauses areinvo)ed, considering that the arc not #!ed rules &ut rather &road standards, there is a need for of suchpersuasive character as (ould lead to such a conclusion. A&sent such a sho(ing, the presumption ofvalidit must prevail. (


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5. It is undou&ted that the due process clause ma &e invo)ed (here a ta!ing statute is so ar&itrar that it#nds no support in the Constitution. An o&vious e!ample is (here it can &e sho(n to amount to thecon#scation of propert. 'hat (ould &e a clear a&use of po(er. It then &ecomes the dut of this Court tosa that such an ar&itrar act amounted to the e!ercise of an authorit not conferred. 'hat properl callsfor the application of the :olmes dictum. It has also &een held that (here the assailed ta! measure is&eond the Furisdiction of the state, or is not for a pu&lic purpose, or, in case of a retroactive statute is soharsh and unreasona&le, it is su&Fect to attac) on due process grounds. +

H. 0o( for equal protection. 'he applica&le standard to avoid the charge that there is a denial of this

constitutional mandate (hether the assailed act is in the e!ercise of the lice po(er or the po(er ofeminent domain is to demonstrated that the governmental act assailed, far from &eing inspired & theattainment of the common (eal (as prompted & the spirit of hostilit, or at the ver least, discriminationthat #nds no support in reason. It suEces then that the la(s operate equall and uniforml on all personsunder similar circumstances or that all persons must &e treated in the same manner, the conditions not&eing dierent, &oth in the privileges conferred and the lia&ilities imposed. =avoritism and unduepreference cannot &e allo(ed. =or the principle is that equal protection and securit shall &e given to everperson under circumtances (hich if not Identical are analogous. If la( &e loo)ed upon in terms of &urdenor charges, those that fall (ithin a class should &e treated in the same fashion, (hatever restrictions caston some in the group equall &inding on the rest.G $


34/53

ta!paers are e not entitled to ma)e deductions for income ta! purposes &ecause the are in the samesituation more or less. +n the other hand, in the case of professionals in the practice of their calling and&usinessmen, there is no uniformit in the costs or e!penses necessar to produce their income. It (ouldnot &e Fust then to disregard the disparities & giving all of them 9ero deduction and indiscriminatelimpose on all ali)e the same ta! rates on the &asis of gross income. 'here is ample Fusti#cation then forthe emorandum +rder 0o. H7%%3, insofar as pertinent to cigarettes pac)ed &machine.

ISSUE:

HELD:

'he assailed la( does not violate the equal protection and uniformit of ta!ation clauses.

Petitioner argues that the classi#cation free9e provision violates the equal protection and uniformit ota!ation clauses &ecause Anne! GG &rands are ta!ed &ased on their 1""H net retail prices (hile ne(&rands are ta!ed &ased on their present da net retail prices. Citing +rmoc ugar Co. v. 'reasurer of +rmocCit,7petitioner asserts that the assailed provisions accord a special or privileged status to Anne! GG&rands (hile at the same time discriminate against other &rands.

'hese contentions are (ithout merit and a rehash of petitionerNs previous arguments &efore this Court. As

held in the assailed ecision, the instant case neither involves a suspect classi#cation nor impinges on afundamental right. Consequentl, the rational &asis test (as properl applied to gauge the constitutionalitof the assailed la( in the face of an equal protection challenge. It has &een held that Gin the areas of sociaand economic polic, a statutor classi#cation that neither proceeds along suspect lines nor infringesconstitutional rights must &e upheld against equal protection challenge if there is an reasona&lconceiva&le state of facts that could provide a rational &asis for the classi#cation.G3nder the rationa&asis test, it is suEcient that the legislative classi#cation is rationall related to achieving some legitimatetate interest. As the Court ruled in the assailed ecision, vi9

A legislative classi#cation that is reasona&le does not oend the constitutional guarant of the equaprotection of the la(s. 'he classi#cation is considered valid and reasona&le provided that 14 it rests on
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su&stantial distinctions6 74 it is germane to the purpose of the la(6 34 it applies, all things &eing equal, to&oth present and future conditions6 and B4 it applies equall to all those &elonging to the same class.

'he #rst, third and fourth requisites are satis#ed. 'he classi#cation free9e provision (as inserted in the la(for reasons of practicalit and e!pedienc. 'hat is, since a ne( &rand (as not et in e!istence at the timeof the passage of RA 87B%, then Congress needed a uniform mechanism to #! the ta! &rac)et of a ne(&rand. 'he current net retail price, similar to (hat (as used to classif the &rands under Anne! GG as of+cto&er 1, 1""H, (as thus the logical and practical choice. =urther, (ith the amendments introduced & RA"33B, the free9ing of the ta! classi#cations no( e!pressl applies not Fust to Anne! GG &rands &ut to

ne(er &rands introduced after the eectivit of RA 87B% on anuar 1, 1""$ and an ne( &rand that (ill &eintroduced in the future. :o(ever, as (ill &e discussed later, the intent to appl the free9ing mechanismto ne(er &rands (as alread in place even prior to the amendments introduced & RA "33B to RA 87B%.4

'his does not e!plain, ho(ever, (h the classi#cation is Gfro9enG after its determination &ased on currennet retail price and ho( this is germane to the purpose of the assailed la(. An e!amination of thel

1st set digested cases taxation law 1

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