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[G.R. No. 119761. August 29, 1996]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION, respondents.
D E C I S I O NVITUG, J.:
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of Appeals [1] affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax Appeals [2] ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local brand." [3] Ad Valorem taxes were imposed on these brands,[4] at the following rates:
"BRAND AD VALOREM TAX RATE
E.O. 22
06-23-86
07-01-86 and E.O. 273
07-25-87
01-01-88 RA 6956
06-18-90
07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20%"[5]
A bill, which later became Republic Act ("RA") No. 7654, [6] was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows:
"SEC. 142. Cigars and Cigarettes. -
"x x x x x x x x x.
"(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher:
"(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
"(2). On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack.
"x x x x x x x x x.
"When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%)."[7] (Italics supplied.)
About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed:
"REPUBLIKA NG PILIPINASKAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1, 1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT : Reclassification of Cigarettes Subject to Excise Tax
TO : All Internal Revenue Officers and Others Concerned.
"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION' cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter.
"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:
"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern."
"Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, 'x x x the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. x x x'
"'HOPE' is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. 'MORE' is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. 'Champion' is registered in the said directory as being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
"Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, 'in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made.'
"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and 'CHAMPION' being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.
"Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD) LIWAYWAY VINZONS-CHATO
Commissioner"On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A.
Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was
addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco, requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. [8]
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:
"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: `HOPE,' `MORE' and `CHAMPION' being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be.
"Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis.
"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93.
"SO ORDERED." [9]
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That -
"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.
"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY.
"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
“IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS 'HOPE,' 'MORE' AND 'CHAMPION' CIGARETTES.
"V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING ‘HOPE,’ ‘MORE’ AND ‘CHAMPION’ CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.
“VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT." [10]
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances - a legislative rule and an interpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, [11] the Court expressed:
"x x x a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:
"Public Participation. - If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
"(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.
"(3) In case of opposition, the rules on contested cases shall be observed.
"In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing." [12]
It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes notbearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
"RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
"It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on `due process of law' and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).
"In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances:
"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations.
"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed.
"Due notice of the said issuances may be fairly presumed only after the following procedures have been taken:
"xxx xxx xxx
"(5). Strict compliance with the foregoing procedures is enjoined." [13]
Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities.[14] Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate[15] and the tax must operate with the same force and effect in every place where the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay[16] doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular, such as -
"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea (Exhibit `R')
"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan (Exhibit `S')
(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit `T')
"3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit `U')
(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit `V-1')
"4. Locally manufactured by MIGHTY CORPORATION
(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit 'U-1')
"5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) ‘UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson, USA (Exhibit 'U-3')
(b) ‘WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh; Nanyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit 'U-4')." [17]
The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the House of Representatives; viz:
"THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on other tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory x x x. Why were these brands not reclassified at 55 if your want to give a level playing field to foreign manufacturers?
"MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to come after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time, when we had to come up with this, we were forced to study the brands of Hope, More and Champion because we were given documents that would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there. And we really found based on our own interpretation that the only test that is given by that existing law would be registration in the World Tobacco Directory. So we came out with this proposed revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed at 55 percent. So we were saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter, then I think our action would really be subject to questionbut we feel that . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact, it was really because of the study, the short time that we were given to study the matter that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the law itself. I am sure that by the reading of the law, you would without that ruling by Commissioner Tan they would really have been included in the definition or in the classification of foregoing brands. These brands that you referred to or just read to us and in fact just for your information, we really came out with a proposed revenue memorandum circular for those brands. (Italics supplied)
"Exhibit 'FF-2-C', pp. V-5 TO V-6, VI-1 to VI-3).
"x x x x x x x x x.
"MS. CHATO. x x x But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up with a more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not have been possible to really come up with the reclassification or the proper classification of all brands that are listed there. x x x' (italics supplied) (Exhibit 'FF-2d', page IX-1)
"x x x x x x x x x.
"HON. DIAZ. But did you not consider that there are similarly situated?
"MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter, we were really caught by the July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman. (Italics supplied) (Exhibit 'FF-2-d,' par. IX-4)."18
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.Kapunan, J., concurs.Padilla, J., joins Justice Hermosisima, Jr., in his dissenting opinion.Bellosillo, J., see separate opinion.Hermosisima, Jr., J., see dissenting opinion.
G.R. No. 112024 January 28, 1999
PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS,respondent.
QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993 affirming the Decision2 and a Resolution 3 of the Court Of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits, anddisposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in toto.
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
——— ———
Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00 —
Tax Withheld at Source 282,795.50 234,077.69
———————— ———————
Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced by the subsequent BIR rejection, applied retroactivity, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year. 8
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit the two year period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as follows:
Sec. 246 Non-retroactivity of rulings— Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers except in the following cases:
a). where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue;
b). where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to wit ACCRA Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.. 12Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment;Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68. 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No 37-1 fixed no period, that is to say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax credit and corresponding petition fro review within the two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals, after examining the adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is AFFIRMED, with COSTS against the petitioner.1âwphi1.nêt
SO ORDERED.
Bellosillo, Puno, Mendoza, and Buena, JJ., concur.
FIRST DIVISION
[G.R. No. 90107. August 21, 1992.]
DOMINGO A. TUZON and LOPE C. MAPAGU, Petitioners, v. HONORABLE COURT OF APPEALS and SATURNINO T. JURADO, Respondents.
Alfredo J . Donato and Orlando B. Consigna, for Petitioners.
Hermenegildo G. Rapanan for Private Respondent.
SYLLABUS
1. CIVIL LAW; DONATION; ACT OF LIBERALITY AND NEVER OBLIGATORY; CASE AT BAR. — While it would appear from the wording of the resolution that the municipal government merely intends to "solicit" the 1% contribution from the threshers, the implementing agreement seems to make the donation obligatory and a condition precedent to the issuance of the mayor’s permit. This goes against the nature of a donation, which is an act of liberality and is never obligatory.
2. ID.; HUMAN RELATIONS; ARTICLE 27 OF THE NEW CIVIL CODE; PURPOSE; CASE AT BAR. — The private respondent anchors his claim for damages on Article 27 of the New Civil Code, which reads: Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken. It has been remarked that one purpose of this article is to end the "bribery system, where the public official, for some flimsy excuse, delays or refuses the performance of his duty until he gets some kind of pabagsak." Official inaction may also be due to plain indolence or a cynical indifference to the responsibilities of public service. According to Phil. Match Co. Ltd. v. City of Cebu, (81 SCRA 99) the provision presupposes that the refusal or omission of a public official to perform his official duty is attributable to malice or inexcusable negligence. In any event, the erring public functionary is justly punishable under this article for whatever loss or damage the complainant has sustained. In the present case, it has not even been alleged that the Mayor Tuzon’s refusal to act on the private respondent’s application was an attempt to compel him to resort to bribery to obtain approval of his application. It cannot be said either that the mayor and the municipal treasurer were motivated by personal spite or were grossly negligent in refusing to issue the permit and license to Jurado. It is no less significant that no evidence has been offered to show that the petitioners singled out the private respondent for persecution. Neither does it appear that the petitioners stood to gain personally from refusing to issue to Jurado the mayor’s permit and license he needed. The petitioners were not Jurado’s business competitors nor has it been established that they intended to favor his competitors. On the contrary, the record discloses that the resolution was uniformly applied to all the threshers in the municipality without discrimination or preference.
3. TAXATION; ENACTMENT OF TAX ORDINANCE WHERE TAX BASE OR SUBJECT NOT SIMILAR OR COMPARABLE TO ANY OF THOSE ENUMERATED IN LOCAL TAX CODE; REQUIREMENTS. — If, on the other hand, it is to be considered a tax ordinance, then it must be shown in view of the challenge raised by the private respondents to have been enacted in accordance with the requirements of the Local Tax Code. These would include the holding of a public hearing on the measure and its subsequent approval by the Secretary of Finance, in addition to the usual requisites for publication of ordinances in general.
4. ADMINISTRATIVE LAW; PUBLIC OFFICERS; NOT PERSONALLY LIABLE FOR INJURIES OCCASIONED BY PERFORMANCE OF OFFICIAL DUTY WITHIN SCOPE OF OFFICIAL AUTHORITY; ERRONEOUS INTERPRETATION OF ORDINANCE DOES NOT CONSTITUTE BAD FAITH; CASE AT BAR. — The Court is convinced that the petitioners acted within the scope of their authority and in consonance with their honest interpretation of the resolution in question. We agree that it was not for them to rule on its validity. In the absence of a judicial decision declaring it invalid, its legality would have to be presumed (in fact, both the trial court and the appellate court said there was nothing wrong with it). As executive officials of the municipality, they had the duty to enforce it as long as it had not been repealed by the Sangguniang Bayan or annulled by the courts. . . . As a rule, a public officer, whether judicial, quasi-judicial or executive, is not personally liable to one injured in consequence of an act performed within the scope of his official authority, and in line of his official duty. . . . It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith that would entitle an aggrieved party to an award for damages. (Philippine Match Co. Ltd. v. City of Cebu, 81 SCRA 99).
D E C I S I O N
CRUZ, J.:
The petitioners are questioning the decision of the respondent court holding them liable in damages to the private respondent for refusing to issue to him a mayor’s permit and license to operate his palay-threshing business.
The case goes back to March 14, 1977, when the Sangguniang Bayan of Camalaniugan, Cagayan, unanimously adopted Resolution No. 9, reading pertinently as follows:jgc:chanrobles.com.ph
"WHEREAS, the municipality of Camalaniugan, Cagayan has embarked in the construction of Sports and Nutrition Center, to provide the proper center wherein the government program of Nutrition and physical development of the people, especially the youth could be well administered: jgc:chanrobles.com.ph
"WHEREAS, the available funds for the construction of the said project is far (sic) being adequate to finance its completion;
"WHEREAS, the Sangguniang Bayan have (sic) thought of fund-raising scheme, to help finance the construction of the project, by soliciting 1% donation from the thresher operators who will apply for a permit to thresh within the jurisdiction of this municipality, of all the palay threshed by them to help finance the continuation of the construction of the Sports and Nutrition Center Building. chanrobles law library : red
RESOLVED, therefore, as it is hereby resolved, that the municipal treasurer is hereby authorized to enter into an agreement to all thresher operators, that will come to apply for a permit to thresh palay within the jurisdiction of this municipality to donate 1% of all the palay threshed by them. chanrobles virtual lawlibrary
To implement the above resolution, petitioner Lope C. Mapagu, then incumbent municipal treasurer, prepared the following document for signature of all thresher/owner/operators applying for a mayor’s permit: chanrob1es virtual 1aw library
AGREEMENT
That I, _____________ thresher-owner-operator hereby voluntarily agree to donate to the municipality of Camalaniugan, Cagayan, one percent (1%) of all palay threshed by me within the jurisdiction of Camalaniugan, Cagayan, to help finance the completion of the construction of the sports and nutrition center building of Camalaniugan per Resolution No. 9 dated March 14, 1977 of the Sanggunian Bayan;
That I also agree to report weekly the total number of palay threshed by me to the municipal treasurer and turn over the corresponding 1% share of the municipality for the said project mentioned above.
