G.R. No.
168584 October 15, 2007
REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF FINANCE, THE
HONORABLE COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE HONORABLE COMMISSIONER OF
CUSTOMS, and THE COLLECTOR OF CUSTOMS OF THE PORT OF SUBIC, petitioners,
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial Region, Olongapo City, INDIGO
DISTRIBUTION CORP., herein represented by ARIEL G. CONSOLACION, W STAR TRADING AND WAREHOUSING
CORP., herein represented by HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS., CORP., herein represented by
ANA LISA RAMAT, BRANDED WAREHOUSE, INC., herein represented by MARY AILEEN S. GOZUN, ALTASIA
INC., herein represented by ALAN HARROW, TAINAN TRADE (TAIWAN), INC., herein represented by ELENA
RANULLO, SUBIC PARK N’ SHOP, herein represented by NORMA MANGALINO DIZON, TRADING GATEWAYS
INTERNATIONAL PHILS., herein represented by MA. CHARINA FE C. RODOLFO, DUTY FREE SUPERSTORE
(DFS), herein represented by RAJESH R. SADHWANI, CHJIMES TRADING INC., herein represented by ANGELO
MARK M. PICARDAL, PREMIER FREEPORT, INC., herein represented by ROMMEL P. GABALDON, FUTURE
TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S. VERIDIANO, GRAND COMTRADE
INTERNATIONAL CORP., herein represented by JULIUS MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC.,
herein represented by ISIDRO M. MUÑOZ, respondents.
DECISION
CARPIO MORALES, J.:
Petitioners seek via petition for certiorari and prohibition to annul (1) the May 4, 2005 Order1 issued by public respondent
Judge Ramon S. Caguioa of the Regional Trial Court (RTC), Branch 74, Olongapo City, granting private respondents’
application for the issuance of a writ of preliminary injunction and (2) the Writ of Preliminary Injunction2 that was issued
pursuant to such Order, which stayed the implementation of Republic Act (R.A.) No. 9334, AN ACT INCREASING THE
EXCISE TAX RATES IMPOSED ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE PURPOSE
SECTIONS 131, 141, 142, 143, 144, 145 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS
AMENDED.
Petitioners likewise seek to enjoin, restrain and inhibit public respondent from enforcing the impugned issuances and from
further proceeding with the trial of Civil Case No. 102-0-05.
The relevant facts are as follows:
In 1992, Congress enacted Republic Act (R.A) No. 72273 or the Bases Conversion and Development Act of 1992 which,
among other things, created the Subic Special Economic and Freeport Zone (SBF4) and the Subic Bay Metropolitan
Authority (SBMA).
R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining, industrial, commercial, financial and investment
center to generate employment opportunities in and around the zone and to attract and promote productive foreign
investments."5 In line with this vision, Section 12 of the law provided:
(b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory
ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special
Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials,
capital and equipment. However, exportation or removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes
under the Customs and Tariff Code and other relevant tax laws of the Philippines;
(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local
and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three
percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic
Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected
by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby
established a development fund of one percent (1%) of the gross income earned by all businesses and
enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside
the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to be base areas.
In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special
Economic Zone, the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied and free markets for foreign exchange, gold, securities and future
shall be allowed and maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary Board, shall supervise and regulate the operations of banks and
other financial institutions within the Subic Special Economic Zone;
(f) Banking and finance shall be liberalized with the establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone whose continuing investment shall not be less than Two
hundred fifty thousand dollars ($250,000), his/her spouse and dependent children under twenty-one (21) years of
age, shall be granted permanent resident status within the Subic Special Economic Zone. They shall have
freedom of ingress and egress to and from the Subic Special Economic Zone without any need of special
authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan Authority referred to in
Section 13 of this Act may also issue working visas renewal every two (2) years to foreign executives and other
aliens possessing highly-technical skills which no Filipino within the Subic Special Economic Zone possesses, as
certified by the Department of Labor and Employment. The names of aliens granted permanent residence status
and working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of Immigration and
Deportation within thirty (30) days after issuance thereof;
x x x x. (Emphasis supplied)
Pursuant to the law, private respondents Indigo Distribution Corporation, W Star Trading and Warehousing Corporation,
Freedom Brands Philippines Corporation, Branded Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park
‘N Shop, Incorporated, Trading Gateways International Philipines, Inc., Duty Free Superstore (DFS) Inc., Chijmes Trading,
Inc., Premier Freeport, Inc., Future Trade Subic Freeport, Inc., Grand Comtrade Int’l., Corp., and First Platinum
International, Inc., which are all domestic corporations doing business at the SBF, applied for and were granted
Certificates of Registration and Tax Exemption6 by the SBMA.
