G.R. No. 152774             May 27, 2004

THE PROVINCE OF BATANGAS, vs. HON. ALBERTO G. ROMULO,

The Province of Batangas, represented by its Governor, Hermilando I. Mandanas, filed the present petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court, as amended, to declare as unconstitutional and void certain provisos contained in the General Appropriations Acts (GAA) of 1999, 2000 and 2001, insofar as they uniformly earmarked for each corresponding year the amount of five billion pesos (P5,000,000,000.00) of the Internal Revenue Allotment (IRA) for the Local Government Service Equalization Fund (LGSEF) and imposed conditions for the release thereof.

Named as respondents are Executive Secretary Alberto G. Romulo, in his capacity as Chairman of the Oversight Committee on Devolution, Secretary Emilia Boncodin of the Department of Budget and Management (DBM) and Secretary Jose Lina of the Department of Interior and Local Government (DILG).

Background

On December 7, 1998, then President Joseph Ejercito Estrada issued Executive Order (E.O.) No. 48 entitled "ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND EQUALIZATION." The program was established to "facilitate the process of enhancing the capacities of local government units (LGUs) in the discharge of the functions and services devolved to them by the National Government Agencies concerned pursuant to the Local Government Code."1 The Oversight Committee (referred to as the Devolution Committee in E.O. No. 48) constituted under Section 533(b) of Republic Act No. 7160 (The Local Government Code of 1991) has been tasked to formulate and issue the appropriate rules and regulations necessary for its effective implementation.2 Further, to address the funding shortfalls of functions and services devolved to the LGUs and other funding requirements of the program, the "Devolution Adjustment and Equalization Fund" was created.3 For 1998, the DBM was directed to set aside an amount to be determined by the Oversight Committee based on the devolution status appraisal surveys undertaken by the DILG.4 The initial fund was to be sourced from the available savings of the national government for CY 1998.5 For 1999 and the succeeding years, the corresponding amount required to sustain the program was to be incorporated in the annual GAA.6 The Oversight Committee has been authorized to issue the implementing rules and regulations governing the equitable allocation and distribution of said fund to the LGUs.7

The LGSEF in the GAA of 1999

In Republic Act No. 8745, otherwise known as the GAA of 1999, the program was renamed as the LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF). Under said appropriations law, the amount ofP96,780,000,000 was allotted as the share of the LGUs in the internal revenue taxes. Item No. 1, Special Provisions, Title XXXVI – A. Internal Revenue Allotment of Rep. Act No. 8745 contained the following proviso:

... PROVIDED, That the amount of FIVE BILLION PESOS (P5,000,000,000) shall be earmarked for the Local Government Service Equalization Fund for the funding requirements of projects and activities arising from the full and efficient implementation of devolved functions and services of local government units pursuant to R.A. No. 7160, otherwise known as the Local

Government Code of 1991: PROVIDED, FURTHER, That such amount shall be released to the local government units subject to the implementing rules and regulations, including such mechanisms and guidelines for the equitable allocations and distribution of said fund among local government units subject to the guidelines that may be prescribed by the Oversight Committee on Devolution as constituted pursuant to Book IV, Title III, Section 533(b) of R.A. No. 7160. The Internal Revenue Allotment shall be released directly by the Department of Budget and Management to the Local Government Units concerned.

On July 28, 1999, the Oversight Committee (with then Executive Secretary Ronaldo B. Zamora as Chairman) passed Resolution Nos. OCD-99-003, OCD-99-005 and OCD-99-006 entitled as follows:

OCD-99-005

RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP5 BILLION CY 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) AND REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO APPROVE SAID ALLOCATION SCHEME.

OCD-99-006

RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP4.0 BILLION OF THE 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND AND ITS CONCOMITANT GENERAL FRAMEWORK, IMPLEMENTING GUIDELINES AND MECHANICS FOR ITS IMPLEMENTATION AND RELEASE, AS PROMULGATED BY THE OVERSIGHT COMMITTEE ON DEVOLUTION.

OCD-99-003

RESOLUTION REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO APPROVE THE REQUEST OF THE OVERSIGHT COMMITTEE ON DEVOLUTION TO SET ASIDE TWENTY PERCENT (20%) OF THE LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) FOR LOCAL AFFIRMATIVE ACTION PROJECTS AND OTHER PRIORITY INITIATIVES FOR LGUs INSTITUTIONAL AND CAPABILITY BUILDING IN ACCORDANCE WITH THE IMPLEMENTING GUIDELINES AND MECHANICS AS PROMULGATED BY THE COMMITTEE.

These OCD resolutions were approved by then President Estrada on October 6, 1999.

Under the allocation scheme adopted pursuant to Resolution No. OCD-99-005, the five billion pesos LGSEF was to be allocated as follows:

1. The PhP4 Billion of the LGSEF shall be allocated in accordance with the allocation scheme and implementing guidelines and mechanics promulgated and adopted by the OCD. To wit:

a. The first PhP2 Billion of the LGSEF shall be allocated in accordance with the codal formula sharing scheme as prescribed under the 1991 Local Government Code;

b. The second PhP2 Billion of the LGSEF shall be allocated in accordance with a modified 1992 cost of devolution fund (CODEF) sharing scheme, as recommended by the respective leagues of provinces, cities and municipalities to the OCD. The modified CODEF sharing formula is as follows:

Province : 40%

Cities : 20%

Municipalities : 40%

This is applied to the P2 Billion after the approved amounts granted to individual provinces, cities and municipalities as assistance to cover decrease in 1999 IRA share due to reduction in land area have been taken out.

2. The remaining PhP1 Billion of the LGSEF shall be earmarked to support local affirmative action projects and other priority initiatives submitted by LGUs to the Oversight Committee on Devolution for approval in accordance with its prescribed guidelines as promulgated and adopted by the OCD.

In Resolution No. OCD-99-003, the Oversight Committee set aside the one billion pesos or 20% of the LGSEF to support Local Affirmative Action Projects (LAAPs) of LGUs. This remaining amount was intended to "respond to the urgent need for additional funds assistance, otherwise not available within the parameters of other existing fund sources." For LGUs to be eligible for funding under the one-billion-peso portion of the LGSEF, the OCD promulgated the following:

III. CRITERIA FOR ELIGIBILITY:

1. LGUs (province, city, municipality, or barangay), individually or by group or multi-LGUs or leagues of LGUs, especially those belonging to the 5th and 6th class, may access the fund to support any projects or activities that satisfy any of the aforecited purposes. A barangay may also access this fund directly or through their respective municipality or city.

2. The proposed project/activity should be need-based, a local priority, with high development impact and are congruent with the socio-cultural, economic and development agenda of the Estrada Administration, such as food security, poverty alleviation, electrification, and peace and order, among others.

3. Eligible for funding under this fund are projects arising from, but not limited to, the following areas of concern:

a. delivery of local health and sanitation services, hospital services and other tertiary services;

b. delivery of social welfare services;

c. provision of socio-cultural services and facilities for youth and community development;

d. provision of agricultural and on-site related research;

e. improvement of community-based forestry projects and other local projects on environment and natural resources protection and conservation;

f. improvement of tourism facilities and promotion of tourism;

g. peace and order and public safety;

h. construction, repair and maintenance of public works and infrastructure, including public buildings and facilities for public use, especially those destroyed or damaged by man-made or natural calamities and disaster as well as facilities for water supply, flood control and river dikes;

i. provision of local electrification facilities;

j. livelihood and food production services, facilities and equipment;

k. other projects that may be authorized by the OCD consistent with the aforementioned objectives and guidelines;

4. Except on extremely meritorious cases, as may be determined by the Oversight Committee on Devolution, this portion of the LGSEF shall not be used in expenditures for personal costs or benefits under existing laws applicable to governments. Generally, this fund shall cover the following objects of expenditures for programs, projects and activities arising from the implementation of devolved and regular functions and services:

a. acquisition/procurement of supplies and materials critical to the full and effective implementation of devolved programs, projects and activities;

b. repair and/or improvement of facilities;

c. repair and/or upgrading of equipment;

d. acquisition of basic equipment;

e. construction of additional or new facilities;

f. counterpart contribution to joint arrangements or collective projects among groups of municipalities, cities and/or provinces related to devolution and delivery of basic services.

5. To be eligible for funding, an LGU or group of LGU shall submit to the Oversight Committee on Devolution through the Department of Interior and Local Governments, within the prescribed schedule and timeframe, a Letter Request for Funding Support from the Affirmative Action Program under the LGSEF, duly signed by the concerned LGU(s) and endorsed by cooperators and/or beneficiaries, as well as the duly signed Resolution of Endorsement by the respective Sanggunian(s) of the LGUs concerned. The LGU-proponent shall also be required to submit the Project Request (PR), using OCD Project Request Form No. 99-02, that details the following:

(a) general description or brief of the project;

(b) objectives and justifications for undertaking the project, which should highlight the benefits to the locality and the expected impact to the local program/project arising from the full and efficient implementation of social services and facilities, at the local levels;

(c) target outputs or key result areas;

(d) schedule of activities and details of requirements;

(e) total cost requirement of the project;

(f) proponent's counterpart funding share, if any, and identified source(s) of counterpart funds for the full implementation of the project;

(g) requested amount of project cost to be covered by the LGSEF.

Further, under the guidelines formulated by the Oversight Committee as contained in Attachment - Resolution No. OCD-99-003, the LGUs were required to identify the projects eligible for funding under the one-billion-peso portion of the LGSEF and submit the project proposals thereof and other documentary requirements to the DILG for appraisal. The project proposals that passed the DILG's appraisal would then be submitted to the Oversight Committee for review, evaluation and approval. Upon its approval, the Oversight Committee would then serve notice to the DBM for the preparation of the Special Allotment Release Order (SARO) and Notice of Cash Allocation (NCA) to effect the release of funds to the said LGUs.

The LGSEF in the GAA of 2000

Under Rep. Act No. 8760, otherwise known as the GAA of 2000, the amount of P111,778,000,000 was allotted as the share of the LGUs in the internal revenue taxes. As in the GAA of 1999, the GAA of 2000 contained a proviso earmarking five billion pesos of the IRA for the LGSEF. This proviso, found in Item No. 1, Special Provisions, Title XXXVII – A. Internal Revenue Allotment, was similarly worded as that contained in the GAA of 1999.

The Oversight Committee, in its Resolution No. OCD-2000-023 dated June 22, 2000, adopted the following allocation scheme governing the five billion pesos LGSEF for 2000:

1. The PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to and shared by the four levels of LGUs, i.e., provinces, cities, municipalities, and barangays, using the following percentage-sharing formula agreed upon and jointly endorsed by the various Leagues of LGUs:

For Provinces 26% or P 910,000,000

For Cities 23% or 805,000,000

For Municipalities 35% or 1,225,000,000

For Barangays 16% or 560,000,000

Provided that the respective Leagues representing the provinces, cities, municipalities and barangays shall draw up and adopt the horizontal distribution/sharing schemes among the member LGUs whereby the Leagues concerned may opt to adopt direct financial assistance or project-based arrangement, such that the LGSEF allocation for individual LGU shall be released directly to the LGU concerned;

Provided further that the individual LGSEF shares to LGUs are used in accordance with the general purposes and guidelines promulgated by the OCD for the implementation of the LGSEF at the local levels pursuant to Res. No. OCD-99-006 dated October 7, 1999 and pursuant to the Leagues' guidelines and mechanism as approved by the OCD;

Provided further that each of the Leagues shall submit to the OCD for its approval their respective allocation scheme, the list of LGUs with the corresponding LGSEF shares and the corresponding project categories if project-based;

Provided further that upon approval by the OCD, the lists of LGUs shall be endorsed to the DBM as the basis for the preparation of the corresponding NCAs, SAROs, and related budget/release documents.

2. The remaining P1,500,000,000 of the CY 2000 LGSEF shall be earmarked to support the following initiatives and local affirmative action projects, to be endorsed to and approved by the Oversight Committee on Devolution in accordance with the OCD agreements, guidelines, procedures and documentary requirements:

On July 5, 2000, then President Estrada issued a Memorandum authorizing then Executive Secretary Zamora and the DBM to implement and release the 2.5 billion pesos LGSEF for 2000 in accordance with Resolution No. OCD-2000-023.

Thereafter, the Oversight Committee, now under the administration of President Gloria Macapagal-Arroyo, promulgated Resolution No. OCD-2001-

29 entitled "ADOPTING RESOLUTION NO. OCD-2000-023 IN THE ALLOCATION, IMPLEMENTATION AND RELEASE OF THE REMAINING P2.5 BILLION LGSEF FOR CY 2000." Under this resolution, the amount of one billion pesos of the LGSEF was to be released in accordance with paragraph 1 of Resolution No. OCD-2000-23, to complete the 3.5 billion pesos allocated to the LGUs, while the amount of 1.5 billion pesos was allocated for the LAAP. However, out of the latter amount,P400,000,000 was to be allocated and released as follows: P50,000,000 as financial assistance to the LAAPs of LGUs; P275,360,227 as financial assistance to cover the decrease in the IRA of LGUs concerned due to reduction in land area; and P74,639,773 for the LGSEF Capability-Building Fund.

The LGSEF in the GAA of 2001

In view of the failure of Congress to enact the general appropriations law for 2001, the GAA of 2000 was deemed re-enacted, together with the IRA of the LGUs therein and the proviso earmarking five billion pesos thereof for the LGSEF.

On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-2002-001 allocating the five billion pesos LGSEF for 2001 as follows:

Modified Codal Formula

P 3.000 billion

Priority Projects 1.900 billion

Capability Building Fund .100 billion

P 5.000 billion

RESOLVED FURTHER, that the P3.0 B of the CY 2001 LGSEF which is to be allocated according to the modified codal formula shall be released to the four levels of LGUs, i.e., provinces, cities, municipalities and barangays, as follows:

LGUs Percentage Amount

Provinces 25 P 0.750 billion

Cities 25 0.750

Municipalities 35 1.050

Barangays 15 0.450

100 P 3.000 billion

RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall be distributed according to the following criteria:

1.0 For projects of the 4th, 5th and 6th class LGUs; or

2.0 Projects in consonance with the President's State of the Nation Address (SONA)/summit commitments.

RESOLVED FURTHER, that the remaining P100 million LGSEF capability building fund shall be distributed in accordance with the recommendation of the Leagues of Provinces, Cities, Municipalities and Barangays, and approved by the OCD.

Upon receipt of a copy of the above resolution, Gov. Mandanas wrote to the individual members of the Oversight Committee seeking the reconsideration of Resolution No. OCD-2002-001. He also wrote to Pres. Macapagal-Arroyo urging her to disapprove said resolution as it violates the Constitution and the Local Government Code of 1991.

On January 25, 2002, Pres. Macapagal-Arroyo approved Resolution No. OCD-2002-001.

The Petitioner's Case

The petitioner now comes to this Court assailing as unconstitutional and void the provisos in the GAAs of 1999, 2000 and 2001, relating to the LGSEF. Similarly assailed are the Oversight Committee's Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and OCD-2002-001 issued pursuant thereto. The petitioner submits that the assailed provisos in the GAAs and the OCD resolutions, insofar as they earmarked the amount of five billion pesos of the IRA of the LGUs for 1999, 2000 and 2001 for the LGSEF and imposed conditions for the release thereof, violate the Constitution and the Local Government Code of 1991.

Section 6, Article X of the Constitution is invoked as it mandates that the "just share" of the LGUs shall be automatically released to them. Sections 18 and 286 of the Local Government Code of 1991, which enjoin that the "just share" of the LGUs shall be "automatically and directly" released to them "without need of further action" are, likewise, cited.

The petitioner posits that to subject the distribution and release of the five-billion-peso portion of the IRA, classified as the LGSEF, to compliance by the LGUs with the implementing rules and regulations, including the mechanisms and guidelines prescribed by the Oversight Committee, contravenes the explicit directive of the Constitution that the LGUs' share in the national taxes "shall be automatically released to them." The petitioner maintains that the use of the word "shall" must be given a compulsory meaning.

To further buttress this argument, the petitioner contends that to vest the Oversight Committee with the authority to determine the distribution and release of the LGSEF, which is a part of the IRA of the LGUs, is an anathema to the principle of local autonomy as embodied in the Constitution and the Local Government Code of 1991. The petitioner cites as an example the experience in 2001 when the release of the LGSEF was long delayed because the Oversight Committee was not able to convene that year and no guidelines were issued therefor. Further, the possible

disapproval by the Oversight Committee of the project proposals of the LGUs would result in the diminution of the latter's share in the IRA.

Another infringement alleged to be occasioned by the assailed OCD resolutions is the improper amendment to Section 285 of the Local Government Code of 1991 on the percentage sharing of the IRA among the LGUs. Said provision allocates the IRA as follows: Provinces – 23%; Cities – 23%; Municipalities – 34%; and Barangays – 20%.8 This formula has been improperly amended or modified, with respect to the five-billion-peso portion of the IRA allotted for the LGSEF, by the assailed OCD resolutions as they invariably provided for a different sharing scheme.

The modifications allegedly constitute an illegal amendment by the executive branch of a substantive law. Moreover, the petitioner mentions that in the Letter dated December 5, 2001 of respondent Executive Secretary Romulo addressed to respondent Secretary Boncodin, the former endorsed to the latter the release of funds to certain LGUs from the LGSEF in accordance with the handwritten instructions of President Arroyo. Thus, the LGUs are at a loss as to how a portion of the LGSEF is actually allocated. Further, there are still portions of the LGSEF that, to date, have not been received by the petitioner; hence, resulting in damage and injury to the petitioner.

The petitioner prays that the Court declare as unconstitutional and void the assailed provisos relating to the LGSEF in the GAAs of 1999, 2000 and 2001 and the assailed OCD resolutions (Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and OCD-2002-001) issued by the Oversight Committee pursuant thereto. The petitioner, likewise, prays that the Court direct the respondents to rectify the unlawful and illegal distribution and releases of the LGSEF for the aforementioned years and release the same in accordance with the sharing formula under Section 285 of the Local Government Code of 1991. Finally, the petitioner urges the Court to declare that the entire IRA should be released automatically without further action by the LGUs as required by the Constitution and the Local Government Code of 1991.

The Respondents' Arguments

The respondents, through the Office of the Solicitor General, urge the Court to dismiss the petition on procedural and substantive grounds. On the latter, the respondents contend that the assailed provisos in the GAAs of 1999, 2000 and 2001 and the assailed resolutions issued by the Oversight Committee are not constitutionally infirm. The respondents advance the view that Section 6, Article X of the Constitution does not specify that the "just share" of the LGUs shall be determined solely by the Local Government Code of 1991. Moreover, the phrase "as determined by law" in the same constitutional provision means that there exists no limitation on the power of Congress to determine what is the "just share" of the LGUs in the national taxes. In other words, Congress is the arbiter of what should be the "just share" of the LGUs in the national taxes.

The respondents further theorize that Section 285 of the Local Government Code of 1991, which provides for the percentage sharing of the IRA among the LGUs, was not intended to be a fixed determination of their "just share" in the national taxes. Congress may enact other laws, including appropriations laws such as the GAAs of 1999, 2000 and 2001, providing for a different sharing formula. Section 285 of the Local Government Code of 1991 was merely intended to be the "default share" of the LGUs to do away with the need to determine annually by law their "just share." However, the LGUs have no vested right in a permanent or fixed percentage as

Congress may increase or decrease the "just share" of the LGUs in accordance with what it believes is appropriate for their operation. There is nothing in the Constitution which prohibits Congress from making such determination through the appropriations laws. If the provisions of a particular statute, the GAA in this case, are within the constitutional power of the legislature to enact, they should be sustained whether the courts agree or not in the wisdom of their enactment.

On procedural grounds, the respondents urge the Court to dismiss the petition outright as the same is defective. The petition allegedly raises factual issues which should be properly threshed out in the lower courts, not this Court, not being a trier of facts. Specifically, the petitioner's allegation that there are portions of the LGSEF that it has not, to date, received, thereby causing it (the petitioner) injury and damage, is subject to proof and must be substantiated in the proper venue, i.e., the lower courts.