Signed this day of __________, 1977.
____________________
Thresher/Owner/Operator
Soon thereafter, private respondent Saturnino T. Jurado sent his agent to the municipal treasurer’s office to pay the license fee of P285.00 for thresher operators. Mapagu refused to accept the payment and required him to first secure a mayor’s permit. For his part, Mayor Domingo Tuzon, the herein other
petitioner, said that Jurado should first comply with Resolution No. 9 and sign the agreement before the permit could be issued. Jurado ignored the requirement. Instead, he sent the P285.00 license fee by postal money order to the office of the municipal treasurer who, however, returned the said amount. The reason given was the failure of the respondent to comply with Resolution No. 9.
On April 4, 1977, Jurado filed with the Court of First Instance of Cagayan a special civil action for mandamus with actual and moral damages to compel the issuance of the mayor’s permit and license. On May 31, 1977, he filed another petition with the same court. this time for declaratory judgment against the said resolution (and the implementing agreement) for being illegal either as a donation or as a tax measure. Named defendants were the same respondents and all the members of the Sangguniang Bayan of Camalaniugan.
In a joint decision dated March 31, 1982, the trial court 1 upheld the challenged measure. However, it dismissed the claims for damages of both parties for lack of evidence.chanroblesvirtuallawlibrary
Jurado appealed to the Court of Appeals, which in it decision dated August 31, 1989, 2 affirmed the validity of Resolution No. 9 and the implementing agreement. Nevertheless, it found Tuzon and Mapagu to have acted maliciously and in bad faith when they denied Jurado’s application for the mayor’s permit and license. Consequently, they were held liable thus: chanrob1es virtual 1aw library
WHEREFORE, in view of all the foregoing, the decision appealed from is hereby MODIFIED in that appellees Mayor and Municipal Treasurer are hereby ordered to pay jointly and severally the appellant the following amounts: P20,000.00 as actual damages; P5,000.00 as moral damages; and P3,000.00 as attorney’s fees.
The petitioners now seek relief from this Court on the grounds that:chanrob1es virtual 1aw library
1. Respondent Court gravely abused its discretion when it concluded that the refusal on the part of the petitioners to issue a Mayor’s permit and license to operate a thresher to the private respondent is "unjustified and constitutes bad faith" on their part. chanrobles law library : red
2. Respondent Court gravely abused its discretion when it concluded that compliance with Resolution No. 9 and its implementing agreement is not mandatory despite its own ruling and finding that Resolution No. 9 is valid because the same was passed in accordance with the provisions of the 1973 Constitution and the Local Tax Code.
3. Respondent court likewise gravely abused its discretion when it awarded damages to the private respondent, contrary to the findings of facts of the trial court to the effect that petitioners were not guilty of bad faith and malice and because from the records, there is no proof or evidence to support such award.
The petitioners stress that they were acting in their official capacity when they enforced the resolution, which was duly adopted by the Sangguniang Bayan and later declared to be valid by both the trial and the appellate courts. For so acting, they cannot be held personally liable in damages, more so because their act was not tainted with bad faith or malice. This was the factual finding of the trial court and the respondent court was not justified in reversing it.
Commenting on the petition, the private respondent avers that the signing of the implementing agreement was not a condition sine qua non to the issuance of a permit and license. Hence the petitioners’ unwarranted refusal to issue the permit and license despite his offer to pay the required fee constituted bad faith on their part.
Jurado further assails Resolution No. 9 and the implementing agreement for compelling the thresher to donate something which he does not yet own. He also claims that the measure contravenes the limitations on the taxing powers of local government units under Section 5, of the Local Tax Code.
His conclusion is that he is entitled to actual and moral damages from the petitioners under Article 27 of the Civil Code, and to the payment of attorney’s fees as well, for their refusal or neglect, without just cause, to perform their official duties.
We need not concern ourselves at this time with the validity of Resolution No. 9 and the implementing agreement because the issue has not been raised in this petition as an assigned error of the respondent court. The measures have been sustained in the challenged decision, from which the respondent has not appealed. The decision is final and binding as to him. It is true that he did question the measures in his Comment, but only half-heartedly and obliquely, to support his claim for damages. We may therefore defer examination of these measures to a more appropriate case, where it may be discussed more fully by the proper parties. chanroblesvirtual|awlibrary
We may merely observe at this time that in sustaining Resolution No. 9, the respondent court said no more than that: chanrob1es virtual 1aw library
It was passed by the Sangguniang Bayan of Camalaniugan in the lawful exercise of its legislative powers in pursuance to Article XI, Section 5 of the 1973 Constitution which provided that: "Each local government unit shall have the power to create (sic) its own source of revenue and to levy taxes, subject to such limitation as may be provided by law." And under Article 4, Section 29 of Presidential Decree No. 231 (Enacting a Local Tax Code for Provinces, Cities, Municipalities and Barrios), it is provided that: jgc:chanrobles.com.ph
"Section 29. Contributions. — In addition to the above specified taxing and other revenue-raising powers, the barrio council may solicit monies, materials, and other contributions from the following sources:chanrob1es virtual 1aw library
x x x
"(c) Monies from private agencies and individuals." cralaw virtua1aw library
That is an over simplification. The respondent court has not offered any explanation for its conclusion that the challenged measures are valid nor does it discuss its own concept of the nature of the resolution. cralawnad
While it would appear from the wording of the resolution that the municipal government merely intends to "solicit" the 1% contribution from the threshers, the implementing agreement seems to make the donation obligatory and a condition precedent to the issuance of the mayor’s permit. This goes against the nature of a donation, which is an act of liberality and is never obligatory. 3
If, on the other hand, it is to be considered a tax ordinance, then it must be shown in view of the challenge raised by the private respondents to have been enacted in accordance with the requirements of the Local Tax Code. These would include the holding of a public hearing on the measure 4 and its subsequent approval by the Secretary of Finance, 5 in addition to the usual requisites for publication of ordinances in general. 6
The only issue that has to be resolved in this case is whether or not the petitioners are liable in damages to the private respondent for having withheld from him the mayor’s permit and license because of his refusal to comply with Resolution No. 9. cralawnad
The private respondent anchors his claim for damages on Article 27 of the New Civil Code, which reads: chanrob1es virtual 1aw library
Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken.
It has been remarked that one purpose of this article is to end the "bribery system, where the public official, for some flimsy excuse, delays or refuses the performance of his duty until he gets some kind of pabagsak." 7 Official inaction may also be due to plain indolence or a cynical indifference to the responsibilities of public service. According to Phil. Match Co. Ltd. v. City of Cebu, 8 the provision presupposes that the refusal or omission of a public
official to perform his official duty is attributable to malice or inexcusable negligence. In any event, the erring public functionary is justly punishable under this article for whatever loss or damage the complainant has sustained.
In the present case, it has not even been alleged that the Mayor Tuzon’s refusal to act on the private respondent’s application was an attempt to compel him to resort to bribery to obtain approval of his application. It cannot be said either that the mayor and the municipal treasurer were motivated by personal spite or were grossly negligent in refusing to issue the permit and license to Jurado.
It is no less significant that no evidence has been offered to show that the petitioners singled out the private respondent for persecution. Neither does it appear that the petitioners stood to gain personally from refusing to issue to Jurado the mayor’s permit and license he needed. The petitioners were not Jurado’s business competitors nor has it been established that they intended to favor his competitors. On the contrary, the record discloses that the resolution was uniformly applied to all the threshers in the municipality without discrimination or preference. chanrobles.com:cralaw:red
The Court is convinced that the petitioners acted within the scope of their authority and in consonance with their honest interpretation of the resolution in question. We agree that it was not for them to rule on its validity. In the absence of a judicial decision declaring it invalid, its legality would have to be presumed (in fact, both the trial court and the appellate court said there was nothing wrong with it). As executive officials of the municipality, they had the duty to enforce it as long as it had not been repealed by the Sangguniang Bayan or annulled by the courts. 9
. . . As a rule, a public officer, whether judicial, quasi-judicial or executive, is not personally liable to one injured in consequence of an act performed within the scope of his official authority, and in line of his official duty.chanrobles virtual lawlibrary
. . . It has been held that an erroneous interpretation of an ordinance does not constitute nor does it amount to bad faith that would entitle an aggrieved party to an award for damages. (Philippine Match Co. Ltd. v. City of Cebu, 81 SCRA 99).
The private respondent complains that as a result of the petitioners’ acts, he was prevented from operating his business all this time and earning substantial profit therefrom, as he had in previous years. But as the petitioners correctly observed, he could have taken the prudent course of signing the agreement under protest and later challenging it in court to relieve him of the obligation to "donate." Pendente lite, he could have continued to operate his threshing business and thus avoided the lucro cesante that he now says was the consequence of the petitioners’ wrongful act. He could have opted for the less obstinate but still dissentient action, without loss of face, or principle, or profit.
In view of the foregoing, We find that the petitioners, having acted in good faith in the discharge of their official functions, should be absolved from liability.
ACCORDINGLY, the appealed decision is reversed insofar as it holds the petitioners liable in damages and attorney’s fees to the private Respondent. No costs.
SO ORDERED.
WIGBERTO E. TAÑADA and ANNA DOMINIQUE COSETENG, as members of the Philippine Senate and as taxpayers; GREGORIO ANDOLANA and JOKER ARROYO as members of the House of Representatives and as taxpayers; NICANOR P. PERLAS and HORACIO R. MORALES, both as taxpayers; CIVIL LIBERTIES UNION, NATIONAL ECONOMIC PROTECTIONISM ASSOCIATION, CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, LIKAS-KAYANG KAUNLARAN FOUNDATION, INC., PHILIPPINE RURAL RECONSTRUCTION MOVEMENT, DEMOKRATIKONG KILUSAN NG MAGBUBUKID NG PILIPINAS, INC., and PHILIPPINE PEASANT INSTITUTE, in representation of various taxpayers and as non-governmental organizations, petitioners, vs. EDGARDO ANGARA, ALBERTO ROMULO, LETICIA RAMOS-SHAHANI, HEHERSON ALVAREZ, AGAPITO AQUINO, RODOLFO BIAZON, NEPTALI GONZALES, ERNESTO HERRERA, JOSE LINA, GLORIA MACAPAGAL-ARROYO, ORLANDO MERCADO, BLAS OPLE, JOHN OSMEÑA, SANTANINA RASUL, RAMON REVILLA, RAUL ROCO, FRANCISCO TATAD and FREDDIE WEBB, in their respective capacities as members of the Philippine Senate who concurred in the ratification by the
President of the Philippines of the Agreement Establishing the World Trade Organization; SALVADOR ENRIQUEZ, in his capacity as Secretary of Budget and Management; CARIDAD VALDEHUESA, in her capacity as National Treasurer; RIZALINO NAVARRO, in his capacity as Secretary of Trade and Industry; ROBERTO SEBASTIAN, in his capacity as Secretary of Agriculture; ROBERTO DE OCAMPO, in his capacity as Secretary of Finance; ROBERTO ROMULO, in his capacity as Secretary of Foreign Affairs; and TEOFISTO T. GUINGONA, in his capacity as Executive Secretary, respondents.