These certificates allowed them to engage in the business either of trading, retailing or wholesaling, import and export,
warehousing, distribution and/or transshipment of general merchandise, including alcohol and tobacco products, and
uniformly granted them tax exemptions for such importations as contained in the following provision of their respective
Certificates:
ARTICLE IV. The Company shall be entitled to tax and duty-free importation of raw materials, capital
equipment, and household and personal items for use solely within the Subic Bay Freeport Zone pursuant
to Sections 12(b) and 12(c) of the Act and Sections 43, 45, 46 and 49 of the Implementing Rules. All importations
by the Company are exempt from inspection by the Societe Generale de Surveillance if such importations are
delivered immediately to and for use solely within the Subic Bay Freeport Zone. (Emphasis supplied)
Congress subsequently passed R.A. No. 9334, however, effective on January 1, 2005,7 Section 6 of which provides:
Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as amended, is hereby amended to read as
follows:
Sec. 131. Payment of Excise Taxes on Imported Articles. –
(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or importer to the Customs
Officers, conformably with the regulations of the Department of Finance and before the release of such articles
from the customshouse or by the person who is found in possession of articles which are exempt from excise
taxes other than those legally entitled to exemption.
In the case of tax-free articles brought or imported into the Philippines by persons, entities or agencies exempt
from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and
internal revenue tax due on such importation.
The provision of any special or general law to the contrary notwithstanding, the importation of cigars and
cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and
duty free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due
thereon. This shall apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought
directly into the duly chartered or legislated freeports of the Subic Economic Freeport Zone, created
under Republic Act No. 7227; x x x and such other freeports as may hereafter be established or created by law:
Provided, further, That importations of cigars and cigarettes, distilled spirits, fermented liquors and wines made
directly by a government-owned and operated duty-free shop, like the Duty Free Philippines (DFP), shall be
exempted from all applicable duties only: x x x Provided, finally, That the removal and transfer of tax and duty-free
goods, products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits,
fermented liquors and wines, from one Freeport to another Freeport, shall not be deemed an introduction into the
Philippine customs territory. x x x. (Emphasis and underscoring supplied)
On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a Memorandum8 declaring that effective
January 1, 2005, all importations of cigars, cigarettes, distilled spirits, fermented liquors and wines into the SBF, including
those intended to be transshipped to other free ports in the Philippines, shall be treated as ordinary importations subject to
all applicable taxes, duties and charges, including excise taxes.
Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR) Commissioner Guillermo L. Parayno, Jr.
requested then Customs Commissioner George M. Jereos to immediately collect the excise tax due on imported alcohol
and tobacco products brought to the Duty Free Philippines (DFP) and Freeport zones.9
Accordingly, the Collector of Customs of the port of Subic directed the SBMA Administrator to require payment of all
appropriate duties and taxes on all importations of cigars and cigarettes, distilled spirits, fermented liquors and wines; and
for all transactions involving the said items to be covered from then on by a consumption entry and no longer by a
warehousing entry.10
On February 7, 2005, SBMA issued a Memorandum11 directing the departments concerned to require locators/importers in
the SBF to pay the corresponding duties and taxes on their importations of cigars, cigarettes, liquors and wines before
said items are cleared and released from the freeport. However, certain SBF locators which were "exclusively engaged in
the transshipment of cigarette products for foreign destinations" were allowed by the SBMA to process their import
documents subject to their submission of an Undertaking with the Bureau of Customs.12
On February 15, 2005, private respondents wrote the offices of respondent Collector of Customs and the SBMA
Administrator requesting for a reconsideration of the directives on the imposition of duties and taxes, particularly excise
taxes, on their shipments of cigars, cigarettes, wines and liquors.13 Despite these letters, however, they were not allowed
to file any warehousing entry for their shipments.