Further, according to the respondents, the petition has already been rendered moot and academic as it no longer presents a justiciable controversy. The IRAs for the years 1999, 2000 and 2001, have already been released and the government is now operating under the 2003 budget. In support of this, the respondents submitted certifications issued by officers of the DBM attesting to the release of the allocation or shares of the petitioner in the LGSEF for 1999, 2000 and 2001. There is, therefore, nothing more to prohibit.

Finally, the petitioner allegedly has no legal standing to bring the suit because it has not suffered any injury. In fact, the petitioner's "just share" has even increased. Pursuant to Section 285 of the Local Government Code of 1991, the share of the provinces is 23%. OCD Nos. 99-005, 99-006 and 99-003 gave the provinces 40% of P2 billion of the LGSEF. OCD Nos. 2000-023 and 2001-029 apportioned 26% of P3.5 billion to the provinces. On the other hand, OCD No. 2001-001 allocated 25% of P3 billion to the provinces. Thus, the petitioner has not suffered any injury in the implementation of the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions.

The Ruling of the Court Procedural Issues

Before resolving the petition on its merits, the Court shall first rule on the following procedural issues raised by the respondents: (1) whether the petitioner has legal standing or locus standi to file the present suit; (2) whether the petition involves factual questions that are properly cognizable by the lower courts; and (3) whether the issue had been rendered moot and academic.

The petitioner has locus standi to maintain the present suit

The gist of the question of standing is whether a party has "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions."9 Accordingly, it has been held that the interest of a party assailing the constitutionality of a statute must be direct and personal. Such party must be able to show, not only that the law or any government act is invalid, but also that he has sustained or is in imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained of.10

The Court holds that the petitioner possesses the requisite standing to maintain the present suit. The petitioner, a local government unit, seeks relief in order to protect or vindicate an interest of its own, and of the other LGUs. This interest pertains to the LGUs' share in the national taxes or the IRA. The petitioner's constitutional claim is, in substance, that the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions contravene Section 6, Article X of the Constitution, mandating the "automatic release" to the LGUs of their share in the national taxes. Further, the injury that the petitioner claims to suffer is the diminution of its share in the IRA, as provided under Section 285 of the Local Government Code of 1991, occasioned by the implementation of the assailed measures. These allegations are sufficient to grant the petitioner standing to question the validity of the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions as the petitioner clearly has "a plain, direct and adequate interest" in the manner and distribution of the IRA among the LGUs.

The petition involves a significant legal issue

The crux of the instant controversy is whether the assailed provisos contained in the GAAs of 1999, 2000 and 2001, and the OCD resolutions infringe the Constitution and the Local Government Code of 1991. This is undoubtedly a legal question. On the other hand, the following facts are not disputed:

1. The earmarking of five billion pesos of the IRA for the LGSEF in the assailed provisos in the GAAs of 1999, 2000 and re-enacted budget for 2001;

2. The promulgation of the assailed OCD resolutions providing for the allocation schemes covering the said five billion pesos and the implementing rules and regulations therefor; and

3. The release of the LGSEF to the LGUs only upon their compliance with the implementing rules and regulations, including the guidelines and mechanisms, prescribed by the Oversight Committee.

Considering that these facts, which are necessary to resolve the legal question now before this Court, are no longer in issue, the same need not be determined by a trial court.11 In any case, the rule on hierarchy of courts will not prevent this Court from assuming jurisdiction over the petition. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of this Court's primary jurisdiction.12

The crucial legal issue submitted for resolution of this Court entails the proper legal interpretation of constitutional and statutory provisions. Moreover, the "transcendental importance" of the case, as it necessarily involves the application of the constitutional principle on local autonomy, cannot be gainsaid. The nature of the present controversy, therefore, warrants the relaxation by this Court of procedural rules in order to resolve the case forthwith.

The substantive issue needs to be resolved notwithstanding the supervening events

Granting arguendo that, as contended by the respondents, the resolution of the case had already been overtaken by supervening events as the IRA, including the LGSEF, for 1999, 2000 and 2001, had already been released and the government is now operating under a new appropriations law, still, there is compelling reason for this Court to resolve the substantive issue raised by the instant petition. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution.13 Even in cases where supervening events had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar and public.14

Another reason justifying the resolution by this Court of the substantive issue now before it is the rule that courts will decide a question otherwise moot and academic if it is "capable of repetition, yet evading review."15 For the GAAs in the coming years may contain provisos similar to those now being sought to be invalidated, and yet, the question may not be decided before another GAA is enacted. It, thus, behooves this Court to make a categorical ruling on the substantive issue now.

Substantive Issue

As earlier intimated, the resolution of the substantive legal issue in this case calls for the application of a most important constitutional policy and principle, that of local autonomy.16 In Article II of the Constitution, the State has expressly adopted as a policy that:

Section 25. The State shall ensure the autonomy of local governments.

An entire article (Article X) of the Constitution has been devoted to guaranteeing and promoting the autonomy of LGUs. Section 2 thereof reiterates the State policy in this wise:

Section 2. The territorial and political subdivisions shall enjoy local autonomy.

Consistent with the principle of local autonomy, the Constitution confines the President's power over the LGUs to one of general supervision.17 This provision has been interpreted to exclude the power of control. The distinction between the two powers was enunciated in Drilon v. Lim:18

An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. If the rules are not observed, he may order the

work done or re-done but only to conform to the prescribed rules. He may not prescribe his own manner for doing the act. He has no judgment on this matter except to see to it that the rules are followed.19

The Local Government Code of 199120 was enacted to flesh out the mandate of the Constitution.21 The State policy on local autonomy is amplified in Section 2 thereof:

Sec. 2. Declaration of Policy. – (a) It is hereby declared the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. Toward this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the National Government to the local government units.

Guided by these precepts, the Court shall now determine whether the assailed provisos in the GAAs of 1999, 2000 and 2001, earmarking for each corresponding year the amount of five billion pesos of the IRA for the LGSEF and the OCD resolutions promulgated pursuant thereto, transgress the Constitution and the Local Government Code of 1991.

The assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions violate the constitutional precept on local autonomy

Section 6, Article X of the Constitution reads:

Sec. 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.

When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall have a "just share" in the national taxes; (2) the "just share" shall be determined by law; and (3) the "just share" shall be automatically released to the LGUs.

The Local Government Code of 1991, among its salient provisions, underscores the automatic release of the LGUs' "just share" in this wise:

Sec. 18. Power to Generate and Apply Resources. Local government units shall have the power and authority to establish an organization that shall be responsible for the efficient and effective implementation of their development plans, program objectives and priorities; to create their own sources of revenue and to levy taxes, fees, and charges which shall accrue exclusively for their use and disposition and which shall be retained by them; to have a just share in national taxes which shall be automatically and directly released to them without need of further action;

...

Sec. 286. Automatic Release of Shares. (a) The share of each local government unit shall be released, without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within five

(5) days after the end of each quarter, and which shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose.

(b) Nothing in this Chapter shall be understood to diminish the share of local government units under existing laws.

Webster's Third New International Dictionary defines "automatic" as "involuntary either wholly or to a major extent so that any activity of the will is largely negligible; of a reflex nature; without volition; mechanical; like or suggestive of an automaton." Further, the word "automatically" is defined as "in an automatic manner: without thought or conscious intention." Being "automatic," thus, connotes something mechanical, spontaneous and perfunctory. As such, the LGUs are not required to perform any act to receive the "just share" accruing to them from the national coffers. As emphasized by the Local Government Code of 1991, the "just share" of the LGUs shall be released to them "without need of further action." Construing Section 286 of the LGC, we held in Pimentel, Jr. v. Aguirre,22 viz:

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the automatic release of the shares of LGUs in the National internal revenue. This is mandated by no less than the Constitution. The Local Government Code specifies further that the release shall be made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." As a rule, the term "SHALL" is a word of command that must be given a compulsory meaning. The provision is, therefore, IMPERATIVE.

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the Constitution and the law. Although temporary, it is equivalent to a holdback, which means "something held back or withheld, often temporarily." Hence, the "temporary" nature of the retention by the national government does not matter. Any retention is prohibited.

In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis, Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on the fiscal autonomy of local governments. Concededly, the President was well-intentioned in issuing his Order to withhold the LGUs' IRA, but the rule of law requires that even the best intentions must be carried out within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by legal methods.23

The "just share" of the LGUs is incorporated as the IRA in the appropriations law or GAA enacted by Congress annually. Under the assailed provisos in the GAAs of 1999, 2000 and 2001, a portion of the IRA in the amount of five billion pesos was earmarked for the LGSEF, and these provisos imposed the condition that "such amount shall be released to the local government units subject to the implementing rules and regulations, including such mechanisms and guidelines for the equitable allocations and distribution of said fund among local government units subject to the guidelines that may be prescribed by the Oversight Committee on Devolution." Pursuant thereto, the Oversight Committee, through the assailed OCD resolutions, apportioned the five billion pesos LGSEF such that:

For 1999

P2 billion - allocated according to Sec. 285 LGC

P2 billion - Modified Sharing Formula (Provinces – 40%;

Cities – 20%; Municipalities – 40%)

P1 billion – projects (LAAP) approved by OCD.24

For 2000

P3.5 billion – Modified Sharing Formula (Provinces – 26%;

Cities – 23%; Municipalities – 35%; Barangays – 16%);

P1.5 billion – projects (LAAP) approved by the OCD.25

For 2001

P3 billion – Modified Sharing Formula (Provinces – 25%;

Cities – 25%; Municipalities – 35%; Barangays – 15%)

P1.9 billion – priority projects

P100 million – capability building fund.26

Significantly, the LGSEF could not be released to the LGUs without the Oversight Committee's prior approval. Further, with respect to the portion of the LGSEF allocated for various projects of the LGUs (P1 billion for 1999; P1.5 billion for 2000 and P2 billion for 2001), the Oversight Committee, through the assailed OCD resolutions, laid down guidelines and mechanisms that the LGUs had to comply with before they could avail of funds from this portion of the LGSEF. The guidelines required (a) the LGUs to identify the projects eligible for funding based on the criteria laid down by the Oversight Committee; (b) the LGUs to submit their project proposals to the DILG for appraisal; (c) the project proposals that passed the appraisal of the DILG to be submitted to the Oversight Committee for review, evaluation and approval. It was only upon approval thereof that the Oversight Committee would direct the DBM to release the funds for the projects.

To the Court's mind, the entire process involving the distribution and release of the LGSEF is constitutionally impermissible. The LGSEF is part of the IRA or "just share" of the LGUs in the national taxes. To subject its distribution and release to the vagaries of the implementing rules and regulations, including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from time to time, as sanctioned by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions, makes the release not automatic, a flagrant violation of the constitutional and statutory mandate that the "just share" of the LGUs "shall be automatically released to them." The LGUs are, thus, placed at the mercy of the Oversight Committee.

Where the law, the Constitution in this case, is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed.27 Moreover, as correctly posited by the petitioner, the use of the word "shall" connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.28

Indeed, the Oversight Committee exercising discretion, even control, over the distribution and release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the principle of local autonomy as embodied in the Constitution. Moreover, it finds no statutory basis at all as the Oversight Committee was created merely to formulate the rules and regulations for the efficient and effective implementation of the Local Government Code of 1991 to ensure "compliance with the principles of local autonomy as defined under the Constitution."29 In fact, its creation was placed under the title of "Transitory Provisions," signifying its ad hoc character. According to Senator Aquilino Q. Pimentel, the principal author and sponsor of the bill that eventually became Rep. Act No. 7160, the Committee's work was supposed to be done a year from the approval of the Code, or on October 10, 1992.30 The Oversight Committee's authority is undoubtedly limited to the implementation of the Local Government Code of 1991, not to supplant or subvert the same. Neither can it exercise control over the IRA, or even a portion thereof, of the LGUs.

That the automatic release of the IRA was precisely intended to guarantee and promote local autonomy can be gleaned from the discussion below between Messrs. Jose N. Nolledo and Regalado M. Maambong, then members of the 1986 Constitutional Commission, to wit:

MR. MAAMBONG. Unfortunately, under Section 198 of the Local Government Code, the existence of subprovinces is still acknowledged by the law, but the statement of the Gentleman on this point will have to be taken up probably by the Committee on Legislation. A second point, Mr. Presiding Officer, is that under Article 2, Section 10 of the 1973 Constitution, we have a provision which states:

The State shall guarantee and promote the autonomy of local government units, especially the barrio, to insure their fullest development as self-reliant communities.

This provision no longer appears in the present configuration; does this mean that the concept of giving local autonomy to local governments is no longer adopted as far as this Article is concerned?

MR. NOLLEDO. No. In the report of the Committee on Preamble, National Territory, and Declaration of Principles, that concept is included and widened upon the initiative of Commissioner Bennagen.

MR. MAAMBONG. Thank you for that.

With regard to Section 6, sources of revenue, the creation of sources as provided by previous law was "subject to limitations as may be provided by law," but now, we are using the term "subject to such guidelines as may be fixed by law." In Section 7, mention is made about the "unique, distinct and exclusive charges and contributions," and in Section 8, we talk about "exclusivity of local taxes and the share in the national wealth." Incidentally, I was one of the authors of this provision, and I am very thankful. Does this indicate local autonomy, or was the wording of the law changed to give more autonomy to the local government units?31

MR. NOLLEDO. Yes. In effect, those words indicate also "decentralization" because local political units can collect taxes, fees and charges subject merely to guidelines, as recommended by the league of governors and city mayors, with whom I had a dialogue for almost two hours. They told me that limitations may be questionable in the sense that Congress may limit and in effect deny the right later on.

MR. MAAMBONG. Also, this provision on "automatic release of national tax share" points to more local autonomy. Is this the intention?

MR. NOLLEDO. Yes, the Commissioner is perfectly right.32

The concept of local autonomy was explained in Ganzon v. Court of Appeals33 in this wise:

As the Constitution itself declares, local autonomy 'means a more responsive and accountable local government structure instituted through a system of decentralization.' The Constitution, as we observed, does nothing more than to break up the monopoly of the national government over the affairs of local governments and as put by political adherents, to "liberate the local governments from the imperialism of Manila." Autonomy, however, is not meant to end the relation of partnership and interdependence between the central administration and local government units, or otherwise, to usher in a regime of federalism. The Charter has not taken such a radical step. Local governments, under the Constitution, are subject to regulation, however limited, and for no other purpose than precisely, albeit paradoxically, to enhance self-government.

As we observed in one case, decentralization means devolution of national administration – but not power – to the local levels. Thus:

Now, autonomy is either decentralization of administration or decentralization of power. There is decentralization of administration when the central government delegates administrative powers to political subdivisions in order to broaden the base of government power and in the process to make local governments 'more responsive and accountable' and 'ensure their fullest development as self-reliant communities and make them more effective partners in the pursuit of national development and social progress.' At the same time, it relieves the central government of the burden of managing local affairs and enables it to concentrate on national concerns. The President exercises 'general supervision' over them, but only to 'ensure that local affairs are administered according to law.' He has no control over their acts in the sense that he can substitute their judgments with his own.

Decentralization of power, on the other hand, involves an abdication of political power in the [sic] favor of local governments [sic] units declared to be autonomous. In that case, the autonomous government is free to chart its own destiny and shape its future with minimum intervention from central authorities. According to a constitutional author, decentralization of power amounts to 'self-immolation,' since in that event, the autonomous government becomes accountable not to the central authorities but to its constituency.34

Local autonomy includes both administrative and fiscal autonomy. The fairly recent case of Pimentel v. Aguirre35 is particularly instructive. The Court declared therein that local fiscal autonomy includes the power of the LGUs to, inter alia, allocate their resources in accordance with their own priorities:

Under existing law, local government units, in addition to having administrative autonomy in the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local governments have the power to create their own sources of revenue in addition to their equitable share in the national taxes released by the national government, as well as the power to allocate their resources in accordance with their own priorities. It extends to the preparation of their budgets, and local officials in turn have to work within the constraints thereof. They are not formulated at the national level and imposed on local governments, whether they are relevant to local needs and resources or not ...36

Further, a basic feature of local fiscal autonomy is the constitutionally mandated automatic release of the shares of LGUs in the national internal revenue.37

Following this ratiocination, the Court in Pimentel struck down as unconstitutional Section 4 of Administrative Order (A.O.) No. 372 which ordered the withholding, effective January 1, 1998, of ten percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation."

In like manner, the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions constitute a "withholding" of a portion of the IRA. They put on hold the distribution and release of the five billion pesos LGSEF and subject the same to the implementing rules and regulations, including the guidelines and mechanisms prescribed by the Oversight Committee from time to time. Like Section 4 of A.O. 372, the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions effectively encroach on the fiscal autonomy enjoyed by the LGUs and must be struck down. They cannot, therefore, be upheld.

The assailed provisos in the GAAs of 1999, 2000

and 2001 and the OCD resolutions cannot amend

Section 285 of the Local Government Code of 1991

Section 28438 of the Local Government Code provides that, beginning the third year of its effectivity, the LGUs' share in the national internal revenue taxes shall be 40%. This percentage is fixed and may not be reduced except "in the event the national government incurs an unmanageable public sector deficit" and only upon compliance with stringent requirements set forth in the same section:

Sec. 284. ...

Provided, That in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of the national internal revenue taxes of the third fiscal year preceding the current fiscal year; Provided, further That in the first year of the effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal revenue allotment which shall include the cost of devolved

functions for essential public services, be entitled to receive the amount equivalent to the cost of devolved personnel services.

Thus, from the above provision, the only possible exception to the mandatory automatic release of the LGUs' IRA is if the national internal revenue collections for the current fiscal year is less than 40 percent of the collections of the preceding third fiscal year, in which case what should be automatically released shall be a proportionate amount of the collections for the current fiscal year. The adjustment may even be made on a quarterly basis depending on the actual collections of national internal revenue taxes for the quarter of the current fiscal year. In the instant case, however, there is no allegation that the national internal revenue tax collections for the fiscal years 1999, 2000 and 2001 have fallen compared to the preceding three fiscal years.

Section 285 then specifies how the IRA shall be allocated among the LGUs:

Sec. 285. Allocation to Local Government Units. – The share of local government units in the internal revenue allotment shall be allocated in the following manner:

(a) Provinces – Twenty-three (23%)

(b) Cities – Twenty-three percent (23%);

(c) Municipalities – Thirty-four (34%); and

(d) Barangays – Twenty percent (20%).

However, this percentage sharing is not followed with respect to the five billion pesos LGSEF as the assailed OCD resolutions, implementing the assailed provisos in the GAAs of 1999, 2000 and 2001, provided for a different sharing scheme. For example, for 1999, P2 billion of the LGSEF was allocated as follows: Provinces – 40%; Cities – 20%; Municipalities – 40%.39 For 2000, P3.5 billion of the LGSEF was allocated in this manner: Provinces – 26%; Cities – 23%; Municipalities – 35%; Barangays – 26%.40 For 2001, P3 billion of the LGSEF was allocated, thus: Provinces – 25%; Cities – 25%; Municipalities – 35%; Barangays – 15%.41

The respondents argue that this modification is allowed since the Constitution does not specify that the "just share" of the LGUs shall only be determined by the Local Government Code of 1991. That it is within the power of Congress to enact other laws, including the GAAs, to increase or decrease the "just share" of the LGUs. This contention is untenable. The Local Government Code of 1991 is a substantive law. And while it is conceded that Congress may amend any of the provisions therein, it may not do so through appropriations laws or GAAs. Any amendment to the Local Government Code of 1991 should be done in a separate law, not in the appropriations law, because Congress cannot include in a general appropriation bill matters that should be more properly enacted in a separate legislation.42

A general appropriations bill is a special type of legislation, whose content is limited to specified sums of money dedicated to a specific purpose or a separate fiscal unit.43 Any provision therein which is intended to amend another law is considered an "inappropriate provision." The category of "inappropriate provisions" includes unconstitutional provisions and provisions which are intended to amend other laws, because clearly these kinds of laws have no place in an appropriations bill.44

Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing therein, which are fixed in the Local Government Code of 1991, are matters of general and substantive law. To permit Congress to undertake these amendments through the GAAs, as the respondents contend, would be to give Congress the unbridled authority to unduly infringe the fiscal autonomy of the LGUs, and thus put the same in jeopardy every year. This, the Court cannot sanction.

