Tax Cases Full Text for Assignment No 3

8/13/2019 Tax Cases Full Text for Assignment No 3

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G.R. No. 164171 February 20, 2006

HON. EXECUTIVE SECRETARY, HON. SECRETARY OF THE DEPARTMENT OFTRANSPORTATION AND COMMUNICATIONS (DOTC), COMMISSIONER OF CUSTOMS,ASSISTANT SECRETARY, LAND TRANSPORTATION OFFICE (LTO), COLLECTOR OFCUSTOMS, SUBIC BAY FREE PORT ZONE, AND CHIEF OF LTO, SUBIC BAY FREE PORT

ZONE,Petitioners,vs.SOUTHWING HEAVY INDUSTRIES, INC., represented by its President JOSE T. DIZON,UNITED AUCTIONEERS, INC., represented by its President DOMINIC SYTIN, and MICROVAN,INC., represented by its President MARIANO C. SONON,Respondents.

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

G.R. No. 164172 February 20, 2006

HON. EXECUTIVE SECRETARY, SECRETARY OF THE DEPARTMENT OF TRANSPORTATIONAND COMMUNICATION (DOTC), COMMISSIONER OF CUSTOMS, ASSISTANT SECRETARY,

LAND TRANSPORTATION OFFICE (LTO), COLLECTOR OF CUSTOMS, SUBIC BAY FREEPORT ZONE AND CHIEF OF LTO, SUBIC BAY FREE PORT ZONE,Petitioners,vs.SUBIC INTEGRATED MACRO VENTURES CORP., represented by its President YOLANDAAMBAR,Respondent.

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G.R. No. 168741 February 20, 2006

HON. EXECUTIVE SECRETARY, HON. SECRETARY OF FINANCE, THE CHIEF OF THE LANDTRANSPORTATION OFFICE, THE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF

CUSTOMS, SUBIC SPECIAL ECONOMIC ZONE,Petitioners,vs.MOTOR VEHICLE IMPORTERS ASSOCIATION OF SUBIC BAY FREEPORT, INC., representedby its President ALFREDO S. GALANG,Respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

The instant consolidated petitions seek to annul and set aside the Decisions of the Regional TrialCourt of Olongapo City, Branch 72, in Civil Case No. 20-0-04 and Civil Case No. 22-0-04, both datedMay 24, 2004; and the February 14, 2005 Decision of the Court of Appeals in CA-G.R. SP. No.83284, which declared Article 2, Section 3.1 of Executive Order No. 156 (EO 156) unconstitutional.Said executive issuance prohibits the importation into the country, inclusive of the Special Economicand Freeport Zone or the Subic Bay Freeport (SBF or Freeport), of used motor vehicles, subject to afew exceptions.

The undisputed facts show that on December 12, 2002, President Gloria Macapagal-Arroyo, throughExecutive Secretary Alberto G. Romulo, issued EO 156, entitled "Providing for a comprehensiveindustrial policy and directions for the motor vehicle development program and its implementingguidelines." The challenged provision states:


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3.1 The importation into the country, inclusive of the Freeport, of all types of usedmotor vehicles is prohibited, except for the following:

3.1.1 A vehicle that is owned and for the personal use of a returning resident orimmigrant and covered by an authority to import issued under the No-dollarImportation Program. Such vehicles cannot be resold for at least three (3) years;

3.1.2 A vehicle for the use of an official of the Diplomatic Corps and authorized to beimported by the Department of Foreign Affairs;

3.1.3 Trucks excluding pickup trucks;

1. with GVW of 2.5-6.0 tons covered by an authority to import issued by theDTI.

2. With GVW above 6.0 tons.

3.1.4 Buses:

1. with GVW of 6-12 tons covered by an authority to import issued by DTI;

2. with GVW above 12 tons.

3.1.5 Special purpose vehicles:

1. fire trucks

2. ambulances

3. funeral hearse/coaches

4. crane lorries

5. tractor heads and truck tractors

6. boom trucks

7. tanker trucks

8. tank lorries with high pressure spray gun

9. reefers or refrigerated trucks

10. mobile drilling derricks

11. transit/concrete mixers

12. mobile radiological units

13. wreckers or tow trucks


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14. concrete pump trucks

15. aerial/bucket flat-form trucks

16. street sweepers

17. vacuum trucks

18. garbage compactors

19. self loader trucks

20. man lift trucks

21. lighting trucks

22. trucks mounted with special purpose equipment

23. all other types of vehicle designed for a specific use.