D E C I S I O NPANGANIBAN, J.:
The emergence on January 1, 1995 of the World Trade Organization, abetted by the membership thereto of the vast majority of countries has revolutionized international business and economic relations amongst states. It has irreversibly propelled the world towards trade liberalization and economic globalization. Liberalization, globalization, deregulation and privatization, the third-millennium buzz words, are ushering in a new borderless world of business by sweeping away as mere historical relics the heretofore traditional modes of promoting and protecting national economies like tariffs, export subsidies, import quotas, quantitative restrictions, tax exemptions and currency controls. Finding market niches and becoming the best in specific industries in a market-driven and export-oriented global scenario are replacing age-old “beggar-thy-neighbor” policies that unilaterally protect weak and inefficient domestic producers of goods and services. In the words of Peter Drucker, the well-known management guru, “Increased participation in the world economy has become the key to domestic economic growth and prosperity.”
Brief Historical Background
To hasten worldwide recovery from the devastation wrought by the Second World War, plans for the establishment of three multilateral institutions -- inspired by that grand political body, the United Nations -- were discussed at Dumbarton Oaks and Bretton Woods. The first was the World Bank (WB) which was to address the rehabilitation and reconstruction of war-ravaged and later developing countries; the second, the International Monetary Fund (IMF) which was to deal with currency problems; and the third, the International Trade Organization (ITO), which was to foster order and predictability in world trade and to minimize unilateral protectionist policies that invite challenge, even retaliation, from other states. However, for a variety of reasons, including its non-ratification by the United States, the ITO, unlike the IMF and WB, never took off. What remained was only GATT -- the General Agreement on Tariffs and Trade. GATT was a collection of treaties governing access to the economies of treaty
adherents with no institutionalized body administering the agreements or dependable system of dispute settlement.
After half a century and several dizzying rounds of negotiations, principally the Kennedy Round, the Tokyo Round and the Uruguay Round, the world finally gave birth to that administering body -- the World Trade Organization -- with the signing of the “Final Act” in Marrakesh, Morocco and the ratification of the WTO Agreement by its members.[1]
Like many other developing countries, the Philippines joined WTO as a founding member with the goal, as articulated by President Fidel V. Ramos in two letters to the Senate (infra), of improving “Philippine access to foreign markets, especially its major trading partners, through the reduction of tariffs on its exports, particularly agricultural and industrial products.” The President also saw in the WTO the opening of “new opportunities for the services sector x x x, (the reduction of) costs and uncertainty associated with exporting x x x, and (the attraction of) more investments into the country.” Although the Chief Executive did not expressly mention it in his letter, the Philippines - - and this is of special interest to the legal profession - - will benefit from the WTO system of dispute settlement by judicial adjudication through the independent WTO settlement bodies called (1) Dispute Settlement Panels and (2) Appellate Tribunal. Heretofore, trade disputes were settled mainly through negotiations where solutions were arrived at frequently on the basis of relative bargaining strengths, and where naturally, weak and underdeveloped countries were at a disadvantage.
The Petition in Brief
Arguing mainly (1) that the WTO requires the Philippines “to place nationals and products of member-countries on the same footing as Filipinos and local products” and (2) that the WTO “intrudes, limits and/or impairs” the constitutional powers of both Congress and the Supreme Court, the instant petition before this Court assails the WTO Agreement for violating the mandate of the 1987 Constitution to “develop a self-reliant and independent national economy effectively controlled by Filipinos x x x (to) give preference to qualified Filipinos (and to) promote the preferential use of Filipino labor, domestic materials and locally produced goods.”
Simply stated, does the Philippine Constitution prohibit Philippine participation in worldwide trade liberalization and economic globalization? Does it prescribe Philippine integration into a global economy that is liberalized, deregulated and privatized? These are the main questions raised in this petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court praying (1) for the nullification, on constitutional grounds, of the concurrence of the Philippine Senate in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization (WTO Agreement, for brevity) and (2) for the prohibition of its implementation and enforcement through the release and utilization of public funds, the assignment of public officials and employees, as well as the use of government properties and resources by respondent-heads of various executive offices concerned
therewith. This concurrence is embodied in Senate Resolution No. 97, dated December 14, 1994.
The Facts
On April 15, 1994, Respondent Rizalino Navarro, then Secretary of the Department of Trade and Industry (Secretary Navarro, for brevity), representing the Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay Round of Multilateral Negotiations (Final Act, for brevity).
By signing the Final Act, [2] Secretary Navarro on behalf of the Republic of the Philippines, agreed:
“(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent authorities, with a view to seeking approval of the Agreement in accordance with their procedures; and
(b) to adopt the Ministerial Declarations and Decisions.”
On August 12, 1994, the members of the Philippine Senate received a letter dated August 11, 1994 from the President of the Philippines, [3] stating among others that “the Uruguay Round Final Act is hereby submitted to the Senate for its concurrence pursuant to Section 21, Article VII of the Constitution.”
On August 13, 1994, the members of the Philippine Senate received another letter from the President of the Philippines [4] likewise dated August 11, 1994, which stated among others that “the Uruguay Round Final Act, the Agreement Establishing the World Trade Organization, the Ministerial Declarations and Decisions, and the Understanding on Commitments in Financial Services are hereby submitted to the Senate for its concurrence pursuant to Section 21, Article VII of the Constitution.”
On December 9, 1994, the President of the Philippines certified the necessity of the immediate adoption of P.S. 1083, a resolution entitled “Concurring in the Ratification of the Agreement Establishing the World Trade Organization.” [5]
On December 14, 1994, the Philippine Senate adopted Resolution No. 97 which “Resolved, as it is hereby resolved, that the Senate concur, as it hereby concurs, in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization.”[6] The text of the WTO Agreement is written on pages 137 et seq. of Volume I of the 36-volume Uruguay Round of Multilateral Trade Negotiations and includes various agreements and associated legal instruments (identified in the said Agreement as Annexes 1, 2 and 3 thereto and collectively referred to as Multilateral Trade Agreements, for brevity) as follows:
“ANNEX 1
Annex 1A: Multilateral Agreement on Trade in Goods
General Agreement on Tariffs and Trade 1994
Agreement on Agriculture
Agreement on the Application of Sanitary and
Phytosanitary Measures
Agreement on Textiles and Clothing
Agreement on Technical Barriers to Trade
Agreement on Trade-Related Investment Measures
Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
Agreement on Implementation of Article VII of the General on Tariffs and Trade 1994
Agreement on Pre-Shipment Inspection
Agreement on Rules of Origin
Agreement on Imports Licensing Procedures
Agreement on Subsidies and Coordinating Measures
Agreement on Safeguards
Annex 1B: General Agreement on Trade in Services and Annexes
Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights
ANNEX 2
Understanding on Rules and Procedures Governing the Settlement of Disputes
ANNEX 3
Trade Policy Review Mechanism”
On December 16, 1994, the President of the Philippines signed [7] the Instrument of Ratification, declaring:
“NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the Republic of the Philippines, after having seen and considered the aforementioned Agreement Establishing the World Trade Organization and the agreements and associated legal instruments included in Annexes one (1), two (2) and three (3) of that Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15 April 1994, do hereby ratify and confirm the same and every Article and Clause thereof.”
To emphasize, the WTO Agreement ratified by the President of the Philippines is composed of the Agreement Proper and “the associated legal instruments included in Annexes one (1), two (2) and three (3) of that Agreement which are integral parts thereof.”
On the other hand, the Final Act signed by Secretary Navarro embodies not only the WTO Agreement (and its integral annexes aforementioned) but also (1) the Ministerial Declarations and Decisions and (2) the Understanding on Commitments in Financial Services. In his Memorandum dated May 13, 1996, [8] the Solicitor General describes these two latter documents as follows:
“The Ministerial Decisions and Declarations are twenty-five declarations and decisions on a wide range of matters, such as measures in favor of least developed countries, notification procedures, relationship of WTO with the International Monetary Fund (IMF), and agreements on technical barriers to trade and on dispute settlement.
The Understanding on Commitments in Financial Services dwell on, among other things, standstill or limitations and qualifications of commitments to existing non-conforming measures, market access, national treatment, and definitions of non-resident supplier of financial services, commercial presence and new financial service.”
On December 29, 1994, the present petition was filed. After careful deliberation on respondents’ comment and petitioners’ reply thereto, the Court resolved on December 12, 1995, to give due course to the petition, and the parties thereafter filed their respective memoranda. The Court also requested the Honorable Lilia R. Bautista, the Philippine Ambassador to the United Nations stationed in Geneva, Switzerland, to submit a paper, hereafter referred to as “Bautista Paper,” [9] for brevity, (1) providing a historical background of and (2) summarizing the said agreements.
During the Oral Argument held on August 27, 1996, the Court directed:
“(a) the petitioners to submit the (1) Senate Committee Report on the matter in controversy and (2) the transcript of proceedings/hearings in the Senate; and
(b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine treaties signed prior to the Philippine adherence to the WTO Agreement, which derogate from Philippine sovereignty and (2) copies of the multi-volume WTO Agreement and other documents mentioned in the Final Act, as soon as possible.”
After receipt of the foregoing documents, the Court said it would consider the case submitted for resolution. In a Compliance dated September 16, 1996, the Solicitor General submitted a printed copy of the 36-volume Uruguay Round of Multilateral Trade Negotiations, and in another Compliance dated October 24, 1996, he listed the various “bilateral or multilateral treaties or international instruments involving derogation of Philippine sovereignty.” Petitioners, on the other hand, submitted their Compliance dated January 28, 1997, on January 30, 1997.
The Issues
In their Memorandum dated March 11, 1996, petitioners summarized the issues as follows:
“A. Whether the petition presents a political question or is otherwise not justiciable.
B. Whether the petitioner members of the Senate who participated in the deliberations and voting leading to the concurrence are estopped from impugning the validity of the Agreement Establishing the World Trade Organization or of the validity of the concurrence.
C. Whether the provisions of the Agreement Establishing the World Trade Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and 12, Article XII, all of the 1987 Philippine Constitution.
D. Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and impair Philippine sovereignty specifically the legislative power which, under Sec. 2, Article VI, 1987 Philippine Constitution is ‘vested in the Congress of the Philippines’;
E. Whether provisions of the Agreement Establishing the World Trade Organization interfere with the exercise of judicial power.
F. Whether the respondent members of the Senate acted in grave abuse of discretion amounting to lack or excess of jurisdiction when they voted for
concurrence in the ratification of the constitutionally-infirm Agreement Establishing the World Trade Organization.
G. Whether the respondent members of the Senate acted in grave abuse of discretion amounting to lack or excess of jurisdiction when they concurred only in the ratification of the Agreement Establishing the World Trade Organization, and not with the Presidential submission which included the Final Act, Ministerial Declaration and Decisions, and the Understanding on Commitments in Financial Services.”