It is relevant to point out at this juncture that, unlike those of 1999, 2000 and 2001, the GAAs of 2002 and 2003 do not contain provisos similar to the herein assailed provisos. In other words, the GAAs of 2002 and 2003 have not earmarked any amount of the IRA for the LGSEF. Congress had perhaps seen fit to discontinue the practice as it recognizes its infirmity. Nonetheless, as earlier mentioned, this Court has deemed it necessary to make a definitive ruling on the matter in order to prevent its recurrence in future appropriations laws and that the principles enunciated herein would serve to guide the bench, bar and public.

Conclusion

In closing, it is well to note that the principle of local autonomy, while concededly expounded in greater detail in the present Constitution, dates back to the turn of the century when President William McKinley, in his Instructions to the Second Philippine Commission dated April 7, 1900, ordered the new Government "to devote their attention in the first instance to the establishment of municipal governments in which the natives of the Islands, both in the cities and in the rural communities, shall be afforded the opportunity to manage their own affairs to the fullest extent of which they are capable, and subject to the least degree of supervision and control in which a careful study of their capacities and observation of the workings of native control show to be consistent with the maintenance of law, order and loyalty."45 While the 1935 Constitution had no specific article on local autonomy, nonetheless, it limited the executive power over local governments to "general supervision ... as may be provided by law."46 Subsequently, the 1973 Constitution explicitly stated that "[t]he State shall guarantee and promote the autonomy of local government units, especially the barangay to ensure their fullest development as self-reliant communities."47 An entire article on Local Government was incorporated therein. The present Constitution, as earlier opined, has broadened the principle of local autonomy. The 14 sections in Article X thereof markedly increased the powers of the local governments in order to accomplish the goal of a more meaningful local autonomy.

Indeed, the value of local governments as institutions of democracy is measured by the degree of autonomy that they enjoy.48 As eloquently put by

M. De Tocqueville, a distinguished French political writer, "[l]ocal assemblies of citizens constitute the strength of free nations. Township meetings are to liberty what primary schools are to science; they bring it within the people's reach; they teach men how to use and enjoy it. A nation may establish a system of free governments but without the spirit of municipal institutions, it cannot have the spirit of liberty."49

Our national officials should not only comply with the constitutional provisions on local autonomy but should also appreciate the spirit and liberty upon which these provisions are based.50

WHEREFORE, the petition is GRANTED. The assailed provisos in the General Appropriations Acts of 1999, 2000 and 2001, and the assailed OCD Resolutions, are declared UNCONSTITUTIONAL.

SO ORDERED.

G.R. No. 144256               June 8, 2005ACORD V ZAMORA

Pursuant to Section 22, Article VII of the Constitution1 mandating the President to submit to Congress a budget of expenditures within thirty days before the opening of every regular session, then President Joseph Ejercito Estrada submitted the National Expenditures Program for Fiscal Year 2000. In the said Program, the President proposed an Internal Revenue Allotment (IRA) in the amount of P121,778,000,000 following the formula provided for in Section 284 of the Local Government Code of 1992, viz:

SECTION 284. Allotment of Internal Revenue Taxes. - Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows:

(a) On the first year of the effectivity of this Code, thirty percent (30%);

(b) On the second year, thirty-five percent (35%); and

(c) On the third year and thereafter, forty percent (40%).

x x x (Emphasis supplied)

On February 16, 2000, the President approved House Bill No. 8374 - a bill sponsored in the Senate by then Senator John H. Osmeña who was the Chairman of the Committee on Finance. This bill became Republic Act No. 8760, "AN ACT APPROPRIATING FUNDS FOR THE OPERATION OF THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES FROM JANUARY ONE TO DECEMBER THIRTY-ONE, TWO THOUSAND, AND FOR OTHER PURPOSES".

The act, otherwise known as the General Appropriations Act (GAA) for the Year 2000, provides under the heading "ALLOCATIONS TO LOCAL GOVERNMENT UNITS" that the IRA for local government units shall amount toP111,778,000,000:1avvphi1.zw+

XXXVII. ALLOCATIONS TO LOCAL

GOVERNMENT UNITSA. INTERNAL REVENUE ALLOTMENT

For apportionment of the shares of local government units in the internal revenue taxes in accordance with the purpose indicated hereunder ………………………………………………………….……….. P111,778,000,000

New Appropriations, by Purpose

Current Operating Expenditures

Maintenanceand Other

Personal Services

Operating Expenses

CapitalOutlays

Total

A. PURPOSE(S)

a. Internal RevenueAllotment

P111,778,000,000

P111,778,000,000

x x x

TOTAL NEW

APPROPRIATIONS ………

P111,778,000,000

In another part of the GAA, under the heading "UNPROGRAMMED FUND," it is provided that an amount ofP10,000,000,000 (P10 Billion), apart from the P111,778,000,000 mentioned above, shall be used to fund the IRA, which amount shall be released only when the original revenue targets submitted by the President to Congress can be realized   based on a quarterly assessment to be conducted by certain committees which the GAA specifies, namely, the Development Budget Coordinating Committee, the Committee on Finance of the Senate, and the Committee on Appropriations of the House of Representatives.

LIV. UNPROGRAMMED FUND

For fund requirements in accordance with the purposes indicated hereunder …………… P48,681,831,000

A. PURPOSE(S)

x x x x

6. AdditionalOperationalRequirementsand Projects of Agencies

P14,788,764,000

x x x x

Special Provisions

1. Release of the Fund. The amounts herein appropriated shall be released only when the revenue collections exceed the original revenue targets submitted by the President of the Philippines to Congress pursuant to Section 22, Article VII of the Constitution or when the corresponding funding or receipts for the purpose have been realized except in the special cases covered by specific procedures in Special Provision Nos. 2, 3, 4, 5, 7, 8, 9, 13 and 14 herein: PROVIDED, That in cases of foreign-assisted projects, the existence of a perfected loan agreement shall be sufficient compliance for the issuance of a Special Allotment Release Order covering the loan proceeds: PROVIDED, FURTHER, That no amount of the Unprogrammed Fund shall be funded out of the savings generated from programmed items in this Act.

x x x x

4. Additional Operational Requirements and Projects of Agencies. The appropriations for Purpose 6 - Additional Operational Requirements and Projects of Agencies herein indicated shall be released only when the original revenue targets submitted by the President of the Philippines to Congress pursuant to Section 22, Article VII of the Constitution can be realized based on a quarterly assessment of the Development Budget Coordinating Committee, the Committee on Finance of the Senate and the Committee on Appropriations of the House of Representatives and shall be used to fund the following:

x x x x

Internal Revenue Allotments

Maintenance andOther OperatingExpenses P10,000,000,000

total IRA--------------------P10,000,000,000

x x x x

Total P14,788,764,000

x x x x (Emphasis supplied)

Thus, while the GAA appropriates P111,778,000,000 of IRA as Programmed Fund, it appropriates a separate amount of P10 Billion of IRA under the classification of Unprogrammed Fund, the latter amount to be released only upon the occurrence of the condition stated in the GAA.

On August 22, 2000, a number of non-governmental organizations (NGOs) and people's organizations, along with three barangay officials filed with this Court the petition at bar, for Certiorari, Prohibition and Mandamus With Application for Temporary Restraining Order, against respondents then Executive Secretary

Ronaldo Zamora, then Secretary of the Department of Budget and Management Benjamin Diokno, then National Treasurer Leonor Magtolis-Briones, and the Commission on Audit, challenging the constitutionality of above-quoted provision of XXXVII (ALLOCATIONS TO LOCAL GOVERNMENT UNITS) referred to by petitioners as Section 1, XXXVII (A), and LIV (UNPROGRAMMED FUND) Special Provisions 1 and 4 of the GAA (the GAA provisions).

Petitioners contend that:

1. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL AS THEY VIOLATE THE AUTONOMY OF LOCAL GOVERNMENTS BY UNLAWFULLY REDUCING BY TEN BILLION PESOS ( P 10 BILLION) THE INTERNAL REVENUE ALLOTMENTS DUE TO THE LOCAL GOVERNMENTS AND WITHHOLDING THE RELEASE OF SUCH AMOUNT BY PLACING THE SAME UNDER "UNPROGRAMMED FUNDS." THIS VIOLATES THE CONSTITUTIONAL MANDATE IN ART. X, SEC. 6, THAT THE LOCAL GOVERNMENT UNITS' JUST SHARE IN THE NATIONAL TAXES SHALL BE AUTOMATICALLY RELEASED TO THEM. IT ALSO VIOLATES THE LOCAL GOVERNMENT CODE, SPECIFICALLY, SECS. 18, 284, AND 286.

2. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL AS THEY VIOLATE THE AUTONOMY OF LOCAL GOVERNMENTS BY PLACING TEN BILLION PESOS ( P 10 BILLION) OF THE INTERNAL REVENUE ALLOTMENTS DUE TO THE LOCAL GOVERNMENTS, EFFECTIVELY AND PRACTICALLY, WITHIN THE CONTROL OF THE CENTRAL AUTHORITIES.

3. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL AS THE PLACING OF   P 10 BILLION PESOS OF THE IRA UNDER "UNPROGRAMMED FUNDS" CONSTITUTES AN UNDUE DELEGATION OF LEGISLATIVE POWER TO THE RESPONDENTS.

4. SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, OF THE YEAR 2000 GAA ARE NULL AND VOID FOR BEING UNCONSTITUTIONAL AS THE PLACING OF   P 10 BILLION PESOS OF THE IRA UNDER "UNPROGRAMMED FUNDS" CONSTITUTES AN AMENDMENT OF THE LOCAL GOVERNMENT CODE OF 1991, WHICH CANNOT BE DONE IN A GENERAL APPROPRIATIONS ACT AND WHICH PURPOSE WAS NOT REFLECTED IN THE TITLE OF THE YEAR 2000 GAA.

5. THE YEAR 2000 GAA'S REDUCTION OF THE IRA UNDERMINES THE FOUNDATION OF OUR LOCAL GOVERNANCE SYSTEM   WHICH IS ESSENTIAL TO THE EFFICIENT OPERATION OF THE GOVERNMENT AND THE DEVELOPMENT OF THE NATION.

6. THE CONGRESS AND THE EXECUTIVE, IN PASSING AND APPROVING, RESPECTIVELY, THE YEAR 2000 GAA, AND THE RESPONDENTS, IN IMPLEMENTING THE SAID YEAR 2000 GAA, INSOFAR AS SECTION 1, XXXVII (A) AND LIV, SPECIAL PROVISIONS 1 AND 4, ARE CONCERNED, ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AS THEY TRANSGRESSED THE CONSTITUTION AND THE LOCAL GOVERNMENT CODE'S PROHIBITION ON ANY INVALID REDUCTION AND WITHHOLDING OF THE LOCAL GOVERNMENTS' IRA. (Underscoring supplied)

After the parties had filed their respective memoranda, a "MOTION FOR INTERVENTION/MOTION TO ADMIT ATTACHED PETITION FOR INTERVENTION" was filed on October 22, 2001 by the Province of Batangas, represented by then Governor Hermilando I. Mandanas.

On November 6, 2001, the Province of Nueva Ecija, represented by Governor Tomas N. Joson III, likewise filed a "MOTION FOR LEAVE OF COURT TO INTERVENE AND FILE PETITION-IN-INTERVENTION".

The motions for intervention, both of which adopted the arguments of the main petition,2 were granted by this Court.3

Although the effectivity of the Year 2000 GAA has ceased, this Court shall nonetheless proceed to resolve the issues raised in the present case, it being impressed with public interest. The ruling of this Court in the case of The Province of Batangas v. Romulo,4 wherein GAA provisions relating to the IRA were likewise challenged, is in point, to wit:

Granting arguendo that, as contended by the respondents, the resolution of the case had already been overtaken by supervening events as the IRA, including the LGSEF, for 1999, 2000 and 2001, had already been released and the government is now operating under a new appropriations law, still, there is compelling reason for this Court to resolve the substantive issue raised by the instant petition. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution. Even in cases where supervening events had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar and public.

Another reason justifying the resolution by this Court of the substantive issue now before it is the rule that courts will decide a question otherwise moot and academic if it is "capable of repetition, yet evading review." For the GAAs in the coming years may contain provisos similar to those now being sought to be invalidated, and yet, the question may not be decided before another GAA is enacted. It, thus, behooves this Court to make a categorical ruling on the substantive issue now.5

Passing on the arguments of all parties, bearing in mind the dictum that "the court should not form a rule of constitutional law broader than is required by the precise facts to which it is applied,"6 this Court finds that only the following issues need to be resolved in the present petition: (1) whether the petition contains proper verifications and certifications against forum-shopping, (2) whether petitioners have the requisite standing to file this suit, and (3) whether the questioned provisions violate the constitutional injunction that the just share of local governments in the national taxes or the IRA shall be automatically released.

Sufficiency of Verification and Certification Against Forum-Shopping

Respondents assail as improperly executed petitioners' verifications and certifications against forum-shopping as they merely state that the allegations of the Petition are "true of our knowledge and belief" instead of "true and correct of our personal knowledge or based on authentic records" as required under Rule 7, Section 4 of the Rules of Court.7

Jurisprudence is on petitioners' side. In Decano v. Edu,8 this Court held:

Respondents finally raise a technical point referring to the allegedly defective verification of the petition filed in the trial court, contending that the clause in the verification statement "that I have read the contents of the said petition; and that [to] the best of my knowledge are true and correct" is insufficient since under section 6 of Rule 7, it is required that the person verifying must have read the pleading and that the allegations thereof are true of his own knowledge. We do not see any reason for rendering the said verification void. The statement "to the best of my knowledge are true and correct" referring to the allegations in the petition does not mean mere "knowledge, information and belief." It constitutes substantial compliance with the requirement of section 6 of Rule 7, as held in Madrigal vs. Rodas (80 Phil. 252.). At any rate, this petty technicality deserves scant consideration where the question at issue is one   purely of law   and there is no need of delving into the veracity of the allegations in the petition, which are   not disputed   at all by respondents . As we have held time and again, imperfections of form and technicalities of procedure are to be disregarded except where substantial rights would otherwise be prejudiced. (Emphasis and underscoring supplied)

Respondents go on to claim that the same verifications were signed by persons who were not authorized by the incorporated cause-oriented groups which they claim to represent, hence, the Petition should be treated as an unsigned pleading.

Indeed, only duly authorized natural persons may execute verifications in behalf of juridical entities such as petitioners NGOs and people's organizations. As this Court held in Santos v. CA, "In fact, physical actions, e.g., signing and delivery of documents, may be performed on behalf of the corporate entity only by specifically authorized individuals."9

Nonetheless, the present petition cannot be treated as an unsigned pleading. For even if the rule that representatives of corporate entities must present the requisite authorization were to be strictly applied, there would remain among the multi-group-petitioners the individuals who validly executed verifications in their own names, namely, petitioners Adelino C. Lavador, Punong Barangay Isabel Mendez, and Punong Barangay Carolina Romanos.

At all events, in light of the following ruling of this Court in Shipside Inc. v. CA:10

. . . in Loyola, Roadway, and Uy, the Court excused   non-compliance   with the requirement as to the certificate of non-forum shopping. With more reason should we allow the instant petition since petitioner herein   did submit a certification on non-forum shopping , failing only to show proof that the signatory was authorized to do so.   Thatpetitioner subsequently submitted a secretary's certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this oversight.

It must also be kept in mind that while the requirement of the certificate of non-forum shopping is mandatory, nonetheless the requirements must not be interpreted too literally and thus defeat the objective of preventing the undesirable practice of forum-shopping (Bernardo v. NLRC, 255 SCRA 108 [1996]). Lastly, technical rules of procedure should be used to promote, not frustrate justice. While the swift unclogging of court dockets is a laudable objective, the granting of substantial justice is an even more urgent ideal. (Underscoring supplied),

a too literal interpretation must be avoided if it defeats the objective of preventing the practice of forum shopping.

Standing

Respondents assail petitioners' standing in this controversy, proffering that it is the local government units - each having a separate juridical entity - which stand to be injured.

The subsequent intervention of the provinces of Batangas and Nueva Ecija which have adopted the arguments of petitioners has, however, made the question of standing academic.11

Respondents, contending that petitioners have no cause of action against them as they claim to have no responsibility with respect to the mandate of the GAA provisions, proffer that the committees mentioned in the GAA provisions, namely, the Development Budget Coordinating Committee, Committee on Finance of the Senate, and Committee on Appropriations of the House of Representatives, should instead have been impleaded.

Respondents' position does not lie.

The GAA provisions being challenged were not to be implemented solely by the committees specifically mentioned therein, for they being in the nature of appropriations provisions, they were also to be implemented by the executive branch, particularly the Department of Budget and Management (DBM) and the National Treasurer. The task of the committees related merely to the conduct of the quarterly assessment required in the provisions, and not in the actual release of the IRA which is the duty of the executive. Since the present controversy centers on the proper manner of   releasing   the IRA, the impleaded respondents are the proper parties to this suit.

In fact in earlier petitions likewise involving the constitutionality of provisions of previous general appropriations acts which this Court granted, the therein respondent officials were the same as those in the present case, e.g.,Guingona v. Carague12 and PHILCONSA v. Enriquez.13

Constitutionality of the GAA Provisions

Article X, Section 6 of the Constitution provides:

SECTION 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them.

Petitioners argue that the GAA violated this constitutional mandate when it made the release of IRA contingent on whether revenue collections could meet the revenue targets originally submitted by the President, rather than making the release automatic.

Respondents counterargue that the above constitutional provision is   addressed not to the legislature   but to the executive, hence, the same does not prevent the legislature from imposing conditions upon the release of the IRA. They cite the

exchange between Commissioner (now Chief Justice) Davide and Commissioner Nolledo in the deliberations of the Constitutional Commission on the above-quoted Sec. 6, Art. X of the Constitution, to wit:

THE PRESIDENT. How about the second sentence?

MR. DAVIDE. The second sentence would be a new section that would be Section 13. As modified it will read as follows: "LOCAL GOVERNMENT UNITS SHALL HAVE A JUST SHARE, AS DETERMINED BY LAW, in the national taxes WHICH SHALL BE automatically PERIODICALLY released to them."

MR. NOLLEDO. That will be Section 12, subsection (1) in the amendment.

MR. DAVIDE. No, we will just delete that because the second would be another section so Section 12 would only be this: "LOCAL GOVERNMENT UNITS SHALL HAVE A JUST SHARE, AS DETERMINED BY LAW, in the national taxes WHICH SHALL BE automatically PERIODICALLY released to them."

MR. NOLLEDO. But the word "PERIODICALLY" may mean possibly withholding the automatic release to them by adopting certain periods of automatic release. If we use the word "automatically" without "PERIODICALLY," the latter may be already contemplated by "automatically." So, the Committee objects to the word "PERIODICALLY."

MR. DAVIDE. If we do not say PERIODICALLY, it might be very, very difficult to comply with it because these are taxes collected and actually released by the national government every quarter. It is not that upon collection a portion should immediately be released. It is quarterly. Otherwise, the national government will have to remit everyday and that would be very expensive.

MR. NOLLEDO. That is not hindered by the word "automatically." But if we put "automatically" and "PERIODICALLY" at the same time, that means certain periods have to be observed as will be set forth by theBudget Officer thereby negating the meaning of "automatically."

MR. DAVIDE. On the other hand, if we do not state PERIODICALLY, it may be done every semester; it may be done at the end of the year. It is still automatic release.

MR. NOLLEDO. As far as the Committee is concerned, we vigorously object to the word "PERIODICALLY."

MR. DAVIDE. Only the word PERIODICALLY?

MR. NOLLEDO. If the Commissioner is amenable to deleting that, we will accept the amendment.

MR. DAVIDE. I will agree to the deletion of the word PERIODICALLY.

MR. NOLLEDO. Thank you.

The Committee accepts the amendment. (Emphasis supplied)14

In the above exchange of statements, it is clear that although Commissioners Davide and Nolledo held different views with regard to the proper wording of the constitutional provision, they shared a common assumption that the entity which would execute the automatic release of internal revenue was the executive department.

Commissioner Davide referred to the national government as the entity that collects and remits internal revenue. Similarly, Commissioner Nolledo alluded to the Budget Officer, who is clearly under the executive branch.