The issuance of EO 156 spawned three separate actions for declaratory relief before Branch 72 ofthe Regional Trial Court of Olongapo City, all seeking the declaration of the unconstitutionality of

Article 2, Section 3.1 of said executive order. The cases were filed by herein respondent entities,who or whose members, are classified as Subic Bay Freeport Enterprises and engaged in thebusiness of, among others, importing and/or trading used motor vehicles.

G.R. No. 164171:

On January 16, 2004, respondents Southwing Heavy Industries, Inc., (Southwing) UnitedAuctioneers, Inc. (United Auctioneers), and Microvan, Inc. (Microvan), instituted a declaratory reliefcase docketed as Civil Case No. 20-0-04,1against the Executive Secretary, Secretary ofTransportation and Communication, Commissioner of Customs, Assistant Secretary and Head of theLand Transportation Office, Subic Bay Metropolitan Authority (SBMA), Collector of Customs for thePort at Subic Bay Freeport Zone, and the Chief of the Land Transportation Office at Subic BayFreeport Zone.

Southwing, United Auctioneers and Microvan prayed that judgment be rendered (1) declaring Article2, Section 3.1 of EO 156 unconstitutional and illegal; (2) directing the Secretary of Finance,Commissioner of Customs, Collector of Customs and the Chairman of the SBMA to allow theimportation of used motor vehicles; (2) ordering the Land Transportation Office and its subordinatesinside the Subic Special Economic Zone to process the registration of the imported used motorvehicles; and (3) in general, to allow the unimpeded entry and importation of used motor vehicles

subject only to the payment of the required customs duties.

Upon filing of petitioners answer/comment, respondents Southwing and Microvan filed a motion forsummary judgment which was granted by the trial court. On May 24, 2004, a summary judgmentwas rendered declaring that Article 2, Section 3.1 of EO 156 constitutes an unlawful usurpation oflegislative power vested by the Constitution with Congress. The trial court further held that theproviso is contrary to the mandate of Republic Act No. 7227 (RA 7227) or the Bases Conversion andDevelopment Act of 1992 which allows the free flow of goods and capital within the Freeport. Thedispositive portion of the said decision reads:
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WHEREFORE, judgment is hereby rendered in favor of petitioner declaring Executive Order 156[Article 2, Section] 3.1 for being unconstitutional and illegal; directing respondents Collector ofCustoms based at SBMA to allow the importation and entry of used motor vehicles pursuant to themandate of RA 7227; directing respondent Chief of the Land Transportation Office and itssubordinates inside the Subic Special Economic Zone or SBMA to process the registration ofimported used motor vehicle; and in general, to allow unimpeded entry and importation of used

motor vehicles to the Philippines subject only to the payment of the required customs duties.

SO ORDERED.2

From the foregoing decision, petitioners sought relief before this Court viaa petition for review oncertiorari, docketed as G.R. No. 164171.

G.R. No. 164172:

On January 20, 2004, respondent Subic Integrated Macro Ventures Corporation (Macro Ventures)filed with the same trial court, a similar action for declaratory relief docketed as Civil Case No. 22-0-04,3with the same prayer and against the same parties4as those in Civil Case No. 20-0-04.

In this case, the trial court likewise rendered a summary judgment on May 24, 2004, holding thatArticle 2, Section 3.1 of EO 156, is repugnant to the constitution.5Elevated to this Court viaa petitionfor review on certiorari, Civil Case No. 22-0-04 was docketed as G.R. No. 164172.

G.R. No. 168741

On January 22, 2003, respondent Motor Vehicle Importers Association of Subic Bay Freeport, Inc.(Association), filed another action for declaratory relief with essentially the same prayer as those inCivil Case No. 22-0-04 and Civil Case No. 20-0-04, against the Executive Secretary, Secretary ofFinance, Chief of the Land Transportation Office, Commissioner of Customs, Collector of Customsat SBMA and the Chairman of SBMA. This was docketed as Civil Case No. 30-0-2003,6before the

same trial court.

In a decision dated March 10, 2004, the court a quo granted the Associations prayer and declaredthe assailed proviso as contrary to the Constitution, to wit:

WHEREFORE, judgment is hereby rendered in favor of petitioner declaring Executive Order 156[Article 2, Section] 3.1 for being unconstitutional and illegal; directing respondents Collector ofCustoms based at SBMA to allow the importation and entry of used motor vehicles pursuant to themandate of RA 7227; directing respondent Chief of the Land Transportation Office and itssubordinates inside the Subic Special Economic Zone or SBMA to process the registration ofimported used motor vehicles; directing the respondent Chairman of the SBMA to allow the entryinto the Subic Special Economic Zone or SBMA imported used motor vehicle; and in general, toallow unimpeded entry and importation of used motor vehicles to the Philippines subject only to the

payment of the required customs duties.