On the other hand, the Solicitor General as counsel for respondents “synthesized the several issues raised by petitioners into the following”: [10]
“1. Whether or not the provisions of the ‘Agreement Establishing the World Trade Organization and the Agreements and Associated Legal Instruments included in Annexes one (1), two (2) and three (3) of that agreement’ cited by petitioners directly contravene or undermine the letter, spirit and intent of Section 19, Article II and Sections 10 and 12, Article XII of the 1987 Constitution.
2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair the exercise of legislative power by Congress.
3. Whether or not certain provisions of the Agreement impair the exercise of judicial power by this Honorable Court in promulgating the rules of evidence.
4. Whether or not the concurrence of the Senate ‘in the ratification by the President of the Philippines of the Agreement establishing the World Trade Organization’ implied rejection of the treaty embodied in the Final Act.”
By raising and arguing only four issues against the seven presented by petitioners, the Solicitor General has effectively ignored three, namely: (1) whether the petition presents a political question or is otherwise not justiciable; (2) whether petitioner-members of the Senate (Wigberto E. Tañada and Anna Dominique Coseteng) are estopped from joining this suit; and (3) whether the respondent-members of the Senate acted in grave abuse of discretion when they voted for concurrence in the ratification of the WTO Agreement. The foregoing notwithstanding, this Court resolved to deal with these three issues thus:
(1) The “political question” issue -- being very fundamental and vital, and being a matter that probes into the very jurisdiction of this Court to hear and decide this case -- was deliberated upon by the Court and will thus be ruled upon as the first issue;
(2) The matter of estoppel will not be taken up because this defense is waivable and the respondents have effectively waived it by not pursuing it in any of their pleadings; in any event, this issue, even if ruled in respondents’ favor, will not cause the petition’s dismissal as there are petitioners other than the two senators, who are not vulnerable to the defense of estoppel; and
(3) The issue of alleged grave abuse of discretion on the part of the respondent senators will be taken up as an integral part of the disposition of the four issues raised by the Solicitor General.
During its deliberations on the case, the Court noted that the respondents did not question the locus standi of petitioners. Hence, they are also deemed to have waived the benefit of such issue. They probably realized that grave constitutional issues, expenditures of public funds and serious international commitments of the nation are involved here, and that transcendental public interest requires that the substantive issues be met head on and decided on the merits, rather than skirted or deflected by procedural matters.[11]
To recapitulate, the issues that will be ruled upon shortly are:
(1) DOES THE PETITION PRESENT A JUSTICIABLE CONTROVERSY? OTHERWISE STATED, DOES THE PETITION INVOLVE A POLITICAL QUESTION OVER WHICH THIS COURT HAS NO JURISDICTION?
(2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES CONTRAVENE SEC. 19, ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF THE PHILIPPINE CONSTITUTION?
(3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT, RESTRICT, OR IMPAIR THE EXERCISE OF LEGISLATIVE POWER BY CONGRESS?
(4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE OF JUDICIAL POWER BY THIS COURT IN PROMULGATING RULES ON EVIDENCE?
(5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND ITS ANNEXES SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT INCLUDE THE FINAL ACT, MINISTERIAL DECLARATIONS AND DECISIONS, AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES?
The First Issue: Does the Court Have Jurisdiction Over the Controversy?
In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution, the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of the judiciary to settle the dispute. “The question thus posed is judicial rather than
political. The duty (to adjudicate) remains to assure that the supremacy of the Constitution is upheld.”[12] Once a “controversy as to the application or interpretation of a constitutional provision is raised before this Court (as in the instant case), it becomes a legal issue which the Court is bound by constitutional mandate to decide.” [13]
The jurisdiction of this Court to adjudicate the matters [14] raised in the petition is clearly set out in the 1987 Constitution,[15] as follows:
“Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government.”
The foregoing text emphasizes the judicial department’s duty and power to strike down grave abuse of discretion on the part of any branch or instrumentality of government including Congress. It is an innovation in our political law.[16] As explained by former Chief Justice Roberto Concepcion, [17] “the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted without jurisdiction or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature.”
As this Court has repeatedly and firmly emphasized in many cases, [18] it will not shirk, digress from or abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality or department of the government.
As the petition alleges grave abuse of discretion and as there is no other plain, speedy or adequate remedy in the ordinary course of law, we have no hesitation at all in holding that this petition should be given due course and the vital questions raised therein ruled upon under Rule 65 of the Rules of Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies to raise constitutional issues and to review and/or prohibit/nullify, when proper, acts of legislative and executive officials. On this, we have no equivocation.
We should stress that, in deciding to take jurisdiction over this petition, this Court will not review the wisdom of the decision of the President and the Senate in enlisting the country into the WTO, or pass upon the merits of trade liberalization as a policy espoused by said international body. Neither will it rule on the propriety of the government’s economic policy of reducing/removing tariffs, taxes, subsidies, quantitative restrictions, and other import/trade barriers. Rather, it will only exercise its constitutional duty “to determine whether or not there had been a grave abuse of discretion amounting to lack or excess of jurisdiction” on the part of the Senate in ratifying the WTO Agreement and its three annexes.
Second Issue: The WTO Agreement and Economic Nationalism
This is the lis mota, the main issue, raised by the petition.
Petitioners vigorously argue that the “letter, spirit and intent” of the Constitution mandating “economic nationalism” are violated by the so-called “parity provisions” and “national treatment” clauses scattered in various parts not only of the WTO Agreement and its annexes but also in the Ministerial Decisions and Declarations and in the Understanding on Commitments in Financial Services.
Specifically, the “flagship” constitutional provisions referred to are Sec. 19, Article II, and Secs. 10 and 12, Article XII, of the Constitution, which are worded as follows:
“Article II
DECLARATION OF PRINCIPLES AND STATE POLICIES
xx xx xx xx
Sec. 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.
xx xx xx xx
Article XII
NATIONAL ECONOMY AND PATRIMONY
xx xx xx xx
Sec. 10. x x x. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.
xx xx xx xx
Sec. 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.”
Petitioners aver that these sacred constitutional principles are desecrated by the following WTO provisions quoted in their memorandum:[19]
“a) In the area of investment measures related to trade in goods (TRIMS, for brevity):
“Article 2
National Treatment and Quantitative Restrictions.
1. Without prejudice to other rights and obligations under GATT 1994. no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994.
2. An Illustrative list of TRIMS that are inconsistent with the obligations of general elimination of quantitative restrictions provided for in paragraph I of Article XI of GATT 1994 is contained in the Annex to this Agreement.” (Agreement on Trade-Related Investment Measures, Vol. 27, Uruguay Round, Legal Instruments, p.22121, emphasis supplied).
The Annex referred to reads as follows:
“ANNEX
Illustrative List
1. TRIMS that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require:
(a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of proportion of volume or value of its local production; or
(b) that an enterprise’s purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports.
2. TRIMS that are inconsistent with the obligations of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 include those which are mandatory or enforceable under domestic laws or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which restrict:
(a) the importation by an enterprise of products used in or related to the local production that it exports;
(b) the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange inflows attributable to the enterprise; or
(c) the exportation or sale for export specified in terms of particular products, in terms of volume or value of products, or in terms of a preparation of volume or value of its local production.” (Annex to the Agreement on Trade-Related Investment Measures, Vol. 27, Uruguay Round Legal Documents, p.22125, emphasis supplied).
The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows:
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. the provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.” (Article III, GATT 1947, as amended by the Protocol Modifying Part II, and Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84 in relation to paragraph 1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1, Uruguay Round, Legal Instruments p.177, emphasis supplied).
“b) In the area of trade related aspects of intellectual property rights (TRIPS, for brevity):
Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property... (par. 1, Article 3, Agreement on Trade-Related Aspect of Intellectual Property rights, Vol. 31, Uruguay Round, Legal Instruments, p.25432 (emphasis supplied)
“(c) In the area of the General Agreement on Trade in Services:
National Treatment
1. In the sectors inscribed in its schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and
service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than it accords to its own like services and service suppliers.
2. A Member may meet the requirement of paragraph I by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.
3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of completion in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member. (Article XVII, General Agreement on Trade in Services, Vol. 28, Uruguay Round Legal Instruments, p.22610 emphasis supplied).”
It is petitioners’ position that the foregoing “national treatment” and “parity provisions” of the WTO Agreement “place nationals and products of member countries on the same footing as Filipinos and local products,” in contravention of the “Filipino First” policy of the Constitution. They allegedly render meaningless the phrase “effectively controlled by Filipinos.” The constitutional conflict becomes more manifest when viewed in the context of the clear duty imposed on the Philippines as a WTO member to ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed agreements. [20] Petitioners further argue that these provisions contravene constitutional limitations on the role exports play in national development and negate the preferential treatment accorded to Filipino labor, domestic materials and locally produced goods.
On the other hand, respondents through the Solicitor General counter (1) that such Charter provisions are not self-executing and merely set out general policies; (2) that these nationalistic portions of the Constitution invoked by petitioners should not be read in isolation but should be related to other relevant provisions of Art. XII, particularly Secs. 1 and 13 thereof; (3) that read properly, the cited WTO clauses do not conflict with the Constitution; and (4) that the WTO Agreement contains sufficient provisions to protect developing countries like the Philippines from the harshness of sudden trade liberalization.
We shall now discuss and rule on these arguments.
Declaration of Principles Not Self-Executing
By its very title, Article II of the Constitution is a “declaration of principles and state policies.” The counterpart of this article in the 1935 Constitution [21] is called the “basic political creed of the nation” by Dean Vicente Sinco.[22] These principles in Article II are
not intended to be self-executing principles ready for enforcement through the courts.[23] They are used by the judiciary as aids or as guides in the exercise of its power of judicial review, and by the legislature in its enactment of laws. As held in the leading case of Kilosbayan, Incorporated vs. Morato,[24] the principles and state policies enumerated in Article II and some sections of Article XII are not “self-executing provisions, the disregard of which can give rise to a cause of action in the courts. They do not embody judicially enforceable constitutional rights but guidelines for legislation.”
In the same light, we held in Basco vs. Pagcor[25] that broad constitutional principles need legislative enactments to implement them, thus:
“On petitioners’ allegation that P.D. 1869 violates Sections 11 (Personal 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.
‘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 to the legislature. If the executive and the legislature failed to heed the directives of the article, the available remedy was not judicial but 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).”
The reasons for denying a cause of action to an alleged infringement of broad constitutional principles are sourced from basic considerations of due process and the lack of judicial authority to wade “into the uncharted ocean of social and economic policy making.” Mr. Justice Florentino P. Feliciano in his concurring opinion in Oposa vs. Factoran, Jr.,[26] explained these reasons as follows:
“My suggestion is simply that petitioners must, before the trial court, show a more specific legal right -- a right cast in language of a significantly lower order of generality than Article II (15) of the Constitution -- that is or may be violated by the actions, or failures to act, imputed to the public respondent by petitioners so that the trial court can validly render judgment granting all or part of the relief prayed for. To my mind, the court should be understood as simply saying that such a more specific legal right or rights may well exist in our corpus of law, considering the general policy principles found in the Constitution and the existence of the Philippine Environment Code, and that the trial court should have given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to dismiss.
