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[G.R. No. 152574. November 17, 2004]FRANCISCO ABELLA JR., petitioner, vs. CIVIL SERVICE COMMISSION, respondent.

D E C I S I O NPANGANIBAN, J.:

Both the appointing authority and the appointee are the real parties in interest, and both have legal standing, in a suit assailing a Civil Service Commission (CSC) order disapproving an appointment. Despite having legal interest and standing, herein petitioner unsuccessfully challenges the constitutionality of the CSC circular that classifies certain positions in the career service of the government. In sum, petitioner was appointed to a Career Executive Service (CES) position, but did not have the corresponding eligibility for it; hence, the CSC correctly disapproved his appointment.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the November 16, 2001 Decision[2] and the March 8, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 58987. The Assailed Decision disposed as follows:

“WHEREFORE, the petition for review is DENIED for lack of merit.”[4]

The challenged Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The CA narrates the factual antecedents in this wise:

“Petitioner Francisco A. Abella, Jr., a lawyer, retired from the Export Processing Zone Authority (EPZA), now the Philippine Economic Zone Authority (PEZA), on July 1, 1996 as Department Manager of the Legal Services Department. He held a civil service eligibility for the position of Department Manager, having completed the training program for Executive Leadership and Management in 1982 under the Civil Service Academy, pursuant to CSC Resolution No. 850 dated April 16, 1979, which was then the required eligibility for said position.

1

“It appears, however, that on May 31, 1994, the Civil Service Commission issued Memorandum Circular No. 21, series of 1994, the pertinent provisions of which read:

‘1. Positions Covered by the Career Executive Service

x x x x x x x x x

(b) In addition to the above identified positions and other positions of the same category which had been previously classified and included in the CES, all other third level positions of equivalent category in all branches and instrumentalities of the national government, including government owned and controlled corporations with original charters are embraced within the Career Executive Service provided that they meet the following criteria:

‘1. the position is a career position;

‘2. the position is above division chief level

‘3. the duties and responsibilities of the position require the performance of executive or managerial functions.

‘4. Status of Appointment of Incumbents of Positions Included Under the Coverage of the CES. Incumbents of positions which are declared to be Career Executive Service positions for the first time pursuant to this Resolution who hold permanent appointments thereto shall remain under permanent status in their respective positions. However, upon promotion or transfer to other Career Executive Service (CES) positions, these incumbents shall be under temporary status in said other CES positions until they qualify.’

“Two years after his retirement, petitioner was hired by the Subic Bay Metropolitan Authority (SBMA) on a contractual basis. On January 1, 1999, petitioner was issued by SBMA a permanent employment as Department Manager III, Labor and Employment Center. However, when said appointment was submitted to respondent Civil Service Commission Regional Office No. III, it was disapproved on the ground that petitioner’s eligibility was not appropriate. Petitioner was advised by SBMA of the disapproval of his appointment. In view thereof, petitioner was issued a temporary appointment as Department Manager III, Labor and Employment Center, SBMA on July 9, 1999.

“Petitioner appealed the disapproval of his permanent appointment by respondent to the Civil Service Commission, which issued Resolution No. 000059, dated January 10, 2000, affirming the action taken by respondent. Petitioner’s motion for reconsideration thereof was denied by the CSC in Resolution No. 001143 dated May 11, 2000.”

“x x x x x x x x x

“Undaunted, petitioner filed with [the CA] a petition for review seeking the reversal of the CSC Resolutions dated January 10, 2000 and May 11, 2000 on the ground that CSC Memorandum Circular No. 21, s. 1994 is unconstitutional as it rendered his earned civil service eligibility ineffective or inappropriate for the position of Department Manager [III]” [5]

Ruling of the Court of Appeals

The CA shunned the issue of constitutionality, arguing that a constitutional question should not be passed upon if there are other grounds upon which the case may be decided. [6] Citing CSC Memorandum Circular 40, s. 1998 and Mathay v. Civil Service Commission,[7] the appellate court ruled that only the appointing officer may request reconsideration of the action taken by the CSC on appointments. Thus, it held that petitioner did not have legal standing to question the disapproval of his appointment. [8]

On reconsideration, the CA added that petitioner was not the real party in interest, as his appointment was dependent on the CSC’s approval. Accordingly, he had no vested right in the office, since his appointment was disapproved. [9]

Unsatisfied, petitioner brought this recourse to this Court.[10]

The Issues

Petitioner raises the following issues for our consideration:

“A. Whether or not Respondent Court committed grave abuse of discretion amounting to lack of jurisdiction in ruling that petitioner lacks the personality to question the disapproval by respondent office of petitioner’s appointment as Department Manager III, Labor and Employment Center, SBMA.

“B. Whether or not Respondent Court committed grave abuse of discretion amounting to lack of jurisdiction in ruling that petitioner is not the real party in interest to question the disapproval by respondent office of petitioner’s appointment as Department Manager III, Labor and Employment Center, SBMA.

“C. Whether or not Respondent Court committed grave abuse of discretion amounting to lack of jurisdiction, in dismissing petitioner’s appeal on a mere technicality considering that petitioner is questioning the constitutionality of respondent office’ issuance of Section 4 of CSC Memorandum Circular No. 21, s. 1994, which deprived petitioner his property right without due process of law.”[11]

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The Court’s Ruling

The Petition is partly meritorious.

First Issue:Who May File Reconsideration or Appeal

Preliminary Observation

Petitioner imputes to the CA “grave abuse of discretion amounting to lack of jurisdiction” for ruling that he had no legal standing to contest the disapproval of his appointment. [12] Grave abuse of discretion is a ground for a petition for certiorari under Rule 65 of the Rules of Court. Nevertheless, this Court resolved to grant due course to the Petition and to treat it appropriately as a petition for review on certiorari under Rule 45 of the Rules of Court. The grounds shall be deemed “reversible errors,” not “grave abuse of discretion.”

Approval Required forPermanent Appointment

A permanent appointment in the career service is issued to a person who has met the requirements of the position to which the appointment is made in accordance with the provisions of law, the rules and the standards promulgated pursuant thereto. [13] It implies the civil service eligibility of the appointee. [14] Thus, while the appointing authority has the discretion to choose whom to appoint, the choice is subject to the caveat that the appointee possesses the required qualifications. [15]

To make it fully effective, an appointment to a civil service position must comply with all legal requirements. [16] Thus, the law requires the appointment to be submitted to the CSC which will ascertain, in the main, whether the proposed appointee is qualified to hold the position and whether the rules pertinent to the process of appointment were observed. [17] The applicable provision of the Civil Service Law reads:

“SECTION 9. Powers and Functions of the Commission. — The Commission shall administer the Civil Service and shall have the following powers and functions:

“x x x x x x x x x

“(h) Approve all appointments, whether original or promotional, to positions in the civil service, except those of presidential appointees, members of the Armed Forces of the Philippines, police forces, firemen, and jailguards, and disapprove those where the appointees do not possess the appropriate eligibility or required qualifications. An appointment shall take effect immediately upon issue by the appointing authority if the appointee assumes his duties immediately and shall remain effective until it is disapproved by the Commission, if this should take place, without prejudice to the liability of the appointing authority for appointments issued in violation of existing laws or rules: Provided, finally, That the Commission shall keep a record of appointments of all officers and employees in the civil service. All appointments requiring the approval of the Commission as herein provided, shall be submitted to it by the appointing authority within thirty days from issuance, otherwise, the appointment becomes ineffective thirty days thereafter.”[18]

The appointing officer and the CSC acting together, though not concurrently but consecutively, make an appointment complete.[19] In acting on the appointment, the CSC determines whether the appointee possesses the appropriate civil service eligibility or the required qualifications. If the appointee does, the appointment must be approved; if not, it should be disapproved.[20]According to the appellate court, only the appointing authority had the right to challenge the CSC’s disapproval. It relied on Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 (Omnibus Rules on Appointment and Other Personal Actions), which provides:

“Section 2. Request for Reconsideration of, or appeal from, the disapproval of an appointment may be made by the appointing authority and submitted to the Commission within fifteen (15) calendar days from receipt of the disapproved appointment.”

Appointing Authority’s Right toChallenge CSC Disapproval

While petitioner does not challenge the legality of this provision, he now claims that it is merely a technicality, which does not prevent him from requesting reconsideration.

We clarify. The power of appointment necessarily entails the exercise of judgment and discretion. [21] Luego v. Civil Service Commission[22] declared:

“Appointment is an essentially discretionary power and must be performed by the officer in which it is vested according to his best lights, the only condition being that the appointee should possess the qualifications required by law. If he does, then the appointment cannot be faulted on the ground that there are others better qualified who should have been preferred. This is a political question involving considerations of wisdom which only the appointing authority can decide.” [23]

Significantly, “the selection of the appointee -- taking into account the totality of his qualifications, including those abstract qualities that define his personality -- is the prerogative of the appointing authority.” [24] No tribunal, not even this Court,[25] may compel the exercise of an appointment for a favored person. [26]

The CSC’s disapproval of an appointment is a challenge to the exercise of the appointing authority’s discretion. The appointing authority must have the right to contest the disapproval. Thus, Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 is justified insofar as it allows the appointing authority to request reconsideration or appeal.

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In Central Bank v. Civil Service Commission,[27] this Court has affirmed that the appointing authority stands to be adversely affected when the CSC disapproves an appointment. Thus, the said authority can “defend its appointment since it knows the reasons for the same.”[28] It is also the act of the appointing authority that is being questioned when an appointment is disapproved.[29]

Appointee’s Legal Standing toChallenge the CSC Disapproval

While there is justification to allow the appointing authority to challenge the CSC disapproval, there is none to preclude the appointee from taking the same course of action. Aggrieved parties, including the Civil Service Commission, should be given the right to file motions for reconsideration or to appeal. [30] On this point, the concepts of “legal standing” and “real party in interest” become relevant.

Although commonly directed towards ensuring that only certain parties can maintain an action, “legal standing” and “real party in interest” are different concepts. Kilosbayan v. Morato[31]explained:

“The difference between the rule on standing and real party-in-interest has been noted by authorities thus: ‘It is important to note . . . that standing because of its constitutional and public policy underpinnings, is very different from questions relating to whether a particular plaintiff is the real party-in-interest or has capacity to sue. Although all three requirements are directed towards ensuring that only certain parties can maintain an action, standing restrictions require a partial consideration of the merits, as well as broader policy concerns relating to the proper role of the judiciary in certain areas. (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985])

“Standing is a special concern in constitutional law because in some cases suits are brought not by parties who have been personally injured by the operation of a law or by official action taken, but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence the question in standing is whether such parties have ‘alleged such a personal stake in the outcome of the controversy to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions.’ (Baker v. Carr, 369 U.S. 186, 7 L. Ed. 2d 633 (1962))

“x x x x x x x x x

“On the other hand, the question as to ‘real party-in-interest’ is whether he is ‘the party who would be [benefited] or injured by the judgment, or the ‘party entitled to the avails of the suit.’ (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131 [1951])” [32]

If legal standing is granted to challenge the constitutionality or validity of a law or governmental act despite the lack of personal injury on the challenger’s part, then more so should petitioner be allowed to contest the CSC Order disapproving his appointment. Clearly, he was prejudiced by the disapproval, since he could not continue his office.

Although petitioner had no vested right to the position, [33] it was his eligibility that was being questioned. Corollary to this point, he should be granted the opportunity to prove his eligibility. He had a personal stake in the outcome of the case, which justifies his challenge to the CSC act that denied his permanent appointment.

The Appointee a RealParty in Interest

A real party in interest is one who would be benefited or injured by the judgment, or one entitled to the avails of the suit.[34] “Interest” within the meaning of the rule means material interest or an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved or a mere incidental interest. [35] Otherwise stated, the rule refers to a real or present substantial interest as distinguished from a mere expectancy; or from a future, contingent, subordinate, or consequential interest.[36] As a general rule, one who has no right or interest to protect cannot invoke the jurisdiction of the court as a party-plaintiff in an action.[37]

Although the earlier discussion demonstrates that the appointing authority is adversely affected by the CSC’s Order and is a real party in interest, the appointee is rightly a real party in interest too. He is also injured by the CSC disapproval, because he is prevented from assuming the office in a permanent capacity. Moreover, he would necessarily benefit if a favorable judgment is obtained, as an approved appointment would confer on him all the rights and privileges of a permanent appointee.

Appointee AllowedProcedural Relief

Section 2 of Rule VI of CSC Memorandum Circular 40, s. 1998 should not be interpreted to restrict solely to the appointing authority the right to move for a reconsideration of, or to appeal, the disapproval of an appointment. PD 807 and EO 292, from which the CSC derives the authority to promulgate its rules and regulations, are silent on whether appointees have a similar right to file motions for reconsideration of, or appeals from, unfavorable decisions involving appointments. Indeed, there is no legislative intent to bar appointees from challenging the CSC’s disapproval.

The view that only the appointing authority may request reconsideration or appeal is too narrow. The appointee should have the same right. Parenthetically, CSC Resolution 99-1936[38]recognizes the right of the adversely affected party to appeal to the CSC Regional Offices prior to elevating a matter to the CSC Central Office. [39] The adversely affected party necessarily includes the appointee.

This judicial pronouncement does not override Mathay v. Civil Service Commission,[40] which the CA relied on. The Court merely noted in passing -- by way of obiter -- that based on a similar provision,[41] only the appointing officer could request reconsideration of actions taken by the CSC on appointments.

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In that case, Quezon City Mayor Ismael A. Mathay Jr. sought the nullification of CSC Resolutions that recalled his appointment of a city government officer. He filed a Petition assailing the CA Decision, which had previously denied his Petition for Certiorari for being the wrong remedy and for being filed out of time. We observed then that the CSC Resolutions were already final and could no longer be elevated to the CA. [42] Furthermore, Mathay’s Petition for Certiorari filed with the CA was improper, because there was an available remedy of appeal. And the CSC could not have acted without jurisdiction, considering that it was empowered to recall an appointment initially approved. [43]

The right of the appointee to seek reconsideration or appeal was not the main issue in Mathay. At any rate, the present case is being decided en banc, and the ruling may reverse previous doctrines laid down by this Court. [44]

Second Issue:Constitutionality of

Section 4, CSC MemorandumCircular 21, Series of 1994

Alleging that his civil service eligibility was rendered ineffective and that he was consequently deprived of a property right without due process,[45] petitioner challenges the constitutionality of CSC Memorandum Circular 21, s. 1994. [46] The pertinent part of this Circular reads:

“1. Positions Covered by the Career Executive Service.

“(a) The Career Executive Service includes the positions of Undersecretary, Assistant Secretary, Bureau Director, Assistant Bureau Director, Regional Director (department-wide and bureau-wide), Assistant Regional Director (department-wide and bureau-wide) and Chief of Department Service[.]

“(b) In addition to the above identified positions and other positions of the same category which had been previously classified and included in the CES, all other third level positions in all branches and instrumentalities of the national government, including government-owned or controlled corporations with original charters are embraced within the Career Executive Service provided that they meet the following criteria:

“1. the position is a career position;

“2. the position is above division chief level;

“3. the duties and responsibilities of the position require the performance of executive or managerial functions.”

x x x x x x x x x

“4. Status of Appointment of Incumbents of Positions Under the Coverage of the CES . Incumbents of positions which are declared to be Career Executive Service positions for the first time pursuant to this Resolution who hold permanent appointments thereto shall remain under permanent status in their respective positions. However, upon promotion or transfer to other Career Executive Service (CES) positions, these incumbents shall be under temporary status in said other CES positions until they qualify.”

Petitioner argues that his eligibility, through the Executive Leadership and Management (ELM) training program, could no longer be affected by a new eligibility requirement. He claims that he was eligible for his previous position as department manager of the Legal Services Department, PEZA; hence, he should retain his eligibility for the position of department manager III, Labor and Employment Center, SBMA, notwithstanding the classification of the latter as a CES position.

CSC Authorized to IssueRules and Regulations

The Constitution mandates that, as “the central personnel agency of the government,” [47] the CSC should “establish a career service and adopt measures to promote the morale, efficiency, integrity, responsiveness, progressiveness, and courtesy in the Civil Service.”[48] It further requires that appointments in the civil service be made only through merit and fitness to be determined by competitive examination.[49] Civil Service laws have expressly empowered the CSC to issue and enforce rules and regulations to carry out its mandate.

In the exercise of its authority, the CSC deemed it appropriate to clearly define and identify positions covered by the Career Executive Service.[50] Logically, the CSC had to issue guidelines to meet this objective, specifically through the issuance of the challenged Circular.

Career ServiceClassified by Levels

Positions in the career service, for which appointments require examinations, are grouped into three major levels:

“(a) The first level shall include clerical, trades, crafts, and custodial service positions which involve non-professional or sub[-]professional work in a non-supervisory or supervisory capacity requiring less than four years of collegiate studies;

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“(b) The second level shall include professional, technical, and scientific positions which involve professional, technical, or scientific work in a non-supervisory or supervisory capacity requiring at least four years of college work up to Division Chief level; and

“(c) The third level shall cover positions in the Career Executive Service.” [51]

Entrance to the different levels requires the corresponding civil service eligibility. Those in the third level (CES positions) require Career Service Executive Eligibility (CSEE) as a requirement for permanent appointment. [52]

The challenged Circular did not revoke petitioner’s ELM eligibility. He was appointed to a CES position; however, his eligibility was inadequate. Eligibility must necessarily conform to the requirements of the position, which in petitioner’s case was a CSEE.

Rights Protected

The challenged Circular protects the rights of incumbents as long as they remain in the positions to which they were previously appointed. They are allowed to retain their positions in a permanent capacity, notwithstanding the lack of CSEE. Clearly, the Circular recognizes the rule of prospectivity of regulations; [53] hence, there is no basis to argue that it is an ex post facto law[54]or a bill of attainder.[55] These terms, which have settled meanings in criminal jurisprudence, are clearly inapplicable here.

The government service of petitioner ended when he retired in 1996; thus, his right to remain in a CES position, notwithstanding his lack of eligibility, also ceased. Upon his reemployment[56]years later as department manager III at SBMA in 2001, it was necessary for him to comply with the eligibility prescribed at the time for that position.

Security of TenureNot Impaired

The argument of petitioner that his security of tenure is impaired is unconvincing. First, security of tenure in the Career Executive Service -- except in the case of first and second level employees in the civil service -- pertains only to rank, not to the position to which the employee may be appointed. [57] Second, petitioner had neither rank nor position prior to his reemployment. One cannot claim security of tenure if one held no tenure prior to appointment.

Due ProcessNot Violated

Petitioner contends that his due process rights, as enunciated in Ang Tibay v. Court of Appeals,[58] were violated.[59] We are not convinced. He points in particular to the CSC’s alleged failure to notify him of a hearing relating to the issuance of the challenged Circular.

The classification of positions in career service was a quasi-legislative, not a quasi-judicial, issuance. This distinction determines whether prior notice and hearing are necessary.