SO ORDERED.7

Aggrieved, the petitioners in Civil Case No. 30-0-2003, filed a petition for certiorari8with the Court ofAppeals (CA-G.R. SP. No. 83284) which denied the petition on February 14, 2005 and sustained thefinding of the trial court that Article 2, Section 3.1 of EO 156, is void for being repugnant to theconstitution. The dispositive portion thereof, reads:
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WHEREFORE, the instant petition for certiorari is hereby DENIED. The assailed decision of theRegional Trial Court, Third Judicial Region, Branch 72, Olongapo City, in Civil Case No. 30-0-2003,accordingly, STANDS.

SO ORDERED.9

The aforequoted decision of the Court of Appeals was elevated to this Court and docketed as G.R.No. 168741. In a Resolution dated October 4, 2005,10said case was consolidated with G.R. No.164171 and G.R. No. 164172.

Petitioners are now before this Court contending that Article 2, Section 3.1 of EO 156 is valid andapplicable to the entire country, including the Freeeport. In support of their arguments, they raiseprocedural and substantive issues bearing on the constitutionality of the assailed proviso.The procedural issuesare: the lack of respondentslocus standi to question the validity of EO 156,the propriety of challenging EO 156 in a declaratory relief proceeding and the applicability of a

judgment on the pleadings in this case.

Petitioners argue that respondents will not be affected by the importation ban considering that their

certificate of registration and tax exemption do not authorize them to engage in the importationand/or trading of used cars. They also aver that the actions filed by respondents do not qualify asdeclaratory relief cases. Section 1, Rule 63 of the Rules of Court provides that a petition fordeclaratory relief may be filed before there is a breach or violation of rights. Petitioners claim thatthere was already a breach of respondents supposed right because the cases were filed more thana year after the issuance of EO 156. In fact, in Civil Case No. 30-0-2003, numerous warrants ofseizure and detention were issued against imported used motor vehicles belonging to respondent

Associations members.

Petitioners arguments lack merit.

The established rule that the constitutionality of a law or administrative issuance can be challengedby one who will sustain a direct injury as a result of its enforcement11has been satisfied in the instantcase. The broad subject of the prohibited importation is "all types of used motor vehicles."Respondents would definitely suffer a direct injury from the implementation of EO 156 because theircertificate of registration and tax exemption authorize them to trade and/or import new andused motor vehicles and spare parts, except "used cars."12Other types of motor vehicles importedand/or traded by respondents and not falling within the category of used carswould thus besubjected to the ban to the prejudice of their business. Undoubtedly, respondents have the legalstanding to assail the validity of EO 156.

As to the propriety of declaratory relief as a vehicle for assailing the executive issuance, suffice it tostate that any breach of the rights of respondents will not affect the case. In Commission on Audit ofthe Province of Cebu v. Province of Cebu,13the Court entertained a suit for declaratory relief tofinally settle the doubt as to the proper interpretation of the conflicting laws involved, notwithstanding

a violation of the right of the party affected. We find no reason to deviate from said ruling mindful ofthe significance of the present case to the national economy.

So also, summary judgments were properly rendered by the trial court because the issues involvedin the instant case were pure questions of law. A motion for summary judgment is premised on theassumption that the issues presented need not be tried either because these are patently devoid ofsubstance or that there is no genuine issue as to any pertinent fact. It is a method sanctioned by theRules of Court for the prompt disposition of a civil action in which the pleadings raise only a legalissue, not a genuine issue as to any material fact.14
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At any rate, even assuming the procedural flaws raised by petitioners truly exist, the Court is notprecluded from brushing aside these technicalities and taking cognizance of the action filed byrespondents considering its importance to the public and in keeping with the duty to determinewhether the other branches of the government have kept themselves within the limits of theConstitution.15

We now come to the substantive issues, which are: (1) whether there is statutory basis for theissuance of EO 156; and (2) if the answer is in the affirmative, whether the application of Article 2,Section 3.1 of EO 156, reasonable and within the scope provided by law.

The main thrust of the petition is that EO 156 is constitutional because it was issued pursuant to EO226, the Omnibus Investment Code of the Philippines and that its application should be extended tothe Freeport because the guarantee of RA 7227 on the free flow of goods into the said zone ismerely an exemption from customs duties and taxes on items brought into the Freeport and not anopen floodgate for all kinds of goods and materials without restriction.