It seems to me important that the legal right which is an essential component of a cause of action be a specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons. One is that unless the legal right claimed to have been violated or disregarded is given specification in operational terms, defendants may well be unable to defend themselves intelligently and effectively; in other words, there are due process dimensions to this matter.
The second is a broader-gauge consideration -- where a specific violation of law or applicable regulation is not alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of the Constitution which reads:
‘Section 1. x x x
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.’ (Emphases supplied)
When substantive standards as general as ‘the right to a balanced and healthy ecology’ and ‘the right to health’ are combined with remedial standards as broad ranging as ‘a grave abuse of discretion amounting to lack or excess of jurisdiction,’ the result will be, it is respectfully submitted, to propel courts into the uncharted ocean of social and economic policy making. At least in respect of the vast area of environmental protection and management, our courts have no claim to special technical competence and experience and professional qualification. Where no specific, operable norms and standards are shown to exist, then the policy making departments -- the legislative and executive departments -- must be given a real and effective opportunity to fashion and promulgate those norms and standards, and to implement them before the courts should intervene.”
Economic Nationalism Should Be Read with Other Constitutional Mandates to Attain Balanced Development of Economy
On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying down general principles relating to the national economy and patrimony, should be read and understood in relation to the other sections in said article, especially Secs. 1 and 13 thereof which read:
“Section 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. x x x
x x x x x x x x x
Sec. 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.”
As pointed out by the Solicitor General, Sec. 1 lays down the basic goals of national economic development, as follows:
1. A more equitable distribution of opportunities, income and wealth;
2. A sustained increase in the amount of goods and services provided by the nation for the benefit of the people; and
3. An expanding productivity as the key to raising the quality of life for all especially the underprivileged.
With these goals in context, the Constitution then ordains the ideals of economic nationalism (1) by expressing preference in favor of qualified Filipinos “in the grant of rights, privileges and concessions covering the national economy and patrimony” [27] and in the use of “Filipino labor, domestic materials and locally-produced goods”; (2) by mandating the State to “adopt measures that help make them competitive; [28] and (3) by requiring the State to “develop a self-reliant and independent national economy effectively controlled by Filipinos.”[29] In similar language, the Constitution takes into account the realities of the outside world as it requires the pursuit of “a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity”; [30] and speaks of industries “which are competitive in both domestic and foreign markets” as well as of the protection of “Filipino enterprises against unfair foreign competition and trade practices.”
It is true that in the recent case of Manila Prince Hotel vs. Government Service Insurance System, et al.,[31] this Court held that “Sec. 10, second par., Art. XII of the 1987 Constitution is a mandatory, positive command which is complete in itself and which needs no further guidelines or implementing laws or rules for its enforcement. From its very words the provision does not require any legislation to put it in operation. It is per se judicially enforceable.” However, as the constitutional provision itself states, it is enforceable only in regard to “the grants of rights, privileges and concessions covering national economy and patrimony” and not to every aspect of trade and commerce. It refers to exceptions rather than the rule. The issue here is not whether this paragraph of Sec. 10 of Art. XII is self-executing or not. Rather, the issue is whether, as a rule, there are enough balancing provisions in the Constitution to allow the Senate to ratify the Philippine concurrence in the WTO Agreement. And we hold that there are.
All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair.[32] In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.
WTO Recognizes Need to Protect Weak Economies
Upon the other hand, respondents maintain that the WTO itself has some built-in advantages to protect weak and developing economies, which comprise the vast majority of its members. Unlike in the UN where major states have permanent seats and veto powers in the Security Council, in the WTO, decisions are made on the basis of sovereign equality, with each member’s vote equal in weight to that of any other. There is no WTO equivalent of the UN Security Council.
“WTO decides by consensus whenever possible, otherwise, decisions of the Ministerial Conference and the General Council shall be taken by the majority of the votes cast, except in cases of interpretation of the Agreement or waiver of the obligation of a member which would require three fourths vote. Amendments would require two thirds vote in general. Amendments to MFN provisions and the Amendments provision will require assent of all members. Any member may withdraw from the Agreement upon the expiration of six months from the date of notice of withdrawals.”[33]
Hence, poor countries can protect their common interests more effectively through the WTO than through one-on-one negotiations with developed countries. Within the
WTO, developing countries can form powerful blocs to push their economic agenda more decisively than outside the Organization. This is not merely a matter of practical alliances but a negotiating strategy rooted in law. Thus, the basic principles underlying the WTO Agreement recognize the need of developing countries like the Philippines to “share in the growth in international trade commensurate with the needs of their economic development.” These basic principles are found in the preamble [34] of the WTO Agreement as follows:
“The Parties to this Agreement,
Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development,
Recognizing further that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development,
Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to theelimination of discriminatory treatment in international trade relations,
Resolved, therefore, to develop an integrated, more viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade, the results of past trade liberalization efforts, and all of the results of the Uruguay Round of Multilateral Trade Negotiations,
Determined to preserve the basic principles and to further the objectives underlying this multilateral trading system, x x x.” (underscoring supplied.)
Specific WTO Provisos Protect Developing Countries
So too, the Solicitor General points out that pursuant to and consistent with the foregoing basic principles, the WTO Agreement grants developing countries a more lenient treatment, giving their domestic industries some protection from the rush of
foreign competition. Thus, with respect to tariffs in general, preferential treatment is given to developing countries in terms of the amount of tariff reduction and the period within which the reduction is to be spread out. Specifically, GATT requires an average tariff reduction rate of 36% for developed countries to be effected within a period of six (6) years while developing countries -- including the Philippines -- are required to effect an average tariff reduction of only 24% within ten (10) years.
In respect to domestic subsidy, GATT requires developed countries to reduce domestic support to agricultural products by 20% over six (6) years, as compared to only 13% for developing countries to be effected within ten (10) years.
In regard to export subsidy for agricultural products, GATT requires developed countries to reduce their budgetary outlays for export subsidy by 36% and export volumes receiving export subsidy by 21% within a period of six (6) years. For developing countries, however, the reduction rate is only two-thirds of that prescribed for developed countries and a longerperiod of ten (10) years within which to effect such reduction.
Moreover, GATT itself has provided built-in protection from unfair foreign competition and trade practices including anti-dumping measures, countervailing measures and safeguards against import surges. Where local businesses are jeopardized by unfair foreign competition, the Philippines can avail of these measures. There is hardly therefore any basis for the statement that under the WTO, local industries and enterprises will all be wiped out and that Filipinos will be deprived of control of the economy. Quite the contrary, the weaker situations of developing nations like the Philippines have been taken into account; thus, there would be no basis to say that in joining the WTO, the respondents have gravely abused their discretion. True, they have made a bold decision to steer the ship of state into the yet uncharted sea of economic liberalization. But such decision cannot be set aside on the ground of grave abuse of discretion, simply because we disagree with it or simply because we believe only in other economic policies. As earlier stated, the Court in taking jurisdiction of this case will not pass upon the advantages and disadvantages of trade liberalization as an economic policy. It will only perform its constitutional duty of determining whether the Senate committed grave abuse of discretion.
Constitution Does Not Rule Out Foreign Competition
Furthermore, the constitutional policy of a “self-reliant and independent national economy”[35] does not necessarily rule out the entry of foreign investments, goods and services. It contemplates neither “economic seclusion” nor “mendicancy in the international community.” As explained by Constitutional Commissioner Bernardo Villegas, sponsor of this constitutional policy:
“Economic self-reliance is a primary objective of a developing country that is keenly aware of overdependence on external assistance for even its most basic needs. It does not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the
international community. Independence refers to the freedom from undue foreign control of the national economy, especially in such strategic industries as in the development of natural resources and public utilities.” [36]
The WTO reliance on “most favored nation,” “national treatment,” and “trade without discrimination” cannot be struck down as unconstitutional as in fact they are rules of equality and reciprocity that apply to all WTO members. Aside from envisioning a trade policy based on “equality and reciprocity,” [37] the fundamental law encourages industries that are “competitive in both domestic and foreign markets,” thereby demonstrating a clear policy against a sheltered domestic trade environment, but one in favor of the gradual development of robust industries that can compete with the best in the foreign markets. Indeed, Filipino managers and Filipino enterprises have shown capability and tenacity to compete internationally. And given a free trade environment, Filipino entrepreneurs and managers in Hongkong have demonstrated the Filipino capacity to grow and to prosper against the best offered under a policy of laissez faire.
Constitution Favors Consumers, Not Industries or Enterprises
The Constitution has not really shown any unbalanced bias in favor of any business or enterprise, nor does it contain any specific pronouncement that Filipino companies should be pampered with a total proscription of foreign competition. On the other hand, respondents claim that WTO/GATT aims to make available to the Filipino consumer the best goods and services obtainable anywhere in the world at the most reasonable prices. Consequently, the question boils down to whether WTO/GATT will favor the general welfare of the public at large.
Will adherence to the WTO treaty bring this ideal (of favoring the general welfare) to reality?
Will WTO/GATT succeed in promoting the Filipinos’ general welfare because it will -- as promised by its promoters -- expand the country’s exports and generate more employment?
Will it bring more prosperity, employment, purchasing power and quality products at the most reasonable rates to the Filipino public?
The responses to these questions involve “judgment calls” by our policy makers, for which they are answerable to our people during appropriate electoral exercises. Such questions and the answers thereto are not subject to judicial pronouncements based on grave abuse of discretion.
Constitution Designed to Meet Future Events and Contingencies
No doubt, the WTO Agreement was not yet in existence when the Constitution was drafted and ratified in 1987. That does not mean however that the Charter is necessarily flawed in the sense that its framers might not have anticipated the advent of a borderless world of business. By the same token, the United Nations was not yet in existence when the 1935 Constitution became effective. Did that necessarily mean that the then Constitution might not have contemplated a diminution of the absoluteness of sovereignty when the Philippines signed the UN Charter, thereby effectively surrendering part of its control over its foreign relations to the decisions of various UN organs like the Security Council?
It is not difficult to answer this question. Constitutions are designed to meet not only the vagaries of contemporary events. They should be interpreted to cover even future and unknown circumstances. It is to the credit of its drafters that a Constitution can withstand the assaults of bigots and infidels but at the same time bend with the refreshing winds of change necessitated by unfolding events. As one eminent political law writer and respected jurist[38] explains:
“The Constitution must be quintessential rather than superficial, the root and not the blossom, the base and framework only of the edifice that is yet to rise. It is but the core of the dream that must take shape, not in a twinkling by mandate of our delegates, but slowly ‘in the crucible of Filipino minds and hearts,’ where it will in time develop its sinews and gradually gather its strength and finally achieve its substance. In fine, the Constitution cannot, like the goddess Athena, rise full-grown from the brow of the Constitutional Convention, nor can it conjure by mere fiat an instant Utopia. It must grow with the society it seeks to re-structure and march apace with the progress of the race, drawing from the vicissitudes of history the dynamism and vitality that will keep it, far from becoming a petrified rule, a pulsing, living law attuned to the heartbeat of the nation.”