Thus, private respondent enterprises, through their representatives, brought before the RTC of Olongapo City a special
civil action for declaratory relief14 to have certain provisions of R.A. No. 9334 declared as unconstitutional, which case was
docketed as Civil Case No. 102-0-05.
In the main, private respondents submitted that (1) R.A. No. 9334 should not be interpreted as altering, modifying or
amending the provisions of R.A. No. 7227 because repeals by implication are not favored; (2) a general law like R.A. No.
9334 cannot amend R.A. No. 7727, which is a special law; and (3) the assailed law violates the one bill-one subject rule
embodied in Section 26(1), Article VI15 of the Constitution as well as the constitutional proscription against the impairment
of the obligation of contracts.16
Alleging that great and irreparable loss and injury would befall them as a consequence of the imposition of taxes on
alcohol and tobacco products brought into the SBF, private respondents prayed for the issuance of a writ of preliminary
injunction and/or Temporary Restraining Order (TRO) and preliminary mandatory injunction to enjoin the directives of
herein petitioners.
Petitioners duly opposed the private respondents’ prayer for the issuance of a writ of preliminary injunction and/or TRO,
arguing that (1) tax exemptions are not presumed and even when granted, are strictly construed against the grantee; (2)
an increase in business expense is not the injury contemplated by law, it being a case of damnum absque injuria; and (3)
the drawback mechanism established in the law clearly negates the possibility of the feared injury.17
Petitioners moreover pointed out that courts are enjoined from issuing a writ of injunction and/or TRO on the grounds of
an alleged nullity of a law, ordinance or administrative regulation or circular or in a manner that would effectively dispose
of the main case. Taxes, they stressed, are the lifeblood of the government and their prompt and certain availability is an
imperious need. They maintained that greater injury would be inflicted on the public should the writ be granted.
On May 4, 2005, the court a quo granted private respondents’ application for the issuance of a writ of preliminary
injunction, after it found that the essential requisites for the issuance of a preliminary injunction were present.
As investors duly licensed to operate inside the SBF, the trial court declared that private respondents were entitled to
enjoy the benefits of tax incentives under R.A. No. 7227, particularly the exemption from local and national taxes under
Section 12(c); the aforecited provision of R.A. No. 7227, coupled with private respondents’ Certificates of Registration and
Tax Exemption from the SBMA, vested in them a clear and unmistakable right or right in esse that would be violated
should R.A. No. 9334 be implemented; and the invasion of such right is substantial and material as private respondents
would be compelled to pay more than what they should by way of taxes to the national government.
The trial court thereafter ruled that the prima facie presumption of validity of R.A. No. 9334 had been overcome by private
respondents, it holding that as a partial amendment of the National Internal Revenue Code (NIRC) of 1997,18 as amended,
R.A. No. 9334 is a general law that could not prevail over a special statute like R.A. No. 7227 notwithstanding the fact that
the assailed law is of later effectivity.
The trial court went on to hold that the repealing provision of Section 10 of R.A. No. 9334 does not expressly mention the
repeal of R. A. No. 7227, hence, its repeal can only be an implied repeal, which is not favored; and since R.A. No. 9334
imposes new tax burdens, whatever doubts arising therefrom should be resolved against the taxing authority and in favor
of the taxpayer.
The trial court furthermore held that R.A. No. 9334 violates the terms and conditions of private respondents’ subsisting
contracts with SBMA, which are embodied in their Certificates of Registration and Exemptions in contravention of the
constitutional guarantee against the impairment of contractual obligations; that greater damage would be inflicted on
private respondents if the writ of injunction is not issued as compared to the injury that the government and the general
public would suffer from its issuance; and that the damage that private respondents are bound to suffer once the assailed
statute is implemented – including the loss of confidence of their foreign principals, loss of business opportunity and
unrealized income, and the danger of closing down their businesses due to uncertainty of continued viability – cannot be
measured accurately by any standard.
With regard to the rule that injunction is improper to restrain the collection of taxes under Section 21819 of the NIRC, the
trial court held that what is sought to be enjoined is not per se the collection of taxes, but the implementation of a statute
that has been found preliminarily to be unconstitutional.
Additionally, the trial court pointed out that private respondents’ taxes have not yet been assessed, as they have not filed
consumption entries on all their imported tobacco and alcohol products, hence, their duty to pay the corresponding excise
taxes and the concomitant right of the government to collect the same have not yet materialized.
