Planters Products Inc vs Fertiphil Corp

G.R. No. 166006 March 14, 2008

FACTS:
Petitioner PPI and respondent Fertiphil are private corporations incorporated under Philippine
laws, both engaged in the importation and distribution of fertilizers, pesticides and agricultural
chemicals. Marcos issued Letter of Instruction (LOI) 1465, imposing a capital recovery
component of Php10.00 per bag of fertilizer. The levy was to continue until adequate capital was
raised to make PPI financially viable. Fertiphil remitted to the Fertilizer and Pesticide Authority
(FPA), which was then remitted the depository bank of PPI. Fertiphil paid P6,689,144 to FPA
from 1985 to 1986. After the 1986 EDSA Revolution, FPA voluntarily stopped the imposition of
the P10 levy. Fertiphil demanded from PPI a refund of the amount it remitted, however PPI
refused. Fertiphil filed a complaint for collection and damages, questioning the constitutionality
of LOI 1465, claiming that it was unjust, unreasonable, oppressive, invalid and an unlawful
imposition that amounted to a denial of due process. PPI argues that Fertiphil has no locus
standi to question the constitutionality of LOI No. 1465 because it does not have a “personal
and substantial interest in the case or will sustain direct injury as a result of its enforcement.” It
asserts that Fertiphil did not suffer any damage from the imposition because “incidence of the
levy fell on the ultimate consumer or the farmers themselves, not on the seller fertilizer
company.

ISSUE:
Whether or not Fertiphil has locus standi to question the constitutionality of LOI No. 1465.What
is the power of taxation?

RULING:
Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere
procedural technicality which may be waived. The imposition of the levy was an exercise of the
taxation power of the state. While it is true that the power to tax can be used as an implement of
police power, the primary purpose of the levy was revenue generation. If the purpose is
primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the
exaction is properly called a tax.

Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare, while the power of taxation is the power to levy taxes to be used for public purpose.
The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The “lawful subjects” and “lawful means” tests are used to determine the
validity of a law enacted under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
 GEROCHI v. DEPARTMENT OF ENERGY
G.R. No. 159796 July 17, 2007

FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act of 2001.
Petitioners Romeo P. Gerochi and company assail the validity of Section 34 of the EPIRA Law
for being an undue delegation of the power of taxation. Section 34 provides for the imposition of
a “Universal Charge” to all electricity end users after a period of (1) one year after the effectively
of the EPIRA Law. The universal charge to be collected would serve as payment for
government debts, missionary electrification, equalization of taxes and royalties applied to
renewable energy and imported energy, environmental charge and for a charge to account for
all forms of cross subsidies for a period not exceeding three years. The universal charge shall
be collected by the ERC on a monthly basis from all end users and will then be managed by the
PSALM Corp. through the creation of a special trust fund.

ISSUE:
Whether or not there is an undue delegation of the power to tax on the part of the ERC

HELD:
No, the universal charge as provided for in section 34 is not a tax but an exaction of the
regulatory power (police power) of the state. The universal charge under section 34 is incidental
to the regulatory duties of the ERC, hence the provision assailed is not for generation of
revenue and therefore it cannot be considered as tax, but an execution of the states police
power thru regulation.

Moreover, the amount collected is not made certain by the ERC, but by the legislative
parameters provided for in the law (RA 9136) itself, it therefore cannot be understood as a rule
solely coming from the ERC. The ERC in this case is only a specialized administrative agency
which is tasked of executing a subordinate legislation issued by congress; which before
execution must pass both the completeness test and the sufficiency of standard test. The court
in appreciating Section 34 of RA 9136 in its entirety finds the said law and the assailed portions
free from any constitutional defect and thus deemed complete and sufficient in form.
 Ermita Malate Hotel & Motel Operators Association v. City of Manila
GR No. L-24693, 31 July 1967
Fernando, J:

Facts:
On 13 June 1963, Ordinance 4760 was issued by the municipal board of the City of Manila and
approved by Vice Mayor Herminio Astorga, who was at the time acting Mayor of the City of
Manila. The ordinance (1) imposes a P6,000.00 fee per annum for first class motels and
P4,500.00 for second class motels; (2) requires the owner, manager, keeper or duly authorized
representative of a hotel, motel, or lodging house to refrain from entertaining or accepting any
guest or customer or letting any room or other quarter to any person or persons without his
filling up the prescribed form in a lobby open to public view at all times and in his presence,
wherein the surname, given name and middle name, the date of birth, the address, the
occupation, the sex, the nationality, the length of stay and the number of companions in the
room, if any, with the name, relationship, age and sex would be specified, with data furnished as
to his residence certificate as well as his passport number, if any, coupled with a certification
that a person signing such form has personally filled it up and affixed his signature in the
presence of such owner, manager, keeper or duly authorized representative, with such
registration forms and records kept and bound together; (3) provides that the premises and
facilities of such hotels, motels and lodging houses would be open for inspection either by the
City Mayor, or the Chief of Police, or their duly authorized representatives.

The ordinance also classified motels into two classes and required the maintenance of certain
minimum facilities in first class motels such as a telephone in each room, a dining room or
restaurant and laundry; while second class motels are required to have a dining room. It
prohibited a person less than 18 years old from being accepted in such hotels, motels, lodging
houses, tavern or common inn unless accompanied by parents or a lawful guardian and made it
unlawful for the owner, manager, keeper or duly authorized representative of such
establishments to lease any room or portion thereof more than twice every 24 hours. It provided
a penalty of automatic cancellation of the license of the offended party in case of conviction.

On 5 July 1963, the Ermita-Malate Hotel and Motel Operators Association (EMHMOA), its
member Hotel del Mar, and a certain Go Chiu filed a petition for prohibition against the mayor of
the City of Manila in his capacity as he is charged with the general power and duty to enforce
ordinances of the City of Manila and to give the necessary orders for the faithful execution and
enforcement of such ordinances. There was a plea for the issuance of preliminary injunction and
for a final judgment declaring the above ordinance null and void and unenforceable. The lower
court on 6 July 1963 issued a writ of preliminary injunction ordering the Mayor to refrain from
enforcing said Ordinance 4760 from and after 8 July 1963. After the submission of the
memoranda, ruled that the City of Manila lack authority to regulate motels and rendering
Ordinance 4760 unconstitutional and therefore null and void. It made permanent the preliminary
injunction issued by the Mayor and his agents to restrain him from enforcing the ordinance. The
Mayor of Manila appealed to the Supreme Court.
Issue:
Whether the regulations imposed on motels and hotels (increasing license fees, partially
restricting the freedom to contract, and restraining the liberty of individuals) is valid and/or
constitutional.

Held:

Yes. The ordinance was enacted to minimize certain practices hurtful to public morals. It was
made as there is observed an alarming increase in the rate of prostitution, adultery and
fornication in Manila traceable in great part to the existence of motels, which provide a
necessary atmosphere for clandestine entry, presence and exit and thus become the ideal
haven for prostitutes and thrill seekers. The ordinance proposes to check the clandestine
harboring of transients and guests of these establishments by requiring these transients and
guests to fill up a registration form, prepared for the purpose, in a lobby open to public view at
all times, and by introducing several other amendatory provisions calculated to shatter the
privacy that characterizes the registration of transients and guests. The increase in the license
fees was intended to discourage establishments of the kind from operating for purpose other
than legal and to increase the income of the city government.

Further, the restriction on the freedom to contract, insofar as the challenged ordinance makes it
unlawful for the owner, manager, keeper or duly authorized representative of any hotel, motel,
lodging house, tavern, common inn or the like, to lease or rent any room or portion thereof more
than twice every 24 hours, with a proviso that in all cases full payment shall be charged, cannot
be viewed as a transgression against the command of due process. It is neither unreasonable
nor arbitrary. Precisely it was intended to curb the opportunity for the immoral or illegitimate use
to which such premises could be, and, are being devoted.