Third Issue: The WTO Agreement and Legislative Power
The WTO Agreement provides that “(e)ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.”[39] Petitioners maintain that this undertaking “unduly limits, restricts and impairs Philippine sovereignty, specifically the legislative power which under Sec. 2, Article VI of the 1987 Philippine Constitution is vested in the Congress of the Philippines. It is an assault on the sovereign powers of the Philippines because this means that Congress could not pass legislation that will be good for our national interest and general welfare if such legislation will not conform with the WTO Agreement, which not only relates to the trade in goods x x x but also to the flow of investments and money x x x as well as to a whole slew of agreements on socio-cultural matters x x x.” [40]
More specifically, petitioners claim that said WTO proviso derogates from the power to tax, which is lodged in the Congress. [41] And while the Constitution allows Congress to
authorize the President to fix tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts, such authority is subject to “specified limits and x x x such limitations and restrictions” as Congress may provide, [42] as in fact it did under Sec. 401 of the Tariff and Customs Code.
Sovereignty Limited by International Law and Treaties
This Court notes and appreciates the ferocity and passion by which petitioners stressed their arguments on this issue. However, while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world. In its Declaration of Principles and State Policies, the Constitution “adopts the generally accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity, with all nations." [43] By the doctrine of incorporation, the country is bound by generally accepted principles of international law, which are considered to be automatically part of our own laws. [44] One of the oldest and most fundamental rules in international law is pacta sunt servanda -- international agreements must be performed in good faith. “A treaty engagement is not a mere moral obligation but creates a legally binding obligation on the parties x x x. A state which has contracted valid international obligations is bound to make in its legislations such modifications as may be necessary to ensure the fulfillment of the obligations undertaken.”[45]
By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. After all, states, like individuals, live with coequals, and in pursuit of mutually covenanted objectives and benefits, they also commonly agree to limit the exercise of their otherwise absolute rights. Thus, treaties have been used to record agreements between States concerning such widely diverse matters as, for example, the lease of naval bases, the sale or cession of territory, the termination of war, the regulation of conduct of hostilities, the formation of alliances, the regulation of commercial relations, the settling of claims, the laying down of rules governing conduct in peace and the establishment of international organizations. [46] The sovereignty of a state therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture: (1) limitations imposed by the very nature of membership in the family of nations and (2) limitations imposed by treaty stipulations. As aptly put by John F. Kennedy, “Today, no nation can build its destiny alone. The age of self-sufficient nationalism is over. The age of interdependence is here.” [47]
UN Charter and Other Treaties Limit Sovereignty
Thus, when the Philippines joined the United Nations as one of its 51 charter members, it consented to restrict its sovereign rights under the “concept of sovereignty as auto-limitation.”47-A Under Article 2 of the UN Charter, “(a)ll members shall give the United Nations every assistance in any action it takes in accordance with the present Charter, and shall refrain from giving assistance to any state against which the United Nations is taking preventive or enforcement action.” Such assistance includes payment of its corresponding share not merely in administrative expenses but also in expenditures for the peace-keeping operations of the organization. In its advisory opinion of July 20, 1961, the International Court of Justice held that money used by the United Nations Emergency Force in the Middle East and in the Congo were “expenses of the United Nations” under Article 17, paragraph 2, of the UN Charter. Hence, all its members must bear their corresponding share in such expenses. In this sense, the Philippine Congress is restricted in its power to appropriate. It is compelled to appropriate funds whether it agrees with such peace-keeping expenses or not. So too, under Article 105 of the said Charter, the UN and its representatives enjoy diplomatic privileges and immunities, thereby limiting again the exercise of sovereignty of members within their own territory. Another example: although “sovereign equality” and “domestic jurisdiction” of all members are set forth as underlying principles in the UN Charter, such provisos are however subject to enforcement measures decided by the Security Council for the maintenance of international peace and security under Chapter VII of the Charter. A final example: under Article 103, “(i)n the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligation under the present charter shall prevail,” thus unquestionably denying the Philippines -- as a member -- the sovereign power to make a choice as to which of conflicting obligations, if any, to honor.
Apart from the UN Treaty, the Philippines has entered into many other international pacts -- both bilateral and multilateral -- that involve limitations on Philippine sovereignty. These are enumerated by the Solicitor General in his Compliance dated October 24, 1996, as follows:
“(a) Bilateral convention with the United States regarding taxes on income, where the Philippines agreed, among others, to exempt from tax, income received in the Philippines by, among others, the Federal Reserve Bank of the United States, the Export/Import Bank of the United States, the Overseas Private Investment Corporation of the United States. Likewise, in said convention, wages, salaries and similar remunerations paid by the United States to its citizens for labor and personal services performed by them as employees or officials of the United States are exempt from income tax by the Philippines.
(b) Bilateral agreement with Belgium, providing, among others, for the avoidance of double taxation with respect to taxes on income.
(c) Bilateral convention with the Kingdom of Sweden for the avoidance of double taxation.
(d) Bilateral convention with the French Republic for the avoidance of double taxation.
(e) Bilateral air transport agreement with Korea where the Philippines agreed to exempt from all customs duties, inspection fees and other duties or taxes aircrafts of South Korea and the regular equipment, spare parts and supplies arriving with said aircrafts.
(f) Bilateral air service agreement with Japan, where the Philippines agreed to exempt from customs duties, excise taxes, inspection fees and other similar duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment, stores on board Japanese aircrafts while on Philippine soil.
(g) Bilateral air service agreement with Belgium where the Philippines granted Belgian air carriers the same privileges as those granted to Japanese and Korean air carriers under separate air service agreements.
(h) Bilateral notes with Israel for the abolition of transit and visitor visas where the Philippines exempted Israeli nationals from the requirement of obtaining transit or visitor visas for a sojourn in the Philippines not exceeding 59 days.
(I) Bilateral agreement with France exempting French nationals from the requirement of obtaining transit and visitor visa for a sojourn not exceeding 59 days.
(j) Multilateral Convention on Special Missions, where the Philippines agreed that premises of Special Missions in the Philippines are inviolable and its agents can not enter said premises without consent of the Head of Mission concerned. Special Missions are also exempted from customs duties, taxes and related charges.
(k) Multilateral Convention on the Law of Treaties. In this convention, the Philippines agreed to be governed by the Vienna Convention on the Law of Treaties.
(l) Declaration of the President of the Philippines accepting compulsory jurisdiction of the International Court of Justice. The International Court of Justice has jurisdiction in all legal disputes concerning the interpretation of a
treaty, any question of international law, the existence of any fact which, if established, would constitute a breach of international obligation.”
In the foregoing treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states in granting the same privilege and immunities to the Philippines, its officials and its citizens. The same reciprocity characterizes the Philippine commitments under WTO-GATT.
“International treaties, whether relating to nuclear disarmament, human rights, the environment, the law of the sea, or trade, constrain domestic political sovereignty through the assumption of external obligations. But unless anarchy in international relations is preferred as an alternative, in most cases we accept that the benefits of the reciprocal obligations involved outweigh the costs associated with any loss of political sovereignty. (T)rade treaties that structure relations by reference to durable, well-defined substantive norms and objective dispute resolution procedures reduce the risks of larger countries exploiting raw economic power to bully smaller countries, by subjecting power relations to some form of legal ordering. In addition, smaller countries typically stand to gain disproportionately from trade liberalization. This is due to the simple fact that liberalization will provide access to a larger set of potential new trading relationship than in case of the larger country gaining enhanced success to the smaller country’s market.”[48]
The point is that, as shown by the foregoing treaties, a portion of sovereignty may be waived without violating the Constitution, based on the rationale that the Philippines “adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of x x x cooperation and amity with all nations.”
Fourth Issue: The WTO Agreement and Judicial Power
Petitioners aver that paragraph 1, Article 34 of the General Provisions and Basic Principles of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)[49]intrudes on the power of the Supreme Court to promulgate rules concerning pleading, practice and procedures.[50]
To understand the scope and meaning of Article 34, TRIPS, [51] it will be fruitful to restate its full text as follows:
“Article 34
Process Patents: Burden of Proof
1. For the purposes of civil proceedings in respect of the infringement of the rights of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a patent is a process for obtaining a product, the judicial authorities shall have the authority to order the defendant to prove that the process to obtain an identical product is different from the patented process. Therefore, Members shall provide, in at least one of the following circumstances, that any identical product when produced without the consent of the patent owner shall, in the absence of proof to the contrary, be deemed to have been obtained by the patented process:
(a) if the product obtained by the patented process is new;
(b) if there is a substantial likelihood that the identical product was made by the process and the owner of the patent has been unable through reasonable efforts to determine the process actually used.
2. Any Member shall be free to provide that the burden of proof indicated in paragraph 1 shall be on the alleged infringer only if the condition referred to in subparagraph (a) is fulfilled or only if the condition referred to in subparagraph (b) is fulfilled.
3. In the adduction of proof to the contrary, the legitimate interests of defendants in protecting their manufacturing and business secrets shall be taken into account.”
From the above, a WTO Member is required to provide a rule of disputable (note the words “in the absence of proof to the contrary”) presumption that a product shown to be identical to one produced with the use of a patented process shall be deemed to have been obtained by the (illegal) use of the said patented process, (1) where such product obtained by the patented product is new, or (2) where there is “substantial likelihood” that the identical product was made with the use of the said patented process but the owner of the patent could not determine the exact process used in obtaining such identical product. Hence, the “burden of proof” contemplated by Article 34 should actually be understood as the duty of the alleged patent infringer to overthrow such presumption. Such burden, properly understood, actually refers to the “burden of evidence” (burden of going forward) placed on the producer of the identical (or fake) product to show that his product was produced without the use of the patented process.
The foregoing notwithstanding, the patent owner still has the “burden of proof” since, regardless of the presumption provided under paragraph 1 of Article 34, such owner still has to introduce evidence of the existence of the alleged identical product, the fact that it is “identical” to the genuine one produced by the patented process and the fact of “newness” of the genuine product or the fact of “substantial likelihood” that the identical product was made by the patented process.
The foregoing should really present no problem in changing the rules of evidence as the present law on the subject, Republic Act No. 165, as amended, otherwise known as the Patent Law, provides a similar presumption in cases of infringement of patented design or utility model, thus:
“SEC. 60. Infringement. - Infringement of a design patent or of a patent for utility model shall consist in unauthorized copying of the patented design or utility model for the purpose of trade or industry in the article or product and in the making, using or selling of the article or product copying the patented design or utility model. Identity or substantial identity with the patented design or utility model shall constitute evidence of copying.” (underscoring supplied)
Moreover, it should be noted that the requirement of Article 34 to provide a disputable presumption applies only if (1) the product obtained by the patented process is NEW or (2) there is a substantial likelihood that the identical product was made by the process and the process owner has not been able through reasonable effort to determine the process used. Where either of these two provisos does not obtain, members shall be free to determine the appropriate method of implementing the provisions of TRIPS within their own internal systems and processes.