On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing petitioners and the SBMA Administrator
as well as all persons assisting or acting for and in their behalf "1) to allow the operations of [private respondents] in
accordance with R.A. No. 7227; 2) to allow [them] to file warehousing entries instead of consumption entries as regards
their importation of tobacco and alcohol products; and 3) to cease and desist from implementing the pertinent provisions
of R.A. No. 9334 by not compelling [private respondents] to immediately pay duties and taxes on said alcohol and tobacco
products as a condition to their removal from the port area for transfer to the warehouses of [private respondents]."20
The injunction bond was approved at One Million pesos (P1,000,000).21
Without moving for reconsideration, petitioners have come directly to this Court to question the May 4, 2005 Order and the
Writ of Preliminary Injunction which, they submit, were issued by public respondent with grave abuse of discretion
amounting to lack or excess of jurisdiction.
In particular, petitioners contend that public respondent peremptorily and unjustly issued the injunctive writ despite the
absence of the legal requisites for its issuance, resulting in heavy government revenue losses.22 They emphatically argue
that since the tax exemption previously enjoyed by private respondents has clearly been withdrawn by R.A. No. 9334,
private respondents do not have any right in esse nor can they invoke legal injury to stymie the enforcement of R.A. No.
9334.
Furthermore, petitioners maintain that in issuing the injunctive writ, public respondent showed manifest bias and prejudice
and prejudged the merits of the case in utter disregard of the caveat issued by this Court in Searth Commodities
Corporation, et al. v. Court of Appeals 23 and Vera v. Arca.24
Regarding the P1 million injunction bond fixed by public respondent, petitioners argue that the same is grossly
disproportionate to the damages that have been and continue to be sustained by the Republic.
In their Reply25 to private respondents’ Comment, petitioners additionally plead public respondent’s bias and partiality in
allowing the motions for intervention of a number of corporations26 without notice to them and in disregard of their present
pending petition for certiorari and prohibition before this Court. The injunction bond filed by private respondent Indigo
Distribution Corporation, they stress, is not even sufficient to cover all the original private respondents, much less,
intervenor-corporations.
The petition is partly meritorious.
At the outset, it bears emphasis that only questions relating to the propriety of the issuance of the May 4, 2005 Order and
the Writ of Preliminary Injunction are properly within the scope of the present petition and shall be so addressed in order
to determine if public respondent committed grave abuse of discretion. The arguments raised by private respondents
which pertain to the constitutionality of R.A. No. 9334 subject matter of the case pending litigation before the trial court
have no bearing in resolving the present petition.
Section 3 of Rule 58 of the Revised Rules of Court provides:
SEC. 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is
established.
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts,
either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation
would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering
to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment ineffectual.
For a writ of preliminary injunction to issue, the plaintiff must be able to establish that (1) there is a clear and unmistakable
right to be protected, (2) the invasion of the right sought to be protected is material and substantial, and (3) there is an
urgent and paramount necessity for the writ to prevent serious damage.27
Conversely, failure to establish either the existence of a clear and positive right which should be judicially protected
through the writ of injunction, or of the acts or attempts to commit any act which endangers or tends to endanger the
existence of said right, or of the urgent need to prevent serious damage, is a sufficient ground for denying the preliminary
injunction.28
It is beyond cavil that R.A. No. 7227 granted private respondents exemption from local and national taxes, including
excise taxes, on their importations of general merchandise, for which reason they enjoyed tax-exempt status until the
effectivity of R.A. No. 9334.
By subsequently enacting R.A. No. 9334, however, Congress expressed its intention to withdraw private respondents’ tax
exemption privilege on their importations of cigars, cigarettes, distilled spirits, fermented liquors and wines. Juxtaposed to
show this intention are the respective provisions of Section 131 of the NIRC before and after its amendment by R.A. No.
9334:
x x x x.
Sec. 131 of NIRC before R.A. No. 9334 Sec. 131, as amended by R.A. No. 9334
Sec. 131. Payment of Excise Taxes on Sec. 131. Payment of Excise Taxes on
Imported Articles. – Imported Articles. –
(A) Persons Liable. – Excise taxes on (A) Persons Liable. – Excise taxes on
imported articles shall be paid by the imported articles shall be paid by the
owner or importer to the Customs Officers, owner or importer to the Customs Officers,
conformably with the regulations of the conformably with the regulations of the
Department of Finance and before the Department of Finance and before the
release of such articles from the customs release of such articles from the customs
house or by the person who is found in house or by the person who is found in
possession of articles which are exempt possession of articles which are exempt
from excise taxes other than those legally from excise taxes other than those legally
entitled to exemption. entitled to exemption.