In exercising its quasi-judicial function, an administrative body adjudicates the rights of persons before it, in accordance with the standards laid down by the law.[60] The determination of facts and the applicable law, as basis for official action and the exercise of judicial discretion, are essential for the performance of this function. [61] On these considerations, it is elementary that due process requirements, as enumerated in Ang Tibay, must be observed. These requirements include prior notice and hearing.[62]

On the other hand, quasi-legislative power is exercised by administrative agencies through the promulgation of rules and regulations within the confines of the granting statute and the doctrine of non-delegation of certain powers flowing from the separation of the great branches of the government. [63] Prior notice to and hearing of every affected party, as elements of due process, are not required since there is no determination of past events or facts that have to be established or ascertained. As a general rule, prior notice and hearing are not essential to the validity of rules or regulations promulgated to govern future conduct.[64]

Significantly, the challenged Circular was an internal matter addressed to heads of departments, bureaus and agencies. It needed no prior publication, since it had been issued as an incident of the administrative body’s power to issue guidelines for government officials to follow in performing their duties.[65]

Final Issue:Disapproval of Appointment

Since petitioner had no CES eligibility, the CSC correctly denied his permanent appointment. The appointee need not have been previously heard, because the nature of the action did not involve the imposition of an administrative disciplinary measure.[66] The CSC, in approving or disapproving an appointment, merely examines the conformity of the appointment with the law and the appointee’s possession of all the minimum qualifications and none of the disqualification. [67]

In sum, while petitioner was able to demonstrate his standing to appeal the CSC Resolutions to the courts, he failed to prove his eligibility to the position he was appointed to.

WHEREFORE, the Petition is GRANTED insofar as it seeks legal standing for petitioner, but DENIED insofar as it prays for the reversal of the CSC Resolutions disapproving his appointment as department manager III of the Labor and Employment Center, Subic Bay Metropolitan Authority. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Carpio-Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, and Garcia, JJ., concur.

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Corona, J., on leave.[1] Rollo, pp. 18-39.

[2] Id., pp. 7-13. Third Division. Penned by Justice Marina L. Buzon, with the concurrence of Justices Buenaventura J. Guerrero (Division chair) and Alicia L. Santos (member).

[3] Id., pp. 14-15.

[4] Assailed Decision, p. 6; rollo, p. 12.

[5] Id., pp. 1-5 & 7-11.

[6] Id., pp. 5-6 & 11-12 (citing People v. Pinca, 376 Phil. 377, November 17, 1999).

[7] 371 Phil. 17, August 9, 1999.

[8] Assailed Decision, p. 5; rollo, p. 11.

[9] Assailed Resolution, p. 2; rollo, p. 15.

[10] This case was deemed submitted for decision on July 23, 2003, upon this Court’s receipt of the Office of the Solicitor General’s Memorandum, signed by Assistant Solicitor General Renan E. Ramos and Associate Solicitor Tomas D. Tagra Jr. Respondent CSC’s Memorandum, signed by Director Engelbert Anthony D. Unite and Atty. Bonifacio O. Tarenio Jr., was filed on June 30, 2003. Petitioner’s Memorandum, signed by Attys. A.B.F. Gaviola Jr. and Marie Josephine C. Suarez, was filed on July 3, 2003.

[11] Petitioner’s Memorandum, pp. 8-9; rollo, pp. 185-186. Original in upper case.

[12] Petitioner’s Memorandum, p. 9; rollo, p. 186.

[13] §27, Title I, Book V, EO 292, “The Administrative Code of 1987”; Chua v. Civil Service Commission, February 7, 1992, 206 SCRA 65; Achacoso v. Macaraig , 195 SCRA 235, 239, March 31, 1991. In contrast, a temporary appointment is one made to fill a vacancy in the absence of appropriate eligibles (ibid.).

[14] Ferrer v. Hechanova, 125 Phil. 524, 528, January 25, 1967.

[15] Umoso v. Civil Service Commission, 234 SCRA 617, 623, July 29, 1994; Español v. Civil Service Commission, 206 SCRA 715, 721, March 3, 1992.

[16] Tomali v. Civil Service Commission, 238 SCRA 572, 576, December 1, 1994.

[17] Tomali v. Civil Service Commission, Id., p. 575; Mitra v. Subido, 128 Phil. 128, 143, September 15, 1967. See also Cortez v. Civil Service Commission, 195 SCRA 216; 222, March 13, 1991.

[18] PD 807, “The Civil Service Law,” promulgated October 6, 1975. Title I, Book V, EO 292, also provides:

“Section 12 Powers and Functions. — The Commission shall have the following powers and functions:

“x x x x x x x x x

“(2) Prescribe, amend and enforce rules and regulations for carrying into effect the provisions of the Civil Service Law and other pertinent laws”

[19] Aquino v. Civil Service Commission, 208 SCRA 240, 247, April 22, 1992; Mitra v. Subido, supra.

[20] Guieb v. Civil Service Commission, 229 SCRA 779, February 9, 1994; Lapinid v. Civil Service Commission, supra, p. 388; Central Bank of the Philippines v. Civil Service Commission, 171 SCRA 744, 752, April 10, 1989; Luego v. Civil Service Commission, supra, p. 333.

[21] Sevilla v. Parina, 128 Phil. 639, 643, October 30, 1967; Manalang v. Quitoriano, 94 Phil. 903, 911, April 30, 1954.

[22] 227 Phil. 303, August 5, 1986.

[23] Id., p. 307. See also Rimonte v. Civil Service Commission, 314 Phil. 421, 430, May 29, 1995.

[24] Lapinid v. Civil Service Commission, 274 Phil. 381, 387, May 14, 1991, per Cruz J. See also Jimenez v. Francisco, 100 Phil. 1025, 1032, February 28, 1957; Branganza v. Commission on Elections, 127 Phil. 442, 447, August 15, 1967.

[25] Lapinid v. Civil Service Commission, supra; Amponin v. Commission on Elections, 128 Phil. 412, 415, September 29, 1967.

[26] Sevilla v. Parina, supra; Manalang v. Quitoriano, supra. See also Torio v. Civil Service Commission, 209 SCRA 677, 691, June 9, 1992; Medalla v. Sto. Tomas, 208 SCRA 351, 357, May 5, 1992.

[27] 171 SCRA 744, 756, April 10, 1989.

[28] Id., p. 757, per Gancayco, J.

[29] Ibid.

[30] See Civil Service Commission v. Dacoycoy, 366 Phil. 86, 104, April 29, 1999.

[31] 316 Phil. 652, July 17, 1995

[32] Id., pp. 695-696, per Mendoza, J. See also Agan v. Philippine International Air Terminals Co., Inc., GR No. 155001, January 21, 2004.

[33] This Court has recognized that while public office is not property to which one may acquire a vested right, it is nevertheless a protected right. Bince Jr. v. Commission on Elections, 218 SCRA 782, 792, February 9, 1993 (citing Cruz, I.A., Constitutional Law [1991], 101; and Bernas, J., The Constitution of the Republic of the Philippines [1987], Vol. 1, 40).

According to existing jurisprudence, protection begins upon the favorable action of the CSC. Thus, no title to the office may be permanently vested in favor of the appointee without the favorable approval of the CSC. Until it has become a completed act through the CSC’s approval, an appointment can still be recalled or withdrawn by the appointing authority (Grospe v. Secretary of Public Works & Communications, 105 Phil. 129, 133, January 31, 1959). It would likewise be precipitate to invoke the rule on security of tenure or to claim a vested right over the position ( Tomali v. Civil Service Commission, supra, p. 576. See also Corpuz v. Court of Appeals, 348 Phil. 801, 812, January 26, 1998).

[34] §2, Rule 3, Rules of Court; Agan v. Philippine International Air Terminals Co., Inc., GR No. 155001 , January 21, 2004; Kilosbayan v. Morato, 316 Phil. 652, 697, July 17, 1995; Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131, January 31, 1951.

[35] Mathay v. Court of Appeals, 378 Phil. 466, 482, December 15, 1999; Ralla v. Ralla, 199 SCRA 495, 499, July 23, 1991; Guinobatan Historical and Cultural Association v. CFI, 182 SCRA 256, 262, February 15, 1990.

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[36] De Leon v. Court of Appeals, 343 Phil. 254, 265, August 15, 1997 (citing Manuel V. Moran, 1 Commentaries on the Rules of Court 154 [1979]).

[37] Mathay v. Court of Appeals, supra; Ralla v. Ralla, supra.

[38] Issued August 31, 1999. This Resolution governs disciplinary and non-disciplinary proceedings in administrative cases.

[39] Pertinent portions of the Resolution reads:

“Section 6. Jurisdiction of Civil Service Regional Offices. -The Civil Service Commission Regional Offices shall have jurisdiction over the following cases:

“x x x

“B. Non-Disciplinary

“1. Disapproval of appointments brought before it on appeal;

“x x x”

“Section 5. Jurisdiction of the Civil Service Commission Proper. -The Civil Service Commission Proper shall have jurisdiction over the following cases:

“B. Non-Disciplinary

“1. Decisions of Civil Service Commission Regional Offices brought before it;

x x x”

“Section 71. Complaint or Appeal to the Commission. -Other personnel actions, such as, but not limited to, x x x action on appointments (disapproval, invalidation, recall, and revocation) x x x, may be brought to the Commission, by way of an appeal.”

“Section 72. When and Where to File. -A decision or ruling of a department or agency may be appealed within fifteen (15) days from receipt thereof by the party adversely affected to the Civil Service Regional Office and finally, to the Commission Proper within the same period. x x x”

[40] Supra.

[41] Then Item I (3) of Memorandum Circular 38, s. 1993. Id., pp. 26-27.

[42] Id., pp. 26-28.

[43] Ibid. §1, Rule 65 of the Rules of Court, states that a petition for certiorari may be availed of when a tribunal, a board or an officer has acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law.

[44] §4, paragraph (3), Article VIII of the Constitution, states: “No doctrine or principle of law laid down by the Court in a decision rendered en banc or in division may be modified or reversed except by the Court sitting en banc.”

[45] Petitioner’s Memorandum, p. 14; rollo, p. 191.

[46] The Memorandum Circular, addressed to “All Heads of Departments, Bureaus and Agencies of the National and Local Government including Government-Owned and Controlled Corporations and State Colleges and Universities,” was issued pursuant to CSC Resolution 94-2925, dated May 31, 1994.

[47] §3, Article IX-B.

[48] Ibid.

[49] §2, paragraph 2, Article IX-B. Recognized in §5, PD 807 and §7, Title I, Book V, EO 292.

[50] Whereas Clause, CSC Resolution 94-2925, dated May 31, 1994.

[51] §8, Title I, Book V, EO 292; §7, PD 807. See also CSC Resolution 94-2925.

[52] Memorandum Circular 37, s. 1998, dated October 20, 1998; Memorandum Circular 1, s. 1997, dated January 24, 1997.

[53] Article 4 of the Civil Code states: “Laws shall have no retroactive effect, unless the contrary is provided.”

[54] An ex post facto law is one (1) which criminalizes an action that was done before the passing of the law and that was innocent when done, and punishes such action; (2) which aggravates a crime or makes it greater than when it was committed; (3) which changes the punishment and inflicts a greater punishment than that imposed by the law annexed to the crime when it was committed; or (4) which alters the legal rules of evidence and receives less or different testimony than that which the law required at the time of the commission of the offense in order to convict the defendant. Nuñez v. Sandiganbayan, 111 SCRA 433, 447-448, January 30, 1982. See alsoPeople v. Sandiganbayan, 211 SCRA 241, 249, July 3, 1992.

[55] A bill of attainder is a legislative act that inflicts punishment on individuals without judicial trial. Misolas v. Panga, 181 SCRA 648, 659, January 30, 1990.

[56] Reemployment is defined as “the reappointment of a person who has been previously appointed to a position in the career or non-career service and was separated therefrom as a result of reduction in force, reorganization, retirement, voluntary resignation, non-disciplinary actions such as dropping from the rolls and other modes of separation. Reemployment presupposes a gap in the service.” Memorandum Circular 15, s. 1999, dated August 27, 1999, amending Memorandum Circular 40, s. 1998.

[57] General v. Roco, 350 SCRA 528, 533, January 29, 2001; Cuevas v. Bacal, 347 SCRA 338, 351, December 6, 2000.

[58] 69 Phil. 635, 624-644, February 27, 1940. The cardinal primary requirements that must be respected in administrative proceedings are as follows: (1) there must be a right to a hearing, including the right to present one’s case and submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the decision must have something to support itself; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence presented at the hearing or at least contained in the record and disclosed to the parties affected; (6) the tribunal must act on its own consideration of the law and the facts of the controversy, and not simply accept the views of a subordinate in arriving at a decision; and (7) the tribunal should render its decision in such a manner that one can know the various issues involved and the reasons for the decision rendered.

[59] Petitioner’s Memorandum, p. 15; rollo, p. 192.

[60] Commissioner of Internal Revenue v. Court of Appeals, 329 Phil. 987, 1018, August 29, 1996.

[61] Villarosa v. Commission on Elections, 377 Phil. 497, 506, November 29, 1999.

[62] See Vigan Electric Light Co., Inc. v. Public Service Commission, 119 Phil. 304, 313, January 30, 1964.

[63] Commissioner of Internal Revenue v. Court of Appeals; supra, p. 1019.

8

[64] Corona v. United Harbor Pilots Association of the Philippines, 347 Phil. 333, 342, December 12, 1997; Philippine Consumers Foundation, Inc. v. Secretary of Education, Culture and Sports, 153 SCRA 622, 628, August 31, 1987. Taxicab Operators of Metro Manila, Inc. v. Board of Transportation , 202 Phil. 925, 934, September 30, 1982; Central Bank of the Philippines v. Cloribel, 150-A Phil. 86, 101, April 11, 1972.

[65] Tañada v. Tuvera, 230 Phil. 528, 535, December 29, 1986. See also Commissioner of Internal Revenue v. Court of Appeals, supra, p. 1018. At any rate, Memorandum Circular 21, s. 1994, was allegedly published in the Manila Standard on June 14, 1994. CSC’s Memorandum, p. 21; rollo, p. 165.

[66] Debulgado v. Civil Service Commission, 237 SCRA 184, 199, September 26, 1994.

[67] Ibid.

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. 84818 December 18, 1989PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.JOSE LUIS A. ALCUAZ, as NTC Commissioner, and NATIONAL TELECOMMUNICATIONS COMMISSION,respondents.

Rilloraza, Africa, De Ocampo & Africa for petitioner.Victor de la Serna for respondent Alcuaz.

REGALADO, J.:

This case is posed as one of first impression in the sense that it involves the public utility services of the petitioner Philippine Communications Satellite Corporation (PHILCOMSAT, for short) which is the only one rendering such services in the Philippines.

The petition before us seeks to annul and set aside an Order 1 issued by respondent Commissioner Jose Luis Alcuaz of the National Telecommunications Commission (hereafter, NTC), dated September 2, 1988, which directs the provisional reduction of the rates which may be charged by petitioner for certain specified lines of its services by fifteen percent (15%) with the reservation to make further reductions later, for being violative of the constitutional prohibition against undue delegation of legislative power and a denial of procedural, as well as substantive, due process of law.

The antecedental facts as summarized by petitioner 2 are not in dispute. By virtue of Republic Act No. 5514, PHILCOMSAT was granted "a franchise to establish, construct, maintain and operate in the Philippines, at such places as the grantee may select, station or stations and associated equipment and facilities for international satellite communications." Under this franchise, it was likewise granted the authority to "construct and operate such ground facilities as needed to deliver telecommunications services from the communications satellite system and ground terminal or terminals."

Pursuant to said franchise, petitioner puts on record that it undertook the following activities and established the following installations:

1. In 1967, PHILCOMSAT established its provisional earth station in Pinugay, Rizal.

2. In 1968, earth station standard "A" antenna (Pinugay I) was established. Pinugay I provided direct satellite communication links with the Pacific Ocean Region (the United States, Australia, Canada, Hawaii, Guam, Korea, Thailand, China [PROC], New Zealand and Brunei) thru the Pacific Ocean INTELSAT satellite.

3. In 1971, a second earth station standard "A" antenna(Pinugay III) was established. Pinugay II provided links with the Indian Ocean Region (major cities in Europe, Middle East, Africa, and other Asia Pacific countries operating within the region) thru the Indian Ocean INTELSAT satellite.

4. In 1983, a third earth station standard "B" antenna (Pinugay III) was established to temporarily assume the functions of Pinugay I and then Pinugay II while they were being refurbished. Pinugay III now serves as spare or reserved antenna for possible contingencies.

5. In 1983, PHILCOMSAT constructed and installed a standard "B" antenna at Clark Air Field, Pampanga as a television receive-only earth station which provides the U.S. Military bases with a 24-hour television service.

6. In 1989, petitioner completed the installation of a third standard "A" earth station (Pinugay IV) to take over the links in Pinugay I due to obsolescence. 3

By designation of the Republic of the Philippines, the petitioner is also the sole signatory for the Philippines in the Agreement and the Operating Agreement relating to the International Telecommunications Satellite Organization (INTELSAT) of 115 member nations, as well as in the Convention and the Operating Agreement of the International Maritime Satellite Organization (INMARSAT) of 53 member nations, which two global commercial telecommunications satellite corporations were collectively established by various states in line with the principles set forth in Resolution 1721 (XVI) of the General Assembly of the United Nations.

Since 1968, the petitioner has been leasing its satellite circuits to:1. Philippine Long Distance Telephone Company;2. Philippine Global Communications, Inc.;3. Eastern Telecommunications Phils., Inc.;4. Globe Mackay Cable and Radio Corp. ITT; and

9

5. Capitol Wireless, Inc.; or their predecessors-in-interest. The satellite services thus provided by petitioner enable said international carriers to serve the public with indispensable communication services, such as overseas telephone, telex, facsimile, telegrams, high speed data, live television in full color, and television standard conversion from European to American or vice versa.Under Section 5 of Republic Act No. 5514, petitioner was exempt from the jurisdiction of the then Public Service Commission, now respondent NTC. However, pursuant to Executive Order No. 196 issued on June 17, 1987, petitioner was placed under the jurisdiction, control and regulation of respondent NTC, including all its facilities and services and the fixing of rates. Implementing said Executive Order No. 196, respondents required petitioner to apply for the requisite certificate of public convenience and necessity covering its facilities and the services it renders, as well as the corresponding authority to charge rates therefor.

Consequently, under date of September 9, 1987, petitioner filed with respondent NTC an application 4 for authority to continue operating and maintaining the same facilities it has been continuously operating and maintaining since 1967, to continue providing the international satellite communications services it has likewise been providing since 1967, and to charge the current rates applied for in rendering such services. Pending hearing, it also applied for a provisional authority so that it can continue to operate and maintain the above mentioned facilities, provide the services and charge therefor the aforesaid rates therein applied for.

On September 16, 1987, petitioner was granted a provisional authority to continue operating its existing facilities, to render the services it was then offering, and to charge the rates it was then charging. This authority was valid for six (6) months from the date of said order. 5 When said provisional authority expired on March 17, 1988, it was extended for another six (6) months, or up to September 16, 1988.

The NTC order now in controversy had further extended the provisional authority of the petitioner for another six (6) months, counted from September 16, 1988, but it directed the petitioner to charge modified reduced rates through a reduction of fifteen percent (15%) on the present authorized rates. Respondent Commissioner ordered said reduction on the following ground:

The Commission in its on-going review of present service rates takes note that after an initial evaluation by the Rates Regulation Division of the Common Carriers Authorization Department of the financial statements of applicant, there is merit in a REDUCTION in some of applicant's rates, subject to further reductions, should the Commission finds (sic) in its further evaluation that more reduction should be effected either on the basis of a provisional authorization or in the final consideration of the case. 6

PHILCOMSAT assails the above-quoted order for the following reasons:

1. The enabling act (Executive Order No. 546) of respondent NTC empowering it to fix rates for public service communications does not provide the necessary standards constitutionally required, hence there is an undue delegation of legislative power, particularly the adjudicatory powers of NTC;

2. Assuming arguendo that the rate-fixing power was properly and constitutionally conferred, the same was exercised in an unconstitutional manner, hence it is ultra vires, in that (a) the questioned order violates procedural due process for having been issued without prior notice and hearing; and (b) the rate reduction it imposes is unjust, unreasonable and confiscatory, thus constitutive of a violation of substantive due process.