By and large, the arguments adduced in connection with our disposition of the third issue -- derogation of legislative power - will apply to this fourth issue also. Suffice it to say that the reciprocity clause more than justifies such intrusion, if any actually exists. Besides, Article 34 does not contain an unreasonable burden, consistent as it is with due process and the concept of adversarial dispute settlement inherent in our judicial system.
So too, since the Philippine is a signatory to most international conventions on patents, trademarks and copyrights, the adjustment in legislation and rules of procedure will not be substantial.[52]
Fifth Issue: Concurrence Only in the WTO Agreement and Not in Other Documents Contained in the Final Act
Petitioners allege that the Senate concurrence in the WTO Agreement and its annexes -- but not in the other documents referred to in the Final Act, namely the Ministerial Declaration and Decisions and the Understanding on Commitments in Financial Services -- is defective and insufficient and thus constitutes abuse of discretion. They submit that such concurrence in the WTO Agreement alone is flawed because it is in effect a rejection of the Final Act, which in turn was the document signed by Secretary Navarro, in representation of the Republic upon authority of the President. They contend that the second letter of the President to the Senate [53] which enumerated what constitutes the Final Act should have been the subject of concurrence of the Senate.
“A final act, sometimes called protocol de clôture, is an instrument which records the winding up of the proceedings of a diplomatic conference and usually includes a reproduction of the texts of treaties, conventions, recommendations and other acts agreed upon and signed by the plenipotentiaries attending the conference.” [54] It is not the treaty itself. It is rather a summary of the proceedings of a protracted conference which may have taken place over several years. The text of the “Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations” is contained in just one page[55] in Vol. I of the 36-volume Uruguay Round of Multilateral Trade Negotiations. By signing said Final Act, Secretary Navarro as representative of the Republic of the Philippines undertook:
"(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent authorities with a view to seeking approval of the Agreement in accordance with their procedures; and
(b) to adopt the Ministerial Declarations and Decisions."
The assailed Senate Resolution No. 97 expressed concurrence in exactly what the Final Act required from its signatories, namely, concurrence of the Senate in the WTO Agreement.
The Ministerial Declarations and Decisions were deemed adopted without need for ratification. They were approved by the ministers by virtue of Article XXV: 1 of GATT which provides that representatives of the members can meet “to give effect to those provisions of this Agreement which invoke joint action, and generally with a view to facilitating the operation and furthering the objectives of this Agreement.” [56]
The Understanding on Commitments in Financial Services also approved in Marrakesh does not apply to the Philippines. It applies only to those 27 Members which “have indicated in their respective schedules of commitments on standstill, elimination of monopoly, expansion of operation of existing financial service suppliers, temporary entry of personnel, free transfer and processing of information, and national treatment with respect to access to payment, clearing systems and refinancing available in the normal course of business.”[57]
On the other hand, the WTO Agreement itself expresses what multilateral agreements are deemed included as its integral parts, [58] as follows:
“Article II
Scope of the WTO
1. The WTO shall provide the common institutional framework for the conduct of trade relations among its Members in matters to the agreements and associated legal instruments included in the Annexes to this Agreement.
2. The Agreements and associated legal instruments included in Annexes 1, 2, and 3 (hereinafter referred to as “Multilateral Agreements”) are integral parts of this Agreement, binding on all Members.
3. The Agreements and associated legal instruments included in Annex 4 (hereinafter referred to as “Plurilateral Trade Agreements”) are also part of this Agreement for those Members that have accepted them, and are binding on those Members. The Plurilateral Trade Agreements do not create either obligation or rights for Members that have not accepted them.
4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A (hereinafter referred to as “GATT 1994”) is legally distinct from the General Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act adopted at the conclusion of the Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment, as subsequently rectified, amended or modified (hereinafter referred to as “GATT 1947”).
It should be added that the Senate was well-aware of what it was concurring in as shown by the members’ deliberation on August 25, 1994. After reading the letter of President Ramos dated August 11, 1994, [59] the senators of the Republic minutely dissected what the Senate was concurring in, as follows: [60]
“THE CHAIRMAN: Yes. Now, the question of the validity of the submission came up in the first day hearing of this Committee yesterday. Was the observation made by Senator Tañada that what was submitted to the Senate was not the agreement on establishing the World Trade Organization by the final act of the Uruguay Round which is not the same as the agreement establishing the World Trade Organization? And on that basis, Senator Tolentino raised a point of order which, however, he agreed to withdraw upon understanding that his suggestion for an alternative solution at that time was acceptable. That suggestion was to treat the proceedings of the Committee as being in the nature of briefings for Senators until the question of the submission could be clarified.
And so, Secretary Romulo, in effect, is the President submitting a new... is he making a new submission which improves on the clarity of the first submission?
MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be no misunderstanding, it was his intention to clarify all matters by giving this letter.
THE CHAIRMAN: Thank you.
Can this Committee hear from Senator Tañada and later on Senator Tolentino since they were the ones that raised this question yesterday?
Senator Tañada, please.
SEN. TAÑADA: Thank you, Mr. Chairman.
Based on what Secretary Romulo has read, it would now clearly appear that what is being submitted to the Senate for ratification is not the Final Act of the Uruguay Round, but rather the Agreement on the World Trade Organization as well as the Ministerial Declarations and Decisions, and the Understanding and Commitments in Financial Services.
I am now satisfied with the wording of the new submission of President Ramos.
SEN. TAÑADA. . . . of President Ramos, Mr. Chairman.
THE CHAIRMAN. Thank you, Senator Tañada. Can we hear from Senator Tolentino? And after him Senator Neptali Gonzales and Senator Lina.
SEN TOLENTINO, Mr. Chairman, I have not seen the new submission actually transmitted to us but I saw the draft of his earlier, and I think it now complies with the provisions of the Constitution, and with the Final Act itself. The Constitution does not require us to ratify the Final Act. It requires us to ratify the Agreement which is now being submitted. The Final Act itself specifies what is going to be submitted to with the governments of the participants.
In paragraph 2 of the Final Act, we read and I quote:
‘By signing the present Final Act, the representatives agree: (a) to submit as appropriate the WTO Agreement for the consideration of the respective competent authorities with a view to seeking approval of the Agreement in accordance with their procedures.’
In other words, it is not the Final Act that was agreed to be submitted to the governments for ratification or acceptance as whatever their constitutional procedures may provide but it is the World Trade Organization Agreement. And if that is the one that is being submitted now, I think it satisfies both the Constitution and the Final Act itself.
Thank you, Mr. Chairman.
THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales.
SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of record. And they had been adequately reflected in the journal of yesterday’s session and I don’t see any need for repeating the same.
Now, I would consider the new submission as an act ex abudante cautela .
THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to make any comment on this?
SEN. LINA. Mr. President, I agree with the observation just made by Senator Gonzales out of the abundance of question. Then the new submission is, I believe, stating the obvious and therefore I have no further comment to make.”
Epilogue
In praying for the nullification of the Philippine ratification of the WTO Agreement, petitioners are invoking this Court’s constitutionally imposed duty “to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction” on the part of the Senate in giving its concurrence therein via Senate Resolution No. 97. Procedurally, a writ of certiorari grounded on grave abuse of discretion may be issued by the Court under Rule 65 of the Rules of Court when it is amply shown that petitioners have no other plain, speedy and adequate remedy in the ordinary course of law.
By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. [61] Mere abuse of discretion is not enough. It must begrave abuse of discretion as when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. [62] Failure on the part of the petitioner to show grave abuse of discretion will result in the dismissal of the petition.[63]
In rendering this Decision, this Court never forgets that the Senate, whose act is under review, is one of two sovereign houses of Congress and is thus entitled to great respect in its actions. It is itself a constitutional body independent and coordinate, and thus its actions are presumed regular and done in good faith. Unless convincing proof and persuasive arguments are presented to overthrow such presumptions, this Court will resolve every doubt in its favor. Using the foregoing well-accepted definition of grave abuse of discretion and the presumption of regularity in the Senate’s processes, this Court cannot find any cogent reason to impute grave abuse of discretion to the
Senate’s exercise of its power of concurrence in the WTO Agreement granted it by Sec. 21 of Article VII of the Constitution.[64]
It is true, as alleged by petitioners, that broad constitutional principles require the State to develop an independent national economy effectively controlled by Filipinos; and to protect and/or prefer Filipino labor, products, domestic materials and locally produced goods. But it is equally true that such principles -- while serving as judicial and legislative guides -- are not in themselves sources of causes of action. Moreover, there are other equally fundamental constitutional principles relied upon by the Senate which mandate the pursuit of a “trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity” and the promotion of industries “which are competitive in both domestic and foreign markets,” thereby justifying its acceptance of said treaty. So too, the alleged impairment of sovereignty in the exercise of legislative and judicial powers is balanced by the adoption of the generally accepted principles of international law as part of the law of the land and the adherence of the Constitution to the policy of cooperation and amity with all nations.
That the Senate, after deliberation and voting, voluntarily and overwhelmingly gave its consent to the WTO Agreement thereby making it “a part of the law of the land” is a legitimate exercise of its sovereign duty and power. We find no “patent and gross” arbitrariness or despotism “by reason of passion or personal hostility” in such exercise. It is not impossible to surmise that this Court, or at least some of its members, may even agree with petitioners that it is more advantageous to the national interest to strike down Senate Resolution No. 97. But that is not a legal reason to attribute grave abuse of discretion to the Senate and to nullify its decision. To do so would constitute grave abuse in the exercise of our own judicial power and duty. Ineludably, what the Senate did was a valid exercise of its authority. As to whether such exercise was wise, beneficial or viable is outside the realm of judicial inquiry and review. That is a matter between the elected policy makers and the people. As to whether the nation should join the worldwide march toward trade liberalization and economic globalization is a matter that our people should determine in electing their policy makers. After all, the WTO Agreement allows withdrawal of membership, should this be the political desire of a member.
The eminent futurist John Naisbitt, author of the best seller Megatrends, predicts an Asian Renaissance[65] where “the East will become the dominant region of the world economically, politically and culturally in the next century.” He refers to the “free market” espoused by WTO as the “catalyst” in this coming Asian ascendancy. There are at present about 31 countries including China, Russia and Saudi Arabia negotiating for membership in the WTO. Notwithstanding objections against possible limitations on national sovereignty, the WTO remains as the only viable structure for multilateral trading and the veritable forum for the development of international trade law. The alternative to WTO is isolation, stagnation, if not economic self-destruction. Duly enriched with original membership, keenly aware of the advantages and disadvantages of globalization with its on-line experience, and endowed with a vision of the future, the Philippines now straddles the crossroads of an international strategy for economic
prosperity and stability in the new millennium. Let the people, through their duly authorized elected officers, make their free choice.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Kapunan,
Mendoza, Francisco, Hermosisima, Jr., and Torres, Jr., JJ., concur.Padilla, and Vitug, JJ., in the result.
[G.R. No. L-18316. September 23, 1922. ]
LUZON STEVEDORING COMPANY, Plaintiff-Appellee, v. WENCESLAO TRINIDAD, Collector of Internal Revenue, Defendant-Appellant.
Attorney-General Villa-Real for Appellant.