Respondents thus infer that the subject constitutional provision merely prevents the executive branch of the government from "unilaterally" withholding the IRA, but not the legislature from authorizing the executive branch to withhold the same. In the words of respondents, "This essentially means that the President or any member of the Executive Department cannot unilaterally, i.e., without the backing of statute, withhold the release of the IRA."15

Respondents' position does not lie.

As the Constitution lays upon the executive the duty to automatically release the just share of local governments in the national taxes, so it enjoins the legislature not to pass laws that might prevent the executive from performing this duty. To hold that the executive branch may disregard constitutional provisions which define its duties, provided it has the backing of statute, is virtually to make the Constitution amendable by statute - a proposition which is patently absurd.

Moreover, there is merit in the argument of the intervenor Province of Batangas that, if indeed the framers intended to allow the enactment of statutes making the release of IRA conditional instead of automatic, then Article X, Section 6 of the Constitution would have been worded differently. Instead of reading "Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them" (italics supplied), it would have read as follows, so the Province of Batangas posits:

"Local government units shall have a just share, as determined by law, in the national taxes which shall be [automatically] released to them as provided by law," or,

"Local government units shall have a just share in the national taxes which shall be [automatically] released to themas provided by law," or

"Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them subject to exceptions Congress may provide."16 (Italics supplied)

Since, under Article X, Section 6 of the Constitution, only the just share of local governments is qualified by the words "as determined by law," and not the release thereof, the plain implication is that Congress is not authorized by the Constitution to hinder or impede the automatic release of the IRA.

Indeed, that Article X, Section 6 of the Constitution did bind the legislative just as much as the executive branch was presumed in the ruling of this Court in the case of The Province of Batangas v. Romulo17 which is analogous in many respects to the one at bar.

In Batangas, the petitioner therein challenged the constitutionality of certain provisos of the GAAs for FY 1999, 2000, and 2001 which set up the Local Government Service Equalization Fund (LGSEF). The LGSEF was a portion of the IRA which was to be released only upon a finding of the Oversight Committee on Devolution that the LGU concerned had complied with the guidelines issued by said committee. This Court measured the challenged legislative acts against Article X, Section 6 and declared them unconstitutional - a ruling which presupposes that the legislature, like the executive, is mandated by said constitutional provision to ensure that the just share of local governments in the national taxes are automatically released.

Respondents, in further support of their claim that the automatic release requirement in the Constitution constrains only the executive branch and not the legislature, cite three statutory provisions whereby the legislature authorized the executive branch to withhold the IRA in certain circumstances, namely, Section 70 of the Philippine National Police Reform and Reorganization Act of 1998,18 Section 531(e) of the Local Government Code,19 and Section 10 of Republic Act 7924 (1995).20 Towards the same end, respondents also cite Rule XXXII, Article 383(c) of the Rules and Regulations Implementing the Local Government Code.21

While statutes and implementing rules are entitled to great weight in constitutional construction as indicators of contemporaneous interpretation, such interpretation is not necessarily binding or conclusive on the courts. InTañada v. Cuenco, the Court held:

As a consequence, "where the meaning of a constitutional provision is clear, a contemporaneous or practical . . . executive interpretation thereof is entitled to no weight and will not be allowed to distort or in any way change its natural meaning." The reason is that "the application of the doctrine of contemporaneous construction is   more restricted   as applied to the interpretation of   constitutional   provisions than when applied to statutory provisions," and that "except as to matters committed by the constitution itself to the discretion of some other department,contemporaneous or practical construction is not necessarily binding upon the courts, even in a doubtful case." Hence, "if in the judgment of the court, such construction is erroneous and its further application is not made imperative by any paramount considerations of public policy, it may be rejected." (Emphasis and underscoring supplied, citations omitted)22

The validity of the legislative acts assailed in the present case should, therefore, be assessed in light of Article X, Section 6 of the Constitution.

Again, in Batangas,23 this Court interpreted the subject constitutional provision as follows:

When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall have a "just share" in the national taxes; (2) the "just share" shall be determined by law; and (3) the "just share" shall be automatically released to the LGUs.

x x x

Webster's Third New International Dictionary defines "automatic" as "involuntary either wholly or to a major extent so that any activity of the will is largely negligible; of a reflex nature; without volition; mechanical; like or suggestive of an automaton." Further, the word "automatically" is defined as "in an automatic manner: without thought or conscious intention." Being "automatic," thus, connotes something mechanical, spontaneous and perfunctory. x x x" (Emphasis and underscoring supplied)24

Further on, the Court held:

To the Court's mind, the entire process involving the distribution and release of the LGSEF is constitutionally impermissible. The LGSEF is part of the IRA or "just share" of the LGUs in the national taxes. To subject its distribution and release to the vagaries of the implementing rules and regulations, including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from time to time, as sanctioned by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions, makes the release not automatic, a flagrant violation of the constitutional and statutory mandate that the "just share" of the LGUs "shall be automatically released to them." The LGUs are, thus, placed at the mercy of the Oversight Committee.

Where the law, the Constitution in this case, is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed. Moreover, as correctly posited by the petitioner, the use of the word "shall" connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. x x x (Emphasis and underscoring supplied)25

While "automatic release" implies that the just share of the local governments determined by law should be released to them as a matter of course, the GAA provisions, on the other hand, withhold its release pending an event which is not even certain of occurring. To rule that the term "automatic release" contemplates such conditional release would be to strip the term "automatic" of all meaning.

Additionally, to interpret the term automatic release in such a broad manner would be inconsistent with the ruling inPimentel v. Aguirre.26 In the said case, the executive withheld the release of the IRA pending an assessment very similar to the one provided in the GAA. This Court ruled that such withholding contravened the constitutional mandate of an automatic release, viz:

Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the   automatic   release of the shares of LGUs in the national internal revenue. This is mandated by no less than the Constitution. The Local Government Code specifies further that the release shall be made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." As a rule, the term "shall" is a word of command that must be given a compulsory meaning. The provision is, therefore, imperative.

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation" in

the country. Such withholding clearly contravenes the Constitution and the law. x x x27 (Italics in the original; underscoring supplied)

There is no substantial difference between the withholding of IRA involved in Pimentel and that in the present case, except that here it is the legislature, not the executive, which has authorized the withholding of the IRA. The distinction notwithstanding, the ruling in Pimentel remains applicable. As explained above, Article X, Section 6 of the Constitution - the same provision relied upon in Pimentel - enjoins both the legislative and executive branches of government. Hence, as in Pimentel, under the same constitutional provision, the legislative is barred from withholding the release of the IRA.

It bears stressing, however, that in light of the proviso in Section 284 of the Local Government Code which reads:

Provided, That in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the "liga," to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year: Provided, further, That in the first year of the effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal revenue allotment which shall include the cost of devolved functions for essential public services, be entitled to receive the amount equivalent to the cost of devolved personal services. (Underscoring supplied),

the only possible exception to mandatory automatic release of the IRA is, as held in Batangas:

…if the national internal revenue collections for the current fiscal year is less than 40 percent of the collections of the preceding third fiscal year, in which case what should be automatically released shall be a proportionate amount of the collections for the current fiscal year. The adjustment may even be made on a quarterly basis depending on the actual collections of national internal revenue taxes for the quarter of the current fiscal year. x x x28

A final word. This Court recognizes that the passage of the GAA provisions by Congress was motivated by the laudable intent to "lower the budget deficit in line with prudent fiscal management."29 The pronouncement inPimentel, however, must be echoed: "[T]he rule of law requires that even the best intentions must be carried out within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by legal methods."30

WHEREFORE, the petition is GRANTED. XXXVII and LIV Special Provisions 1 and 4 of the Year 2000 GAA are hereby declared unconstitutional insofar as they set apart a portion of the IRA, in the amount of P10 Billion, as part of the UNPROGRAMMED FUND.

SO ORDERED.

G.R. No. 165125. November 18, 2005.

VILLANUEVA V OPLE

SYLLABUS1.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; PROPER REMEDY TO QUESTION DECISIONS, RESOLUTIONS AND ORDERS OF THE OMBUDSMAN IN CRIMINAL CASES. — Fabian v. Desierto held that appeals from the orders, directives, or decisions of the OMB in administrative disciplinary cases were cognizable by the Court of Appeals. Tirol v. Del Rosario clarified that, in non-administrative cases in which the OMB had acted with grave abuse of discretion amounting to lack or excess of jurisdiction, a petition for certiorari under Rule 65 may be filed directly with this Court. Accordingly, Kuizon v. Desierto held that this Court had jurisdiction over petitions for certiorari questioning the resolutions or orders of the ombudsman in criminal cases. Thus, petitioners committed a procedural error in resorting to a Petition for Review under Rule 45 of the Rules of Court. To challenge the dismissal of their Complaint and to require the OMB to file an information, petitioners should have resorted to a petition for certiorari under Rule 65 of the Rules of Court. The only ground upon which this Court may entertain a review of the OMB's resolution is grave abuse of discretion, not reversible errors.

2.ID.; ID.; ID.; GRAVE ABUSE OF DISCRETION IMPLIES A CAPRICIOUS AND WHIMSICAL EXERCISE OF JUDGMENT TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION. — A special civil action for certiorari is the proper remedy when a government officer has acted with grave abuse of discretion amounting to lack or excess of jurisdiction; and there is no plain, speedy, and adequate remedy in the ordinary course of law. But even assuming that the present Petition may be treated as one for certiorari, the case must nevertheless be dismissed. Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack or excess of jurisdiction. The exercise of power must have been done in an arbitrary or a despotic manner by reason of passion or personal hostility. It must have been so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law.

3.ID.; ID.; ID.; THE JUDGMENT OF THE OMBUDSMAN MAY OR MAY NOT HAVE BEEN ERRONEOUS, BUT IT HAS NOT BEEN SHOWN TO BE TAINTED WITH ARBITRARINESS, DESPOTISM OR CAPRICIOUSNESS AMOUNTING TO LACK OR EXCESS OF JURISDICTION. — In the present case, petitioners do not even allege that the OMB gravely abused its discretion in issuing its questioned Resolution. A perusal of the issues they submitted reveals that the crux of the controversy revolves around the finding of the deputy ombudsman that there was no probable cause against respondents. They allege that he committed legal errors in arriving at his findings and conclusions and had in fact no basis for dismissing their Complaint. The OMB's judgment may or may not have been erroneous, but it has not been shown to be tainted with arbitrariness, despotism or capriciousness amounting to lack or excess of jurisdiction.

4.ID.; ID.; ID.; THE DEPUTY OMBUDSMAN HAD SUFFICIENT BASES FOR HIS FINDING THAT THERE WAS NO PROBABLE CAUSE; FAILURE OF PETITIONERS TO SUBSTANTIATE THAT GOVERNMENT SUFFERED UNDUE INJURY. — [T]he Court finds no grave abuse in the manner in which the deputy ombudsman exercised his discretion. Evidently, he had sufficient bases for his finding that there was no probable cause. [T]he mere failure of the local government to enact a budget did not make all its disbursements illegal. Section 323 of the LGC provides for the automatic reenactment of the budget of the preceding year, in case the Sanggunian fails to enact one within the first 90 days of the fiscal year. Hence, the contention in the present case that money was paid out of the local treasury without any valid appropriation must necessarily fail. . . . Section 323 states that only the annual appropriations for salaries and wages, statutory and contractual obligations, and

essential operating expenses are deemed reenacted. Petitioner failed to identify disbursements that had gone beyond this coverage. . . . Petitioners failed to substantiate their allegations that the government had suffered undue injury. They concluded that there had been undue injury simply on the basis of their unsubstantiated claims of illegal disbursements. Having failed to prove any unlawful expenditure, the claim of undue injury must necessarily fail.

5.ID.; ID.; ID.; NO EVIDENCE OF CIRCUMSTANCES THAT WOULD QUALIFY AS CRIMINAL LIABILITY FOR DELAY IN SUBMITTING THE BUDGET UNDER SECTION 318 OF THE LOCAL GOVERNMENT CODE. — [P]etitioners relied solely on Section 318 of the LGC, which allegedly exposed the mayor to criminal liability for delay in submitting a budget proposal. . . . Under the LGC provision, criminal liability for delay in submitting the budget is qualified by various circumstances. For instance, the mayor must first receive the necessary financial documents from other city officials in order to be able to prepare the budget. In addition, criminal liability must conform to the provisions of the LGC and other applicable laws. Noteworthy is the fact that petitioners failed to present evidence that would fulfill these qualifications stated in the law.

6.ID.; ID.; ID.; THE COURT DOES NOT INTERFERE IN THE OMBUDSMAN'S EXERCISE OF DISCRETION IN DETERMINING PROBABLE CAUSE, UNLESS THERE ARE COMPELLING REASONS. — The determination of probable cause during a preliminary investigation is a function of the government prosecutor, who in this case is the Ombudsman. As a rule, the Court does not interfere in the Ombudsman's exercise of discretion in determining probable cause, unless there are compelling reasons. This policy is based on constitutional, statutory and practical considerations. To insulate the OMB from outside pressure and improper influence, the Constitution andRA 6770 (the Ombudsman Act of 1989) grant it a wide latitude of investigatory and prosecutorial powers virtually free from executive, legislative or judicial intervention. Such initiative and independence must be inherent in the Ombudsman who, beholden to no one, acts as champion of the people and preserver of the integrity of public service. Otherwise, the courts would be grievously hampered by innumerable petitions assailing the dismissal of investigatory proceedings conducted by the OMB with regard to complaints filed before it. This effect would be the same as the further clogging of already clogged dockets of courts, should they be compelled to review the exercise of discretion on the part of prosecuting attorneys each time an information is filed or a complaint dismissed.

7.ID.; ID.; ID.; NO PRIMA FACIE EVIDENCE FOR VIOLATION OF SECTION 3 (e) OF THE ANTI-GRAFT AND CORRUPT PRACTICES ACT. — Under the present factual milieu, petitioners clearly failed to establish the following elements of a violation of Section 3 (e) of the Anti-Graft and Corrupt Practices Act: "1. The accused is a public officer or a private person charged in conspiracy with former; "2. That he or she causes undue injury to any party, whether the government or a private party; "3. That said public officer commits the prohibited acts during the performance of his or her official duties or in relation to his or her public positions; "4. Such undue injury is caused by giving unwarranted benefits, advantage or preference to such parties; and "5. That the public officer has acted with manifest partiality, evident bad faith, or gross inexcusable negligence."

8.ID.; ID.; ID.; THE COURT IS BOUND TO RESPECT THE DEPUTY OMBUDSMAN'S PROFESSIONAL JUDGMENT IN FINDING THE CASE DISMISSIBLE, ABSENT A SHOWING OF GRAVE ABUSE OF DISCRETION. — A preliminary investigation constitutes a realistic judicial appraisal of the merits of a case. The complainant must adduce sufficient proof of guilt as basis for a criminal charge in court. As discussed earlier, the present petitioners did not submit any proof in support of their accusations against respondents. Hence, the Court is bound to respect the Deputy Ombudsman's professional judgment in finding the case dismissible, absent a showing of grave abuse of discretion. Government resources and the time and effort

of public officials would be needlessly wasted if the courts allow unmeritorious cases to be filed and given due course. It would be better to dismiss a case, like the present one in which the circumstances blatantly show that the act complained of does not constitute the offense charged.

9.ID.; ID.; ID.; THE COURT CANNOT COMPEL THE TESTIMONIES OF WITNESSES AND PRODUCTION OF DOCUMENTS IF, IN THE OMBUDSMAN'S SOUND JUDGMENT, THE SAID PIECES OF EVIDENCE ARE NOT NECESSARY TO ESTABLISH PROBABLE CAUSE. — Without having to go through a preliminary investigation, the OMB has the power to dismiss a complaint outright for being completely without merit. It necessarily follows that conducting a preliminary investigation and determining if any of the modes of discovery should be used are within the ambit of its discretion. The Court cannot compel the testimonies of witnesses and the production of documents if, in the ombudsman's sound judgment, these pieces of evidence are not necessary to establish probable cause.

D E C I S I O N

This Court's review powers over resolutions and orders of the Office of the Ombudsman is restricted only to determining whether grave abuse of discretion, that is, capricious or whimsical exercise of judgment, has been committed. The Court is not authorized to correct every error or mistake allegedly committed by that constitutionally independent government agency. Thus, absent any showing of grave abuse of discretion, we have consistently sustained its determination of the existence or the nonexistence of probable cause.

The Case

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the April 21, 2004 Resolution 2 and the August 27, 2004 Order 3 of the deputy ombudsman for Luzon in OMB-L-C-03-1550-L. The challenged Resolution disposed as follows:

"WHEREFORE, in view of the foregoing, it is respectfully recommended that the present case lodged against respondents Felix V. Ople and Josefina R. Contreras, Mayor and Vice Mayor, respectively of the Municipality of Hagonoy, Bulacan, be DISMISSED for lack of probable cause." 4

The assailed Resolution denied petitioners' Motion for Reconsideration.

The Facts

On December 8, 2003, Petitioners Cesar T. Villanueva, Pedro S. Santos, and Roy C. Soriano filed a Joint Affidavit-Complaint 5 before the Office of the Ombudsman. They charged incumbent Mayor Felix V. Ople and Vice-Mayor Josefina R. Contreras of Hagonoy, Bulacan, of violation of Section 3(e) 6 of RA No. 3019 or the "Anti-Graft and Corrupt Practices Act," 7 in relation to Sections 305-(a), 8 318 9 and 351 10 of the Local Government Code (LGC).

Petitioners alleged that the annual budget for Fiscal Year (FY) 2003 of the Municipality of Hagonoy had been submitted by Mayor Ople — through Vice-Mayor Contreras — to the Sangguniang Bayan of Hagonoy, only on June 11, 2003, instead of on October 16 of the preceding year, as mandated by Section 318, paragraph 2 of Book II, Title V, Chapter III of the LGC. They added that Vice-Mayor Contreras had failed to refer the budget to the chief legal counsel of the municipality; and that, together with the other incumbent members of the Sangguniang Bayan, she had instead sought the approval of the alleged "Illegal Annual Budget for 2003." 11

On the theory that no enabling resolution had been enacted authorizing expenditures of the municipality to be based on the annual budget for the preceding

year, petitioners claimed that the disbursement of public funds during the period January 1, 2003 to July 11, 2003 12 and/or August 27, 2003 13 had been illegal. They therefore prayed that respondents be held liable for the illegal disbursements done in the discharge of official functions, through evident bad faith and/or gross negligence that had caused undue injury to the Municipality of Hagonoy, Bulacan. 14

Respondents filed their respective Counter-Affidavits, both dated February 27, 2004, and practically identical in form and substance. 15 They stated that the proposed budget had actually been submitted on June 26, 2003, and not June 11, 2003. It was submitted only on that date, because Commission on Audit (COA) Circular No. 2002-2003, otherwise known as the "New Government Accounting System," had mandated the revision of accounting procedures. 16 In compliance with that Circular, the municipality had to review and modify almost all of its financial transactions beginning January 1, 2002. In order to prepare a feasible budget, they allegedly had to know the locality's financial position for the prior year, data on which had to come from the accounting department. 17

According to respondents, the Sangguniang Bayan of Hagonoy and the Sangguniang Panlalawigan of Bulacan eventually passed and approved the proposed budget, whose effectivity date was January 1, 2003. 18 They averred that the Local Government Code had not required the vice-mayor to submit the budget to the legal officer of the municipality for review. 19

Finally, respondents claimed that the disbursements of public funds during the absence of an approved budget were legal under Section 323 20 of RA 7160 or the LGC. 21

In their Reply and Supplemental Reply, petitioners reiterated their allegations in their Joint Affidavit-Complaint, in which they stressed that Section 323 of the LGC had required the mayor to submit the budget for the coming fiscal year not later than October 16 of the current FY. 22

Ruling of the Deputy Ombudsman

The Office of the Deputy Ombudsman for Luzon (OMB-Luzon) found no probable cause against respondents. 23 It noted that the charge was premised on allegedly illegal disbursements that had caused undue injury to the government. Yet, petitioners failed to specify which disbursements had been made illegally. Besides, there was no proof that the expenditures unduly benefited certain individuals or were made pursuant to the regular operations of the municipality. 24

The OMB-Luzon also held that Section 323 of the LGC had authorized the reenactment of the budget for the preceding year to allow the municipal government to function and carry out its mandate. 25 Hence, the disbursements made during the questioned period when the new budget had not yet been approved could not have been illegal. 26

In denying petitioners' Motion for Reconsideration, the OMB-Luzon pointed out that the alleged undue injury should have been specified, quantified, and proven to the point of moral certainty. 27 It found no reason to set the case for clarificatory hearings or to issue subpoenas. 28

Hence, this Petition. 29

The Issues

Petitioners state the issues in this wise:

"(A)Whether or not the admitted flagrant violation of Respondent Mayor Felix V. Ople of Section 318, LGC,

aided and abetted by co-respondent Vice Mayor Josefina R. Contreras, has been and can be validated by Section 323 of the LGC.