I. Petitioner asseverates that nowhere in the provisions of Executive Order No. 546, providing for the creation of respondent NTC and granting its rate-fixing powers, nor of Executive Order No. 196, placing petitioner under the jurisdiction of respondent NTC, can it be inferred that respondent NTC is guided by any standard in the exercise of its rate-fixing and adjudicatory powers. While petitioner in its petition-in-chief raised the issue of undue delegation of legislative power, it subsequently clarified its said submission to mean that the order mandating a reduction of certain rates is undue delegation not of legislative but of quasi-judicial power to respondent NTC, the exercise of which allegedly requires an express conferment by the legislative body.

Whichever way it is presented, petitioner is in effect questioning the constitutionality of Executive Orders Nos. 546 and 196 on the ground that the same do not fix a standard for the exercise of the power therein conferred.

We hold otherwise.

Fundamental is the rule that delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature in making the delegation has prescribed the manner of the exercise of the delegated power. Therefore, when the administrative agency concerned, respondent NTC in this case, establishes a rate, its act must both be non- confiscatory and must have been established in the manner prescribed by the legislature; otherwise, in the absence of a fixed standard, the delegation of power becomes unconstitutional. In case of a delegation of rate-fixing power, the only standard which the legislature is required to prescribe for the guidance of the administrative authority is that the rate be reasonable and just. However, it has been held that even in the absence of an express requirement as to reasonableness, this standard may be implied. 7

It becomes important then to ascertain the nature of the power delegated to respondent NTC and the manner required by the statute for the lawful exercise thereof.

Pursuant to Executive Orders Nos. 546 and 196, respondent NTC is empowered, among others, to determine and prescribe rates pertinent to the operation of public service communications which necessarily include the power to promulgate rules and regulations in connection therewith. And, under Section 15(g) of Executive Order No. 546, respondent NTC should be guided by the requirements of public safety, public interest and reasonable feasibility of maintaining effective competition of private entities in communications and broadcasting facilities. Likewise, in Section 6(d) thereof, which provides for the creation of the Ministry of Transportation and Communications with control and supervision over respondent NTC, it is specifically provided that the national economic viability of the entire network or components of the communications systems contemplated therein should be maintained at reasonable rates. We need not go into an in-depth analysis of the pertinent provisions of the law in order to

10

conclude that respondent NTC, in the exercise of its rate-fixing power, is limited by the requirements of public safety, public interest, reasonable feasibility and reasonable rates, which conjointly more than satisfy the requirements of a valid delegation of legislative power.

II. On another tack, petitioner submits that the questioned order violates procedural due process because it was issued motu proprio, without notice to petitioner and without the benefit of a hearing. Petitioner laments that said order was based merely on an "initial evaluation," which is a unilateral evaluation, but had petitioner been given an opportunity to present its side before the order in question was issued, the confiscatory nature of the rate reduction and the consequent deterioration of the public service could have been shown and demonstrated to respondents. Petitioner argues that the function involved in the rate fixing-power of NTC is adjudicatory and hence quasi-judicial, not quasi- legislative; thus, notice and hearing are necessary and the absence thereof results in a violation of due process.

Respondents admit that the application of a policy like the fixing of rates as exercised by administrative bodies is quasi-judicial rather than quasi-legislative: that where the function of the administrative agency is legislative, notice and hearing are not required, but where an order applies to a named person, as in the instant case, the function involved is adjudicatory. 8 Nonetheless, they insist that under the facts obtaining the order in question need not be preceded by a hearing, not because it was issued pursuant to respondent NTC's legislative function but because the assailed order is merely interlocutory, it being an incident in the ongoing proceedings on petitioner's application for a certificate of public convenience; and that petitioner is not the only primary source of data or information since respondent is currently engaged in a continuing review of the rates charged.

We find merit in petitioner's contention.

In Vigan Electric Light Co., Inc. vs. Public Service Commission, 9 we made a categorical classification as to when the rate-filing power of administrative bodies is quasi-judicial and when it is legislative, thus:

Moreover, although the rule-making power and even the power to fix rates- when such rules and/or rates are meant to apply to all enterprises of a given kind throughout the Philippines-may partake of a legislative character, such is not the nature of the order complained of. Indeed, the same applies exclusively to petitioner herein. What is more, it is predicated upon the finding of fact-based upon a report submitted by the General Auditing Office-that petitioner is making a profit of more than 12% of its invested capital, which is denied by petitioner. Obviously, the latter is entitled to cross-examine the maker of said report, and to introduce evidence to disprove the contents thereof and/or explain or complement the same, as well as to refute the conclusion drawn therefrom by the respondent. In other words, in making said finding of fact, respondent performed a function partaking of a quasi-judicial character, the valid exercise of which demands previous notice and hearing.

This rule was further explained in the subsequent case of The Central Bank of the Philippines vs. Cloribel, et al. 10to wit:

It is also clear from the authorities that where the function of the administrative body is legislative, notice of hearing is not required by due process of law (See Oppenheimer, Administrative Law, 2 Md. L.R. 185, 204, supra, where it is said: 'If the nature of the administrative agency is essentially legislative, the requirements of notice and hearing are not necessary. The validity of a rule of future action which affects a group, if vested rights of liberty or property are not involved, is not determined according to the same rules which apply in the case of the direct application of a policy to a specific individual) ... It is said in 73 C.J.S. Public Administrative Bodies and Procedure, sec. 130, pages 452 and 453: 'Aside from statute, the necessity of notice and hearing in an administrative proceeding depends on the character of the proceeding and the circumstances involved. In so far as generalization is possible in view of the great variety of administrative proceedings, it may be stated as a general rule that notice and hearing are not essential to the validity of administrative action where the administrative body acts in the exercise of executive, administrative, or legislative functions; but where a public administrative body acts in a judicial or quasi-judicial matter, and its acts are particular and immediate rather than general and prospective, the person whose rights or property may be affected by the action is entitled to notice and hearing. 11

The order in question which was issued by respondent Alcuaz no doubt contains all the attributes of a quasi-judicial adjudication. Foremost is the fact that said order pertains exclusively to petitioner and to no other. Further, it is premised on a finding of fact, although patently superficial, that there is merit in a reduction of some of the rates charged- based on an initial evaluation of petitioner's financial statements-without affording petitioner the benefit of an explanation as to what particular aspect or aspects of the financial statements warranted a corresponding rate reduction. No rationalization was offered nor were the attending contingencies, if any, discussed, which prompted respondents to impose as much as a fifteen percent (15%) rate reduction. It is not far-fetched to assume that petitioner could be in a better position to rationalize its rates vis-a-vis the viability of its business requirements. The rates it charges result from an exhaustive and detailed study it conducts of the multi-faceted intricacies attendant to a public service undertaking of such nature and magnitude. We are, therefore, inclined to lend greater credence to petitioner's ratiocination that an immediate reduction in its rates would adversely affect its operations and the quality of its service to the public considering the maintenance requirements, the projects it still has to undertake and the financial outlay involved. Notably, petitioner was not even afforded the opportunity to cross-examine the inspector who issued the report on which respondent NTC based its questioned order.

At any rate, there remains the categorical admission made by respondent NTC that the questioned order was issued pursuant to its quasi-judicial functions. It, however, insists that notice and hearing are not necessary since the assailed order is merely incidental to the entire proceedings and, therefore, temporary in nature. This postulate is bereft of merit.

While respondents may fix a temporary rate pending final determination of the application of petitioner, such rate-fixing order, temporary though it may be, is not exempt from the statutory procedural requirements of notice and hearing, as well as the requirement of reasonableness. Assuming that such power is vested in NTC, it may not exercise the same in an arbitrary and confiscatory manner. Categorizing such an order as temporary in nature does not perforce entail the applicability of a different rule of statutory procedure than would otherwise be applied to any other order on the same matter unless otherwise provided by the applicable law. In the case at bar, the applicable statutory provision is Section 16(c) of the Public Service Act which provides:

11

Section 16. Proceedings of the Commission, upon notice and hearing the Commission shall have power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the limitations and exceptions mentioned and saving provisions to the contrary:

xxx xxx xxx(c) To fix and determine individual or joint rates, ... which shall be imposed, observed and followed thereafter by any public service; ...

There is no reason to assume that the aforesaid provision does not apply to respondent NTC, there being no limiting, excepting, or saving provisions to the contrary in Executive Orders Nos. 546 and 196.

It is thus clear that with regard to rate-fixing, respondent has no authority to make such order without first giving petitioner a hearing, whether the order be temporary or permanent, and it is immaterial whether the same is made upon a complaint, a summary investigation, or upon the commission's own motion as in the present case. That such a hearing is required is evident in respondents' order of September 16, 1987 in NTC Case No. 87-94 which granted PHILCOMSAT a provisional authority "to continue operating its existing facilities, to render the services it presently offers, and to charge the rates as reduced by them "under the condition that "(s)ubject to hearing and the final consideration of the merit of this application, the Commission may modify, revise or amend the rates ..." 12

While it may be true that for purposes of rate-fixing respondents may have other sources of information or data, still, since a hearing is essential, respondent NTC should act solely on the basis of the evidence before it and not on knowledge or information otherwise acquired by it but which is not offered in evidence or, even if so adduced, petitioner was given no opportunity to controvert.

Again, the order requires the new reduced rates to be made effective on a specified date. It becomes a final legislative act as to the period during which it has to remain in force pending the final determination of the case. 13An order of respondent NTC prescribing reduced rates, even for a temporary period, could be unjust, unreasonable or even confiscatory, especially if the rates are unreasonably low, since the utility permanently loses its just revenue during the prescribed period. In fact, such order is in effect final insofar as the revenue during the period covered by the order is concerned. Upon a showing, therefore, that the order requiring a reduced rate is confiscatory, and will unduly deprive petitioner of a reasonable return upon its property, a declaration of its nullity becomes inductible, which brings us to the issue on substantive due process.

III. Petitioner contends that the rate reduction is confiscatory in that its implementation would virtually result in a cessation of its operations and eventual closure of business. On the other hand, respondents assert that since petitioner is operating its communications satellite facilities through a legislative franchise, as such grantee it has no vested right therein. What it has is merely a privilege or license which may be revoked at will by the State at any time without necessarily violating any vested property right of herein petitioner. While petitioner concedes this thesis of respondent, it counters that the withdrawal of such privilege should nevertheless be neither whimsical nor arbitrary, but it must be fair and reasonable.

There is no question that petitioner is a mere grantee of a legislative franchise which is subject to amendment, alteration, or repeal by Congress when the common good so requires. 14 Apparently, therefore, such grant cannot be unilaterally revoked absent a showing that the termination of the operation of said utility is required by the common good.

The rule is that the power of the State to regulate the conduct and business of public utilities is limited by the consideration that it is not the owner of the property of the utility, or clothed with the general power of management incident to ownership, since the private right of ownership to such property remains and is not to be destroyed by the regulatory power. The power to regulate is not the power to destroy useful and harmless enterprises, but is the power to protect, foster, promote, preserve, and control with due regard for the interest, first and foremost, of the public, then of the utility and of its patrons. Any regulation, therefore, which operates as an effective confiscation of private property or constitutes an arbitrary or unreasonable infringement of property rights is void, because it is repugnant to the constitutional guaranties of due process and equal protection of the laws. 15

Hence, the inherent power and authority of the State, or its authorized agent, to regulate the rates charged by public utilities should be subject always to the requirement that the rates so fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. 16

What is a just and reasonable rate is not a question of formula but of sound business judgment based upon the evidence 17 it is a question of fact calling for the exercise of discretion, good sense, and a fair, enlightened and independent judgment. 18 In determining whether a rate is confiscatory, it is essential also to consider the given situation, requirements and opportunities of the utility. A method often employed in determining reasonableness is the fair return upon the value of the property to the public utility. Competition is also a very important factor in determining the reasonableness of rates since a carrier is allowed to make such rates as are necessary to meet competition. 19

A cursory perusal of the assailed order reveals that the rate reduction is solely and primarily based on the initial evaluation made on the financial statements of petitioner, contrary to respondent NTC's allegation that it has several other sources of information without, however, divulging such sources. Furthermore, it did not as much as make an attempt to elaborate on how it arrived at the prescribed rates. It just perfunctorily declared that based on the financial statements, there is merit for a rate reduction without any elucidation on what implications and conclusions were necessarily inferred by it from said statements. Nor did it deign to explain how the data reflected in the financial statements influenced its decision to impose a rate reduction.

On the other hand, petitioner may likely suffer a severe drawback, with the consequent detriment to the public service, should the order of respondent NTC turn out to be unreasonable and improvident. The business in which petitioner is engaged is unique in that its machinery and equipment have always to be taken in relation to the equipment on the other end of the transmission arrangement. Any lack, aging, acquisition, rehabilitation, or refurbishment of machinery and equipment necessarily entails a major adjustment or innovation on the business of petitioner. As pointed out by petitioner, any change in the sending end abroad

12

has to be matched with the corresponding change in the receiving end in the Philippines. Conversely, any in the receiving end abroad has to be matched with the corresponding change in the sending end in the Philippines. An inability on the part of petitioner to meet the variegations demanded be technology could result in a deterioration or total failure of the service of satellite communications.

At present, petitioner is engaged in several projects aimed at refurbishing, rehabilitating, and renewing its machinery and equipment in order to keep up with the continuing charges of the times and to maintain its facilities at a competitive level with the technological advances abroad. There projected undertakings were formulated on the premise that rates are maintained at their present or at reasonable levels. Hence, an undue reduction thereof may practically lead to a cessation of its business. While we concede the primacy of the public interest in an adequate and efficient service, the same is not necessarily to be equated with reduced rates. Reasonableness in the rates assumes that the same is fair to both the public utility and the consumer.

Consequently, we hold that the challenged order, particularly on the issue of rates provided therein, being violative of the due process clause is void and should be nullified. Respondents should now proceed, as they should heretofore have done, with the hearing and determination of petitioner's pending application for a certificate of public convenience and necessity and in which proceeding the subject of rates involved in the present controversy, as well as other matter involved in said application, be duly adjudicated with reasonable dispatch and with due observance of our pronouncements herein.

WHEREFORE, the writ prayed for is GRANTED and the order of respondents, dated September 2, 1988, in NTC Case No. 87-94 is hereby SET ASIDE. The temporary restraining order issued under our resolution of September 13, 1988, as specifically directed against the aforesaid order of respondents on the matter of existing rates on petitioner's present authorized services, is hereby made permanent.

SO ORDERED.

Fernan, (C.J.), Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes, Griño-Aquino and Medialdea, JJ., concur.Padilla, J., took no part. Separate Opinions

GUTIERREZ, JR., J., concurring:

I concur in the ponencia of Justice Regalado and join him in the erudite and thorough discussion of the respondent's authority. However, I have reservations about our continuing to abide by the dictum that in the exercise of quasi-legislative power, notice and hearing are not required. I believe that this doctrine is ripe for re- examination.

Senators and Congressmen are directly elected by the people. Administrative officials are not. If the members of an administrative body are, as is so often the case, appointed not on the basis of competence and qualifications but out of political or personal considerations, it is not only the sense of personal responsibility to the electorate affected by legislation which is missing. The expertise and experience needed for the issuance of sound rules and regulations would also be sorely lacking.Congress never passes truly important legislation without holding public hearings. Yet, administrative officials who are not directly attuned to the public pulse see no need for hearings. They issue rules and circulars with far reaching effects on our economy and our nation's future on the assumption that the head of an agency knows best what is good for the people. I believe that in the exercise of quasi-legislative powers, administrative agencies, much, much more than Congress, should hold hearings and should be given guidelines as to when notices and hearings are essential even in quasi-legislation.

Footnotes1 Annex A, Petition: Rollo, 37.2 Rollo, 6-11, 137-139, 148-150.3 Ibid., 149.4 Annex C, Petition; Rollo, 48.5 Annex B, Id., Ibid., 41.6 Rollo, 37.7 42 Am. Jur. 357-358.8 Memorandum for Private Respondents, 9-10; Rollo, 181- 182.9 SCRA 46 (1964).10 44 SCRA 30-7 (1972).11 Citing Albert vs. Public Service Commission, 120 A. 2d. 346, 350-351.12 Rollo, 44.13 William A. Predergast, et. al. vs. New York Tel. Co., 67 L. Ed. 853, 858.14 Sec. 11. Art. XII, 1987 Constitution.15 73 C.J.S 1005.16 Op. cit., 1010.17 State Public Utilities Commission ex. rel. City of Springfield vs. Springfield Gas & Electric Co., 125 N.E. 891.18 73 C.J.S. 1010.19 Manila Railroad Co. vs. A.L. Ammen Transportation Co., Inc., 48 Phil. 900 (1926).

EN BANC

ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS NETWORK,

INC. (ECN),Petitioners,

-versus-

DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL

POWER CORPORATION (NPC), POWER SECTOR

G.R. No. 159796

Present:

PUNO, C.J.,QUISUMBING,

YNARES-SANTIAGO,SANDOVAL-GUTIERREZ,

CARPIO,AUSTRIA-MARTINEZ,

13

ASSETS AND LIABILITIES MANAGEMENT GROUP (PSALM Corp.), STRATEGIC POWER UTILITIES

GROUP (SPUG), andPANAY ELECTRIC COMPANY INC. (PECO),Respondents.

CORONA,CARPIO MORALES,

AZCUNA,TINGA,

CHICO-NAZARIO,GARCIA,

VELASCO, JR. andNACHURA, JJ.