Furthermore, the right of the individual is necessarily subject to reasonable restraint by general
law for the common good. The liberty of the citizen may be restrained in the interest of the
public health, or of the public order and safety, or otherwise within the proper scope of the police
power. State in order to promote the general welfare may interfere with personal liberty, with
property, and with business and occupations. Persons and property may be subjected to all
kinds of restraints and burdens, in order to secure the general comfort, health, and prosperity of
the state.
 Republic of the Philippines v Bacolod-Murcia
GR No. L-19824, L-19825, L-19826, July 9, 1966
Paras, J:

FACTS:
RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute
acquired the Insular Sugar Refinery for P3.07 million payable in installments from the proceeds
of the Sugar tax to be collected under RA 632. The operation of the refinery for 1954 to 1957
was disastrous as the Institute suffered tremendous losses. Contending that the purchase of
refinery with money from the Institute’s fund was not authorized under RA 632, and that the
continued operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao
Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to
continue with their contribution to said fund. The trial court found them liable under RA 632.
Hence, this petition.

ISSUE:
Are the milling companies liable?

RULING:
Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so much an
exercise of the power of taxation, nor the imposition of a special assessment, but the exercise of
police power for the general welfare of the entire country. It is, therefore, an exercise of a
sovereign power which no private citizen may lawfully resist.

Section 2a of the charter authorizes Philsugin to acquire the refinery in question. The financial
loss resulting from the operation thereof is no means an index that the industry did profit
therefrom, as other gains of a different nature (such as experience) may have been realized.
 TIO V. VIDEOGRAM REGULATORY BOARD
151 SCRA 208; G.R. No. L-75697; 18 Jun 1987
Melencio-Herrera,J:

Facts: The case is a petition filed by petitioner on behalf of videogram operators adversely
affected by Presidential Decree No. 1987, “An Act Creating the Videogram Regulatory Board"
with broad powers to regulate and supervise the videogram industry.

A month after the promulgation of the said Presidential Decree, the amended the National
Internal Revenue Code provided that:
"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax."
"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision
of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase
price or rental rate, as the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program.”
“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the
other fifty percent (50%) shall accrue to the municipality where the tax is collected; PROVIDED,
That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.”

The rationale behind the tax provision is to curb the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes or any technical improvement
or variation thereof, have greatly prejudiced the operations of movie houses and theaters. Such
unregulated circulation have caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million
annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and these earnings have not been subjected to tax,
thereby depriving the Government of approximately P180 Million in taxes each year.

The unregulated activities of videogram establishments have also affected the viability of the
movie industry.

Issues:
(1) Whether or not tax imposed by the DECREE is a valid exercise of police power.
(2) Whether or nor the DECREE is constitutional.
Held:
Taxation has been made the implement of the state's police power. The levy of the 30% tax is
for a public purpose. It was imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in pronouncing Presidential
Decree No. 1987 as unconstitutional and void. While the underlying objective of the DECREE is
to protect the moribund movie industry, there is no question that public welfare is at bottom of its
enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the
moral fiber of the viewing public brought about by the availability of unclassified and unreviewed
video tapes containing pornographic films and films with brutally violent sequences; and losses
in government revenues due to the drop in theatrical attendance, not to mention the fact that the
activities of video establishments are virtually untaxed since mere payment of Mayor's permit
and municipal license fees are required to engage in business."
WHEREFORE, the instant Petition is hereby dismissed. No costs.

Caltex Philippines, Inc. v Commission on Audit

FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized under the PD 1956. Pending such remittance,
all of its claims for reimbursement from the OPSF shall be held in abeyance. The grant total of
its unremitted collections of the above tax is P1,287,668,820.

Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further offsetting remittances and reimbursements for
the current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the
present petition.

ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s
outstanding claims from said funds

RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the
existence of government. Taxes may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry which is affected with public interest
as to be within the police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A
taxpayer may not offset taxes due from the claims he may have against the government. Taxes
cannot be subject of compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt, demand,, contract
or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for reimbursement of underrecovery
arising from sales to the National Power Corporation is allowed.