"(B)Whether or not there is any specific LGC [provision] which could be claimed as the legal remedy in validating Respondent Mayor Felix V. Ople's admitted flagrant violation of Section 318, LGC. ACHEaI

"(C)Whether or not at the National Government level there are comparable constitutional mandatory provisions (a) that no money shall be paid out of the treasury except in pursuance of an appropriation made by law; (b) when the preceding year's budget is deemed reenacted; and (c) deadline of President's constitutional duty to submit proposed budget.

"(D)Whether or not disbursements of municipal money out of the municipal treasury even in the absence of legally adopted annual budget cannot be characterized as 'undue injury' because:

'It is illogical, if not absurd, to assume that a municipal government no longer has the capacity to function and carry out its mandate only because its annual budget has not been approved.'

"(E)Whether or not when [petitioners], in seeking preliminary investigation in OMB-L-C-03-1550-L, are precluded at the same time from seeking OMB's broad fact-finding investigatory power, function and duty to find the truth of the exact amount of illegal disbursements of municipal funds during the fiscal year 2003 when there was no legally enacted 2003 annual budget pursuant to:

'(E.1)Sections 12 and 13, Article XI of the 1987 Constitution;

'(E.2)Section 13, 15, 23, 26 and 31 of the OMB Act of 1989; and

'(E.3)Rule II, Sections 1, 2, 3, 4-(f) and Rule III, ADO-7, Rules of Procedure of the OMB, April 10, 1990.

"(F)Whether or not clear and serious legal error is committed by the OMB in denying clarificatory hearing to ascertain material facts to find the true and exact amount of illegal disbursements of municipal money during the fiscal year 2003 when there was no legally enacted 2003 annual budget pursuant to OMB's broad investigative power, function and duty.

"(G)Whether or not it is clear and serious legal error for OMB-Luzon in denying issuance of subpoena to the 2 municipal officials, listed by the [petitioners] in their 'Joint Complaint-Affidavit' as witnesses to be subpoenaed in the investigation, to certify or affirm the exact amount of disbursements during the fiscal year

2003 when there was no legally enacted annual budget, on the ground that issuance of the subpoena would make OMB-Luzon engage in 'fishing expedition.'" 30

The Court's Ruling

The Petition is bereft of merit.

Preliminary Matter:Wrong Remedy Instituted

The proper remedies in questioning decisions and resolutions of the Office of the Ombudsman (OMB) have already been settled in a catena of cases.

Fabian v. Desierto 31 held that appeals from the orders, directives, or decisions of the OMB in administrative disciplinary cases were cognizable by the Court of Appeals.Tirol v. Del Rosario 32 clarified that, in non-administrative cases in which the OMB had acted with grave abuse of discretion amounting to lack or excess of jurisdiction, a petition for certiorari under Rule 65 may be filed directly with this Court. Accordingly, Kuizon v. Desierto 33 held that this Court had jurisdiction over petitions forcertiorari questioning the resolutions or orders of the ombudsman in criminal cases.

Thus, petitioners committed a procedural error in resorting to a Petition for Review under Rule 45 of the Rules of Court. To challenge the dismissal of their Complaint and to require the OMB to file an information, petitioners should have resorted to a petition for certiorari under Rule 65 of the Rules of Court. The only ground upon which this Court may entertain a review of the OMB's resolution is grave abuse of discretion, 34 not reversible errors.

 

Main Issue:No Grave Abuse of Discretion

A special civil action for certiorari is the proper remedy when a government officer has acted with grave abuse of discretion amounting to lack or excess of jurisdiction; and there is no plain, speedy, and adequate remedy in the ordinary course of law. 35 But even assuming that the present Petition may be treated as one for certiorari, the case must nevertheless be dismissed.

Grave abuse of discretion implies a capricious and whimsical exercise of judgment tantamount to lack or excess of jurisdiction. 36 The exercise of power must have been done in an arbitrary or a despotic manner by reason of passion or personal hostility. It must have been so patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 37

In the present case, petitioners do not even allege that the OMB gravely abused its discretion in issuing its questioned Resolution. A perusal of the issues they submitted reveals that the crux of the controversy revolves around the finding of the deputy ombudsman that there was no probable cause against respondents. They allege that he committed legal errors in arriving at his findings and conclusions and had in fact no basis for dismissing their Complaint. The OMB's judgment may or may not have been erroneous, but it has not been shown to be tainted with arbitrariness, despotism or capriciousness amounting to lack or excess of jurisdiction.

Sufficient Basis

In any event, the Court finds no grave abuse in the manner in which the deputy ombudsman exercised his discretion. Evidently, he had sufficient bases for his finding that there was no probable cause.

First, the mere failure of the local government to enact a budget did not make all its disbursements illegal. Section 323 of the LGC provides for the automatic reenactment of the budget of the preceding year, in case the Sanggunian fails to enact one within the first 90 days of the fiscal year. Hence, the contention in the present case that money was paid out of the local treasury without any valid appropriation must necessarily fail.

Second, Section 323 states that only the annual appropriations for salaries and wages, statutory and contractual obligations, and essential operating expenses are deemed reenacted. Petitioner failed to identify disbursements that had gone beyond this coverage.

Third, petitioners failed to substantiate their allegations that the government had suffered undue injury. They concluded that there had been undue injury simply on the basis of their unsubstantiated claims of illegal disbursements. Having failed to prove any unlawful expenditure, the claim of undue injury must necessarily fail.

Fourth, petitioners relied solely on Section 318 of the LGC, which allegedly exposed the mayor to criminal liability for delay in submitting a budget proposal. The pertinent provision reads:

"Sec. 318.Preparation of the Budget by the Local Chief Executive. — Upon receipt of the statements of income and expenditures from the treasurer, the budget proposals of the heads of departments and offices, and the estimates of income and budgetary ceilings from the local finance committee, the local chief executive shall prepare the executive budget for the ensuing fiscal year in accordance with the provisions of this Title. SaCIAE

"The local chief executive shall submit the said executive budget to the sanggunian concerned not later than the sixteenth (16th) of October of the current fiscal year. Failure to submit such budget on the date prescribed herein shall subject the local chief executive to such criminal and administrative penalties as provided for under this Code and other applicable laws."

Under the above LGC provision, criminal liability for delay in submitting the budget is qualified by various circumstances. For instance, the mayor must first receive the necessary financial documents from other city officials in order to be able to prepare the budget. In addition, criminal liability must conform to the provisions of the LGC and other applicable laws. Noteworthy is the fact that petitioners failed to present evidence that would fulfill these qualifications stated in the law.

We stress that the present case proceeds from an accusation that a crime was committed. A criminal case requires the filing of an information that will be the basis for the trial of the accused. 38 A preliminary investigation should then be conducted to determine whether a probable cause exists to warrant the filing of the information against the accused. 39

Probable Cause

Probable cause is defined as the existence of facts and circumstances that engender a well-founded belief that a crime has been committed, and that the respondent is

probably guilty of that crime and should be held for trial. 40 This term was explained in Pilapil v. Sandiganbayan, 41 as follows:

"Probable cause is a reasonable ground of presumption that a matter is, or may be, well founded, such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to believe, or entertain an honest or strong suspicion, that a thing is so. (Words and Phrases, Probable Cause, v. 34, p. 12) The term does not mean 'actual and positive cause' nor does it import absolute certainty. It is merely based on opinion and reasonable belief. Thus a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. It is enough that it is believed that the act or omission complained of constitutes the offense charged. Precisely, there is a trial for the reception of evidence of the prosecution in support of the charge." 42

Function of theGovernment Prosecutor

The determination of probable cause during a preliminary investigation is a function of the government prosecutor, who in this case is the ombudsman. 43 As a rule, the Court does not interfere in the ombudsman's exercise of discretion in determining probable cause, unless there are compelling reasons. 44

This policy is based on constitutional, statutory and practical considerations. 45 To insulate the OMB from outside pressure and improper influence, the Constitution andRA 6770 46 (the Ombudsman Act of 1989) grant it a wide latitude of investigatory and prosecutorial powers virtually free from executive, legislative or judicial intervention. 47 Such initiative and independence must be inherent in the ombudsman who, beholden to no one, acts as champion of the people and preserver of the integrity of public service. 48

Otherwise, the courts would be grievously hampered by innumerable petitions assailing the dismissal of investigatory proceedings conducted by the OMB with regard to complaints filed before it. 49 This effect would be the same as the further clogging of already clogged dockets of courts, should they be compelled to review the exercise of discretion on the part of prosecuting attorneys each time an information is filed or a complaint dismissed. 50

Nonetheless, the Court may exercise its certiorari power when the government prosecutor unreasonably refuses to file an information even if clearly warranted by the evidence. This certiorari power was recognized in Socrates v. Sandiganbayan, 51 which enumerated the remedies of the offended party or complainant, as follows: (1) to file an action for mandamus in case of grave abuse of discretion; 52 (2) to lodge a new complaint against the offenders before the ombudsman and request the conduct of a new examination as required by law; (3) to institute administrative charges against the erring prosecutor, a criminal complaint under Article 208 of the Revised Penal Code, or a civil action for damages under Article 27 of the Civil Code; (4) to secure the appointment of another prosecutor; or (5) to institute another criminal action if no double jeopardy is involved. 53

No Prima Facie Evidence

Under the present factual milieu, petitioners clearly failed to establish the following elements of a violation of Section 3(e) of the Anti-Graft and Corrupt Practices Act:

"1.The accused is a public officer or a private person charged in conspiracy with former;

"2.That he or she causes undue injury to any party, whether the government or a private party;

"3.That said public officer commits the prohibited acts during the performance of his or her official duties or in relation to his or her public positions;

"4.Such undue injury is caused by giving unwarranted benefits, advantage or preference to such parties; and

"5.That the public officer has acted with manifest partiality, evident bad faith, or gross inexcusable negligence." 54

A preliminary investigation constitutes a realistic judicial appraisal of the merits of a case. The complainant must adduce sufficient proof of guilt as basis for a criminal charge in court. As discussed earlier, the present petitioners did not submit any proof in support of their accusations against respondents.

Hence, the Court is bound to respect the deputy ombudsman's professional judgment in finding the case dismissible, absent a showing of grave abuse of discretion. 55Government resources and the time and effort of public officials would be needlessly wasted if the courts allow unmeritorious cases to be filed and given due course. It would be better to dismiss a case, like the present one in which the circumstances blatantly show that the act complained of does not constitute the offense charged.

Other Issue:Prayer for Subpoenas

This Petition includes a prayer for subpoena ad testificandum and subpoena duces tecum. This prayer, including a request for a clarificatory hearing, was initially made before the OMB in petitioners' Reply to respondents' Opposition to the Motion for Reconsideration of the assailed Resolution. 56 Petitioners sought the testimonies of the municipal accountant and treasurer, who could purportedly identify the disbursements for FY 2003. 57 The deputy ombudsman found this request tantamount to a "fishing expedition," which was not appropriate in a preliminary investigation. 58

 

Without having to go through a preliminary investigation, the OMB has the power to dismiss a complaint outright for being completely without merit. 59 It necessarily follows that conducting a preliminary investigation and determining if any of the modes of discovery should be used are within the ambit of its discretion. The Court cannot compel the testimonies of witnesses and the production of documents if, in the ombudsman's sound judgment, these pieces of evidence are not necessary to establish probable cause. 60

WHEREFORE, the Petition is hereby DENIED, and the assailed Resolution and Order are AFFIRMED. Costs against petitioners.

SO ORDERED.

[G.R. No. 148357. June 30, 2006.]

ALBON V FERNANDO

May a local government unit (LGU) validly use public funds to undertake the widening, repair and improvement of the sidewalks of a privately-owned subdivision?

This is the issue presented for the Court's resolution in this petition for review on certiorari 1 which assails the December 22, 2000 decision 2 and May 30, 2001 resolution of the Court of Appeals in CA-G.R. SP No. 56767.

In May 1999, the City of Marikina undertook a public works project to widen, clear and repair the existing sidewalks of Marikina Greenheights Subdivision. It was undertaken by the city government pursuant to Ordinance No. 59, s. 1993 3 like other infrastructure projects relating to roads, streets and sidewalks previously undertaken by the city.

On June 14, 1999, petitioner Aniano A. Albon filed with the Regional Trial Court of Marikina, Branch 73, a taxpayer's suit for certiorari, prohibition and injunction with damages against respondents (who were at that time officials of Marikina), namely, City Mayor Bayani F. Fernando, City Engineer Alfonso Espirito, Assistant City Engineer Anaki Maderal and City Treasurer Natividad Cabalquinto. It was docketed as SCA Case No. 99-331-MK. HDTCSI

Petitioner claimed that it was unconstitutional and unlawful for respondents to use government equipment and property, and to disburse public funds, of the City of Marikina for the grading, widening, clearing, repair and maintenance of the existing sidewalks of Marikina Greenheights Subdivision. He alleged that the sidewalks were private property because Marikina Greenheights Subdivision was owned by V.V. Soliven, Inc. Hence, the city government could not use public resources on them. In undertaking the project, therefore, respondents allegedly violated the constitutional proscription against the use of public funds for private purposes 4 as well as Sections 335 and 336 of RA 7160 5 and the Anti-Graft and Corrupt Practices Act. Petitioner further alleged that there was no appropriation for the project.

On June 22, 1999, the trial court denied petitioner's application for a temporary restraining order (TRO) and writ of preliminary injunction. The trial court reasoned that the questioned undertaking was covered by PD 1818 and Supreme Court Circular No. 68-94 which prohibited courts from issuing a TRO or injunction in any case, dispute or controversy involving an infrastructure project of the government.

On November 15, 1999, the trial court rendered its decision 6 dismissing the petition. It ruled that the City of Marikina was authorized to carry out the contested undertaking pursuant to its inherent police power. Invoking this Court's 1991 decision in White Plains Association v. Legaspi, 7 the roads and sidewalks inside the Marikina Greenheights Subdivision were deemed public property.

Petitioner sought a reconsideration of the trial court's decision but it was denied.

Thereafter, petitioner elevated the case to the Court of Appeals via a petition for certiorari, prohibition, injunction and damages. On December 22, 2000, the appellate court sustained the ruling of the trial court and held that Ordinance No. 59, s. 1993, was a valid enactment. The sidewalks of Marikina Greenheights Subdivision were public in nature and ownership thereof belonged to the City of Marikina or the Republic of the Philippines following the 1991 White Plains Association decision. Thus, the improvement and widening of the sidewalks pursuant to Ordinance No. 59, s. 1993 was well within the LGU's powers. On these grounds, the petition was dismissed.DIcSHE

Petitioner moved for reconsideration of the appellate court's decision but it was denied. Undaunted, he instituted this petition.

Like all LGUs, the City of Marikina is empowered to enact ordinances for the purposes set forth in the Local Government Code (RA 7160). It is expressly vested with police powers delegated to LGUs under the general welfare clause of RA 7160. 8 With this power, LGUs may prescribe reasonable regulations to protect the

lives, health, and property of their constituents and maintain peace and order within their respective territorial jurisdictions. 9

Cities and municipalities also have the power to exercise such powers and discharge such functions and responsibilities as may be necessary, appropriate or incidental to efficient and effective provisions of the basic services and facilities, including infrastructure facilities intended primarily to service the needs of their residents and which are financed by their own funds. 10 These infrastructure facilities include municipal or city roads and bridges and similar facilities. 11

There is no question about the public nature and use of the sidewalks in the Marikina Greenheights Subdivision. One of the "whereas clauses" of PD 1216 12 (which amended PD 957 13 ) declares that open spaces, 14 roads, alleys and sidewalks in a residential subdivision are for public use and beyond the commerce of man. In conjunction herewith, PD 957, as amended by PD 1216, mandates subdivision owners to set aside open spaces which shall be devoted exclusively for the use of the general public.

Thus, the trial and appellate courts were correct in upholding the validity of Ordinance No. 59, s. 1993. It was enacted in the exercise of the City of Marikina's police powers to regulate the use of sidewalks. However, both the trial and appellate courts erred when they invoked our 1991 decision in White Plains Association and automatically applied it in this case.

This Court has already resolved three interrelated White Plains Association cases: 15 (1) G.R. No. 55685 16 resolved in 1985; (2) G.R. No. 95522 17 decided in 1991 and (3)G.R. No. 128131 18 decided in 1998.

The ruling in the 1991 White Plains Association decision relied on by both the trial and appellate courts was modified by this Court in 1998 in White Plains Association v. Court of Appeals. 19 Citing Young v. City of Manila, 20 this Court held in its 1998 decision that subdivision streets belonged to the owner until donated to the government or until expropriated upon payment of just compensation.

The word "street," in its correct and ordinary usage, includes not only the roadway used for carriages and vehicular traffic generally but also the portion used for pedestrian travel. 21 The part of the street set aside for the use of pedestrians is known as a sidewalk. 22

Moreover, under subdivision laws, 23 lots allotted by subdivision developers as road lots include roads, sidewalks, alleys and planting strips. 24 Thus, what is true for subdivision roads or streets applies to subdivision sidewalks as well. Ownership of the sidewalks in a private subdivision belongs to the subdivision owner/developer until it is either transferred to the government by way of donation or acquired by the government through expropriation. ECaSIT

Section 335 of RA 7160 is clear and specific that no public money or property shall be appropriated or applied for private purposes. This is in consonance with the fundamental principle in local fiscal administration that local government funds and monies shall be spent solely for public purposes. 25

In Pascual v. Secretary of Public Works, 26 the Court laid down the test of validity of a public expenditure: it is the essential character of the direct object of the expenditure which must determine its validity and not the magnitude of the interests 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. 27 Incidental advantage to the public or to the State resulting from the promotion of private interests and the prosperity of private enterprises or business does not justify their aid by the use of public money. 28

In Pascual, the validity of RA 920 ("An Act Appropriating Funds for Public Works") which appropriated P85,000 for the construction, repair, extension and improvement of feeder roads within a privately-owned subdivision was questioned. The Court held that where the land on which the projected feeder roads were to be constructed belonged to a private person, an appropriation made by Congress for that purpose was null and void. 29

In Young v. City of Manila, 30 the City of Manila undertook the filling of low-lying streets of the Antipolo Subdivision, a privately-owned subdivision. The Court ruled that as long as the private owner retained title and ownership of the subdivision, he was under the obligation to reimburse to the city government the expenses incurred in land-filling the streets. SaICcT

Moreover, the implementing rules of PD 957, as amended by PD 1216, provide that it is the registered owner or developer of a subdivision who has the responsibility for the maintenance, repair and improvement of road lots and open spaces of the subdivision prior to their donation to the concerned LGU. The owner or developer shall be deemed relieved of the responsibility of maintaining the road lots and open space only upon securing a certificate of completion and executing a deed of donation of these road lots and open spaces to the LGU. 31

Therefore, the use of LGU funds for the widening and improvement of privately-owned sidewalks is unlawful as it directly contravenes Section 335 of RA 7160. This conclusion finds further support from the language of Section 17 of RA 7160 which mandates LGUs to efficiently and effectively provide basic services and facilities. The law speaks of infrastructure facilities intended primarily to service the needs of the residents of the LGU and "which are funded out of municipal funds." 32 It particularly refers to "municipal roads and bridges" and "similar facilities." 33

 

Applying the rules of ejusdem generis, the phrase "similar facilities" refers to or includes infrastructure facilities like sidewalks owned by the LGU. Thus, RA 7160contemplates that only the construction, improvement, repair and maintenance of infrastructure facilities owned by the LGU may be bankrolled with local government funds.