Promulgated:

July 17, 2007x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION NACHURA, J.: Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist Consumers Network, Inc. (ECN) (petitioners), come before this Court in this original action praying that Section 34 of Republic Act (RA) 9136, otherwise known as the “Electric Power Industry Reform Act of 2001” (EPIRA), imposing the Universal Charge, [1] and Rule 18 of the Rules and Regulations (IRR)[2] which seeks to implement the said imposition, be declared unconstitutional. Petitioners also pray that the Universal Charge imposed upon the consumers be refunded and that a preliminary injunction and/or temporary restraining order (TRO) be issued directing the respondents to refrain from implementing, charging, and collecting the said charge. [3] The assailed provision of law reads: SECTION 34. Universal Charge. — Within one (1) year from the effectivity of this Act, a universal charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-users for the following purposes: (a) Payment for the stranded debts[4] in excess of the amount assumed by the National Government and stranded contract costs of NPC[5] and as well as qualified stranded contract costs of distribution utilities resulting from the restructuring of the industry; (b) Missionary electrification;[6]

(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis-à-vis imported energy fuels; (d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed rehabilitation and management. Said fund shall be managed by NPC under existing arrangements; and (e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years. The universal charge shall be a non-bypassable charge which shall be passed on and collected from all end-users on a monthly basis by the distribution utilities. Collections by the distribution utilities and the TRANSCO in any given month shall be remitted to the PSALM Corp. on or before the fifteenth (15th) of the succeeding month, net of any amount due to the distribution utility. Any end-user or self-generating entity not connected to a distribution utility shall remit its corresponding universal charge directly to the TRANSCO. The PSALM Corp., as administrator of the fund, shall create a Special Trust Fund which shall be disbursed only for the purposes specified herein in an open and transparent manner. All amount collected for the universal charge shall be distributed to the respective beneficiaries within a reasonable period to be provided by the ERC. The Facts Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect.[7]

On April 5, 2002, respondent National Power Corporation-Strategic Power Utilities Group[8] (NPC-SPUG) filed with respondent Energy Regulatory Commission (ERC) a petition for the availment from the Universal Charge of its share for Missionary Electrification, docketed as ERC Case No. 2002-165.[9]

On May 7, 2002, NPC filed another petition with ERC, docketed as ERC Case No. 2002-194, praying that the proposed share from the Universal Charge for the Environmental charge of P0.0025 per kilowatt-hour (/kWh), or a total of P119,488,847.59, be approved for withdrawal from the Special Trust Fund (STF) managed by respondent Power Sector Assets and Liabilities Management Group (PSALM)[10] for the rehabilitation and management of watershed areas.[11] On December 20, 2002, the ERC issued an Order[12] in ERC Case No. 2002-165 provisionally approving the computed amount of P0.0168/kWh as the share of the NPC-SPUG from the Universal Charge for Missionary Electrification and authorizing the National Transmission Corporation (TRANSCO) and Distribution Utilities to collect the same from its end-users on a monthly basis. On June 26, 2003, the ERC rendered its Decision[13] (for ERC Case No. 2002-165) modifying its Order of December 20, 2002, thus:

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WHEREFORE, the foregoing premises considered, the provisional authority granted to petitioner National Power Corporation-Strategic Power Utilities Group (NPC-SPUG) in the Order dated December 20, 2002 is hereby modified to the effect that an additional amount of P0.0205 per kilowatt-hour should be added to the P0.0168 per kilowatt-hour provisionally authorized by the Commission in the said Order. Accordingly, a total amount of P0.0373 per kilowatt-hour is hereby APPROVED for withdrawal from the Special Trust Fund managed by PSALM as its share from the Universal Charge for Missionary Electrification (UC-ME) effective on the following billing cycles: (a) June 26-July 25, 2003 for National Transmission Corporation (TRANSCO); and(b) July 2003 for Distribution Utilities (Dus). Relative thereto, TRANSCO and Dus are directed to collect the UC-ME in the amount of P0.0373 per kilowatt-hour and remit the same to PSALM on or before the 15th day of the succeeding month. In the meantime, NPC-SPUG is directed to submit, not later than April 30, 2004, a detailed report to include Audited Financial Statements and physical status (percentage of completion) of the projects using the prescribed format. Let copies of this Order be furnished petitioner NPC-SPUG and all distribution utilities (Dus). SO ORDERED. On August 13, 2003, NPC-SPUG filed a Motion for Reconsideration asking the ERC, among others, [14] to set aside the above-mentioned Decision, which the ERC granted in its Order dated October 7, 2003, disposing: WHEREFORE, the foregoing premises considered, the “Motion for Reconsideration” filed by petitioner National Power Corporation-Small Power Utilities Group (NPC-SPUG) is hereby GRANTED. Accordingly, the Decision dated June 26, 2003 is hereby modified accordingly. Relative thereto, NPC-SPUG is directed to submit a quarterly report on the following: 1. Projects for CY 2002 undertaken;2. Location3. Actual amount utilized to complete the project;4. Period of completion;5. Start of Operation; and6. Explanation of the reallocation of UC-ME funds, if any. SO ORDERED.[15] Meanwhile, on April 2, 2003, ERC decided ERC Case No. 2002-194, authorizing the NPC to draw up to P70,000,000.00 from PSALM for its 2003 Watershed Rehabilitation Budget subject to the availability of funds for the Environmental Fund component of the Universal Charge.[16]

On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged petitioner Romeo P. Gerochi and all other end-users with the Universal Charge as reflected in their respective electric bills starting from the month of July 2003.[17]

Hence, this original action. Petitioners submit that the assailed provision of law and its IRR which sought to implement the same are unconstitutional on the following grounds: 1) The universal charge provided for under Sec. 34 of the EPIRA and sought to be implemented under Sec. 2, Rule 18 of the IRR of the said law is a tax which is to be collected from all electric end-users and self-generating entities. The power to tax is strictly a legislative function and as such, the delegation of said power to any executive or administrative agency like the ERC is unconstitutional, giving the same unlimited authority. The assailed provision clearly provides that the Universal Charge is to be determined, fixed and approved by the ERC, hence leaving to the latter complete discretionary legislative authority. 2) The ERC is also empowered to approve and determine where the funds collected should be used. 3) The imposition of the Universal Charge on all end-users is oppressive and confiscatory and amounts to taxation without representation as the consumers were not given a chance to be heard and represented. [18] Petitioners contend that the Universal Charge has the characteristics of a tax and is collected to fund the operations of the NPC. They argue that the cases[19] invoked by the respondents clearly show the regulatory purpose of the charges imposed therein, which is not so in the case at bench. In said cases, the respective funds [20] were created in order to balance and stabilize the prices of oil and sugar, and to act as buffer to counteract the changes and adjustments in prices, peso devaluation, and other variables which cannot be adequately and timely monitored by the legislature. Thus, there was a need to delegate powers to administrative bodies.[21] Petitioners posit that the Universal Charge is imposed not for a similar purpose. On the other hand, respondent PSALM through the Office of the Government Corporate Counsel (OGCC) contends that unlike a tax which is imposed to provide income for public purposes, such as support of the government, administration of the law, or payment of public expenses, the assailed Universal Charge is levied for a specific regulatory purpose, which is to ensure the viability of the country's electric power industry. Thus, it is exacted by the State in the exercise of its inherent police power.

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On this premise, PSALM submits that there is no undue delegation of legislative power to the ERC since the latter merely exercises a limited authority or discretion as to the execution and implementation of the provisions of the EPIRA. [22]

Respondents Department of Energy (DOE), ERC, and NPC, through the Office of the Solicitor General (OSG), share the same view that the Universal Charge is not a tax because it is levied for a specific regulatory purpose, which is to ensure the viability of the country's electric power industry, and is, therefore, an exaction in the exercise of the State's police power. Respondents further contend that said Universal Charge does not possess the essential characteristics of a tax, that its imposition would redound to the benefit of the electric power industry and not to the public, and that its rate is uniformly levied on electricity end-users, unlike a tax which is imposed based on the individual taxpayer's ability to pay. Moreover, respondents deny that there is undue delegation of legislative power to the ERC since the EPIRA sets forth sufficient determinable standards which would guide the ERC in the exercise of the powers granted to it. Lastly, respondents argue that the imposition of the Universal Charge is not oppressive and confiscatory since it is an exercise of the police power of the State and it complies with the requirements of due process.[23] On its part, respondent PECO argues that it is duty-bound to collect and remit the amount pertaining to the Missionary Electrification and Environmental Fund components of the Universal Charge, pursuant to Sec. 34 of the EPIRA and the Decisions in ERC Case Nos. 2002-194 and 2002-165. Otherwise, PECO could be held liable under Sec. 46[24]of the EPIRA, which imposes fines and penalties for any violation of its provisions or its IRR. [25]

The Issues The ultimate issues in the case at bar are: 1) Whether or not, the Universal Charge imposed under Sec. 34 of the EPIRA is a tax; and 2) Whether or not there is undue delegation of legislative power to tax on the part of the ERC. [26]

Before we discuss the issues, the Court shall first deal with an obvious procedural lapse. Petitioners filed before us an original action particularly denominated as a Complaint assailing the constitutionality of Sec. 34 of the EPIRA imposing the Universal Charge and Rule 18 of the EPIRA's IRR. No doubt, petitioners have locus standi. They impugn the constitutionality of Sec. 34 of the EPIRA because they sustained a direct injury as a result of the imposition of the Universal Charge as reflected in their electric bills. However, petitioners violated the doctrine of hierarchy of courts when they filed this “Complaint” directly with us. Furthermore, the Complaint is bereft of any allegation of grave abuse of discretion on the part of the ERC or any of the public respondents, in order for the Court to consider it as a petition for certiorari or prohibition. Article VIII, Section 5(1) and (2) of the 1987 Constitution[27] categorically provides that: SECTION 5. The Supreme Court shall have the following powers: 1. Exercise original jurisdiction over cases affecting ambassadors, other public ministers and consuls, and over petitions for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the rules of court may provide, final judgments and orders of lower courts in: (a) All cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. But this Court's jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas corpus, while concurrent with that of the regional trial courts and the Court of Appeals, does not give litigants unrestrained freedom of choice of forum from which to seek such relief.[28] It has long been established that this Court will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate courts, or where exceptional and compelling circumstances justify availment of a remedy within and call for the exercise of our primary jurisdiction. [29] This circumstance alone warrants the outright dismissal of the present action. This procedural infirmity notwithstanding, we opt to resolve the constitutional issue raised herein. We are aware that if the constitutionality of Sec. 34 of the EPIRA is not resolved now, the issue will certainly resurface in the near future, resulting in a repeat of this litigation, and probably involving the same parties. In the public interest and to avoid unnecessary delay, this Court renders its ruling now. The instant complaint is bereft of merit. The First Issue To resolve the first issue, it is necessary to distinguish the State’s power of taxation from the police power. The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency that is to pay it.[30] It is based on the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need.[31] Thus, the theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. [32]

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On the other hand, police power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property.[33] It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State. The justification is found in the Latin maxims salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others). As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers.[34] We have held that the power to "regulate" means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons.[35]

The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is made. If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. [36]

In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly its regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the purposes for which the Universal Charge is imposed[37] and which can be amply discerned as regulatory in character. The EPIRA resonates such regulatory purposes, thus: SECTION 2. Declaration of Policy. — It is hereby declared the policy of the State: (a) To ensure and accelerate the total electrification of the country;(b) To ensure the quality, reliability, security and affordability of the supply of electric power;(c) To ensure transparent and reasonable prices of electricity in a regime of free and fair competition and full public accountability to achieve greater operational and economic efficiency and enhance the competitiveness of Philippine products in the global market; (d) To enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors;(e) To ensure fair and non-discriminatory treatment of public and private sector entities in the process of restructuring the electric power industry; (f) To protect the public interest as it is affected by the rates and services of electric utilities and other providers of electric power;(g) To assure socially and environmentally compatible energy sources and infrastructure;(h) To promote the utilization of indigenous and new and renewable energy resources in power generation in order to reduce dependence on imported energy;(i) To provide for an orderly and transparent privatization of the assets and liabilities of the National Power Corporation (NPC);(j) To establish a strong and purely independent regulatory body and system to ensure consumer protection and enhance the competitive operation of the electricity market; and(k) To encourage the efficient use of energy and other modalities of demand side management. From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but an exaction in the exercise of the State's police power. Public welfare is surely promoted. Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police power.[38] In Valmonte v. Energy Regulatory Board, et al.[39] and in Gaston v. Republic Planters Bank,[40] this Court held that the Oil Price Stabilization Fund (OPSF) and the Sugar Stabilization Fund (SSF) were exactions made in the exercise of the police power. The doctrine was reiterated in Osmeña v. Orbos[41] with respect to the OPSF. Thus, we disagree with petitioners that the instant case is different from the aforementioned cases. With the Universal Charge, a Special Trust Fund (STF) is also created under the administration of PSALM.[42] The STF has some notable characteristics similar to the OPSF and the SSF, viz.: 1) In the implementation of stranded cost recovery, the ERC shall conduct a review to determine whether there is under-recovery or over recovery and adjust (true-up) the level of the stranded cost recovery charge. In case of an over-recovery, the ERC shall ensure that any excess amount shall be remitted to the STF. A separate account shall be created for these amounts which shall be held in trust for any future claims of distribution utilities for stranded cost recovery. At the end of the stranded cost recovery period, any remaining amount in this account shall be used to reduce the electricity rates to the end-users. [43]

2) With respect to the assailed Universal Charge, if the total amount collected for the same is greater than the actual availments against it, the PSALM shall retain the balance within the STF to pay for periods where a shortfall occurs. [44]

3) Upon expiration of the term of PSALM, the administration of the STF shall be transferred to the DOF or any of the DOF attached agencies as designated by the DOF Secretary.[45]

The OSG is in point when it asseverates: Evidently, the establishment and maintenance of the Special Trust Fund, under the last paragraph of Section 34, R.A. No. 9136, is well within the pervasive and non-waivable power and responsibility of the government to secure the physical and economic survival and well-being of the community, that comprehensive sovereign authority we designate as the police power of the State.[46]

This feature of the Universal Charge further boosts the position that the same is an exaction imposed primarily in pursuit of the State's police objectives. The STF reasonably serves and assures the attainment and perpetuity of the purposes for which the Universal Charge is imposed, i.e., to ensure the viability of the country's electric power industry. The Second Issue The principle of separation of powers ordains that each of the three branches of government has exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. A logical corollary to the doctrine of separation

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of powers is the principle of non-delegation of powers, as expressed in the Latin maxim potestas delegata non delegari potest (what has been delegated cannot be delegated). This is based on the ethical principle that such delegated power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the intervening mind of another. [47] In the face of the increasing complexity of modern life, delegation of legislative power to various specialized administrative agencies is allowed as an exception to this principle.[48] Given the volume and variety of interactions in today's society, it is doubtful if the legislature can promulgate laws that will deal adequately with and respond promptly to the minutiae of everyday life. Hence, the need to delegate to administrative bodies - the principal agencies tasked to execute laws in their specialized fields - the authority to promulgate rules and regulations to implement a given statute and effectuate its policies. All that is required for the valid exercise of this power of subordinate legislation is that the regulation be germane to the objects and purposes of the law and that the regulation be not in contradiction to, but in conformity with, the standards prescribed by the law. These requirements are denominated as the completeness test and the sufficient standard test. Under the first test, the law must be complete in all its terms and conditions when it leaves the legislature such that when it reaches the delegate, the only thing he will have to do is to enforce it. The second test mandates adequate guidelines or limitations in the law to determine the boundaries of the delegate's authority and prevent the delegation from running riot. [49]

The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34 thereof, is complete in all its essential terms and conditions, and that it contains sufficient standards. Although Sec. 34 of the EPIRA merely provides that “within one (1) year from the effectivity thereof, a Universal Charge to be determined, fixed and approved by the ERC, shall be imposed on all electricity end-users,” and therefore, does not state the specific amount to be paid as Universal Charge, the amount nevertheless is made certain by the legislative parameters provided in the law itself. For one, Sec. 43(b)(ii) of the EPIRA provides: SECTION 43. Functions of the ERC. — The ERC shall promote competition, encourage market development, ensure customer choice and penalize abuse of market power in the restructured electricity industry. In appropriate cases, the ERC is authorized to issue cease and desist order after due notice and hearing. Towards this end, it shall be responsible for the following key functions in the restructured industry:

x x x x(b) Within six (6) months from the effectivity of this Act, promulgate and enforce, in accordance with law, a National Grid Code and a Distribution Code which shall include, but not limited to the following:

x x x x(ii) Financial capability standards for the generating companies, the TRANSCO, distribution utilities and suppliers: Provided, That in the formulation of the financial capability standards, the nature and function of the entity shall be considered: Provided, further, That such standards are set to ensure that the electric power industry participants meet the minimum financial standards to protect the public interest. Determine, fix, and approve, after due notice and public hearings the universal charge, to be imposed on all electricity end-users pursuant to Section 34 hereof; Moreover, contrary to the petitioners’ contention, the ERC does not enjoy a wide latitude of discretion in the determination of the Universal Charge. Sec. 51(d) and (e) of the EPIRA[50] clearly provides: SECTION 51. Powers. — The PSALM Corp. shall, in the performance of its functions and for the attainment of its objective, have the following powers:

x x x x (d) To calculate the amount of the stranded debts and stranded contract costs of NPC which shall form the basis for ERC in the determination of the universal charge; (e) To liquidate the NPC stranded contract costs, utilizing the proceeds from sales and other property contributed to it, including the proceeds from the universal charge. Thus, the law is complete and passes the first test for valid delegation of legislative power. As to the second test, this Court had, in the past, accepted as sufficient standards the following: "interest of law and order;"[51] "adequate and efficient instruction;"[52]"public interest;"[53] "justice and equity;"[54] "public convenience and welfare;"[55] "simplicity, economy and efficiency;"[56] "standardization and regulation of medical education;"[57] and "fair and equitable employment practices."[58] Provisions of the EPIRA such as, among others, “to ensure the total electrification of the country and the quality, reliability, security and affordability of the supply of electric power” [59] and “watershed rehabilitation and management”[60] meet the requirements for valid delegation, as they provide the limitations on the ERC’s power to formulate the IRR. These are sufficient standards. It may be noted that this is not the first time that the ERC's conferred powers were challenged. In Freedom from Debt Coalition v. Energy Regulatory Commission,[61] the Court had occasion to say: In determining the extent of powers possessed by the ERC, the provisions of the EPIRA must not be read in separate parts. Rather, the law must be read in its entirety, because a statute is passed as a whole, and is animated by one general purpose and intent. Its meaning cannot to be extracted from any single part thereof but from a general consideration of the statute as a whole. Considering the intent of Congress in enacting the EPIRA and reading the statute in its entirety, it is plain to see that the law has expanded the jurisdiction of the regulatory body, the ERC in this case, to enable the latter to implement the reforms sought to be accomplished by the EPIRA. When the legislators decided to broaden the jurisdiction of the ERC, they did not intend to abolish or reduce the powers already conferred upon ERC's predecessors. To sustain the view that the ERC possesses only the powers and functions listed under Section 43 of the EPIRA is to frustrate the objectives of the law.