In G.R. No. 168741, the Court of Appeals invalidated Article 2, Section 3.1 of EO 156, on the groundof lack of any statutory basis for the President to issue the same. It held that the prohibition on the

importation of used motor vehicles is an exercise of police power vested on the legislature andabsent any enabling law, the exercise thereof by the President through an executive issuance, isvoid.

Police power is inherent in a government to enact laws, within constitutional limits, to promote theorder, safety, health, morals, and general welfare of society. It is lodged primarily with the legislature.By virtue of a valid delegation of legislative power, it may also be exercised by the President andadministrative boards, as well as the lawmaking bodies on all municipal levels, including thebarangay.16Such delegation confers upon the Presidentquasi-legislative powerwhich may bedefined as the authority delegated by the law-making body to the administrative body to adopt rulesand regulations intended to carry out the provisions of the law and implement legislative policy .17Tobe valid, an administrative issuance, such as an executive order, must comply with the followingrequisites:

(1) Its promulgation must be authorized by the legislature;

(2) It must be promulgated in accordance with the prescribed procedure;

(3) It must be within the scope of the authority given by the legislature; and

(4) It must be reasonable.18

Contrary to the conclusion of the Court of Appeals, EO 156 actually satisfied the first requisiteof avalid administrative order. It has both constitutional and statutory bases.

Delegation of legislative powers to the President is permitted in Section 28(2) of Article VI of theConstitution. It provides:

(2) The Congress may, by law, authorize the President to fix within specified limits, and subject tosuch limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage andwharfage dues, and other duties or imposts within the framework of the national developmentprogram of the Government.19(Emphasis supplied)
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The relevant statutes to execute this provision are:

1) The Tariff and Customs Codewhich authorizes the President, in the interest of nationaleconomy, general welfare and/or national security, to, inter alia, prohibit the importation of anycommodity. Section 401 thereof, reads:

Sec. 401. Flexible Clause.

a. In the interest of national economy, general welfare and/or national security, and subject tothe limitations herein prescribed, the President, upon recommendation of the NationalEconomic and Development Authority (hereinafter referred to as NEDA), is herebyempowered:x x x (2) to establish import quota or to ban imports of any commodity, as maybe necessary;x x x Provided, That upon periodic investigations by the Tariff Commission andrecommendation of the NEDA, the President may cause a gradual reduction of protection levelsgranted in Section One hundred and four of this Code, including those subsequently grantedpursuant to this section. (Emphasis supplied)

2) Executive Order No. 226, the Omnibus Investment Code of the Philippines which was issued on

July 16, 1987, by then President Corazon C. Aquino, in the exercise of legislative power under theProvisional Freedom Constitution,20empowers the President to approve or reject the prohibition onthe importation of any equipment or raw materials or finished products. Pertinent provisions thereof,read:

ART. 4. Composition of the board. The Board of Investments shall be composed of seven (7)governors: The Secretary of Trade and Industry, three (3) Undersecretaries of Trade and Industry tobe chosen by the President; and three (3) representatives from the government agencies and theprivate sector x x x.

ART. 7. Powers and duties of the Board.

x x x x

(12) Formulate and implement rationalization programs for certain industries whose operation mayresult in dislocation, overcrowding or inefficient use of resources, thus impeding economic growth.For this purpose, the Board may formulate guidelines for progressive manufacturing programs, localcontent programs, mandatory sourcing requirements and dispersal of industries. In appropriatecases and upon approval of the President, the Board may restrict, either totally or partially,the importation of any equipment or raw materials or finished products involved in therationalization program;(Emphasis supplied)

3) Republic Act No. 8800, otherwise known as the "Safeguard Measures Act" (SMA), and entitled"An Act Protecting Local Industries By Providing Safeguard Measures To Be Undertaken InResponse To Increased Imports And Providing Penalties For Violation Thereof,"21designated the

Secretaries22of the Department of Trade and Industry (DTI) and the Department of Agriculture, intheir capacity as alter egosof the President, as the implementing authorities of the safeguardmeasures, which include, inter alia, modification or imposition of any quantitative restriction on theimportation of a product into the Philippines. The purpose of the SMA is stated in the declaration ofpolicy, thus:

SEC. 2. Declaration of Policy.The State shall promote competitiveness of domestic industries andproducers based on sound industrial and agricultural development policies, and efficient use ofhuman, natural and technical resources. In pursuit of this goal and in the public interest, the State
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shall provide safeguard measures to protect domestic industries and producers from increasedimports which cause or threaten to cause serious injury to those domestic industries and producers.

There are thus explicit constitutional and statutory permission authorizing the President to ban orregulate importation of articles and commodities into the country.