Clearly, the question of ownership of the open spaces (including the sidewalks) in Marikina Greenheights Subdivision is material to the determination of the validity of the challenged appropriation and disbursement made by the City of Marikina. Similarly significant is the character of the direct object of the expenditure, that is, the sidewalks.

Whether V.V. Soliven, Inc. has retained ownership of the open spaces and sidewalks or has already donated them to the City of Marikina, and whether the public has full and unimpeded access to the roads and sidewalks of Marikina Greenheights Subdivision, are factual matters. There is a need for the prior resolution of these issues before the validity of the challenged appropriation and expenditure can be determined. DaHISE

WHEREFORE, this case is hereby ordered REMANDED to the Regional Trial Court of Marikina City for the reception of evidence to determine (1) whether V.V. Soliven, Inc. has retained ownership of the open spaces and sidewalks of Marikina Greenheights Subdivision or has donated them to the City of Marikina and (2) whether the public has full and unimpeded access to, and use of, the roads and sidewalks of the subdivision. The Marikina City Regional Trial Court is directed to decide the case with dispatch.

SO ORDERED.

[G.R. No. 180986. December 10, 2008.]

ALTRES V EMPLEO

Assailed via petition for review on certiorari are the Decision dated February 2, 2007 1 and Order dated October 22, 2007 2 of Branch 3 of the Regional Trial Court (RTC) of Iligan City, which denied petitioners' petition for mandamus praying for a writ commanding the city accountant of Iligan, Camilo G. Empleo (Empleo), or his successor in office, to issue a certification of availability of funds in connection with their appointments, issued by then Iligan City Mayor Franklin M. Quijano (Mayor Quijano), which were pending approval by the Civil Service Commission (CSC).

Sometime in July 2003, Mayor Quijano sent notices of numerous vacant career positions in the city government to the CSC. The city government and the CSC thereupon proceeded to publicly announce the existence of the vacant positions. Petitioners and other applicants submitted their applications for the different positions where they felt qualified.

Toward the end of his term or on May 27, June 1, and June 24, 2004, Mayor Quijano issued appointments to petitioners.

In the meantime, the Sangguniang Panglungsod issued Resolution No. 04-242 3 addressed to the CSC Iligan City Field Office requesting a suspension of action on the processing of appointments to all vacant positions in the plantilla of the city government as of March 19, 2004 until the enactment of a new budget.

The Sangguniang Panglungsod subsequently issued Resolution No. 04-266 4 which, in view of its stated policy against "midnight appointments", directed the officers of the City Human Resource Management Office to hold in abeyance the transmission of all appointments signed or to be signed by the incumbent mayor in order to ascertain whether these had been hurriedly prepared or carefully considered and whether the matters of promotion and/or qualifications had been properly addressed. The same Resolution enjoined all officers of the said Office to put off the transmission of all appointments to the CSC, therein making it clear that non-compliance therewith would be met with administrative action. CDEaAI

Respondent city accountant Empleo did not thus issue a certification as to availability of funds for the payment of salaries and wages of petitioners, as required by Section 1 (e) (ii), Rule V of CSC Memorandum Circular No. 40, Series of 1998 reading:

xxx xxx xxx

e. LGU Appointment. Appointment in local government units for submission to the Commission shall be accompanied, in addition to the common requirements, by the following:

xxx xxx xxx

ii. Certification by the Municipal/City Provincial Accountant/Budget Officer that funds are available. (Emphasis and underscoring supplied) TAIESD

And the other respondents did not sign petitioners' position description forms.

The CSC Field Office for Lanao del Norte and Iligan City disapproved the appointments issued to petitioners invariably due to lack of certification of availability of funds.

On appeal by Mayor Quijano, CSC Regional Office No. XII in Cotabato City, by Decision of July 30, 2004, 5 dismissed the appeal, it explaining that its function in approving appointments is only ministerial, hence, if an appointment lacks a requirement prescribed by the civil service law, rules and regulations, it would disapprove it without delving into the reasons why the requirement was not complied with.

Petitioners thus filed with the RTC of Iligan City the above-stated petition for mandamus against respondent Empleo or his successor in office for him to issue a certification of availability of funds for the payment of the salaries and wages of petitioners, and for his co-respondents or their successors in office to sign the position description forms.

As stated early on, Branch 3 of the Iligan RTC denied petitioners' petition for mandamus. It held that, among other things, while it is the ministerial duty of the city accountant to certify as to the availability of budgetary allotment to which expenses and obligations may properly be charged under Section 474 (b) (4) of Republic Act No. 7160, 6 otherwise known as the Local Government Code of 1991, the city accountant cannot be compelled to issue a certification as to availability of funds for the payment of salaries and wages of petitioners as this ministerial function pertains to the city treasurer. In so holding, the trial court relied on Section 344 of the Local Government Code of 1991 the pertinent portion of which provides: THDIaC

Sec. 344. Certification and Approval of Vouchers. — No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer certifies to the availability of funds for the purpose. . . . (Underscoring supplied)

Petitioners filed a motion for reconsideration 7 in which they maintained only their prayer for a writ of mandamus for respondent Empleo or his successor in office to issue a certification of availability of funds for the payment of their salaries and wages. The trial court denied the motion by Order of October 22, 2007, 8 hence, the present petition. aCTHEA

By Resolution of January 22, 2008, 9 this Court, without giving due course to the petition, required respondents to comment thereon within ten (10) days from notice, and at the same time required petitioners to comply, within the same period, with the relevant provisions of the 1997 Rules of Civil Procedure.

Petitioners filed a Compliance Report dated February 18, 2008 10 to which they attached 18 copies of (a) a verification and certification, (b) an affidavit of service, and (c) photocopies of counsel's Integrated Bar of the Philippines (IBP) official receipt for the year 2008 and his privilege tax receipt for the same year. CcHDaA

Respondents duly filed their Comment, 11 alleging technical flaws in petitioners' petition, to which Comment petitioners filed their Reply 12 in compliance with the Court's Resolution dated April 1, 2008. 13

The lone issue in the present petition is whether it is Section 474 (b) (4) or Section 344 of the Local Government Code of 1991 which applies to the requirement of certification of availability of funds under Section 1 (e) (ii), Rule V of CSC Memorandum Circular Number 40, Series of 1998. As earlier stated, the trial court ruled that it is Section 344. Petitioners posit, however, that it is Section 474 (b) (4) under which it is the ministerial duty of the city accountant to issue the certification, and not Section 344 which pertains to the ministerial function of the city treasurer to issue the therein stated certification.

A discussion first of the technical matters questioned by respondents is in order. cIEHAC

Respondents assail as defective the verification and certification against forum shopping attached to the petition as it bears the signature of only 11 out of the 59 petitioners, and no competent evidence of identity was presented by the signing petitioners. They thus move for the dismissal of the petition, citing Section 5, Rule 7 14vis a vis Section 5, Rule 45 15 of the 1997 Rules of Civil Procedure and Docena v. Lapesura 16 which held that the certification against forum shopping should be signed by all the petitioners or plaintiffs in a case and that the signing by only one of them is insufficient as the attestation requires personal knowledge by the party executing the same. 17

Petitioners, on the other hand, argue that they have a justifiable cause for their inability to obtain the signatures of the other petitioners as they could no longer be contacted or are no longer interested in pursuing the case. 18 Petitioners plead substantial compliance, citing Huntington Steel Products, Inc., et al. v. NLRC 19 which held, among other things, that while the rule is mandatory in nature, substantial compliance under justifiable circumstances is enough. AHCaES

Petitioners' position is more in accord with recent decisions of this Court.

In Iglesia ni Cristo v. Ponferrada, 20 the Court held:

The substantial compliance rule has been applied by this Court in a number of cases: Cavile v. Heirs of Cavile, where the Court sustained the validity of the certification signed by only one of petitioners because he is a relative of the other petitioners and co-owner of the properties in dispute; Heirs of Agapito T. Olarte v. Office of the President of the Philippines, where the Court allowed a certification signed by only two petitioners because the case involved a family home in which all the petitionersshared a common interest; Gudoy v. Guadalquiver, where the Court considered as valid the certification signed by only four of the nine petitioners because all petitioners filed as co-owners pro indiviso a complaint against respondents for quieting of title and damages, as such, they all have joint interest in the undividedwhole; and DAR v. Alonzo-Legasto, where the Court sustained the certification signed by only one of the spouses as they were sued jointly involving a property in which they had a common interest. 21 (Italics in the original, underscoring supplied) TSDHCc

 

Very recently, in Tan, et al. v. Ballena, et al., 22 the verification and certification against forum shopping attached to the original petition for certiorari filed with the Court of Appeals was signed by only two out of over 100 petitioners and the same was filed one day beyond the period allowed by the Rules. The appellate court initially resolved to dismiss the original petition precisely for these reasons, but on the therein petitioners' motion for reconsideration, the appellate court ordered the filing of an amended petition in order to include all the original complainants numbering about 240. An amended petition was then filed in compliance with the said order, but only 180 of the 240 original complainants signed the verification and certification against forum shopping. The Court of Appeals granted the motion for reconsideration and resolved to reinstate the petition.

In sustaining the Court of Appeals in Tan, the Court held that it is a far better and more prudent course of action to excuse a technical lapse and afford the parties a review of the case to attain the ends of justice, rather than dispose of the case on

technicality and cause grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice. HDAaIc

The Court further discoursed in Tan:

Under justifiable circumstances, we have already allowed the relaxation of the requirements of verification and certification so that the ends of justice may be better served. Verification is simply intended to secure an assurance that the allegations in the pleading are true and correct and not the product of the imagination or a matter of speculation, and that the pleading is filed in good faith; while the purpose of the aforesaid certification is to prohibit and penalize the evils of forum shopping.

In Torres v. Specialized Packaging Development Corporation, we ruled that the verification requirement had been substantially complied with despite the fact that only two (2) out of the twenty-five (25) petitioners have signed the petition for review and the verification. In that case, we held that the two signatories were unquestionably real parties-in-interest, who undoubtedly had sufficient knowledge and belief to swear to the truth of the allegations in the Petition.

In Ateneo de Naga University v. Manalo, we also ruled that there was substantial compliance with the requirement of verification when only one of the petitioners, the President of the University, signed for and on behalf of the institution and its officers. EAcTDH

Similarly, in Bases Conversion and Development Authority v. Uy, we allowed the signature of only one of the principal parties in the case despite the absence of a Board Resolution which conferred upon him the authority to represent the petitioner BCDA.

In the present case, the circumstances squarely involve a verification that was not signed by all the petitioners therein. Thus, we see no reason why we should not uphold the ruling of the Court of Appeals in reinstating the petition despite the said formal defect.

On the requirement of a certification of non-forum shopping, the well-settled rule is that all the petitioners must sign the certification of non-forum shopping. The reason for this is that the persons who have signed the certification cannot be presumed to have the personal knowledge of the other non-signing petitioners with respect to the filing or non-filing of any action or claim the same as or similar to the current petition. The rule, however, admits of an exception and that is when the petitioners show reasonable cause for failure to personally sign the certification. The petitioners must be able to convince the court that the outright dismissal of the petition would defeat the administration of justice. SDHAcI

In the case at bar, counsel for the respondents disclosed that most of the respondents who were the original complainants have since sought employment in the neighboring towns of Bulacan, Pampanga and Angeles City. Only the one hundred

eighty (180) signatories were then available to sign the amended Petition forCertiorari and the accompanying verification and certification of non-forum shopping. 23

In the present case, the signing of the verification by only 11 out of the 59 petitioners already sufficiently assures the Court that the allegations in the pleading are true and correct and not the product of the imagination or a matter of speculation; that the pleading is filed in good faith; and that the signatories are unquestionably real parties-in-interest who undoubtedly have sufficient knowledge and belief to swear to the truth of the allegations in the petition.

With respect to petitioners' certification against forum shopping, the failure of the other petitioners to sign as they could no longer be contacted or are no longer interested in pursuing the case need not merit the outright dismissal of the petition without defeating the administration of justice. The non-signing petitioners are, however, dropped as parties to the case. HAICcD

In fact, even Docena 24 cited by respondents sustains petitioners' position. In that case, the certification against forum shopping was signed by only one of the petitioning spouses. The Court held that the certification against forum shopping should be deemed to constitute substantial compliance with the Rules considering, among other things, that the petitioners were husband and wife, and that the subject property was their residence which was alleged in their verified petition to be conjugal. 25

With respect to petitioners' non-presentation of any identification before the notary public at the time they swore to their verification and certification attached to the petition, suffice it to state that this was cured by petitioners' compliance 26 with the Court's Resolution of January 22, 2008 27 wherein they submitted a notarized verification and certification bearing the details of their community tax certificates. This, too, is substantial compliance. The Court need not belabor its discretion to authorize subsequent compliance with the Rules.

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential pronouncements already reflected above respecting non-compliance with the requirements on, or submission of defective, verification and certification against forum shopping:

1) A distinction must be made between non-compliance with the requirement on or submission of defective verification, and non-compliance with the requirement on or submission of defective certification against forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading fatally defective. The court may order its submission or correction or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served thereby. 28 aATHES

3) Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct. 29

4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in verification, is generally not curable by its subsequent submission or correction thereof, unless there is a need to relax the Rule on the ground of "substantial compliance" or presence of "special circumstances or compelling reasons". 30

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case; 31 otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the Rule. 32 TDcHCa

6) Finally, the certification against forum shopping must be executed by the party-pleader, not by his counsel. 33 If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must execute a Special Power of Attorney 34 designating his counsel of record to sign on his behalf.

And now, on respondents' argument that petitioners raise questions of fact which are not proper in a petition for review on certiorari as the same must raise only questions of law. They entertain doubt on whether petitioners seek the payment of their salaries, and assert that the question of whether the city accountant can be compelled to issue a certification of availability of funds under the circumstances herein obtaining is a factual issue. 35

The Court holds that indeed petitioners are raising a question of law.

The Court had repeatedly clarified the distinction between a question of law and a question of fact. A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts; or when the issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted. 36 A question of fact, on the other hand, exists when the doubt or difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole evidence considering mainly the credibility of the witnesses, the existence and relevance of specific surrounding circumstances, as well as their relation to each other and to the whole, and the probability of the situation. 37 When there is no dispute as to fact, the question of whether the conclusion drawn therefrom is correct is a question of law. 38 ICTcDA

 

In the case at bar, the issue posed for resolution does not call for the reevaluation of the probative value of the evidence presented, but rather the determination of which of the provisions of the Local Government Code of 1991 applies to the Civil Service Memorandum Circular requiring a certificate of availability of funds relative to the approval of petitioners' appointments.

AT ALL EVENTS, respondents contend that the case has become moot and academic as the appointments of petitioners had already been disapproved by the CSC. Petitioners maintain otherwise, arguing that the act of respondent Empleo in not issuing the required certification of availability of funds unduly interfered with the

power of appointment of then Mayor Quijano; that the Sangguniang Panglungsod Resolutions relied upon by respondent Empleo constituted legislative intervention in the mayor's power to appoint; and that the prohibition against midnight appointments applies only to presidential appointments as affirmed in De Rama v. Court of Appeals. 39 aTICAc

The Court finds that, indeed, the case had been rendered moot and academic by the final disapproval of petitioners' appointments by the CSC.

The mootness of the case notwithstanding, the Court resolved to rule on its merits in order to settle the issue once and for all, given that the contested action is one capable of repetition 40 or susceptible of recurrence.

The pertinent portions of Sections 474 (b) (4) and 344 of the Local Government Code of 1991 provide: ICTHDE

Section 474. Qualifications, Powers and Duties. —

xxx xxx xxx

(b) The accountant shall take charge of both the accounting and internal audit services of the local government unit concerned and shall:

xxx xxx xxx

(4) certify to the availability of budgetary allotment to which expenditures and obligations   may be properly charged . (Emphasis and underscoring supplied) DEICaA

xxx xxx xxx

Sec. 344. Certification and Approval of Vouchers. — No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer certifies to the availability of funds for the purpose. . . . (Emphasis and underscoring supplied)

Petitioners propound the following distinctions between Sections 474 (b) (4) and 344 of the Local Government Code of 1991: CDaTAI

(1) Section 474(b)(4) speaks of certification of availability of budgetary allotment, while Section 344 speaks of certification of availability of funds for disbursement;

(2) Under Section 474(b)(4), before a certification is issued, there must be an appropriation, while under Section 344, before a certification is issued, two requisites must concur: (a) there must be an appropriation legally made for the purpose, and (b) the local accountant has obligated said appropriation;

(3) Under Section 474(b)(4), there is no actual payment involved because the certification is for the purpose of obligating a portion of the appropriation; while under Section 344, the certification is for the purpose of payment after the local accountant had obligated a portion of the appropriation;

(4) Under Section 474(b)(4), the certification is issued if there is an appropriation, let us say, for the salaries of appointees; while under Section 344, the certification is issued if there is an appropriation and the same is obligated, let us say, for the payment of salaries of employees. 41

Respondents do not squarely address the issue in their Comment.

Section 344 speaks of actual disbursements of money from the local treasury in payment of due and demandable obligations of the local government unit. The disbursements are to be made through the issuance, certification, and approval of vouchers. The full text of Section 344 provides:

Sec. 344. Certification and Approval of Vouchers. — No money shall be disbursed unless the local budget officer certifies to the existence of appropriation that has been legally made for the purpose, the local accountant has obligated said appropriation, and the local treasurer certifies to the availability of funds for the purpose. Vouchers and payrolls shall be certified to and approved by the head of the department or office who has administrative control of the fund concerned, as to validity, propriety, and legality of the claim involved. Except in cases of disbursements involving regularly recurring administrative expenses such as payrolls for regular or permanent employees, expenses for light, water, telephone and telegraph services, remittances to government creditor agencies such as GSIS, SSS, LDP, DBP, National Printing Office, Procurement Service of the DBM and others, approval of the disbursement voucher by the local chief executive himself shall be required whenever local funds are disbursed.

In cases of special or trust funds, disbursements shall be approved by the administrator of the fund.

In case of temporary absence or incapacity of the department head or chief of office, the officer next-in-rank shall automatically perform his function and he shall be fully responsible therefor. (Italics and underscoring supplied)

"Voucher," in its ordinary meaning, is a document which shows that services have been performed or expenses incurred. 42 When used in connection with disbursement of money, it implies the existence of an instrument that shows on what account or by what authority a particular payment has been made, or that services have been performed which entitle the party to whom it is issued to payment. 43 AcDaEH

Section 344 of the Local Government Code of 1991 thus applies only when there is already an obligation to pay on the part of the local government unit, precisely because vouchers are issued only when services have been performed or expenses incurred.

The requirement of certification of availability of funds from the city treasurer under Section 344 of the Local Government Code of 1991 is for the purpose of facilitating the approval of vouchers issued for the payment of services already rendered to, and expenses incurred by, the local government unit.

The trial court thus erred in relying on Section 344 of the Local Government Code of 1991 in ruling that the ministerial function to issue a certification as to availability of funds for the payment of the wages and salaries of petitioners pertains to the city treasurer. For at the time material to the required issuance of the certification, the

appointments issued to petitioners were not yet approved by the CSC, hence, there were yet no services performed to speak of. In other words, there was yet no due and demandable obligation of the local government to petitioners. TIHDAa

Section 474, subparagraph (b) (4) of the Local Government Code of 1991, on the other hand, requires the city accountant to "certify to the availability of budgetary allotment to which expenditures and obligations may be properly charged". 44 By necessary implication, it includes the duty to certify to the availability of funds for the payment of salaries and wages of appointees to positions in the plantilla of the local government unit, as required under Section 1 (e) (ii), Rule V of CSC Memorandum Circular Number 40, Series of 1998, a requirement before the CSC considers the approval of the appointments.

In fine, whenever a certification as to availability of funds is required for purposes   other than   actual payment of an obligation which requires disbursement of money, Section 474 (b) (4) of the Local Government Code of 1991 applies, and it is the ministerial duty of the city accountant to issue the certification. CSTDIE

WHEREFORE, the Court declares that it is Section 474 (b) (4), not Section 344, of the Local Government Code of 1991, which applies to the requirement of certification of availability of funds under Section 1 (e) (ii), Rule V of Civil Service Commission Memorandum Circular Number 40, Series of 1998.