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In his Concurring and Dissenting Opinion[62] in the same case, then Associate Justice, now Chief Justice, Reynato S. Puno described the immensity of police power in relation to the delegation of powers to the ERC and its regulatory functions over electric power as a vital public utility, to wit: Over the years, however, the range of police power was no longer limited to the preservation of public health, safety and morals, which used to be the primary social interests in earlier times. Police power now requires the State to "assume an affirmative duty to eliminate the excesses and injustices that are the concomitants of an unrestrained industrial economy." Police power is now exerted "to further the public welfare — a concept as vast as the good of society itself." Hence, "police power is but another name for the governmental authority to further the welfare of society that is the basic end of all government." When police power is delegated to administrative bodies with regulatory functions, its exercise should be given a wide latitude. Police power takes on an even broader dimension in developing countries such as ours, where the State must take a more active role in balancing the many conflicting interests in society. The Questioned Order was issued by the ERC, acting as an agent of the State in the exercise of police power. We should have exceptionally good grounds to curtail its exercise. This approach is more compelling in the field of rate-regulation of electric power rates. Electric power generation and distribution is a traditional instrument of economic growth that affects not only a few but the entire nation. It is an important factor in encouraging investment and promoting business. The engines of progress may come to a screeching halt if the delivery of electric power is impaired. Billions of pesos would be lost as a result of power outages or unreliable electric power services. The State thru the ERC should be able to exercise its police power with great flexibility, when the need arises. This was reiterated in National Association of Electricity Consumers for Reforms v. Energy Regulatory Commission[63] where the Court held that the ERC, as regulator, should have sufficient power to respond in real time to changes wrought by multifarious factors affecting public utilities. From the foregoing disquisitions, we therefore hold that there is no undue delegation of legislative power to the ERC. Petitioners failed to pursue in their Memorandum the contention in the Complaint that the imposition of the Universal Charge on all end-users is oppressive and confiscatory, and amounts to taxation without representation. Hence, such contention is deemed waived or abandoned per Resolution[64] of August 3, 2004.[65] Moreover, the determination of whether or not a tax is excessive, oppressive or confiscatory is an issue which essentially involves questions of fact, and thus, this Court is precluded from reviewing the same.[66]

As a penultimate statement, it may be well to recall what this Court said of EPIRA: One of the landmark pieces of legislation enacted by Congress in recent years is the EPIRA. It established a new policy, legal structure and regulatory framework for the electric power industry. The new thrust is to tap private capital for the expansion and improvement of the industry as the large government debt and the highly capital-intensive character of the industry itself have long been acknowledged as the critical constraints to the program. To attract private investment, largely foreign, the jaded structure of the industry had to be addressed. While the generation and transmission sectors were centralized and monopolistic, the distribution side was fragmented with over 130 utilities, mostly small and uneconomic. The pervasive flaws have caused a low utilization of existing generation capacity; extremely high and uncompetitive power rates; poor quality of service to consumers; dismal to forgettable performance of the government power sector; high system losses; and an inability to develop a clear strategy for overcoming these shortcomings. Thus, the EPIRA provides a framework for the restructuring of the industry, including the privatization of the assets of the National Power Corporation (NPC), the transition to a competitive structure, and the delineation of the roles of various government agencies and the private entities. The law ordains the division of the industry into four (4) distinct sectors, namely: generation, transmission, distribution and supply.Corollarily, the NPC generating plants have to privatized and its transmission business spun off and privatized thereafter. [67]

Finally, every law has in its favor the presumption of constitutionality, and to justify its nullification, there must be a clear and unequivocal breach of the Constitution and not one that is doubtful, speculative, or argumentative. [68] Indubitably, petitioners failed to overcome this presumption in favor of the EPIRA. We find no clear violation of the Constitution which would warrant a pronouncement that Sec. 34 of the EPIRA and Rule 18 of its IRR are unconstitutional and void. WHEREFORE, the instant case is hereby DISMISSED for lack of merit. SO ORDERED. ANTONIO EDUARDO B. NACHURAAssociate Justice WE CONCUR: REYNATO S. PUNOChief Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO Associate Justice Associate Justice ANGELINA SANDOVAL-GUTIERREZ ANTONIO T. CARPIO Associate Justice Associate Justice MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA Associate Justice Associate Justice

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CONCHITA CARPIO MORALES ADOLFO S. AZCUNA Associate Justice Associate JusticeDANTE O. TINGA MINITA V. CHICO-NAZARIO Associate Justice Associate JusticeCANCIO C. GARCIA PRESBITERO J. VELASCO, JR. Associate Justice Associate Justice

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNOChief Justice

[1] Sec. 4 (ddd) of the EPIRA provides that the Universal Charge refers to the charge, if any, imposed for the recovery of the stranded cost and other purposes pursuant to Section 34 hereof.[2] Rules and Regulations to Implement Republic Act No. 9136, entitled "Electric Power Industry Reform Act of 2001, (IRR) approved on February 27, 2002, particularly Rule 4 (rrrr) provides that the "Universal Charge" refers to the charge, if any, imposed for the recovery of the Stranded Debts, Stranded Contract Costs of NPC, and Stranded Contract Costs of Eligible Contracts of Distribution Utilities and other purposes pursuant to Section 34 of the EPIRA.[3] Particularly denominated as Complaint dated September 15, 2003; rollo, pp. 3-15.[4] Sec. 4 [vv] of the EPIRA provides that Stranded Debts of NPC refer to any unpaid financial obligations of NPC which have not been liquidated by the proceeds from the sales and privatization of NPC assets.[5] Sec. 4 [uu] of the EPIRA also provides that Stranded contract costs of NPC or distribution utility refer to the excess of the contracted cost of electricity under eligible contracts over the actual selling price of the contracted energy output of such contracts in the market. Such contracts shall have been approved by the ERB as of December 31, 2000.[6] Rule 4 (ddd) of the IRR provides that Missionary Electrification refers to the provision of basic electricity service in Unviable Areas with the ultimate aim of bringing the operations in these areas to viability levels.[7] Manila Electric Company, Inc. v. Lualhati, G.R. Nos. 166769 and 166818, December 6, 2006.[8] IRR, Rule 4 (bbbb) states that Small Power Utilities Group or SPUG refers to the functional unit of NPC created to pursue Missionary Electrification function.[9] ERC Record for ERC Case No. 2002-165, pp. 1-7.[10] PSALM is a government-owned and controlled corporation created under Sec. 49 of the EPIRA, which shall take ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate and all other disposable assets. All outstanding obligations of the NPC arising from loans, issuances of bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM.[11] ERC Record for ERC Case No. 2002-194, pp. 1-5.[12] Supra note 9, at 110-122.[13] Id. at 215-224.[14] NPC-SPUG's Motion for Reconsideration dated August 13, 2003 also prayed that it be allowed (1) to have flexibility in the utilization of UC-ME considering its mandate to implement the MEDP responsive to the needs and constraints of missionary electrification; (2) to authorize it to re-prioritize its CAPEX and its OPEX to the extent possible, for CY 2003; and (3) to give it the flexibility to reallocate available UC-ME funds among the revised priority activities/projects for CY 2003, Id. at 225-236.[15] Id. at 237-239.[16] Supra note 11, at 110-122.[17] Rollo, p. 8.[18] Supra note 3.[19] Osmeña v. Orbos, G.R. No. 99886, March 31, 1993, 220 SCRA 703; Valmonte v. Energy Regulatory Board, G.R. Nos. L-79601-03, June 23, 1988, 162 SCRA 521; and Gaston v. Republic Planters Bank, No. L-77194, March 15, 1988, 158 SCRA 626.[20] These funds are the Oil Price Stabilization Fund (OPSF) and Sugar Stabilization Fund (SSF).[21] Petitioners' Memorandum dated October 6, 2004; rollo, pp. 123-138.[22] PSALM's Memorandum dated December 8, 2004; id. at 154-167.[23] OSG's Memorandum dated January 4, 2005; id. at 168-187.[24] SECTION 46. Fines and Penalties. — The fines and penalties that shall be imposed by the ERC for any violation of or non-compliance with this Act or the IRR shall range from a minimum of Fifty thousand pesos (P50,000.00) to a maximum of Fifty million pesos (P50,000,000.00). Any person who is found guilty of any of the prohibited acts pursuant to Section 45 hereof shall suffer the penalty of prision mayor and a fine ranging from Ten thousand pesos (P10,000.00) to Ten million pesos (P10,000.000.00), or both, at the discretion of the court. The members of the Board of Directors of the juridical companies participating in or covered in the generation companies, the distribution utilities, the TRANSCO or its concessionaire or supplier who violate the provisions of this Act may be fined by an amount not exceeding double the amount of damages caused by the offender or by imprisonment of one (1) year or two (2) years or both at the discretion of the court. This rule shall apply to the members of the Board who knowingly or by neglect allows the commission or omission under the law. If the offender is a government official or employee, he shall, in addition, be dismissed from the government service with prejudice to reinstatement and with perpetual or temporary disqualification from holding any elective or appointive office. If the offender is an alien, he may, in addition to the penalties prescribed, be deported without further proceedings after service of sentence. Any case which involves question of fact shall be appealable to the Court of Appeals and those which involve question of law shall be directly appealable to the Supreme Court. The administrative sanction that may be imposed by the ERC shall be without prejudice to the filing of a criminal action, if warranted. To ensure compliance with this Act, the penalty of prision correccional or a fine ranging from Five thousand pesos (P5,000.00) to Five million pesos (P5,000,000.00), or both, at the discretion of the court, shall be imposed on any person, including but not limited to the president, member of the Board, Chief Executive Officer or Chief Operating Officer of the corporation, partnership, or any other entity involved, found guilty of violating or refusing to comply with any provision of this Act or its IRR, other than those provided herein. Any party to an administrative proceeding may, at any time, make an offer to the ERC, conditionally or otherwise, for a consented decree, voluntary compliance or desistance and other settlement of the case. The offer and any or all of the ultimate facts upon which the offer is based shall be considered for

20

settlement purposes only and shall not be used as evidence against any party for any other purpose and shall not constitute an admission by the party making the offer of any violation of the laws, rules, regulations, orders and resolutions of the ERC, nor as a waiver to file any warranted criminal actions. In addition, Congress may, upon recommendation of the DOE and/or ERC, revoke such franchise or privilege granted to the party who violated the provisions of this Act.[25] PECO's Memorandum dated April 18, 2005; rollo, pp. 205-210.[26] Supra note 21, at 125.[27] Emphasis supplied.[28] Francisco, Jr. v. Fernando, G.R. No. 166501, November 16, 2006, citing People v. Cuaresma, 172 SCRA 415, 423-424 (1989).[29] Lacson Hermanas, Inc. v. Heirs of Cenon Ignacio, G.R. No. 165973, June 29, 2005, 462 SCRA 290, 294 and Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633, 652.[30] Mactan Cebu International Airport Authority v. Marcos, 330 Phil. 392, 404 (1996).[31] Proton Pilipinas Corporation v. Republic of the Philippines, G.R. No. 165027, October 16, 2006, citing Province of Tarlac v. Alcantara, 216 SCRA 790, 798 (1992).[32] National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 248 (2003).[33] Didipio Earth-Savers' Multi-Purpose Association, Inc. (DESAMA) v. Gozun, G.R. No. 157882, March 30, 2006, 485 SCRA 586, 604, citing U.S. v. Torribio, 15 Phil. 85, 93 (1910) and Rubi v. The Provincial Board of Mindoro, 39 Phil. 660, 708 (1919).[34] JMM Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, August 5, 1996, 260 SCRA 319, 324.[35] Philippine Association of Service Exporters, Inc. v. Hon. Ruben D. Torres, G.R. No. 101279, August 6, 1992, 212 SCRA 298, 304, citing Philippine Communications Satellite Corporation v. Alcuaz, 180 SCRA 218 (1989).[36] Progressive Development Corporation vs. Quezon City, G.R. No. 36081, April 24, 1989, 172 SCRA 629, 635, citing Manila Electric Company v. El Auditor General y La Comision de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine Rabbit Lines, 143 Phil. 158, 163 (1970).[37] The purposes are:(a) Payment for the stranded debts in excess of the amount assumed by the National Government and stranded contract costs of NPC and as well as qualified stranded contract costs of distribution utilities resulting from the restructuring of the industry;(b) Missionary electrification; (c) The equalization of the taxes and royalties applied to indigenous or renewable sources of energy vis-à-vis imported energy fuels;(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed rehabilitation and management. Said fund shall be managed by NPC under existing arrangements; and(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3) years.[38] Osmeña v. Orbos, supra note 19, at 710, Gaston v. Republic Planters Bank, supra note 19, at 632, Tio v. Videogram Regulatory Board, No. L-75697, June 18, 1987, 151 SCRA 208, 216, and Lutz v. Araneta, 98 Phil. 148 (1955). [39] Supra note 19, at 539; Decided jointly with Citizen's Alliance for Consumer Protection v. Energy Regulatory Board., G.R. Nos. L-78888-90, and Kilusang Mayo Uno Labor Center v. Energy Regulatory, Board., G.R. Nos. L-79690-92.[40] Supra note 19, at 632-633.[41] Id. at 710-711.[42] Last paragraph, Sec. 34, EPIRA provides: The PSALM Corp., as administrator of the fund, shall create a Special Trust Fund which shall be disbursed only for the purposes specified herein in an open and transparent manner. All amount collected for the universal charge shall be distributed to the respective beneficiaries within a reasonable period to be provided by the ERC. IRR of the EPIRA, Rule 18, SECTION 6, also provides: (a) Pursuant to the last paragraph of Section 34 of the Act, PSALM shall act as the administrator of the funds generated from the Universal Charge. For this purpose, the PSALM shall create a STF to be established in the Bureau of Treasury (BTr) or in a Government Financing Institution (GFI) that is acceptable to the DOF. Separate STFs shall be established for each of the intended purposes of the Universal Charge. Funds shall be disbursed in an open and transparent manner and shall only be used for the intended purposes specified in Section 3 of this Rule.[43] EPIRA, Sec. 33, last paragraph and IRR, Sec. 5 (f), Rule 17.[44] IRR, Sec. 6 (f), Rule 18.[45] IRR, Sec. 4, Rule 21.[46] Supra note 23, at 177-178, citing Osmeña v. Orbos, supra note 19.[47] Abakada Guro Party List v. Ermita, G.R. Nos. 168056, 168207, 168461, 168463 and 168730, September 1, 2005, 469 SCRA 10, 115-116.[48] The recognized exceptions to the general principle are as follows:(1) Delegation of tariff powers to the President under Section 28(2) of Article VI of the Constitution;(2) Delegation of emergency powers to the President under Section 23(2) of Article VI of the Constitution;(3) Delegation to the people at large;(4) Delegation to local governments; and(5) Delegation to administrative bodies. Abakada Guro Party List v. Ermita, supra note 47, at 117 and Santiago v. Comelec, 336 Phil. 848, 897-898 (1997), citing People v. Vera, 65 Phil. 56 (1937). [49] Equi-Asia Placement, Inc. v. DFA, G.R. No. 152214, September 19, 2006, citing Beltran v. Secretary of Health, 476 SCRA 168, 191 (2005); The Conference of Maritime Manning Agencies v. Philippine Overseas Employment Agency, 313 Phil. 592, 606 (1995); and Eastern Shipping Lines, Inc. v. Philippine Overseas Employment Agency, G.R. No. L-76633, October 18, 1998, 166 SCRA 533, 543.[50] Emphasis supplied.[51] Rubi v. Provincial Board of Mindoro, supra note 33, at 706.[52] Philippine Association of Colleges and University v. Secretary of Education, 97 Phil. 806, 814 (1955).[53] People v. Rosenthal, 68 Phil. 328, 342 (1939).[54] Antamok Gold Fields v. CIR, 70 Phil. 340 (1940).[55] Calalang v. Williams, 70 Phil. 726, 733 (1940).[56] Cervantes v. Auditor General, 91 Phil 359, 364 (1952).[57] Tablarin v. Gutierrez, No. L-78164, July 31, 1987, 152 SCRA 731.[58] The Conference of Maritime Manning Agencies, Inc. v. Philippine Overseas Employment Administration, supra note 49.[59] Sec. 2(a) and (b), Declaration of Policies of the EPIRA.[60] Supra note 37.[61] G.R. No. 161113, June 15, 2004, 432 SCRA 157, 182.[62] Id. at 219-220 (Emphasis supplied).[63] G.R. No. 163935, February 2, 2006, 481 SCRA 480, 515-516, citing Freedom from Debt Coalition v. Energy Regulatory Commission, supra note 61.[64] Rollo, pp. 108-109[65] Republic v. Kalaw, G.R. No. 155138, June 8, 2004, 431 SCRA 401, 406.[66] Lopez v. City of Manila, G.R. No. 127139, February 19, 1999, 303 SCRA 448, 460, citing Ty v. Trampe, 250 SCRA 500 (1995).[67] Freedom from Debt Coalition v. Energy Regulatory Commission, supra note 61, at 171-172.[68] Arceta v. Mangrobang, G.R. Nos. 152895 & 153151, June 15, 2004, 432 SCRA 136, 142, citing Lacson v. The Executive Secretary, 361 Phil. 251, 263 (1999).

21

Republic of the PhilippinesSUPREME COURT

ManilaFIRST DIVISION

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.

VITUG, J.:pThe 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 RATEE.O. 22 and E.O. 273 RA 695606-23-86 07-25-87 06-18-9007-01-86 01-01-88 07-05-90

Hope Luxury M. 100'sSec. 142, (c), (2) 40% 45%Hope Luxury M. KingSec. 142, (c), (2) 40% 45%More Premium M. 100'sSec. 142, (c), (2) 40% 45%More Premium InternationalSec. 142, (c), (2) 40% 45%Champion Int'l. M. 100'sSec. 142, (c), (2) 40% 45%Champion M. 100'sSec. 142, (c), (2) 40% 45%Champion M. KingSec. 142, (c), last par. 15% 20%Champion LightsSec. 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:

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Sec. 142. Cigars and Cigarettes. —

xxx xxx xxx

(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.

xxx xxx xxx

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 (Emphasis 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, ". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. . . ."

"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

23

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-CHATOCommissioner

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.

24

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 aninterpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court expressed:

. . . 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 not bearing 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 intrepreted 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. 10-86Effectivity 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).

25

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 isenjoined. 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")

26

(b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh; Nangyang, 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 . . . Why were these brand not reclassified at 55 if your want to give a level playing filed 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 question but 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. (Emphasis supplied)

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx

MS. CHATO. . . . 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. . .(emphasis supplied) (Exhibit "FF-2d," page IX-1)

xxx xxx xxx

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. (Emphasis 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.Separate Opinions

BELLOSILLO, J.: separate opinion:

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RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June 1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to read —

Sec. 142. Cigars and cigarettes. — . . . . (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 percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack (emphasis supplied).

(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.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner of Internal Revenue issued RMC 37-93 reclassifying "Hope, Moreand Champion being manufactured by Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in effect subjected Hope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA 7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not immediately come to the knowledge of private respondent as it was addressed to no one in particular. It was only when the reclassification of respondent corporation's cigarette brands was reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of respondent corporation learned of the matter, prompting him to inquire into its veracity and to request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by ordinary mail a certified machine copy of RMC 37-93.

Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July 1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00. Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled —

Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: Hope, More andChampion 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 . . . . 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 cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the decision of the CTA. 3 Hence, the instant petition for review.

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope Luxury, Premium Moreand Champion as locally manufactured cigarettes bearing brands is merely an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary. 4 It maintains that neither is the assailed revenue memorandum circular discriminatory as it merely "lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using (only) the cigarette brandsHope, More and Champion as specific examples." 5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also argues that RMC 37-93 discriminates against its cigarette brands since those of its competitors which are similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

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Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make rules and regulations which results in delegated legislation that is within the confines of the granting statute and the doctrine of nondelegability and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an administrative agency (the other two being supplementary or detailed legislation, and contingent legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory regulations under which the administrative body operates. The purpose or objective of an interpretative rule is merely to construe the statute being administered. It purports to do no more than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to no single person or party in particular but concerns all those belonging to the same class which may be covered by the said interpretative rule. It need not be published and neither is a hearing required since it is issued by the administrative body as an incident of its power to enforce the law and is intended merely to clarify statutory provisions for proper observance by the people. In Tañada v. Tuvera, 6 this Court expressly said that "[i]interpretative regulations . . . . need not be published."

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing and administering the same law. 7 The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. 8 In carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall be deprived of life, liberty or property without due process of law. Thus when an administrative proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of the proceeding. The right to reasonable prior notice and hearing embraces not only the right to present evidence but also the opportunity to know the claims of the opposing party and to meet them. The right to submit arguments implies that opportunity otherwise the right may as well be considered impotent. And those who are brought into contest with government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairy advised of what the government proposes and to be heard upon its proposal before it issues its final command.