In the case of tax-free articles brought or In the case of tax-free articles brought or
imported into the Philippines by persons, imported into the Philippines by persons,
entities or agencies exempt from tax which entities or agencies exempt from tax which
are subsequently sold, transferred or are subsequently sold, transferred or
exchanged in the Philippines to non- exchanged in the Philippines to non-
exempt persons or entities, the purchasers exempt persons or entities, the purchasers
or recipients shall be considered the or recipients shall be considered the
importers thereof, and shall be liable for importers thereof, and shall be liable for
the duty and internal revenue tax due on the duty and internal revenue tax due on
such importation. such importation.
The provision of any special or general law The provision of any special or general
to the contrary notwithstanding, the law to the contrary notwithstanding, the
importation of cigars and cigarettes, importation of cigars and cigarettes,
distilled spirits, fermented liquors and distilled spirits, fermented liquors and
wines into the Philippines, even if destined wines into the Philippines, even if
for tax and duty free shops, shall be destined for tax and duty free shops,
subject to all applicable taxes, duties, shall be subject to all applicable taxes,
charges, including excise taxes due duties, charges, including excise taxes
thereon. Provided, however, That this due thereon. This shall apply to cigars
shall not apply to cigars and cigarettes, and cigarettes, distilled spirits,
fermented spirits and wines brought fermented liquors and wines brought
directly into the duly chartered or directly into the duly chartered or
legislated freeports of the Subic legislated freeports of the Subic
Economic Freeport Zone, created under Economic Freeport Zone, created under
Republic Act No. 7227; the Cagayan Republic Act No. 7227; the Cagayan
Special Economic Zone and Freeport, Special Economic Zone and Freeport,
created under Republic Act No. 7922; created under Republic Act No. 7922;
and the Zamboanga City Special Economic and the Zamboanga City Special Economic
Zone, created under Republic Act No. Zone, created under Republic Act No.
7903, and are not transshipped to any 7903, and such other freeports as may
other port in the Philippines: Provided, hereafter be established or created by
further, That importations of cigars and law: Provided, further, That importations of
cigarettes, distilled spirits, fermented cigars and cigarettes, distilled spirits,
liquors and wines made directly by a fermented liquors and wines made directly
government-owned and operated duty-free by a government-owned and operated
shop, like the Duty Free Philippines (DFP), duty-free shop, like the Duty Free
shall be exempted from all applicable Philippines (DFP), shall be exempted from
duties, charges, including excise tax due all applicable duties only: Provided still
thereon; Provided still further, That such further, That such articles directly imported
articles directly imported by a government- by a government-owned and operated
owned and operated duty-free shop, like duty-free shop, like the Duty-Free
the Duty-Free Philippines, shall be labeled Philippines, shall be labeled "tax and duty-
"tax and duty-free" and "not for resale": free" and "not for resale": Provided, finally,
Provided, still further, That if such articles That the removal and transfer of tax and
brought into the duly chartered or duty-free goods, products, machinery,
legislated freeports under Republic Acts equipment and other similar articles other
Nos. 7227, 7922 and 7903 are than cigars and cigarettes, distilled spirits,
subsequently introduced into the Philippine fermented liquors and wines, from one
customs territory, then such articles shall, Freeport to another Freeport, shall not be
upon such introduction, be deemed deemed an introduction into the Philippine
imported into the Philippines and shall be customs territory.
subject to all imposts and excise taxes
provided herein and other statutes: x x x x.
Provided, finally, That the removal and
transfer of tax and duty-free goods,
products, machinery, equipment and other
similar articles, from one freeport to
another freeport, shall not be deemed an
introduction into the Philippine customs
territory.
x x x x.
(Emphasis and underscoring supplied)
To note, the old Section 131 of the NIRC expressly provided that all taxes, duties, charges, including excise taxes
shall not apply to importations of cigars, cigarettes, fermented spirits and wines brought directly into the duly chartered or
legislated freeports of the SBF.