SO ORDERED.

[G.R. No. L-22814. August 28, 1968.]

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INCvs. CITY OF BUTUAN,

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 defendant's 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.

D E C I S I O N

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's 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:

"1. That plaintiff's 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.

"xxx xxx xxx"

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."

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:

". . . — 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."

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, ifless 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 defendant's 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

[G.R. No. 90776. June 3, 1991.]

PHILIPPINE PETROLEUM CORPORATION vs. MUNICIPALITY OF PILILLA, RIZAL,

SYLLABUS

1. ADMINISTRATIVE LAW; ADMINISTRATIVE REGULATIONS; MUST BE IN HARMONY WITH THE PROVISIONS OF LAW. — Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails (Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]).

2. TAXATION; TAX; TAX ON BUSINESS; DISTINCT FROM TAX ON THE ARTICLE ITSELF. — A tax on business is distinct from a tax on the article itself.

3. ID.; POWER TO TAX; LOCAL GOVERNMENT; ORDAINED BY THE CONSTITUTION. — The exercise by local governments of the power to tax is ordained by the present Constitution.

4. ID.; ID.; ID.; ID.; LIMITATION. — Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments.

5. ID.; ID.; WAIVER OF TAX MAY NOT BE EXERCISED BY A MUNICIPAL MAYOR; RATIONALE. — The trial court did not err in holding that "since the power to tax includes the power to exempt thereof which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121 [1983]). Thus, in the absence of a clear and express exemption from the payment of said fees, the waiver cannot be recognized.

6. ID.; LOCAL TAX CODE; COLLECTION OF LOCAL TAXES; PRESCRIPTIVE PERIOD PROVIDED BY THE CIVIL CODE. — However, since the Local Tax Code does not provide the prescriptive period for collection of local taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an obligation created by law prescribes within ten (10) years from the time the right of action accrues.

D E C I S I O N

This is a petition for certiorari seeking to annul and set aside: (a) the March 17, 1989 decision * of the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case No. 057-T entitled, "Municipality of Pililla, Rizal, represented by Mayor Nicomedes F. Patenia vs. Philippine Petroleum Corporation", (PPC for short) upholding the legality of the taxes, fees and charges being imposed in Pililla under Municipal Tax Ordinance No. 1 and directing the herein petitioner to pay the amount of said taxes, fees and charges due the respondent: and (b) the November 2, 1989 resolution of the same court denying petitioner's motion for reconsideration of the said decision. CdprThe undisputed facts of the case are:

Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal, conducting its business activities within the territorial jurisdiction of the Municipality of Pililla, Rizal and is in continuous operation up to the present (Rollo, p. 60). PPC owns and maintains an oil refinery including forty-nine storage tanks for its petroleum products in Malaya, Pililla, Rizal (Rollo, p. 12).

Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other fuels are subject to specific tax.

On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code was issued by former President Ferdinand E. Marcos governing the exercise by provinces, cities, municipalities and barrios of their taxing and other revenue-raising powers. Sections 19 and 19 (a) thereof, provide among others, that the municipality may impose taxes on business, except on those for which fixed taxes are provided on manufacturers, importers or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in accordance with the schedule listed therein.

The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973, directed to all provincial, city and municipal treasurers to refrain from collecting any local tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 76).

Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the Secretary of Finance instructing all City Treasurers to refrain from collecting any local tax imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code on July 1, 1973, on the businesses of manufacturing, wholesaling, retailing, or dealing in, petroleum products subject to the specific tax under the National Internal Revenue Code (Rollo, p. 79).

Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla Tax Code of 1974" on June 14, 1974, which took effect on July 1, 1974 (Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance imposed a tax on business, except for those for which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of

liquors, distilled spirits and/or wines in accordance with the schedule found in the Local Tax Code, as well as mayor's permit, sanitary inspection fee and storage permit fee for flammable, combustible or explosive substances (Rollo, pp. 183-187), while Section 139 of the disputed ordinance imposed surcharges and interests on unpaid taxes, fees or charges (Ibid., p. 193).

On March 30, 1974, Presidential Decree No. 426 was issued amending certain provisions of P.D 231 but retaining Sections 19 and 19 (a) with adjusted rates and 22(b).

On April 13, 1974, P.D 436 was promulgated increasing the specific tax on lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum products levied under Sections 142, 144 and 145 of the National Internal Revenue Code, as amended, and granting provinces, cities and municipalities certain shares in the specific tax on such products in lieu of local taxes imposed on petroleum products. cdphil

The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but was not implemented and/or enforced by the Municipality of Pililla because of its having been suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73.

Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed under the local tax ordinance of their respective locality, said fee partaking of the nature of a strictly revenue measure or service charge.

On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was enacted, Section 153 of which specifically imposes specific tax on refined and manufactured mineral oils and motor fuels.

Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees from 1975 to 1984 PPC, however, have already paid the last-named fees starting 1985 (Rollo, p. 74).

After PPC filed its answer, a pre-trial conference was held on August 24, 1988 where the parties thru their respective counsel, after coming up with certain admissions and stipulations agreed to the submission of the case for decision based on documentary evidence offered with their respective comments (Rollo, p. 41). prLL

On March 17, 1987, the trial court rendered a decision against the petitioner, the dispositive part of which reads as follows:

"WHEREFORE, premises considered, this Court hereby renders judgment in favor of the plaintiffs as against the defendants thereby directing the defendants to 1) pay the plaintiffs the amount of P5,301,385.00 representing the Tax on Business due from the defendants under Sec. 9 (A) of the Municipal Tax Ordinance of the plaintiffs for the period from 1979 to 1983 inclusive plus such amount of tax that may accrue until final determination of case; 2) to pay storage permit fee in the amount of P3,321,730.00 due from the defendants under Sec. 10, par. z (13) (b) (1-c) of the Municipal Tax Ordinance of the plaintiffs for the period from 1975 to 1936 inclusive plus such amount of fee that may accrue until final determination of case; 3) to pay Mayor's Permit Fee due from the defendants under Sec. 10, par. (P)(2) of the Municipal Tax Ordinance of the

plaintiffs from 1975 to 1984 inclusive in the amount of P12,120.00 plus such amount of fee that may accrue until final determination of the case; and 4) to pay sanitary inspection fee in the amount of P1,010.00 for the period from 1975 to 1984 plus such amount that may accrue until final determination of case and 5) to pay the costs of suit. cdasia

SO ORDERED." (Rollo, pp. 49-50)

PPC moved for reconsideration of the decision, but this was denied by the lower court in a resolution of November 2, 1989, hence, the instant petition.

 

The Court resolved to give due course to the petition and required both parties to submit simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305).

PPC assigns the following alleged errors:

1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE BUSINESS TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE IN THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-73;

2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE FOR THE PAYMENT OF STORAGE PERMIT FEE UNDER SECTION 10 Z (13) (b) (1-c) OF THE TAX ORDINANCE CONSIDERING THE ISSUANCE OF PROVINCIAL CIRCULAR NO. 6-77;

3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS COMPUTATION OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;

4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S PERMIT AND SANITARY INSPECTION FEES CONSIDERING THAT THE SAME HAS BEEN VALIDLY AND LEGALLY WAIVED BY THE MAYOR;

5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE FIVE (5) YEAR PERIOD FROM THE FILING OF THIS CASE ON APRIL 4, 1986 HAS ALREADY PRESCRIBED.

The crucial issue in this case is whether or not petitioner PPC whose oil products are subject to specific tax under the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering Provincial Circular No. 6-77; and mayor's permit and sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1. Cdpr

Petitioner PPC contends that: (a) Provincial Circular No. 26-73 declared as contrary to national economic policy the imposition of local taxes on the manufacture of petroleum products as they are already subject to specific tax under the National Internal Revenue Code; (b) the above declaration covers not only old tax ordinances but new ones, as well as those which may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked, any effort on the part of the respondent to collect the suspended tax on business from the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436prohibits the imposition of local taxes on petroleum products.

PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances imposing a tax on business under Section 19 (a) of the Local Tax Code (P.D. No. 231), with regard to manufacturers, retailers, wholesalers or dealers in petroleum

products subject to the specific tax under the National Internal Revenue Code (NIRC), in view of Section 22 (b) of the Code regarding non-imposition by municipalities of taxes on articles, subject to specific tax under the provisions of the NIRC.

There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees and charges is valid especially Section 9 (A) which according to the trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of said law.

But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products. LexLib

Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails (Shell Philippines, Inc. v. Central Bank of the Philippines, 162 SCRA 628 [1988]).As aptly held by the court a quo:

"Necessarily, there could not be any other logical conclusion than that the framers of P.D. No. 426 really and actually intended to terminate the effectivity and/or enforceability of Provincial Circulars Nos. 26-73 and 26 A-73 inasmuch as clearly these circulars are in contravention with Sec. 19 (a) of P.D. 426 — the amendatory law to P.D. No. 231. That intention to terminate is very apparent and in fact it is expressed in clear and unequivocal terms in the effectivity and repealing clause of P.D. 426 . . . ."

Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly stated in P.D. No. 436. LLphil

The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments. Thus:

"Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy . . . ."

Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed in the local tax ordinance of their respective locality frees petitioner PPC from the payment of storage permit fee.

The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and keeping in storage of any flammable, combustible or explosive

substances. Inasmuch as said storage makes use of tanks owned not by the municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any service rendered by the municipality as what is envisioned in Section 37 of the same Code.

Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee allowed under Section 36 of the amended Code.

As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection fees, the trial court did not err in holding that "since the power to tax includes the power to exempt thereof which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121 [1983]). Thus, in the absence of a clear and express exemption from the payment of said fees, the waiver cannot be recognized. As already stated, it is the law-making body, and not an executive like the mayor, who can make an exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be required before any individual or juridical entity shall engage in any business or occupation under the provisions of the Code. LLphil

However, since the Local Tax Code does not provide the prescriptive period for collection of local taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an obligation created by law prescribes within ten (10) years from the time the right of action accrues. The Municipality of Pililla can therefore enforce the collection of the tax on business of petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued prior to 1976.

PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing PRIOR to 1976 are not to be paid by PPC (because the same have prescribed) and that storage fees are not also to be paid by PPC (for the storage tanks are owned by PPC and not by the municipality, and therefore cannot be a charge for service by the municipality), the assailed DECISION is hereby AFFIRMED.

SO ORDERED.

 G.R. No. 91649. May 14, 1991.

ATTORNEYS HUMBERTO BASCO, vs. PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR)

SYLLABUS

1. STATUTORY CONSTRUCTION; PRESUMPTION OF VALIDITY OF STATUTE; MUST BE INDULGED IN FAVOR OF ITS CONSTITUTIONALITY. — As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive for that matter, has over-stepped the limits of its

authority under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra). In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the — ". . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation should be adopted." (Danner v. Hass, 194 N.W. 2nd 534, 539, Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540). cdasia

2. ID.; IN NULLIFYING A LAW, IT MUST BE SHOWN THAT THERE IS A CLEAR AND UNEQUIVOCAL BREACH OF THE CONSTITUTION. — Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress to determine.

3. POLITICAL LAW; JUDICIAL DEPARTMENT; TECHNICALITIES OF PROCEDURE MAY BE BRUSHED ASIDE FOR THE PROPER EXERCISE OF ITS POWERS. — Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371) "With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of and even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised. "In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that 'the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure.' We have since then applied the exception in many

other cases." (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

4. ID.; ID.; NO POWER TO SETTLE POLICY ISSUES. — Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its repeal or amendment. "The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power." (Valmonte v. Belmonte, Jr., 170 SCRA 256.) LLphil

5. ID.; CONCEPT OF POLICE POWER; CONSTRUED. — The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to — underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386). Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra). It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power co-extensive with self-protection. and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the exigencies of the winds of change.

6. PHILIPPINE AMUSEMENT AND GAMING CORPORATION (P.D. No. 1869); PURPOSE FOR ITS CREATION. — P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896.

7. ID.; DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF LOCAL GOVERNMENT TO IMPOSE TAXES AND LOCAL FEES; REASONS THEREFOR. — Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." Their contention stated hereinabove is without merit for the

following reasons: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. (c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government. Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila. (d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers. cda

 

8. ID.; EXEMPT FROM LOCAL TAXES; REASONS THEREOF. — PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. "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. Marland, 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) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activates 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.

9. ID.; NOT A VIOLATION OF THE LOCAL AUTONOMY CLAUSE IN THE CONSTITUTION. — The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the

power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987 Constitutional Commission, pp. 436-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio." "Local Government has been described as a political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a measure of decentralization of the function of government. As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539). What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments.

10. ID.; NOT A VIOLATION OF EQUAL PROTECTION CLAUSE. — Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR — conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989). The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827). Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D. 449), horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869for one, unconstitutional. "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." (Gomez v. Palomar, 25 SCRA 827) "The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made mathematically exact." (Dominican Hotel v. Arizana, 249 US 2651)

11. ID.; PRESUMED VALID AND CONSTITUTIONAL. — As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521 — "Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not undertaken to identify the provisions in the Constitution which they claim to have been violated by that statute. This Court, however, is not compelled to speculate and to imagine how the assailed legislation may possibly offend some provisions of the Constitution. The

Court notes, further, in this respect that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments of government: the President and the Congress." cda

PADILLA, J., concurring:

1. POLITICAL LAW; LEGISLATIVE AND EXECUTIVE DEPARTMENT; VESTED WITH POWER TO DECIDE STATE POLICY. — J. Padilla concur in the result of the learned decision penned by my brother Mr. Justice Paras. This means that I agree with the decision insofar as it holds that the prohibition, control, and regulation of the entire activity known as gambling properly pertain to "state policy." It is, therefore, the political departments of government, namely, the legislative and the executive that should decide on what government should do in the entire area of gambling, and assume full responsibility to the people for such policy. The courts, as the decision states, cannot inquire into the wisdom, morality or expediency of policies adopted by the political departments of government in areas which fall within their authority, except only when such policies pose a clear and present danger to the life, liberty or property of the individual. This case does not involve such a factual situation.

2. ID.; LEGISLATIVE DEPARTMENT; MUST OUTLAW ALL FORMS OF GAMBLING, AS A FUNDAMENTAL STATE OF POLICY; REASON THEREFOR. — J. Padilla hasten to make of record that I do not subscribe to gambling in any form. It demeans the human personality, destroys self-confidence and eviscerates one's self-respect, which in the long run will corrode whatever is left of the Filipino moral character. Gambling has wrecked and will continue to wreck families and homes; it is an antithesis to individual reliance and reliability as well as personal industry which are the touchstones of real economic progress and national development. Gambling is reprehensible whether maintained by government or privatized. The revenues realized by the government out of "legalized" gambling will, in the long run, be more than offset and negated by the irreparable damage to the people's moral values. Also, the moral standing of the government in its repeated avowals against "illegal gambling" is fatally flawed and becomes untenable when it itself engages in the very activity it seeks to eradicate. One can go through the Court's decision today and mentally replace the activity referred to therein as gambling, which is legal only because it is authorized by law and run by the government, with the activity known as prostitution. Would prostitution be any less reprehensible were it to be authorized by law, franchised, and "regulated" by the government, in return for the substantial revenues it would yield the government to carry out its laudable projects, such as infrastructure and social amelioration? The question, I believe, answers itself. I submit that the sooner the legislative department outlaws all forms of gambling, as a fundamental state policy, and the sooner the executive implements such policy, the better it will be for the nation.

D E C I S I O N

A TV ad proudly announces:"The new PAGCOR — responding through responsible gaming."

 

But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter —PD 1869, because it is allegedly contrary to morals, public policy and order, and because —

"A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City

government's right to impose taxes and license fees, which is recognized by law;

"B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy;

"C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR — conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices;

"D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization." (p. 2, Amended Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo). cdasia

The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869 on the alleged grounds mentioned above.

The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." Its operation was originally conducted in the well known floating casino "Philippine Tourist." The operation was considered a success for it proved to be a potential source of revenue to fund infrastructure and socioeconomic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective.

Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law, under the following declared policy —

"Section 1. Declaration of Policy. — It is hereby declared to be the policy of the State to centralize and integrate all games of chance not heretofore authorized by existing franchises or permitted by law in order to attain the following objectives:

"(a) To centralize and integrate the right and authority to operate and conduct games of chance into one corporate entity to be controlled, administered and supervised by the Government.

"(b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of chance, which may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to fund

infrastructure and socio-civic projects, such as flood control programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs Population Control and such other essential public services; (2) create recreation and integrated facilities which will expand and improve the country's existing tourist attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent on the conduct and operation of gambling clubs and casinos without direct government involvement." (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified.

It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the National Government a total of P2.5 Billion in form of franchise tax, government's income share, the President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with various governmental agencies, and other private associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9) casinos nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families. LLjur

But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for being "contrary to morals, public policy and public order," monopolistic and tends toward "crony economy", and is violative of the equal protection clause and local autonomy as well as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution.

This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate consideration by the Court, involving as it does the exercise of what has been described as "the highest and most delicate function which belongs to the judicial department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323).

As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra).

In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the —

". . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable

doubt; that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation should be adopted." (Danner v. Hass, 194 N.W. 2nd 534, 539, Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540).

Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners to file the instant petition.

Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371) dctai

"With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of and even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised.

"In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that 'the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure.' We have since then applied the exception in many other cases." (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

 

Having disposed of the procedural issue, We will now discuss the substantive issues raised.

Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal

liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra).

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power co-extensive with self-protection. and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the exigencies of the winds of change.

What was the reason behind the enactment of P.D. 1869?

P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity — the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896. llcd

Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local."

"(2) Income and other taxes. —(a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall be due and payable quarterly to the National Government and shall be in lien of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority" (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:

(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power.

(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus:

"Section 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked.

"Section 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the national government upon proper application and verification of the qualification of the applicant. . . ."

Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.

(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers, thus:

"Sec. 9. Regulatory Power. — The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliating entities mentioned under the preceding section, including, but not limited to amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the operation of the affiliated entities, the provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original incorporation." cdtai

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government.

"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. Marland, 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.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides:

"Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government." (emphasis supplied).

 

The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. cdll

Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio."

"Local Government has been described as a political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a measure of decentralization of the function of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539).

What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments.

"As gambling is usually an offense against the State, legislative grant or express charter power is generally necessary to empower the local corporation to deal with the subject. . . . In the absence of express grant of power to enact, ordinance provisions on this subject which are inconsistent with the state laws are void." (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 ibid, p. 548, emphasis supplied).

Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR — conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo).

We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989).

The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827).

Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D. 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional.

"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." (Gomez v. Palomar, 25 SCRA 827)

"The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made mathematically exact." (Dominican Hotel v. Arizana, 249 US 2651)

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its repeal or amendment. LLpr

"The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power." (Valmonte v. Belmonte, Jr., 170 SCRA 256.)

On the issue of "monopoly," however, the Constitution provides that:

"Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed." (Art. XII, National Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the Legislature to decide.

On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles. cdrep

"In general, therefore, the 1935 provisions were not intended to be self-executing principles ready for enforcement through the Courts. They were rather directives addressed to the executive and the legislature. If the executive and the legislature failed to heed the directives of the articles the available remedy was not judicial or political. The electorate could express their displeasure with the failure of the executive and the legislature through the language of the ballot." (Bernas, Vol. II, p. 2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869, the

Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress to determine. LLjur

As this Court held in Citizens' Alliance for Consumer Protection v. Energy regulatory Board, 162 SCRA 521 —

"Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not undertaken to identity the provisions in the Constitution which they claim to have been violated by that statute. This Court, however, is not compelled to speculate and to imagine how the assailed legislation may possibly offend some provision of the Constitution. The Court notes, further, in this respect that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments of government: the President and the Congress."

Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his mental, social, and spiritual outlook-on life. However, the mere fact that some persons may have lost their material fortunes, mental control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the cause. For the same consequences could have been preceded by an overdose of food, drink, exercise, work, and even sex. prcd

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.