There are cardinal primary rights which must be respected in administrative proceedings. The landmark case ofAng Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right to a hearing, which includes the right of the party interested or affected to present his own case and submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the decision must have something to support itself; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its decision in such manner that the parties to the proceeding may know the various issues involved and the reasons for the decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice and hearing, or an adjudicatory rule which demands the observance of due process, a close examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and clarifying or explaining what it means —

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,". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are manufactured by other foreign manufacturers —

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,

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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.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among the manufacturers are the real owners of the brands in question, then these cigarette brands should be considered foreign brands —

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."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation reclassifying its cigarette brands as locally manufactured bearing foreign brands —

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.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of the imagination can RMC 37-93 be considered purely as an interpretative rule — requiring no previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory regulations being administered by or under which the Bureau of Internal Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of taxation. But the similarity between the two revenue memorandum circulars ends there. For in properly determining whether a revenue memorandum circular is merely an interpretative rule or an adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have no to be considered.

We quote RMC 47-91 promulgated 11 June 1991 —

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of CopraTO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August 17, 1990:

COCOFED MARKETING RESEARCH CORPORATION6th Floor Cocofed Building144 Amorsolo StreetLegaspi Village, MakatiMetro Manila

Attention: Ms. Esmyrna E. ReyesVice President — Finance

S i r s :

This has reference to your letter dated January 16, 1990 wherein you represented that inspite of your VAT registration of your copra trading company, you are supposed to be exempt from VAT on the basis of BIR Ruling dated January 8, 1988 which considered copra as an agricultural food product in its original state. In this connection, you request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-food product, is exempt from VAT only if sale is made by the primary producer pursuant to Section 103 (a) of the

30

Tax Code, as amended. Thus as a trading company and a subsequent seller, your sale of copra is already subject to VAT pursuant to Section 9(b) (1) of Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very truly yours,(Sgd.) JOSE U. ONGCommissioner of Internal Revenue

As a clarification, this is the present and official stand of this Office unless sooner revoked or amended. All revenue officials and employees are enjoined to give this Circular as wide a publicity as possible.

(Sgd.) JOSE U. ONGCommissioner of Internal Revenue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum circular operated to subject the taxpayer to the new law which was yet to take effect, while in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify the prevailing position and ruling of the administrative agency, and no new law yet to take effect was involved. It merely interpreted an existing law which had already been in effect for some time and which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.

A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was promulgated two days before the expiration of the old law and a few hours before the effectivity of the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3) cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum circular —

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.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette brandsHope, More and Champion as specific examples," cannot be accepted, much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation — and solely on respondent corporation — as its deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation was supposed to have received the facsimile message sent by Deputy Commissioner Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and declare what has been the official stand of the administrative agency on the specific subject matter, and was indiscriminately directed to all copra traders with no particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, the Court must check the exercise of these powers and ascertain whether petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is simply the faithful observance by government by government of the basic constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what distresses me no end — the manner and the circumstances under which the cigarettes of private respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule which therefore requires reasonable notice and hearing before its issuance. It should not be confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my opinion expressed therein — and of the majority — have yet to varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have earlier expressed, if placed under similar circumstances in some future time, I shall have to brave again the prospect of

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another vilification and a tarnished image if only to show proudly to the whole world that under the present dispensation judicial independence in our country is a true component of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily issued — without prior notice and hearing, and singling out private respondent alone — when two days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of private respondent at a higher rate. Obviously, this was to make it appear that even before the anticipated date of effectivity of the statute — which was undeniably priorly known to petitioner — these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially because private respondent was still selling its cigarettes at a price based on the old, lower tax rate. Had there been previous notice and hearing, as claimed by private respondent, it could have very well presented its side, either by opposing the reclassification, or by acquiescing thereto but increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are also to consider the claim of private respondent that the new tax is even higher than the cost of its cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for deficiency ad valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that the circular, upon which the assessment was based and made, is defective, invalid and unenforceable for having been issued without notice and hearing and in violation of the equal protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in the first place, did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due process clause of the Constitution. It is also its dominant opinion that the questioned Circular discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of the same kind or classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions.

Section 245 of the National Internal Revenue Code,as amended, empowers the Commissioner of InternalRevenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. — The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code . . . without prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:

. . . 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.

There is only one World Tobacco Directory for a given current year, and the same is mandated by law to be the BIR Commissioner's controlling basis for determining whether or not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a determination, petitioner should inquire into the entries in the World Tobacco Directory for the given current year and shall be held bound by such entries therein. She is not required to subject the results of her inquiries to feedback from the concerned cigarette manufacturers, and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the law does not, in the first place, require debate or hearing thereon. Petitioner may make such a determination because she is the Chief Executive Officer of the administrative agency that is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its more encompassing and unequalled expertise in the field of taxation.

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The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is not unconstitutional, unreasonable and oppressive. It has been necessitated by "the growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more administrative bodies are necessary to help in the regulation of society's ramified activities. "Specialized in the particular field assigned to them, they can deal with the problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of justice" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting well within her prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives under the law, she has in her favor the presumption of regular performance of official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act No. 7654 2 on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of our legislators to the effect that the said Act was intended to freeze the current classification of cigarettes and make the same an integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify cigarettes must be reckoned from the effectivity of the said Act and not before. Suffice it to say that indisputable is the plain fact that the questioned Circular was issued on July 1, 1993, while the said Act took effect on July 3, 1993.

The contents of the questioned circular have notbeen proven to be erroneous or illegal as to renderissuance thereof an act of grave abuse ofdiscretion on the part of petitioner Commissioner

Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code, as amended, levies the following ad valorem taxes on cigarettes in accordance with their predetermined classifications as established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) 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.

(2) Other locally manufactured cigarettes, forty five percent (45%).xxx xxx xxx

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The reason for this is that apparently, petitioner's predecessors have all made determinations to the effect that the said cigarettes were to be considered "other locally manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise taxes. Apparently, the past determination that the said cigarettes were to be classified as "other locally manufactured cigarettes" was based on private respodnent's convenient move of changing the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand. Having registered these brands with the Philippine Patent Office and with corresponding evidence to the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than 45% which is the rate applicable to cigarettes considered as locally manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by their innate quality of being merely errors in interpretative ruling, the formulation of which does not bind the government. Advantage over such errors may precipitously be withdrawn from those who have been benefiting from them once the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that it is the exclusive owner thereof in the Philippines; it does not necessarily follow, however, that it is the exclusive owner thereof in the whole world. Assuming arguendo that private respondent is the exclusive owner of said brands in the Philippines, it does not mean that they are local. Otherwise, they would not have been listed in the WTD as international brands manufactured by different entities in different countries. Moreover, it cannot be said that the brands registered in the names of private respondent are not the same brands listed in the WTD because private respondent is one of the manufacturers of said brands listed in the WTD. 3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent concludes that the entire Circular is erroneous and

33

makes such error the principal proof of its claim that the nature of the determination embodied in the questioned Circular requires a hearing on the facts and a debate on the applicable law. Such a determination is adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however, apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion. Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation, recognized in that expertise by the legislature that vested in her the power to make rules respecting classification of articles for taxation purposes, and presumed to have regularly exercised her prerogatives within the scope of her statutory power to issue determinations specifically under Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended, simply followed the law as she understood it. Her task was to determine which cigarette brands were foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette brands were legislated to be taxed at higher rates because of their more extensive public exposure and international reputation; their competitive edge against local brands may easily be checked by imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the sales in the Philippines of which are greatly boosted by its international exposure and reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the same, petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not survive without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society which it serves and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the past. Of course private respondent will trumpet its losses, its interests, after all, being its sole concern. What private respondent fails to see is the loss of revenue by the Government which, because of erroneous determinations made by its past revenue commissioners, collected lesser taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights to speak of respecting a wrong construction of the law by administrative officials, and such wrong interpretation does not place the Government in estoppel to correct or overrule the same. 4

The Questioned Circular embodies an interpretativeruling of petitioner Commissioner which as such doesnot require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its Commissioner, has grown to be a typical administrative agency vested with a fusion of different governmental powers: the power to investigate, initiate action and control the range of investigation, the power to promulgate rules and regulations to better carry out statutory policies, and the power to adjudicate controversies within the scope of their activities. 5 In the realm of administrative law, we understand that such an empowerment of administrative agencies was evolved in response to the needs of a changing society. This development arose as the need for broad social control over complex conditions and activities became more and more pressing, and such complexity could no longer be dealt with effectivity and directly by the legislature or the judiciary. The theory which underlies the empowerment of administrative agencies like the Bureau of Internal Revenue, is that the issues with which such agencies deal ought to be decided by experts, and not be a judge, at least not in the first instance or until the facts have been sifted and arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules. The necessity for vesting administrative agencies with this power stems from the impracticability of the lawmakers providing general regulations for various and varying details pertinent to a particular legislation. 7

The rules that administrative agencies may promulgate may either be legislative or interpretative. The former is a form of subordinate legislation whereby the administrative agency is acting in a legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation of legislative power. 8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the statute being administered, to say what it means." 9

There can be no doubt that there is a distinction between an administrative rule or regulation and an administrative interpretation of a law whose enforcement is entrusted to an administrative body. When an administrative agency promulgates rules and regulations, it "makes" a new law with the force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p. 194). Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are often times left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is followed and its scope is within the statutory authority granted by the legislature, even if the courts are not in agreement with the policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative

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interpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means. 10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon whether the statute places specific 'sanctions' behind the regulations authorized, as for example, by making it a criminal offense to disobey them, or by making conformity with their provisions a condition of the exercise of legal privileges." 11 This is because interpretative regulations are by nature simply statutory interpretations, which have behind them no statutory sanction. Such regulations, whether so expressly authorized by statute or issued only as an incident of statutory administration, merely embody administrative findings of law which are always subject to judicial determination as to whether they are erroneous or not, even when their issuance is authorized by statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the government agency she heads, is to proceed to make the proper determination using the criterion stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal construction consistent with the rule that revenue laws are to be construed in favor of the Government whose survival depends on the contributions that taxpayers give to the public coffers that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal Revenue, in the absence of a clear showing that it is plainly wrong, is entitled to great weight. Private respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily interpretative and not legislative. Private respondent insists that the questioned circular is adjudicatory in nature because it determined the rights of private respondent in a controversy involving his tax liability. It also asseverates that the questioned circular involved administrative action that is particular and immediate, thereby rendering it subject to the requirements of notice and hearing in compliance with the due process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited provisions in the National Internal Revenue Code, as amended. Such determination was an interpretation by petitioner of the said legal provisions. If in the course of making the interpretation and embodying the same in the questioned circular which the petitioner subsequently issued after making such a determination, private respondent's cigarettes products, by their very nature of being foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a tax rate higher than what was previously imposed thereupon based on past rulings of other revenue commissioners, such a situation is simply a consequence of the performance by petitioner of here duties under the law. No adjudication took place, much less was there any controversy ripe for adjudication. The natural consequences of making a classification in accordance with law may not be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature. Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely 'interpretative' in character may not require prior notice to affected parties before its issuance as well as a hearing" and "for this reason, in most instances, interpretative regulations are not given the force of law." 12Indeed, "interpretative regulations and those merely internal in nature. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative rulings must have the benefit of publichearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in favor of the Government to the end that Government collects as much tax money as it is entitled to in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is provided in the aforecited section that was construed by petitioner in the questioned circular; and (4) a similar circular declassifying copra from being an agricultural food to non-food product for purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative, much less, an adjudicatory, action on the part of the revenue commissioner, 15 this Court must not be blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and hearing.

Neither is the questioned Circular tainted by aviolation of the equal protection clause under theConstitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular. Because only the cigarettes that they manufacture are enumerated in the questioned circular, private respondent proceeded to attack the same as being discriminatory against it. On the surface, private respondent seems to have a point there. A scrutiny of the questioned Circular,

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however, will show that it is undisputedly one of general application for all cigarettes that are similarly situated as private respondent's brands. The new interpretation of Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands, which illustration is properly a subject of the questioned Circular. Significantly, indicated as the subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The reclassification resulted in the foregrounding of private respondent's cigarette brands, which incidentally is largely due to the controversy spawned no less by private respondent's own action of conveniently changing its brand names to avoid falling under a classification that would subject it to higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial determination that private respondent's cigarette brands are foreign brands. The consequent specific mention of such brands in the questioned Circular, does not change the fact that the questioned Circular has always been intended for and did cover, all cigarettes similarly situated as "Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette brands "Hope," More and "Champion" as specific examples. Such test applies to all locally manufactured cigarette brands similarly situated as the cigarette brands aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes are actually determined as locally manufactured cigarettes bearing a foreign brand, RMC 37-93 does not state that ONLY cigarettes fall under such classification to the exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93 is not discriminatory. 16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has rendered the assessment against private respondent of deficiency ad valorem excise taxes to be without legal basis. The majority agrees with private respondent and respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting interpretative ruling that the petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue denying private respondent's request for a review, reconsideration and recall of Revenue Memorandum Circular No. 37-93 dated July 1, 1993.

Padilla, J., concurs.

Separate Opinions

BELLOSILLO, J.: separate opinion:

RA 7654 was enacted by Congress on 10 June 1993, signed into law by the President on 14 June 1993, and took effect 3 July 1993. It amended partly Sec. 142, par. (c), of the National Internal Revenue Code (NIRC) to read —

Sec. 142. Cigars and cigarettes. — . . . . (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 percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack (emphasis supplied).

(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.

Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium More and Champion were considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days before RA 7654 took effect, petitioner Commissioner of Internal Revenue issued RMC 37-93 reclassifying "Hope, Moreand Champion being manufactured by Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in effect subjected Hope Luxury, Premium More and Champion cigarettes to the provisions of Sec. 142, par. (c), subpar. (1), NIRC, as amended by RA 7654, imposing upon these cigarette brands an ad valorem tax of "fifty-five percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."

On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before the effectivity of RA 7654, a copy of RMC 37-93 with a cover letter signed by Deputy Commissioner Victor A. Deoferio of the Bureau of Internal Revenue was sent by facsimile to the factory of respondent corporation in Parang, Marikina, Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not immediately come to the knowledge of private respondent as it was addressed to no one in particular. It was only when the reclassification of respondent corporation's cigarette brands was reported in the column of Fil C. Sionil in Business Bulletin on 4 July 1993 that the president of respondent corporation learned of the matter, prompting him to inquire into its veracity and to request from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation received by ordinary mail a certified machine copy of RMC 37-93.

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Respondent corporation sought a review, reconsideration and recall of RMC 37-93 but was forthwith denied by the Appellate Division of the Bureau of Internal Revenue. As a consequence, on 30 July 1993 private respondent was assessed an ad valorem tax deficiency amounting to P9,598,334.00. Respondent corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious and ruled —

Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: Hope, More andChampion 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 . . . . 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 cancelled for lack of legal basis. 2

The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the decision of the CTA. 3 Hence, the instant petition for review.

Petitioner now submits through the Solicitor General that RMC 37-93 reclassifying Hope Luxury, Premium Moreand Champion as locally manufactured cigarettes bearing brands is merely an interpretative ruling which needs no prior notice and hearing as held in Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary. 4 It maintains that neither is the assailed revenue memorandum circular discriminatory as it merely "lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using (only) the cigarette brandsHope, More and Champion as specific examples." 5

Respondent corporation on the other hand contends that RMC 37-93 is not a mere interpretative ruling but is adjudicatory in nature where prior notice and hearing are mandatory, and that Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary on which the Solicitor General relies heavily is not applicable. Respondent Fortune Tobacco Corporation also argues that RMC 37-93 discriminates against its cigarette brands since those of its competitors which are similarly situated have not been reclassified.

The main issues before us are (a) whether RMC 37-93 is merely an interpretative rule the issuance of which needs no prior notice and hearing, or an adjudicatory ruling which calls for the twin requirements of prior notice and hearing, and, (b) whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be instructive.

Administrative agencies posses quasi-legislative or rule making powers and quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule making power is the power to make rules and regulations which results in delegated legislation that is within the confines of the granting statute and the doctrine of nondelegability and separability of powers.

Interpretative rule, one of the three (3) types of quasi-legislative or rule making powers of an administrative agency (the other two being supplementary or detailed legislation, and contingent legislation), is promulgated by the administrative agency to interpret, clarify or explain statutory regulations under which the administrative body operates. The purpose or objective of an interpretative rule is merely to construe the statute being administered. It purports to do no more than interpret the statute. Simply, the rule tries to say what the statute means. Generally, it refers to no single person or party in particular but concerns all those belonging to the same class which may be covered by the said interpretative rule. It need not be published and neither is a hearing required since it is issued by the administrative body as an incident of its power to enforce the law and is intended merely to clarify statutory provisions for proper observance by the people. In Tañada v. Tuvera, 6 this Court expressly said that "[i]interpretative regulations . . . . need not be published."

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing and administering the same law. 7 The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. 8 In carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must be observed in the conduct of the proceedings.

The importance of due process cannot be underestimated. Too basic is the rule that no person shall be deprived of life, liberty or property without due process of law. Thus when an administrative proceeding is quasi-judicial in character, notice and fair open hearing are essential to the validity of the proceeding. The right to reasonable prior notice and hearing embraces not only the right to present evidence but also the opportunity to know the claims of the opposing party and to meet them. The right to submit arguments implies that opportunity otherwise the right may as well be considered impotent. And those who are brought into contest with government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairy advised of what the government proposes and to be heard upon its proposal before it issues its final command.

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There are cardinal primary rights which must be respected in administrative proceedings. The landmark case ofAng Tibay v. The Court of Industrial Relations 9 enumerated these rights: (1) the right to a hearing, which includes the right of the party interested or affected to present his own case and submit evidence in support thereof; (2) the tribunal must consider the evidence presented; (3) the decision must have something to support itself; (4) the evidence must be substantial; (5) the decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected; (6) the tribunal or any of its judges must act on its or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a subordinate in arriving at a decision; and, (7) the tribunal should in all controversial questions render its decision in such manner that the parties to the proceeding may know the various issues involved and the reasons for the decision rendered.

In determining whether RMC No. 37-93 is merely an interpretative rule which requires no prior notice and hearing, or an adjudicatory rule which demands the observance of due process, a close examination of RMC 37-93 is in order. Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec. 142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and clarifying or explaining what it means —

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,". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern . . ."

Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are manufactured by other foreign manufacturers —

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.

From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among the manufacturers are the real owners of the brands in question, then these cigarette brands should be considered foreign brands —

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."

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation reclassifying its cigarette brands as locally manufactured bearing foreign brands —

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.

It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to determine whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of the imagination can RMC 37-

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93 be considered purely as an interpretative rule — requiring no previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory regulations being administered by or under which the Bureau of Internal Revenue operates.

It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders v. Department of Finance Secretary, and RMC 37-93 in the instant case reclassify certain products for purposes of taxation. But the similarity between the two revenue memorandum circulars ends there. For in properly determining whether a revenue memorandum circular is merely an interpretative rule or an adjudicatory rule, its very tenor and text, and the circumstances surrounding its issuance will have no to be considered.