Fisher & DeWitt and A.M. Opisso for Appellee.
SYLLABUS
1. INTERNAL REVENUE; CONTRACTOR, DEFINED. — In a general sense every person who enters into a contract may be called a contractor, yet the word, for want of a better one, has come to be used with special reference to a person who, in the pursuit of an independent business, undertakes to do a
specific piece of job or work for other persons, using his own means and methods without submitting himself to control as to the petty details. The true test of a "contractor" would seem to be that he renders service in the course of an independent occupation representing the will of his employer only as to
the result of his work, and not as to the means by which it is accomplished.
2. WORDS AND PHRASES, DEFINITION OF. — The definition adopted by lexicographers cannot always be adopted as a correct meaning for statutory words and phrases. The intention of the legislature and the object which it intended to attain must be taken into consideration for the purpose of determining the
meaning of words and phrases in a statute, rather than the definition of lexicographers.
3. INTERNAL REVENUE LAWS, INTERPRETATION OF. — Revenue laws imposing taxes on business must be strictly construed in favor of the citizen. In construing a word in a revenue statute susceptible of two or more meanings, the court will adopt that interpretations most in accord with the manifest
purpose of the statute as gathered from the text. Where a particular word is obscure or of doubtful meaning, taken by itself, its obscurity or doubt may be removed by reference to associate words.
D E C I S I O N
JOHNSON, J. :
This action was commenced in the Court of First Instance of the City of Manila on the 18th day of May, 1921. Its purpose was to recover of the defendant as Internal Revenue Collector, the sum of P2,422.81, which sum had been paid by the plaintiff to the defendant under protest. The defendant presented a demurrer to the complaint, which was overruled, and later answered. The answer contained a general and special defense. In his special defense the defendant alleged that during the first quarter of the year 1921 the plaintiff was engaged in business as a contractor, its gross receipts from said business during said quarter amounting to P242,281.33, and that the defendant, under the provisions of section 1462 of Act No. 2711, levied and assessed on the above-mentioned amount the percentage tax amounting to P2,422.81, which the plaintiff paid on April 18, 1921, under protest, this protest having been duly overruled by the defendant.
Upon the issue thus presented, the Honorable Pedro Concepcion, judge, for the reasons given in his decision, rendered a judgment in favor of the plaintiff and against the defendant for the said sum of P2,422.81, without any finding as to costs or interest. From that judgment the defendant appealed. The appellant contends that the lower court committed error in holding that the plaintiff is not a contractor and in rendering a judgment in favor of the plaintiff.
From an examination of the evidence adduced during the trial of the cause and from the agreement of the parties, it appears that the plaintiff is and was a corporation duly organized under the laws of the Philippine Islands and doing business in the City of Manila; that it was engaged in the stevedoring business in said city, said business consisting of loading and unloading cargo from vessels in port, at certain rates of charge per unit of cargo; that all the work done by it is conducted under the direct supervision of the officers of the ships and under the instruction given to plaintiff’s men by the captain and officers of said ships: that no liability attaches to the plaintiff for the improper loading or unloading of vessels, the captain being responsible for said work; that the captain answers for all the cargo placed on board and for the manner in which said cargo is loaded; while it is true that the plaintiff undertakes to work in the loading or unloading of cargo from any vessel in port, yet it always does the work under the direct supervision of the officers of the vessel; that said supervision is so effective that, while the loading is made, plaintiff’s laborers are under the direct control of the officers of the ship; and that said supervision is so direct, that no discretion is left to the plaintiff nor its men. It was mutually agreed at the time of the trial that the provisions of section 1462 of Act No. 2711 had been in force for a period of eight years (section 43, Act No. 2339; section 1617, Act No. 2657; section 1462, Act No, 2711) before the defendant made any effort to collect the taxes in question.
The only question presented by the appellant upon the foregoing facts is: Is the plaintiff a contractor? Generally speaking, every person who enters into a contract may be denominated a contractor, but evidently the Legislature did not mean to apply the word "contractor," as used in said section 1462, to every person, partnership or corporation who entered into a contract; or, otherwise, it would not have been necessary to have mentioned in the same section other classes of business, such as warehousemen, proprietors of dockyard and person selling light, heat, or power, as well as persons engaged in conducting telephone or telegraph line or exchanges, and proprietors of steam laundries and of shops for the construction and repair of bicycles or vehicles of any kind, and keepers of hotels and restaurants, etc. If the word "contractor" in said section 1462 meant every person who entered into a contract, then it would have included warehousemen, and the other classes of business mentioned in said section, for the reason that every transaction by the other persons mentioned in said section is by virtue of an express or implied contract. The same thing might be said with reference to section 1463, where keepers of livery stables and garages, transportation contractors, person who transport passengers or freight for hire, and common carriers, etc., are also subject to an internal revenue tax. If the legislature had intended the word "contractor," as used in section 1462, to cover all persons who entered into a contract then it would have been unnecessary to have mentioned the other persons referred to in sections 1462 and 1463.
Moreover, if the general and broad meaning is to be given to the word "contractor as used in said section 1462, it would include bankers, merchants, brokers, lawyers, farmers in the sale of their product, and every person who enter into a contract of whatever nature or character. It would also include school-teachers in the public and private schools as well as common laborers who work by the day under a contract. It would also apply to all persons loaning money upon promissory notes, for the reason that their transaction is a contract and the parties thereto, broadly speaking are contractors.
From all of the foregoing it does appear that the word "contractor," as used in said section 1462, must have a limited and a very restricted meaning. It cannot have the broad meaning which would include every person who entered into a contract. The lower court in holding that the plaintiff was not a contractor in the sense that word is used in said section, relied upon the definition given in vol. 13 Corpus Juris, page 211, where we find a "contractor" defined. The definition is: "One who agrees to do anything for another; one who executes plans under a contract; one who contacts or covenants, whether with a government or other public body or with private parties, to furnish supplies, or to construct works, or to erect buildings, or to perform any work or service, at a certain price or rate, as a paving contractor, or labor contractor; one who contracts to perform work, or supply articles on a large scale, at a certain price or rate, as in building houses or provisioning troops, or constructing a railroad. Although, in a general sense, every person who enters into a contract may be called a contractor, yet the word , for want of a better one, has come to be used with special reference to a person who, in the pursuit of an independent business, undertakes to do a specific piece or job of work for other persons, using his own means and methods without submitting himself to control as to the petty details. The true test of a contractor would seem to be that he renders the service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as the means by which it is accomplished." (In re Unger, 22 Okla., 755; State v. McNally, 45 La. Ann., 44, 46; Ney v. Dubuque, etc., Railroad Co., 20 Iowa, 347, 352; Lehigh, etc. Co. v. Central Railroad Co. of New Jersey, 29 N.J. Equity, 252, 255; State v. Emerson, 72 Me., 455, 456; Todd v. Kentucky Union Ry. Co., 52 Fed. Rep., 241, 247 [18 L. R. A., 305]; Hale v. Johnson, 80 Ill., 185.)
The general rule, variously stated, is that when a person lets out work to another, the contractee reserving no control over the work or workmen. the relation of contractor and contractee exists and not that of master and servant, and the contractee is not liable for the negligence or improper execution of the work by the contractor. (Laffery v. United States Gypsum Co., 83 Kan., 349,354.)
If the one rendering service submits himself to the direction of his employer as to the details of the work, fulfilling his will not merely as to the result but also as to the means by which that result is to be attained, the contractor becomes a servant and is not a contractor in respect to that work. (Shearman and R. on Negligence, sec. 77; Knoxville Iron Co. v. Dobson, 7 Lea [Tenn. Rep. ] 367, 374.)
If on the other hand a person is engaged under a contract in an independent operation not subject to the direction and control of his employer, the relation is not regarded as that of master and servant, but is said, in modern phrase, to be that of contractor and contractee. (Campfield v. Lang, 25 Feb. Rep., 128, 131.)
The case of Brown v. German-American , etc. Co. (174 Pa., 443) gave a definition for a contractor, which was adopted with approval in the case of In re Unger (22 Okla., 755) "as one who contracts or covenants either with . . . a public body or private parties . . . to . . . construct works or erect buildings . . . at a certain price or rate." Said definition was adopted from the Century Dictionary. The definition of lexicographers, however, cannot always be adopted as a correct meaning for statutory words and phrases. The intention of the Legislature and the object which it intended to attain must be taken into consideration for the purpose of determining the meaning of words and phrases used, rather than the set definition of lexicographers. Moreover, revenue laws imposing taxes on business must be strictly construed in favor of the citizen. In construing a word or expression in the statute susceptible of two or more meanings, the court will adopt that interpretation most in accord with the manifest purpose of the statute as gathered from the context. Where a particular word is obscure or of doubtful meaning, taken by itself, its obscurity or doubt may be removed by reference to associate words. (25 Ruling Case Law, 994, 995.)
If the question presented in the interpretation of a tariff law is one of doubt, the doubt would be resolved in favor of the importer, as duties are never imposed upon citizens upon vague and doubtful interpretation. (Hart Ranft v. Wiegman, 129 U. S., 609, 616; Zamboanga Mutual Bldg. & Loan Association v. Rafferty, 42 Phil., 408.)
A very instructive decision on the question of who is a contractor, is found in the very well reasoned case of Caldwell v. Atlantic B. & A. Ry. Co. (161 Ala., 395). In the course of that decision the Supreme Court of Alabama said:" ’The true test of a "Contractor" would seem to be that he renders the service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.’" (Halstead v. Stahl, 47 Ind. App., 600; John’s Admr., etc. v. Wm. H. McKnight & Co., 117 Ky., 655; Pittsburg Construction Co. v. West Side, etc R. Co., 232 Pa; 578; Freidman v. Hampden County, 204 Mass., 494; Attorney-General v. Detroit of Education 154 Mich ., 584.)
The appellant lays great stress upon the decision in the case of Murray v. Currie (65 L. R. A., 470) as well the case of Rankin v. Merchants, etc Co. (54 Am. Rep., 874, 876). In the first case, however, from a reading of the decision it will appear that "Kennedy, the stevedore, undertook to execute the work of unloading the ship, and for that purpose a steam winch belonging to the ship was placed at his disposal. The work of unloading was done by Kennedy under a special contract. He was acting on his own behalf, and did not in any sense stand in the relation of servant to the defendant. He had entire control over the work which he was doing." In the second case (Rankin v. Merchants, etc. Co., supra) there is nothing in the case which does not show that the stevedore was not acting under the ship’s order. The case of Haas v. Philadelphia, etc. Co. (32 Am. Rep. ., 462) shows that the ship’s company had no control over the stevedore or his men or their work. The cases therefore relied upon authority by the appellant do not support his contention in view of the definition of a "contractor" which is, by a large weight of authority, accepted.
From all of the foregoing it seems clear to us that the plaintiff is not a contractor in the sense that word is used in said section 1436 of Act No. 2711, an therefore the tax paid by plaintiff under protest was illegally collected and should be repaid. For all the foregoing reasons, we are of the opinion, and so declare, that the judgment appealed from should be affirmed 1922. So ordered.