On the other hand, Section 131, as amended by R.A. No. 9334, now provides that such taxes, duties and charges,
including excise taxes, shall apply to importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into
the SBF.
Without necessarily passing upon the validity of the withdrawal of the tax exemption privileges of private respondents, it
behooves this Court to state certain basic principles and observations that should throw light on the propriety of the
issuance of the writ of preliminary injunction in this case.
First. Every presumption must be indulged in favor of the constitutionality of a statute.29 The burden of proving the
unconstitutionality of a law rests on the party assailing the law.30 In passing upon the validity of an act of a co-equal and
coordinate branch of the government, courts must ever be mindful of the time-honored principle that a statute is presumed
to be valid.
Second. There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its
continuance doubtful. Being a mere statutory privilege,31 a tax exemption may be modified or withdrawn at will by the
granting authority.32
To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme. The
power to impose taxes is one so unlimited in force and so searching in extent, it is subject only to restrictions which rest
on the discretion of the authority exercising it.33
Third. As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the
taxing authority.34 The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the
exemption so claimed.35 In case of doubt, non-exemption is favored.36
Fourth. A tax exemption cannot be grounded upon the continued existence of a statute which precludes its change or
repeal.37 Flowing from the basic precept of constitutional law that no law is irrepealable, Congress, in the legitimate
exercise of its lawmaking powers, can enact a law withdrawing a tax exemption just as efficaciously as it may grant the
same under Section 28(4) of Article VI38 of the Constitution. There is no gainsaying therefore that Congress can amend
Section 131 of the NIRC in a manner it sees fit, as it did when it passed R.A. No. 9334.
Fifth. The rights granted under the Certificates of Registration and Tax Exemption of private respondents are not absolute
and unconditional as to constitute rights in esse – those clearly founded on or granted by law or is enforceable as a matter
of law.39
These certificates granting private respondents a "permit to operate" their respective businesses are in the nature of
licenses, which the bulk of jurisprudence considers as neither a property nor a property right.40 The licensee takes his
license subject to such conditions as the grantor sees fit to impose, including its revocation at pleasure.41 A license can
thus be revoked at any time since it does not confer an absolute right.42
While the tax exemption contained in the Certificates of Registration of private respondents may have been part of the
inducement for carrying on their businesses in the SBF, this exemption, nevertheless, is far from being contractual in
nature in the sense that the non-impairment clause of the Constitution can rightly be invoked.43
Sixth. Whatever right may have been acquired on the basis of the Certificates of Registration and Tax Exemption must
yield to the State’s valid exercise of police power.44 It is well to remember that taxes may be made the implement of the
police power.45
It is not difficult to recognize that public welfare and necessity underlie the enactment of R.A. No. 9334. As petitioners
point out, the now assailed provision was passed to curb the pernicious practice of some unscrupulous business
enterprises inside the SBF of using their tax exemption privileges for smuggling purposes. Smuggling in whatever form is
bad enough; it is worse when the same is allegedly perpetrated, condoned or facilitated by enterprises hiding behind the
cloak of their tax exemption privileges.
Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction which would in effect dispose of the main
case without trial.46 This rule is intended to preclude a prejudgment of the main case and a reversal of the rule on the
burden of proof since by issuing the injunctive writ, the court would assume the proposition that petitioners are inceptively
duty bound to prove.47
Eighth. A court may issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case
of unconstitutionality or invalidity strong enough, in the mind of the judge, to overcome the presumption of validity, in
addition to a showing of a clear legal right to the remedy sought.48
Thus, it is not enough that petitioners make out a case of unconstitutionality or invalidity to overcome the prima
facie presumption of validity of a statute; they must also be able to show a clear legal right that ought to be protected by
the court. The issuance of the writ is therefore not proper when the complainant’s right is doubtful or disputed.49
Ninth. The feared injurious effects of the imposition of duties, charges and taxes on imported cigars, cigarettes, distilled
spirits, fermented liquors and wines on private respondents’ businesses cannot possibly outweigh the dire consequences
that the non-collection of taxes, not to mention the unabated smuggling inside the SBF, would wreak on the government.
Whatever damage would befall private respondents must perforce take a back seat to the pressing need to curb
smuggling and raise revenues for governmental functions.