We quote RMC 47-91 promulgated 11 June 1991 —

Revenue Memorandum Circular No. 47-91

SUBJECT : Taxability of CopraTO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and others concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August 17, 1990:

COCOFED MARKETING RESEARCH CORPORATION6th Floor Cocofed Building144 Amorsolo StreetLegaspi Village, MakatiMetro Manila

Attention: Ms. Esmyrna E. ReyesVice President — Finance

S i r s :

This has reference to your letter dated January 16, 1990 wherein you represented that inspite of your VAT registration of your copra trading company, you are supposed to be exempt from VAT on the basis of BIR Ruling dated January 8, 1988 which considered copra as an agricultural food product in its original state. In this connection, you request for a confirmation of your opinion as aforestated.

In reply, please be informed that copra, being an agricultural non-food product, is exempt from VAT only if sale is made by the primary producer pursuant to Section 103 (a) of the Tax Code, as amended. Thus as a trading company and a subsequent seller, your sale of copra is already subject to VAT pursuant to Section 9(b) (1) of Revenue Regulations 5-27.

This revokes VAT Ruling Nos. 009-88 and 279-88.

Very truly yours,

(Sgd.) JOSE U. ONGCommissioner of Internal Revenue

As a clarification, this is the present and official stand of this Office unless sooner revoked or amended. All revenue officials and employees are enjoined to give this Circular as wide a publicity as possible.

(Sgd.) JOSE U. ONGCommissioner of Internal Revenue

Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no dispositive portion directed at any particular party.

Another difference is that in the instant case, the issuance of the assailed revenue memorandum circular operated to subject the taxpayer to the new law which was yet to take effect, while in Misamis, the disputed revenue memorandum circular was issued simply to restate and then clarify the prevailing position and ruling of the administrative agency, and no new law yet to take effect was involved. It merely interpreted an existing law which had already been in effect for some time and which was not set to be amended. RMC 37-93 is thus prejudicial to private respondent alone.

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A third difference, and this likewise resolves the issue of discrimination, is that RMC 37-93 was ostensibly issued to subject the cigarette brands of respondent corporation to a new law as it was promulgated two days before the expiration of the old law and a few hours before the effectivity of the new law. That RMC 37-93 is particularly aimed only at respondent corporation and its three (3) cigarette brands can be seen from the dispositive portion of the assailed revenue memorandum circular —

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.

Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette brandsHope, More and Champion as specific examples," cannot be accepted, much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation — and solely on respondent corporation — as its deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation was supposed to have received the facsimile message sent by Deputy Commissioner Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already P9,598,334.00. On the other hand, RMC 47-91 was issued with no purpose except to state and declare what has been the official stand of the administrative agency on the specific subject matter, and was indiscriminately directed to all copra traders with no particular individual in mind.

That petitioner Commissioner of Internal Revenue is an expert in her filed is not attempted to be disputed; hence, we do not question the wisdom of her act in reclassifying the cigarettes. Neither do we deny her the exercise of her quasi-legislative or quasi-judicial powers. But most certainly, by constitutional mandate, the Court must check the exercise of these powers and ascertain whether petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to promulgate rules, or the wisdom of petitioner as Commissioner of Internal Revenue is reclassifying the cigarettes of private respondents. It is simply the faithful observance by government by government of the basic constitutional right of a taxpayer to due process of law and equal protection of the laws. This is what distresses me no end — the manner and the circumstances under which the cigarettes of private respondent were reclassified and correspondingly taxed under RMC 37-93, and adjudicatory rule which therefore requires reasonable notice and hearing before its issuance. It should not be confused with RMC 47-91, which is a mere interpretative rule.

In the earlier case of G.R. No. 119322, which practically involved the same opposing interests, I also voted to uphold the constitutional right of the taxpayer concerned to due process and equal protection of the laws. By a vote of 3-2, that view prevailed. In sequela, we in the First Division who constituted the majority found ourselves unjustly drawn into the vortex of a nightmarish episode. The strong ripples whipped up by my opinion expressed therein — and of the majority — have yet to varnish when we are again in the imbroglio of a similar dilemma. The unpleasant experience should be reason enough to simply steer clear of this controversy and surf on a pretendedloss of judicial objectivity. Such would have been an easy way out, a gracious exit, so to speak, albeit lame. But to camouflage my leave with a sham excuse would be to turn away from a professional vow I keep at all times; I would not be true to myself, and to the people I am committed to serve. Thus, as I have earlier expressed, if placed under similar circumstances in some future time, I shall have to brave again the prospect of another vilification and a tarnished image if only to show proudly to the whole world that under the present dispensation judicial independence in our country is a true component of our democracy.

In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well as the effect of such issuance. For it cannot be denied that the circumstances clearly demonstrate that it was hastily issued — without prior notice and hearing, and singling out private respondent alone — when two days before a new tax law was to take effect petitioner reclassified and taxed the cigarette brands of private respondent at a higher rate. Obviously, this was to make it appear that even before the anticipated date of effectivity of the statute — which was undeniably priorly known to petitioner — these brands were already currently classified and taxed at fifty-five percent (55%), thus shoving them into the purview of the law that was to take effect two days after!

For sure, private respondent was not properly informed before the issuance of the questioned memorandum circular that its cigarette brands Hope Luxury, Premium More and Champion were being reclassified and subjected to a higher tax rate. Naturally, the result would be to lose financially because private respondent was still selling its cigarettes at a price based on the old, lower tax rate. Had there been previous notice and hearing, as claimed by private respondent, it could have very well presented its side, either by opposing the reclassification, or by acquiescing thereto but increasing the price of its cigarettes to adjust to the higher tax rate. The reclassification and the ensuing imposition of a tax rate increase therefore could not be anything but confiscatory if we are also to consider the claim of private respondent that the new tax is even higher than the cost of its cigarettes.

Accordingly, I vote to deny the petition.

HERMOSISIMA, JR., J.: dissenting

Private respondent Fortune Tobacco Corporation in the instant case disputes its liability for deficiency ad valoremexcise taxes on its removals of "Hope," "More," and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight of July 2, 1993, in the total amount of P9,598,334.00. It claims that the circular, upon which the assessment was based and made, is defective, invalid and

40

unenforceable for having been issued without notice and hearing and in violation of the equal protection clause guaranteed by the Constitution.

The majority upholds these claims of private respondent, convinced that the Circular in question, in the first place, did not give prior notice and hearing, and so, it could not have been valid and effective. It proceeds to affirm the factual findings of the Court of Tax Appeals, which findings were considered correct by respondent Court of Appeals, to the effect that the petitioner Commissioner of Internal Revenue had indeed blatantly failed to comply with the said twin requirements of notice and hearing, thereby rendering the issuance of the questioned Circular to be in violation of the due process clause of the Constitution. It is also its dominant opinion that the questioned Circular discriminates against private respondent Fortune Tobacco Corporation insofar as it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the exclusion of other cigarettes apparently of the same kind or classification as these cigarettes manufactured by private respondent.

With all due respect, I disagree with the majority in its disquisition of the issues and its resulting conclusions.

Section 245 of the National Internal Revenue Code,as amended, empowers the Commissioner of InternalRevenue to issue the questioned Circular

Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. — The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code . . . without prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.

The subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:

. . . 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.

There is only one World Tobacco Directory for a given current year, and the same is mandated by law to be the BIR Commissioner's controlling basis for determining whether or not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a determination, petitioner should inquire into the entries in the World Tobacco Directory for the given current year and shall be held bound by such entries therein. She is not required to subject the results of her inquiries to feedback from the concerned cigarette manufacturers, and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the law does not, in the first place, require debate or hearing thereon. Petitioner may make such a determination because she is the Chief Executive Officer of the administrative agency that is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its more encompassing and unequalled expertise in the field of taxation.

The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is not unconstitutional, unreasonable and oppressive. It has been necessitated by "the growing complexity of the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more administrative bodies are necessary to help in the regulation of society's ramified activities. "Specialized in the particular field assigned to them, they can deal with the problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of justice" . . . 1

Statutorily empowered to issue rulings or opinions embodying the proper determination in respect to classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting well within her prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives under the law, she has in her favor the presumption of regular performance of official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse of discretion in order to be overturned and disregarded.

It is irrelevant that the Court of Tax Appeals makes much of the effect of the passing of Republic Act No. 7654 2 on petitioner's power to classify cigarettes. Although the decisions assailed and sought to be reviewed, as well as the pleadings of private respondent, are replete with alleged admissions of our legislators to the effect that the said Act was intended to freeze the current classification of cigarettes and make the same an integral part of the said Act, certainly the repeal, if any, of petitioner's power to classify cigarettes must be reckoned from the effectivity of the said Act and not before. Suffice it to say that indisputable is the plain fact that the questioned Circular was issued on July 1, 1993, while the said Act took effect on July 3, 1993.

The contents of the questioned circular have notbeen proven to be erroneous or illegal as to renderissuance thereof an act of grave abuse ofdiscretion on the part of petitioner Commissioner

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Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National Internal Revenue Code, as amended, levies the following ad valorem taxes on cigarettes in accordance with their predetermined classifications as established by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:

(1) 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.

(2) Other locally manufactured cigarettes, forty five percent (45%).

xxx xxx xxx

Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad valoremexcise taxes on their removals of "Hope," "More," and "Champion" cigarettes were amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The reason for this is that apparently, petitioner's predecessors have all made determinations to the effect that the said cigarettes were to be considered "other locally manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise taxes. Apparently, the past determination that the said cigarettes were to be classified as "other locally manufactured cigarettes" was based on private respodnent's convenient move of changing the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand. Having registered these brands with the Philippine Patent Office and with corresponding evidence to the effect, private respondent paid ad valorem excise taxes computed at the rate of not more than 45% which is the rate applicable to cigarettes considered as locally manufactured brands.

How these past determinations pervaded notwithstanding their erroneous basis is only tempered by their innate quality of being merely errors in interpretative ruling, the formulation of which does not bind the government. Advantage over such errors may precipitously be withdrawn from those who have been benefiting from them once the same have been discovered and rectified.

Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent is proof only that it is the exclusive owner thereof in the Philippines; it does not necessarily follow, however, that it is the exclusive owner thereof in the whole world. Assuming arguendo that private respondent is the exclusive owner of said brands in the Philippines, it does not mean that they are local. Otherwise, they would not have been listed in the WTD as international brands manufactured by different entities in different countries. Moreover, it cannot be said that the brands registered in the names of private respondent are not the same brands listed in the WTD because private respondent is one of the manufacturers of said brands listed in the WTD. 3

Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent concludes that the entire Circular is erroneous and makes such error the principal proof of its claim that the nature of the determination embodied in the questioned Circular requires a hearing on the facts and a debate on the applicable law. Such a determination is adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however, apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion. Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation, recognized in that expertise by the legislature that vested in her the power to make rules respecting classification of articles for taxation purposes, and presumed to have regularly exercised her prerogatives within the scope of her statutory power to issue determinations specifically under Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended, simply followed the law as she understood it. Her task was to determine which cigarette brands were foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette brands were legislated to be taxed at higher rates because of their more extensive public exposure and international reputation; their competitive edge against local brands may easily be checked by imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the sales in the Philippines of which are greatly boosted by its international exposure and reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the same, petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not survive without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society which it serves and protects.

Private respondent claims that its business will be destroyed by the imposition of additional ad valorem taxes as a result of the effectivity of the questioned Circular. It claims that under the vested rights theory, it cannot now be made to pay higher taxes after having been assessed for less in the past. Of course private respondent will trumpet its losses, its interests, after all, being its sole concern. What private respondent fails to see is the loss of revenue by the Government which, because of erroneous

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determinations made by its past revenue commissioners, collected lesser taxes than what it was entitled to in the first place. It is every citizen's duty to pay the correct amount of taxes. Private respondent will not be shielded by any vested rights, for there are not vested rights to speak of respecting a wrong construction of the law by administrative officials, and such wrong interpretation does not place the Government in estoppel to correct or overrule the same. 4

The Questioned Circular embodies an interpretativeruling of petitioner Commissioner which as such doesnot require notice and hearing

As one of the public offices of the Government, the Bureau of Internal Revenue, through its Commissioner, has grown to be a typical administrative agency vested with a fusion of different governmental powers: the power to investigate, initiate action and control the range of investigation, the power to promulgate rules and regulations to better carry out statutory policies, and the power to adjudicate controversies within the scope of their activities. 5 In the realm of administrative law, we understand that such an empowerment of administrative agencies was evolved in response to the needs of a changing society. This development arose as the need for broad social control over complex conditions and activities became more and more pressing, and such complexity could no longer be dealt with effectivity and directly by the legislature or the judiciary. The theory which underlies the empowerment of administrative agencies like the Bureau of Internal Revenue, is that the issues with which such agencies deal ought to be decided by experts, and not be a judge, at least not in the first instance or until the facts have been sifted and arranged. 6

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make rules. The necessity for vesting administrative agencies with this power stems from the impracticability of the lawmakers providing general regulations for various and varying details pertinent to a particular legislation. 7

The rules that administrative agencies may promulgate may either be legislative or interpretative. The former is a form of subordinate legislation whereby the administrative agency is acting in a legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation of legislative power. 8

Interpretative rules, on the other hand, are "those which purport to do no more than interpret the statute being administered, to say what it means." 9

There can be no doubt that there is a distinction between an administrative rule or regulation and an administrative interpretation of a law whose enforcement is entrusted to an administrative body. When an administrative agency promulgates rules and regulations, it "makes" a new law with the force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis Administrative Law, p. 194). Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are often times left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)

A rule is binding on the courts as long as the procedure fixed for its promulgation is followed and its scope is within the statutory authority granted by the legislature, even if the courts are not in agreement with the policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means. 10

"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon whether the statute places specific 'sanctions' behind the regulations authorized, as for example, by making it a criminal offense to disobey them, or by making conformity with their provisions a condition of the exercise of legal privileges." 11 This is because interpretative regulations are by nature simply statutory interpretations, which have behind them no statutory sanction. Such regulations, whether so expressly authorized by statute or issued only as an incident of statutory administration, merely embody administrative findings of law which are always subject to judicial determination as to whether they are erroneous or not, even when their issuance is authorized by statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance of her rule-making powers under Section 245 of the National Internal Revenue Code, as amended. Exercising such powers, petitioner re-classified "Hope," "More" and "Champion" cigarettes as locally manufactured cigarettes bearing foreign brands. The re-classification, as previously explained, is the correct interpretation of Section 142 (c) (1) of the said Code. The said legal provision is not accompanied by any penal sanction, and no detail had to be filled in by petitioner. The basis for the classification of cigarettes has been provided for by the legislature, and all petitioner has to do, on behalf of the government agency she heads, is to proceed to make the proper determination using the criterion stipulated by the lawmaking body. In making the proper determination, petitioner gave it a liberal construction consistent with the rule that revenue laws are to be construed in favor of the Government whose survival depends on the contributions that taxpayers give to the public coffers that finance public services and other governmental operations.

The Bureau of Internal Revenue which petitioner heads, is the government agency charged with the enforcement of the laws pertinent to this case and so, the opinion of the Commissioner of Internal Revenue, in the absence of a clear showing that it is

43

plainly wrong, is entitled to great weight. Private respondent claims that its rights under previous interpretations of Section 142 (c) (1) may not abruptly be cut by a new interpretation of the said section, but precisely the said section is subject to various and changing construction, and hence, any ruling issued by petitioner thereon is necessarily interpretative and not legislative. Private respondent insists that the questioned circular is adjudicatory in nature because it determined the rights of private respondent in a controversy involving his tax liability. It also asseverates that the questioned circular involved administrative action that is particular and immediate, thereby rendering it subject to the requirements of notice and hearing in compliance with the due process clause of the Constitution.

We find private respondent's arguments to be rather strained.

Petitioner made a determination as to the classification of cigarettes as mandated by the aforecited provisions in the National Internal Revenue Code, as amended. Such determination was an interpretation by petitioner of the said legal provisions. If in the course of making the interpretation and embodying the same in the questioned circular which the petitioner subsequently issued after making such a determination, private respondent's cigarettes products, by their very nature of being foreign brands as evidenced by their enlistment in the World Tobacco Directory, which is the controlling basis for the proper classification of cigarettes as stipulated by the law itself, have come to be classified as locally manufactured cigarettes bearing foreign brands and as such subject to a tax rate higher than what was previously imposed thereupon based on past rulings of other revenue commissioners, such a situation is simply a consequence of the performance by petitioner of here duties under the law. No adjudication took place, much less was there any controversy ripe for adjudication. The natural consequences of making a classification in accordance with law may not be used by private respondent in arguing that the questioned circular is in fact adjudicatory in nature. Such an exercise in driving home a point is illogical as it is fallacious and misplaced.

Private respondent concedes that under general rules of administrative law, "a ruling which is merely 'interpretative' in character may not require prior notice to affected parties before its issuance as well as a hearing" and "for this reason, in most instances, interpretative regulations are not given the force of law." 12Indeed, "interpretative regulations and those merely internal in nature. . . need not be published." 13 And it is now settled that only legislative regulations and not interpretative rulings must have the benefit of publichearing. 14

Because (1) the questioned circular merely embodied an interpretation or a way of reading and giving meaning to Section 142 (c) (1) of the National Internal Revenue Code, as amended; (2) petitioner did not fill in any details in the aforecited section but only classified cigarettes on the basis of the World Tobacco Directory in the light of the paramount principle of construing revenue laws in favor of the Government to the end that Government collects as much tax money as it is entitled to in order to fulfill its public purposes for the general good of its citizens; (3) no penal sanction is provided in the aforecited section that was construed by petitioner in the questioned circular; and (4) a similar circular declassifying copra from being an agricultural food to non-food product for purposes of the value added tax laws, resulting in the revocation of an exemption previously enjoyed by copra traders, has been ruled by us to be merely an interpretative ruling and not a legislative, much less, an adjudicatory, action on the part of the revenue commissioner, 15 this Court must not be blind to the fact that the questioned Circular is indeed an interpretative ruling not subject to notice and hearing.

Neither is the questioned Circular tainted by aviolation of the equal protection clause under theConstitution

Private respondent anchors its claim of violation of its equal protection rights upon the too obvious fact that only its cigarette brands, i.e., "Hope," "More" and "Champion," are mentioned in the questioned circular. Because only the cigarettes that they manufacture are enumerated in the questioned circular, private respondent proceeded to attack the same as being discriminatory against it. On the surface, private respondent seems to have a point there. A scrutiny of the questioned Circular, however, will show that it is undisputedly one of general application for all cigarettes that are similarly situated as private respondent's brands. The new interpretation of Section 142 (1) (c) has been well illustrated in its application upon private respondent's brands, which illustration is properly a subject of the questioned Circular. Significantly, indicated as the subject of the questioned circular is the "reclassification of cigarettes subject to excise taxes." The reclassification resulted in the foregrounding of private respondent's cigarette brands, which incidentally is largely due to the controversy spawned no less by private respondent's own action of conveniently changing its brand names to avoid falling under a classification that would subject it to higher ad valorem tax rates. This caused then Commissioner Bienvenido Tan to depart from his initial determination that private respondent's cigarette brands are foreign brands. The consequent specific mention of such brands in the questioned Circular, does not change the fact that the questioned Circular has always been intended for and did cover, all cigarettes similarly situated as "Hope," "More" and "Champion." Petitioner is thus correct in stating that:

. . . RMC 37-93 is not discriminatory. It lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette brands "Hope," More and "Champion" as specific examples. Such test applies to all locally manufactured cigarette brands similarly situated as the cigarette brands aforementioned. While it is true that only "Hope," "More" and "Champion" cigarettes are actually determined as locally manufactured cigarettes bearing a foreign brand, RMC 37-93 does not state that ONLY cigarettes fall under such classification to the exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93 is not discriminatory. 16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has rendered the assessment against private

44

respondent of deficiency ad valorem excise taxes to be without legal basis. The majority agrees with private respondent and respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting interpretative ruling that the petitioner had power to promulgate and enforce.