G.R. No. 149110. April 9, 2003.NATIONAL POWER CORPORATION, , vs. CITY OF CABANATUAN, SYNOPSIS

Petitioner is a government owned and controlled corporation created under Commonwealth Act No. 120, as amended. For many years, petitioner sold electric power to the residents of Cabanatuan City. Pursuant to a 1992 ordinance, the respondent assessed the petitioner a franchise tax. In refusing to pay the tax assessment, petitioner argued that the respondent had no authority to impose tax on government entities like itself and that it was a tax exempt entity by express provisions of law. Hence, respondent filed a collection suit demanding payment of the assessed tax due alleging that petitioner's exemption from local taxes has been repealed. The trial court dismissed the case and ruled that the tax exemption privileges granted to petitioner still subsists. On appeal, the Court of Appeals reversed the trial court's order. Petitioner's motion for reconsideration was denied by the appellate court. Hence, this petition for review filed before the Supreme Court.

The Supreme Court denied this petition and affirmed the decision of the Court of Appeals. According to the Court, one of the most significant provisions of the Local Government Code (LGC) is the removal of the blanket exclusion of instrumentalities

and agencies of the national government from the coverage of local taxation. Although as a general rule, Local Government Units (LGU) cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGU to impose taxes, fees or charges on the aforementioned entities. In the case at bar, Section 151 in relation to Section 137 of the LGC clearly authorized the respondent city government to impose on the petitioner the franchise tax in question.

SYLLABUS1. TAXATION; TAXES AS THE LIFEBLOOD OF THE GOVERNMENT; CONSTRUED. — Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.2. ID.; POWER TO TAX; LOCAL GOVERNMENT UNITS; ENJOY DIRECT AUTHORITY TO LEVY TAXES, FEES AND OTHER CHARGES PURSUANT TO ARTICLE X, SECTION 5 OF THE CONSTITUTION; RATIONALE. — In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; 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, viz: "Section 5. — Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments." This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders." The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, Section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers.

3. ID.; ID.; ID.; CANNOT IMPOSE TAXES, FEES OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES AS A RULE; EXCEPTION. — Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respectivesanggunian. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs

cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz: "Section 133. Common Limitations on the Taxing Powers of the 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: . . . (o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units."

4. MERCANTILE LAW; FRANCHISE; DEFINED AND CONSTRUED. — In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right. In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation. The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself. On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use. ISDHcT

5. TAXATION; FRANCHISE TAX IMPOSED UNDER THE LOCAL GOVERNMENT CODE; REQUISITES. — In Section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that the phrase "tax on businesses enjoying a franchise" in Section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders.

6. ID.; TAX EXEMPTION; CONSTRUED STRONGLY AGAINST THE CLAIMANT; APPLICATION IN CASE AT BAR. — As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions. In the case at bar, the petitioner's sole refuge is Section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However, Section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. It reads: "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 the effectivity of this Code." It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes.

 

7. POLITICAL LAW; GOVERNMENT OWNED AND CONTROLLED CORPORATION; CONSTRUED. — Section 2 of Pres. Decree No. 2029 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz: "A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock . . . ." Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government. Included in the class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), among others.

D E C I S I O N

This is a petition for review 1 of the Decision 2 and the Resolution 3 of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan. CEDScAPetitioner is a government-owned and controlled corporation created under Commonwealth Act No. 120, as amended. 4 It is tasked to undertake the "development of hydroelectric generations of power and the production of electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide basis." 5 Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain power plants, auxiliary plants, power stations and substations for the purpose of developing hydraulic power and supplying such power to the inhabitants. 6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. 7 Pursuant to Section 37 of Ordinance No. 165-92, 8 the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year. 9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine Government, 10 refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contended that as a non-profit organization, it is exempted from the payment of all forms of

taxes, charges, duties or fees 11 in accordance with Sec. 13 of Rep. Act No. 6395, as amended, viz:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. — The Corporation shall be non-profit and shall devote all its return from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;

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

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

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. 13 Respondent alleged that petitioner's exemption from local taxes has been repealed by Section 193 of Rep. Act No. 7160, 14 which reads as follows:

"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 the effectivity of this Code."

On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax exemption privileges granted to petitioner subsist despite the passage ofRep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) Section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a matter of legislative intent. The lawmakers may expressly repeal a law by incorporating therein repealing provisions which expressly and specifically cite(s) the particular law or laws, and portions thereof, that are intended to be repealed. A declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to know the existing laws on the subject and not to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it was held that:

'Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. . . . Being an instrumentality of the government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original charter and its shares of stocks owned by the National Government, is beyond the taxing power of the Local Government. Corollary to this, it should be noted here that in the NPC Charter's declaration of Policy, Congress declared that: '. . . (2) the total electrification of the Philippines through the development of power from all services to meet the needs of industrial development and dispersal and needs of rural electrification are primary objectives of the nations which shall be pursued coordinately and supported by all instrumentalities and agencies of the government, including its financial institutions.' (emphasis supplied). To allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is limited to that which is provided for in its charter or other statute. Any grant of taxing power is to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the plaintiff could not impose the subject tax on the defendant." 16

On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that Section 193, in relation to Sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. 18 It ordered the petitioner to pay the respondent city government the following: (a) the sum of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P10,000.00 as litigation expense. 19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision. This was denied by the appellate court, viz:

 

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated therein that the taxing power of the province under Art. 137 (sic) of the Local Government Code refers merely to private persons or corporations in which category it (NPC) does not belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the NPC Charter which is a special law — finds the answer in Section 193 of the LGC to the effect that '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 . . . are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED." 20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE." 21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to Section 151 in relation to Section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein." (emphasis supplied)

xxx xxx xxx

Sec. 151. Scope of Taxing Powers. — Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city government. It contends that Sections 137 and 151 of the LGC in relation to Section 131, limit the taxing power of the respondent city government to private entities that are engaged in trade or occupation for profit. 22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of the public welfare, security and safety." From the phraseology of this provision, the petitioner claims that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise," petitioner submits that it should refer specifically to franchises granted to private natural persons and to private corporations. 23 Ergo, its charter should not be considered a "franchise" for the purpose of imposing the franchise tax in question.

On the other hand, Section 131 (d) of the LGC defines "business" as "trade or commercial activity regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its operation; all these profits are required by law to be channeled for expansion and improvement of its facilities and services. 24

Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine Amusement and Gaming

Corporation 26 where this Court held that local governments have no power to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere local government.

'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 seriously burden it from accomplishment of them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics 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 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." 27

Petitioner contends that Section 193 of Rep. Act No. 7160, withdrawing the tax privileges of government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its charter cannot be amended or modified impliedly by the local government code which is a general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be

construed to have repealed a special law. Where there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute. 28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should prevail over the LGC. It alleges that the power of the local government to impose franchise tax is subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the least limitable and most demanding of all powers, including the power of taxation." 29

The petition is without merit.

Taxes are the lifeblood of the government, 30 for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, 31 the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; 32 without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. 33 Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges 34 pursuant to Article X, Section 5 of the 1987 Constitution, viz:

"Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments."

 

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, Section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and

all other matters relating to the organization and operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, 37 the Local Autonomy Act of 1959, 38 the Decentralization Act of 1967 39 and the Local Government Code of 1983. 40 Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies. 41

Considered as the most revolutionary piece of legislation on local autonomy, 42 the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian. 43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the 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:

xxx xxx xxx

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

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement and Gaming Corporation 44 relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. 46 In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax, viz:

"Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133, the taxing power of local governments cannot extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national government, its agencies and instrumentalities, and local government units'; however, pursuant to Section 232, provinces, cities and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, '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 as provided in the item (a) of the first paragraph of Section 12.'" 47

In the case at bar, Section 151 in relation to Section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question. STIEHc

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right. 48 In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself. 50 On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. 51 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with a public use. 52

In Section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the context of taxation. As commonly used, a  franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." 53 It is not levied on the corporation simply for existing as a corporation, upon its property 54 or its income, 55 but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. 56It is within this context that the phrase "tax on businesses enjoying a franchise" in Section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395, constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. 57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following powers which are not available to ordinary corporations, viz:

"xxx xxx xxx

(e) To conduct investigations and surveys for the development of water power in any part of the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters from lands of riparian owners and from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of just compensation therefor; to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or connecting therewith or contiguous to its works or any part thereof. Provided, That just compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission lines, power stations and substations, and other works for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the Philippines and supplying such power to the inhabitants thereof, to acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers, generators and machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate, maintain and administer power and lighting systems for the transmission and utilization of its power generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions . . .;

 

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be sought: Provided, however, That in case the property itself shall be acquired by purchase, the cost thereof shall be the fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway or railway of private and public ownership, as the location of said works may require . . .;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided by law for instituting condemnation proceedings by the national, provincial and municipal governments;

xxx xxx xxx

(m) To cooperate with, and to coordinate its operations with those of the National Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon determination by the Corporation of the areas required for watersheds for a specific project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all areas embraced within the watersheds, subject to existing private rights, the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures to prevent environmental pollution and promote the conservation, development and maximum utilization of natural resources . . ." 58

With these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing the electric power industry. Although Exec. Order No. 215 60 thereafter allowed private sector participation in the generation of electricity, the transmission of electricity remains the monopoly of the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's territorial jurisdiction pursuant to the powers granted to it byCommonwealth Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government, and its charter characterized it as a "non-profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, 61 and can exercise all the powers of a corporation under the Corporation Code. 62

To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No. 2029 63 classifies government-owned or controlled corporations (GOCCs) into those performing governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock corporation, whether performing governmental or proprietary functions, which is directly chartered by special law or if organized under the general corporation law is owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation, to the extent of at least a majority of its outstanding voting capital stock . . .." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government. 64Included in the class of GOCCs performing proprietary functions are "business-like" entities such as the National Steel Corporation (NSC), the National Development Corporation (NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), 65 among others. caHCSD

Petitioner was created to "undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis." 66 Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society. 67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz: 68

"(n) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organized, or which, from time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the said purpose . . . ."(emphasis supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on profits. 69 The main difference is that the petitioner is mandated to devote "all its returns from its capital investment, as well as excess revenues from its operation, for expansion" 70 while other franchise holders have the option to distribute their profits to its stockholders by declaring dividends. We do not see why this fact can be a source of difference in tax treatment. In both instances, the taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions. 71 In the case at bar, the petitioner's sole refuge is Section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and

realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However, Section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads:

"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 the effectivity of this Code." (emphasis supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maximexpressio unius est exclusio alterius. 73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax "notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does not admit any exception. In City Government of San Pablo, Laguna v. Reyes, 74 MERALCO's exemption from the payment of franchise taxes was brought as an issue before this Court. The same issue was involved in the subsequent case of Manila Electric Company v. Province of Laguna. 75 Ruling in favor of the local government in both instances, we ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under special laws, viz:

 

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support their position that MERALCO's tax exemption has been withdrawn. The explicit language of Section 137 which authorizes the province to impose franchise tax 'notwithstanding any exemption granted by any law or other special law' is all-encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that 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 (1) local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other

provision in point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used." 76 (emphasis supplied).

It is worth mentioning that Section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. 77 But in enacting Section 37 of Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises." 78 With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

G.R. No. 192945. September 5, 2012.CITY OF IRIGA,  vs. CAMARINES SUR III ELECTRIC COOPERATIVE, INC. (CASURECO III), 

DECISIONThe Court reiterates that a franchise tax is a tax levied on the exercise by an entity of the rights or privileges granted to it by the government. 1 In the absence of a clear and subsisting legal provision granting it tax exemption, a franchise holder, though non-profit in nature, may validly be assessed franchise tax by a local government unit.

Before the Court is a petition filed under Rule 45 of the Revised Rules of Court seeking to set aside the February 11, 2010 Decision 2 and July 12, 2010 Resolution 3 of the Court of Appeals (CA), which reversed the February 7, 2005

Decision of the Regional Trial Court (RTC) of Iriga City, Branch 36 and ruled that respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO III) is exempt from payment of local franchise tax.

The Facts

CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential Decree (PD) 269, 4 as amended, and registered with the National Electrification Administration (NEA). It is engaged in the business of electric power distribution to various end-users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of Camarines Sur, otherwise known as the "Rinconada area." 5

Sometime in 2003, petitioner City of Iriga required CASURECO III to submit a report of its gross receipts for the period 1997-2002 to serve as the basis for the computation of franchise taxes, fees and other charges. 6 The latter complied 7 and was subsequently assessed taxes. aHcACT

On January 7, 2004, petitioner made a final demand on CASURECO III to pay the franchise taxes due for the period 1998-2003 and real property taxes due for the period 1995-2003. 8 CASURECO III, however, refused to pay said taxes on the ground that it is an electric cooperative provisionally registered with the Cooperative Development Authority (CDA), 9 and therefore exempt from the payment of local taxes. 10

On March 15, 2004, petitioner filed a complaint for collection of local taxes against CASURECO III before the RTC, citing its power to tax under the Local Government Code (LGC) and the Revenue Code of Iriga City. 11 It alleged that as of December 31, 2003, CASURECO III's franchise and real property taxes liability, inclusive of penalties, surcharges and interest, amounted to Seventeen Million Thirty-Seven Thousand Nine Hundred Thirty-Six Pesos and Eighty-Nine Centavos (P17,037,936.89) and Nine Hundred Sixteen Thousand Five Hundred Thirty-Six Pesos and Fifty Centavos (P916,536.50), respectively. 12

In its Answer, CASURECO III denied liability for the assessed taxes, asserting that the computation of the petitioner was erroneous because it included 1) gross receipts from service areas beyond the latter's territorial jurisdiction; 2) taxes that had already prescribed; and 3) taxes during the period when it was still exempt from local government tax by virtue of its then subsisting registration with the CDA. 13

Ruling of the Trial Court

In its Decision dated February 7, 2005, the RTC ruled that the real property taxes due for the years 1995-1999 had already prescribed in accordance with Section 194 14of the LGC. However, it found CASURECO III liable for franchise taxes for the years 2000-2003 based on its gross receipts from Iriga City and the Rinconada area on the ground that the "situs of taxation is the place where the privilege is exercised." 15 The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing, defendant is hereby made liable to pay plaintiff real property taxes and franchise taxes on its receipts, including those from service area covering Nabua, Bato, Baao and Buhi for the years 2000 up to the present. The realty taxes for the years 1995 and 1999 is hereby declared prescribed. The City Assessor is hereby directed to make the proper classification of defendant's real property in accordance with Ordinance issued by the City Council.

SO ORDERED. 16 ISADET

Only CASURECO III appealed from the RTC Decision, questioning its liability for franchise taxes.

Ruling of the Court of Appeals

In its assailed Decision, the CA found CASURECO III to be a non-profit entity, not falling within the purview of "businesses enjoying a franchise" pursuant to Section 137 of the LGC. It explained that CASURECO III's non-profit nature is diametrically opposed to the concept of a "business," which, as defined under Section 131 of the LGC, is a "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." Consequently, it relieved CASURECO III from liability to pay franchise taxes.

Petitioner moved for reconsideration, which the CA denied in its July 12, 2010 Resolution for being filed a day late, hence, the instant petition.

Issues Before the Court

Petitioner raises two issues for resolution, which the Court restates as follows: (1) whether or not an electric cooperative registered under PD 269 but not under RA 693817 is liable for the payment of local franchise taxes; and (2) whether or not the situs of taxation is the place where the franchise holder exercises its franchise regardless of the place where its services or products are delivered.

CASURECO III, on the other hand, raises the procedural issue that since the motion for reconsideration of the CA Decision was filed out of time, the same had attained finality.

The Court's Ruling

The petition is meritorious.

Before delving into the substantive issues, the Court notes the procedural lapses extant in the present case.

Proper Mode of Appeal from theDecision of the Regional Trial Court involving local taxes

RA 9282, 18 which took effect on April 23, 2004, expanded the jurisdiction of the Court of Tax Appeals (CTA) to include, among others, the power to review by appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. 19 cAaTED

Considering that RA 9282 was already in effect when the RTC rendered its decision on February 7, 2005, CASURECO III should have filed its appeal, not with the CA, but with the CTA Division in accordance with the applicable law and the rules of the CTA. Resort to the CA was, therefore, improper, rendering its decision null and void for want of jurisdiction over the subject matter. A void judgment has no legal or binding force or efficacy for any purpose or at any place. 20 Hence, the fact that petitioner's motion for reconsideration from the CA Decision was belatedly filed is inconsequential, because a void and non-existent decision would never have acquired finality. 21

The foregoing procedural lapses would have been sufficient to dismiss the instant petition outright and declare the decision of the RTC final. However, the substantial merits of the case compel us to dispense with these lapses and instead, exercise the Court's power of judicial review.

CASURECO III is not exempt frompayment of franchise tax

PD 269, which took effect on August 6, 1973, granted electric cooperatives registered with the NEA, like CASURECO III, several tax privileges, one of which is exemption from the payment of "all national government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or taxes." 22

On March 10, 1990, Congress enacted into law RA 6938, 23 otherwise known as the "Cooperative Code of the Philippines," and RA 6939 24 creating the CDA. The latter law vested the power to register cooperatives solely on the CDA, while the former provides that electric cooperatives registered with the NEA under PD 269 which opt not to register with the CDA shall not be entitled to the benefits and privileges under the said law.

On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax exemptions or incentives previously 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." 25

In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local Government, 26 the Court held that the tax privileges granted to electric cooperatives registered with NEA under PD 269 were validly withdrawn and only those registered with the CDA under RA 6938 may continue to enjoy the tax privileges under the Cooperative Code.

Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local taxes. Moreover, its provisional registration with the CDA which granted it exemption for the payment of local taxes was extended only until May 4, 1992. Thereafter, it can no longer claim any exemption from the payment of local taxes, including the subject franchise tax. aHTCIc

Indisputably, petitioner has the power to impose local taxes. The power of the local government units to impose and collect taxes is derived from the Constitution itself which grants them "the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitation as the Congress may provide." 27 This explicit constitutional grant of power to tax is consistent with the basic policy of local autonomy and decentralization of governance. With this power, local government units have the fiscal mechanisms to raise the funds needed to deliver basic services to their constituents and break the culture of dependence on the national government. Thus, consistent with these objectives, the LGC was enacted granting the local government units, like petitioner, the power to impose and collect franchise tax, to wit:

SEC. 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. . . .

SEC. 151. Scope of Taxing Powers. — Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or

municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.

Taking a different tack, CASURECO III maintains that it is exempt from payment of franchise tax because of its nature as a non-profit cooperative, as contemplated in PD 269, 28 and insists that only entities engaged in business, and not non-profit entities like itself, are subject to the said franchise tax.

The Court is not persuaded.

In National Power Corporation v. City of Cabanatuan, 29 the Court declared that "a franchise tax is 'a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state.'" 30 It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. 31 "It is within this context that the phrase 'tax on businesses enjoying a franchise' in Section 137 of the LGC should be interpreted and understood." 32 CDAcIT

Thus, to be liable for local franchise tax, the following requisites should concur: (1) that one has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the pertinent local government unit. 33

There is a confluence of these requirements in the case at bar. By virtue of  PD 269, NEA granted CASURECO III a franchise to operate an electric light and power service for a period of fifty (50) years from June 6, 1979, 34 and it is undisputed that CASURECO III operates within Iriga City and the Rinconada area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit nature.

CASURECO III is liable forfranchise tax on gross receiptswithin Iriga City andRinconada area

CASURECO III further argued that its liability to pay franchise tax, if any, should be limited to gross receipts received from the supply of the electricity within the City of Iriga and not those from the Rinconada area.

Again, the Court is not convinced.

It should be stressed that what the petitioner seeks to collect from CASURECO III is a franchise tax, which as defined, is a tax on the exercise of a  privilege. As Section 137 35 of the LGC provides, franchise tax shall be based on gross receipts precisely because it is a tax on business, rather than on persons or property. 36 Since it partakes of the nature of an excise tax, 37 the situs of taxation is the place where the privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal office and from where it operates, regardless of the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from Iriga City and the Rinconada area.

WHEREFORE, the petition is GRANTED. The assailed Decision dated February 11, 2010 and Resolution dated July 12, 2010 of the Court of Appeals are hereby SET ASIDEand the Decision of the Regional Trial Court of Iriga City, Branch 36, is REINSTATED.

SO ORDERED.