All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower court, this Court may
and should intervene in a clear case of abuse.50
One such case of grave abuse obtained in this case when public respondent issued his Order of May 4, 2005 and the Writ
of Preliminary Injunction on May 11, 200551 despite the absence of a clear and unquestioned legal right of private
respondents.
In holding that the presumption of constitutionality and validity of R.A. No. 9334 was overcome by private respondents for
the reasons public respondent cited in his May 4, 2005 Order, he disregarded the fact that as a condition sine qua non to
the issuance of a writ of preliminary injunction, private respondents needed also to show a clear legal right that ought to
be protected. That requirement is not satisfied in this case.
To stress, the possibility of irreparable damage without proof of an actual existing right would not justify an injunctive
relief.52
Besides, private respondents are not altogether lacking an appropriate relief under the law. As petitioners point out in their
Petition53 before this Court, private respondents may avail themselves of a tax refund or tax credit should R.A. No. 9334
be finally declared invalid.
Indeed, Sections 20454 and 22955 of the NIRC provide for the recovery of erroneously or illegally collected taxes which
would be the nature of the excise taxes paid by private respondents should Section 6 of R.A. No. 9334 be declared
unconstitutional or invalid.
It may not be amiss to add that private respondents can also opt not to import, or to import less of, those items which no
longer enjoy tax exemption under R.A. No. 9334 to avoid the payment of taxes thereon.
The Court finds that public respondent had also ventured into the delicate area which courts are cautioned from taking
when deciding applications for the issuance of the writ of preliminary injunction. Having ruled preliminarily against
the prima facie validity of R.A. No. 9334, he assumed in effect the proposition that private respondents in their petition for
declaratory relief were duty bound to prove, thereby shifting to petitioners the burden of proving that R.A. No. 9334 is not
unconstitutional or invalid.
In the same vein, the Court finds public respondent to have overstepped his discretion when he arbitrarily fixed the
injunction bond of the SBF enterprises at only P1million.
The alleged sparseness of the testimony of Indigo Corporation’s representative56 on the injury to be suffered by private
respondents may be excused because evidence for a preliminary injunction need not be conclusive or complete.
Nonetheless, considering the number of private respondent enterprises and the volume of their businesses, the injunction
bond is undoubtedly not sufficient to answer for the damages that the government was bound to suffer as a consequence
of the suspension of the implementation of the assailed provisions of R.A. No. 9334.
Rule 58, Section 4(b) provides that a bond is executed in favor of the party enjoined to answer for all damages which it
may sustain by reason of the injunction. The purpose of the injunction bond is to protect the defendant against loss or
damage by reason of the injunction in case the court finally decides that the plaintiff was not entitled to it, and the bond is
usually conditioned accordingly.57
Recalling this Court’s pronouncements in Olalia v. Hizon58 that:
x x x [T]here is no power the exercise of which is more delicate, which requires greater caution, deliberation and
sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of
equity that should never be extended unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and
should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law
permits it and the emergency demands it,
it cannot be overemphasized that any injunction that restrains the collection of taxes, which is the inevitable result of the
suspension of the implementation of the assailed Section 6 of R.A. No. 9334, is a limitation upon the right of the
government to its lifeline and wherewithal.
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.59 That the enforcement of tax laws and the collection of taxes are of paramount
importance for the sustenance of government has been repeatedly observed. Taxes being the lifeblood of the government
that should be collected without unnecessary hindrance,60 every precaution must be taken not to unduly suppress it.
Whether this Court must issue the writ of prohibition, suffice it to stress that being possessed of the power to act on the
petition for declaratory relief, public respondent can proceed to determine the merits of the main case. To halt the
proceedings at this point may be acting too prematurely and would not be in keeping with the policy that courts must
decide controversies on the merits.
Moreover, lacking the requisite proof of public respondent’s alleged partiality, this Court has no ground to prohibit him
from proceeding with the case for declaratory relief. For these reasons, prohibition does not lie.
WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify and set aside the Order of May 4, 2005
as well as the Writ of Preliminary Injunction issued by respondent Judge Caguioa on May 11, 2005 is GRANTED. The
assailed Order and Writ of Preliminary Injunction are hereby declared NULL AND VOID and accordingly SET ASIDE. The
writ of prohibition prayed for is, however, DENIED.
SO ORDERED.