WHEREFORE, I vote to grant the petition and set aside the decisions of the Court of Tax Appeals and the Court of Appeals, respectively, and to reinstate the decision of petitioner Commissioner of Internal Revenue denying private respondent's request for a review, reconsideration and recall of Revenue Memorandum Circular No. 37-93 dated July 1, 1993.

Padilla, J., concurs.

Footnotes1 Through Associate Justices Justo P. Torres, Jr. ( ponente ), Corona Ibay-Somera and Conrado M. Vasquez, Jr. (members).2 Penned by Presiding Judge Ernesto D. Acosta and concurred in by Associate Judges Ramon O. De Veyra and Manuel K. Gruba.3 Emphasis supplied. Rollo, pp. 55-58.4 Since the institution of Executive Order No. 22 on 23 June 1986.5 Rollo, p. 56.6 An Act Revising The Excise Tax Base, Allocating a Portion Of The Incremental Revenue Collected For The Emergency Employment Program For Certain Workers Amending For The Purpose Section 142 Of The National Internal Revenue Code, As Amended, And For Other Purposes.7 Official Gazette, Vol. 89., No. 32, 09 August 1993, p. 4476.8 The petition was subsequently amended on 12 August 1993.9 Rollo, pp. 115-116.10 Rollo, pp. 21-22.11 238 SCRA 63.12 Emphasis supplied. At p. 69.13 Rollo, pp. 65-66.14 See Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371.15 City of Baguio vs. De Leon, 25 SCRA 938.16 Ang Tibay vs. Court of Industrial Relations, 69 Phil. 635.17 Rollo, pp. 97-98.18 Rollo, pp. 98-100.Bellosillo, J.; concurring1 See penultimate paragraph of RMC 37-93.2 Decision penned by Presiding Judge Ernesto D. Acosta, concurred in by Associate Jusges Manuel K. Gruba and Ramon O. De Veyra.3 Special Thirteenth Division; Decision penned by Associate Justice Justo P. Torres as Chairman, concurred in by Associate Justices Corona Ibay-Somera and Conrado M. Vasquez, Jr.4 G.R. No. 108524, 10 November 1994; 238 SCRA 63.5 Petition for Review, p. 28; Rollo, p. 38.6 No. L-63915, 29 December 1986, 146 SCRA 446.7 Hormed v. Helvering, 312 U.S. 552; Reetz v. Michigan, 188 U.S. 505; Gudmindson v. Cardollo, 126 F 2d. 521.8 Collins v. Selectmen of Brookline, 91 N.E. 2d, 747.9 69 Phil. 635 (1940).Hermosisima, Jr., J., dissenting1 Phil. Association of Service Exporters, Inc. vs. Torres, 212 SCRA 304.2 Entitled, "An Act Revising the Excise Tax Base, Allocting a Portion of the Incremental Revenue Collected for the Emergency Employment Program for Certain Workers Amending for the Purpose Section 142 of the National Internal Revenue Code, as amended, and for Other Purposes," 89 O.G. 4475-4480, August 9, 1993.3 Petition for Review dated May 9, 1995, p. 38, Rollo, p. 48.4 Tan Guan vs. Court of Appeals, 19 SCRA 903; Compania General de Tabacos de Filipinas vs. City of Manila, 8 SCRA 367.5 1 Am. Jur. 2d., p. 816.6 73 C.J.S. pp. 295-296.7 1 Am. Jur. 2d., p. 890.8 1 Am. Jur. 2d., p. 892.9 de Leon, Hector, Administrative Law, 1989 ed., p. 67.10 Victorias Milling Co. Inc. vs. Social Security Commission, 114 Phil. 558.11 de Leon, supra, p. 69.12 Comment of Fortune Tobacco Corporation, p. 52; Rollo, p. 199.13 Tanada vs. Tuvera, 146 SCRA 454.14 Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary, 238 SCRA 63.15 Ibid.16 Petition for Review dated May 9, 1995, pp. 28-29, Rollo, pp. 38-39.

Republic of the PhilippinesSUPREME COURT

ManilaFIRST DIVISION

G.R. No. 151908 August 12, 2003SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONE CORPORATION (PILTEL), petitioners, vs.NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondent.

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

G.R. No. 152063 August 12, 2003GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC. (ISLACOM), petitioners, vs.COURT OF APPEALS (The Former 6th Division) and the NATIONAL TELECOMMUNICATIONS COMMISSION, respondents.

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YNARES-SANTIAGO, J.:

Pursuant to its rule-making and regulatory powers, the National Telecommunications Commission (NTC) issued on June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and regulations on the billing of telecommunications services. Among its pertinent provisions are the following:

(1) The billing statements shall be received by the subscriber of the telephone service not later than 30 days from the end of each billing cycle. In case the statement is received beyond this period, the subscriber shall have a specified grace period within which to pay the bill and the public telecommunications entity (PTEs) shall not be allowed to disconnect the service within the grace period.

(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt, recorded message or similar facility excluding the customer's own equipment.

(3) PTEs shall verify the identification and address of each purchaser of prepaid SIM cards. Prepaid call cards and SIM cards shall be valid for at least 2 years from the date of first use. Holders of prepaid SIM cards shall be given 45 days from the date the prepaid SIM card is fully consumed but not beyond 2 years and 45 days from date of first use to replenish the SIM card, otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card, however, shall be installed upon request of the customer at no additional charge except the presentation of a valid prepaid call card.

(4) Subscribers shall be updated of the remaining value of their cards before the start of every call using the cards.

(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid shall be reduced from 1 minute per pulse to 6 seconds per pulse. The authorized rates per minute shall thus be divided by 10.1

The Memorandum Circular provided that it shall take effect 15 days after its publication in a newspaper of general circulation and three certified true copies thereof furnished the UP Law Center. It was published in the newspaper, The Philippine Star, on June 22, 2000.2 Meanwhile, the provisions of the Memorandum Circular pertaining to the sale and use of prepaid cards and the unit of billing for cellular mobile telephone service took effect 90 days from the effectivity of the Memorandum Circular.

On August 30, 2000, the NTC issued a Memorandum to all cellular mobile telephone service (CMTS) operators which contained measures to minimize if not totally eliminate the incidence of stealing of cellular phone units. The Memorandum directed CMTS operators to:

a. strictly comply with Section B(1) of MC 13-6-2000 requiring the presentation and verification of the identity and addresses of prepaid SIM card customers;

b. require all your respective prepaid SIM cards dealers to comply with Section B(1) of MC 13-6-2000;

c. deny acceptance to your respective networks prepaid and/or postpaid customers using stolen cellphone units or cellphone units registered to somebody other than the applicant when properly informed of all information relative to the stolen cellphone units;

d. share all necessary information of stolen cellphone units to all other CMTS operators in order to prevent the use of stolen cellphone units; and

e. require all your existing prepaid SIM card customers to register and present valid identification cards.3

This was followed by another Memorandum dated October 6, 2000 addressed to all public telecommunications entities, which reads:

This is to remind you that the validity of all prepaid cards sold on 07 October 2000 and beyond shall be valid for at least two (2) years from date of first use pursuant to MC 13-6-2000.

In addition, all CMTS operators are reminded that all SIM packs used by subscribers of prepaid cards sold on 07 October 2000 and beyond shall be valid for at least two (2) years from date of first use. Also, the billing unit shall be on a six (6) seconds pulse effective 07 October 2000.

For strict compliance.4

On October 20, 2000, petitioners Isla Communications Co., Inc. and Pilipino Telephone Corporation filed against the National Telecommunications Commission, Commissioner Joseph A. Santiago, Deputy Commissioner Aurelio M. Umali and Deputy Commissioner Nestor C. Dacanay, an action for declaration of nullity of NTC Memorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandum dated October 6, 2000, with prayer for the issuance of a writ of preliminary injunction and temporary restraining order. The complaint was docketed as Civil Case No. Q-00-42221 at the Regional Trial Court of Quezon City, Branch 77.5

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Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction to regulate the sale of consumer goods such as the prepaid call cards since such jurisdiction belongs to the Department of Trade and Industry under the Consumer Act of the Philippines; that the Billing Circular is oppressive, confiscatory and violative of the constitutional prohibition against deprivation of property without due process of law; that the Circular will result in the impairment of the viability of the prepaid cellular service by unduly prolonging the validity and expiration of the prepaid SIM and call cards; and that the requirements of identification of prepaid card buyers and call balance announcement are unreasonable. Hence, they prayed that the Billing Circular be declared null and void ab initio.

Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc. filed a joint Motion for Leave to Intervene and to Admit Complaint-in-Intervention.6 This was granted by the trial court.

On October 27, 2000, the trial court issued a temporary restraining order enjoining the NTC from implementing Memorandum Circular No. 13-6-2000 and the Memorandum dated October 6, 2000.7

In the meantime, respondent NTC and its co-defendants filed a motion to dismiss the case on the ground of petitioners' failure to exhaust administrative remedies.

Subsequently, after hearing petitioners' application for preliminary injunction as well as respondent's motion to dismiss, the trial court issued on November 20, 2000 an Order, the dispositive portion of which reads:

WHEREFORE, premises considered, the defendants' motion to dismiss is hereby denied for lack of merit. The plaintiffs' application for the issuance of a writ of preliminary injunction is hereby granted. Accordingly, the defendants are hereby enjoined from implementing NTC Memorandum Circular 13-6-2000 and the NTC Memorandum, dated October 6, 2000, pending the issuance and finality of the decision in this case. The plaintiffs and intervenors are, however, required to file a bond in the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.

SO ORDERED.8

Defendants filed a motion for reconsideration, which was denied in an Order dated February 1, 2001.9

Respondent NTC thus filed a special civil action for certiorari and prohibition with the Court of Appeals, which was docketed as CA-G.R. SP. No. 64274. On October 9, 2001, a decision was rendered, the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition for certiorari and prohibition is GRANTED, in that, the order of the court a quo denying the petitioner's motion to dismiss as well as the order of the court a quogranting the private respondents' prayer for a writ of preliminary injunction, and the writ of preliminary injunction issued thereby, are hereby ANNULLED and SET ASIDE. The private respondents' complaint and complaint-in-intervention below are hereby DISMISSED, without prejudice to the referral of the private respondents' grievances and disputes on the assailed issuances of the NTC with the said agency.

SO ORDERED.10

Petitioners' motions for reconsideration were denied in a Resolution dated January 10, 2002 for lack of merit.11

Hence, the instant petition for review filed by Smart and Piltel, which was docketed as G.R. No. 151908, anchored on the following grounds:

A.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) AND NOT THE REGULAR COURTS HAS JURISDICTION OVER THE CASE.

B.

THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO EXHAUST AN AVAILABLE ADMINISTRATIVE REMEDY.

C.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC IS UNCONSTITUTIONAL AND CONTRARY TO LAW AND PUBLIC POLICY.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVE RIGHT TO WARRANT THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION.12

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Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No. 152063, assigning the following errors:

1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINES OF PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLY SINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION (BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF A PURELY ADMINISTRATIVE REGULATION PROMULGATED BY AN AGENCY IN THE EXERCISE OF ITS RULE MAKING POWERS AND INVOLVES ONLY QUESTIONS OF LAW.

2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE ON EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHEN THE QUESTIONS RAISED ARE PURELY LEGAL QUESTIONS.

3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES DOES NOT APPLY WHERE THE ADMINISTRATIVE ACTION IS COMPLETE AND EFFECTIVE, WHEN THERE IS NO OTHER REMEDY, AND THE PETITIONER STANDS TO SUFFER GRAVE AND IRREPARABLE INJURY.

4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED BECAUSE PETITIONERS IN FACT EXHAUSTED ALL ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.

5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED IN ISSUING ITS QUESTIONED RULINGS IN THIS CASE BECAUSE GLOBE AND ISLA HAVE A CLEAR RIGHT TO AN INJUNCTION.13

The two petitions were consolidated in a Resolution dated February 17, 2003.14

On March 24, 2003, the petitions were given due course and the parties were required to submit their respective memoranda.15

We find merit in the petitions.

Administrative agencies possess quasi-legislative or rule-making powers and quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule-making power is the power to make rules and regulations which results in delegated legislation that is within the confines of the granting statute and the doctrine of non-delegability and separability of powers.16

The rules and regulations that administrative agencies promulgate, which are the product of a delegated legislative power to create new and additional legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the administrative agency. It is required that the regulation be germane to the objects and purposes of the law, and be not in contradiction to, but in conformity with, the standards prescribed by law.17 They must conform to and be consistent with the provisions of the enabling statute in order for such rule or regulation to be valid. Constitutional and statutory provisions control with respect to what rules and regulations may be promulgated by an administrative body, as well as with respect to what fields are subject to regulation by it. It may not make rules and regulations which are inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or which created it, or which are in derogation of, or defeat, the purpose of a statute. In case of conflict between a statute and an administrative order, the former must prevail.18

Not to be confused with the quasi-legislative or rule-making power of an administrative agency is its quasi-judicial or administrative adjudicatory power. This is the power to hear and determine questions of fact to which the legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing and administering the same law. The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. In carrying out their quasi-judicial functions, the administrative officers or bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature.19

In questioning the validity or constitutionality of a rule or regulation issued by an administrative agency, a party need not exhaust administrative remedies before going to court. This principle applies only where the act of the administrative agency concerned was performed pursuant to its quasi-judicial function, and not when the assailed act pertained to its rule-making or quasi-legislative power. In Association of Philippine Coconut Dessicators v. Philippine Coconut Authority,20 it was held:

The rule of requiring exhaustion of administrative remedies before a party may seek judicial review, so strenuously urged by the Solicitor General on behalf of respondent, has obviously no application here. The resolution in question was issued by the PCA in the exercise of its rule- making or legislative power. However, only judicial review of decisions of administrative agencies made in the exercise of their quasi-judicial function is subject to the exhaustion doctrine.

Even assuming arguendo that the principle of exhaustion of administrative remedies apply in this case, the records reveal that petitioners sufficiently complied with this requirement. Even during the drafting and deliberation stages leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners were able to register their protests to the proposed billing guidelines. They submitted their respective position papers setting forth their objections and submitting proposed schemes for the billing circular.21 After the same was issued, petitioners wrote successive letters dated July 3, 200022 and July 5, 2000,23 asking for the suspension and reconsideration of the so-called Billing Circular. These letters were not acted upon until October 6, 2000, when

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respondent NTC issued the second assailed Memorandum implementing certain provisions of the Billing Circular. This was taken by petitioners as a clear denial of the requests contained in their previous letters, thus prompting them to seek judicial relief.

In like manner, the doctrine of primary jurisdiction applies only where the administrative agency exercises its quasi-judicial or adjudicatory function. Thus, in cases involving specialized disputes, the practice has been to refer the same to an administrative agency of special competence pursuant to the doctrine of primary jurisdiction. The courts will not determine a controversy involving a question which is within the jurisdiction of the administrative tribunal prior to the resolution of that question by the administrative tribunal, where the question demands the exercise of sound administrative discretion requiring the special knowledge, experience and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the premises of the regulatory statute administered. The objective of the doctrine of primary jurisdiction is to guide a court in determining whether it should refrain from exercising its jurisdiction until after an administrative agency has determined some question or some aspect of some question arising in the proceeding before the court. It applies where the claim is originally cognizable in the courts and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, has been placed within the special competence of an administrative body; in such case, the judicial process is suspended pending referral of such issues to the administrative body for its view.24

However, where what is assailed is the validity or constitutionality of a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts.25 This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments.26 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.27

In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000 and its Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As such, petitioners were justified in invoking the judicial power of the Regional Trial Court to assail the constitutionality and validity of the said issuances. In Drilon v. Lim,28 it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right to question in his defense the constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.29

In their complaint before the Regional Trial Court, petitioners averred that the Circular contravened Civil Code provisions on sales and violated the constitutional prohibition against the deprivation of property without due process of law. These are within the competence of the trial judge. Contrary to the finding of the Court of Appeals, the issues raised in the complaint do not entail highly technical matters. Rather, what is required of the judge who will resolve this issue is a basic familiarity with the workings of the cellular telephone service, including prepaid SIM and call cards – and this is judicially known to be within the knowledge of a good percentage of our population – and expertise in fundamental principles of civil law and the Constitution.

Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No. Q-00-42221. The Court of Appeals erred in setting aside the orders of the trial court and in dismissing the case.

WHEREFORE, in view of the foregoing, the consolidated petitions are GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 64274 dated October 9, 2001 and its Resolution dated January 10, 2002 are REVERSED and SET ASIDE. The Order dated November 20, 2000 of the Regional Trial Court of Quezon City, Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is REMANDED to the court a quo for continuation of the proceedings.

SO ORDERED.

Davide, Jr., C.J., Vitug, and Carpio, JJ., concur.Azcuna, J., took no part.

Footnotes1 Rollo, G.R. No. 151908, pp. 225-228.2 Rollo, G.R. No. 152063, p. 112.3 Rollo, G.R. No. 151908, p. 229.4 Id., p. 230.5 Id., pp. 231-247.6 Id., pp. 248-270.7 Id., pp. 271-273, at 273; penned by Judge Vivencio S. Baclig.8 Id., pp. 274-277.9 Id., p. 278.

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10 Id., pp. 123-132, at 131-132; penned by Associate Justice Rodrigo V. Cosico, concurred in by Associate Justices Ramon A. Barcelona and Alicia L. Santos.11 Id., pp. 134-136.12 Id., pp. 23-24.13 Rollo, G.R. No. 152063, pp. 14-15.14 Id., pp. 389-390.15 Id., pp. 391-392.16 Bellosillo, J., Separate Opinion, Commissioner of Internal Revenue v. Court of Appeals, 329 Phil. 987, 1017 [1996].17 Romulo, Mabanta, Buenaventura, Sayoc and De Los Angeles v. Home Development Mutual Fund, G.R. No. 131082, 19 June 2000, 333 SCRA 777, 785-786.18 Conte, et al. v. Commission on Audit, 332 Phil. 20, 36 [1996].19 Bellosillo, J., Separate Opinion, Commissioner of Internal Revenue, G.R. No. 119761, 29 August 1996, supra.20 G.R. No. 110526, 10 February 1998, 286 SCRA 109, 117.21 Rollo, G.R. No. 152063, pp. 57-78.22 Id., pp. 79-86.23 Id., pp. 87-89.24 Fabia v. Court of Appeals, G.R. No. 132684, 11 September 2002.25 Spouses Mirasol v. Court of Appeals, G.R. No. 128448, 1 February 2001, 351 SCRA 44, 51.26 Santiago v. Guingona, Jr., G.R. No. 134577, 18 November 1998, 298 SCRA 756, 774.27 CONSTITUTION, Art. VIII, Sec. 1, second paragraph.28 G.R. No. 112497, 4 August 1994, 235 SCRA 135.29 Id., at 139-140.

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