Anent the second requisite, that is, that the order must be issued or promulgated in accordancewith the prescribed procedure, it is necessary that the nature of the administrative issuance isproperly determined. As in the enactment of laws, the general rule is that, the promulgation ofadministrative issuances requires previous notice and hearing, the only exception being where thelegislature itself requires it and mandates that the regulation shall be based on certain facts asdetermined at an appropriate investigation.23This exception pertains to the issuance of legislativerulesas distinguished from interpretative ruleswhich give no real consequence more than whatthe law itself has already prescribed;24and are designed merely to provide guidelines to the lawwhich the administrative agency is in charge of enforcing.25A legislative rule, on the other hand, isin the nature of subordinate legislation, crafted to implement a primary legislation.

In Commissioner of Internal Revenue v. Court of Appeals,26andCommissioner of Internal Revenue

v. Michel J. Lhuillier Pawnshop, Inc.,

27

the Court enunciated the doctrine that when an administrativerule goes beyond merely providing for the means that can facilitate or render less cumbersome theimplementation of the law and substantially increases the burden of those governed, it behooves theagency to accord at least to those directly affected a chance to be heard and, thereafter, to be dulyinformed, before the issuance is given the force and effect of law.

In the instant case, EO 156 is obviously a legislative rule as it seeks to implement or execute primarylegislative enactments intended to protect the domestic industry by imposing a ban on theimportation of a specified product not previously subject to such prohibition. The due processrequirements in the issuance thereof are embodied in Section 40128of the Tariff and Customs Codeand Sections 5 and 9 of the SMA29which essentially mandate the conduct of investigation and publichearings before the regulatory measure or importation ban may be issued.

In the present case, respondents neither questioned before this Court nor with the courts below theprocedure that paved the way for the issuance of EO 156. What they challenged in their petitionsbefore the trial court was the absence of "substantive due process" in the issuance of the EO.30Theirmain contention before the court a quois that the importation ban is illogical and unfair because itunreasonably drives them out of business to the prejudice of the national economy.

Considering the settled principle that in the absence of strong evidence to the contrary, acts of theother branches of the government are presumed to be valid,31and there being no objection from therespondents as to the procedure in the promulgation of EO 156, the presumption is that saidexecutive issuance duly complied with the procedures and limitations imposed by law.

To determine whether EO 156 has complied with the third and fourth requisites of a valid

administrative issuance, to wit, that it was issued within the scope of authority given by thelegislature and that it is reasonable, an examination of the nature of a Freeport under RA 7227 andthe primordial purpose of the importation ban under the questioned EO is necessary.

RA 7227 was enacted providing for, among other things, the sound and balanced conversion of theClark and Subic military reservations and their extensions into alternative productive uses in the formof Special Economic and Freeport Zone, or the Subic Bay Freeport, in order to promote theeconomic and social development of Central Luzon in particular and the country in general.
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The Rules and Regulations Implementing RA 7227 specifically defines the territory comprising theSubic Bay Freeport, referred to as the Special Economic and Freeport Zone in Section 12 of RA7227 as "a separate customs territory consisting of the City of Olongapo and the Municipality ofSubic, Province of Zambales, the lands occupied by the Subic Naval Base and its contiguousextensions as embraced, covered and defined by the 1947 Philippine-U.S. Military Base Agreementas amended and within the territorial jurisdiction of Morong and Hermosa, Province of Bataan, the

metes and bounds of which shall be delineated by the President of the Philippines; provided furtherthat pending establishment of secure perimeters around the entire SBF, the SBF shall refer to thearea demarcated by the SBMA pursuant to Section 1332hereof."

Among the salient provisions of RA 7227 are as follows:

SECTION 12. Subic Special Economic Zone.

x x x x

The abovementioned zone shall be subject to the following policies:

x x x x

(a) Within the framework and subject to the mandate and limitations of the Constitution andthe pertinent provisions of the Local Government Code, the Subic Special Economic Zoneshall be developed into a self-sustaining, industrial, commercial, financial and investmentcenter to generate employment opportunities in and around the zone and to attract andpromote productive foreign investments;

(b) The Subic Special Economic Zone shall be operated and managed as a separatecustoms territory ensuring free flow or movement of goods and capital within, into andexported out of the Subic Special Economic Zone, as well as provide incentives such as taxand 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 ofthe Philippine territory shall be subject to customs duties and taxes under the Customs andTariff Code and other relevant tax laws of the Philippines;

The Freeport was designed to ensure free flow or movement of goods and capital within a portion ofthe Philippine territory in order to attract investors to invest their capital in a business climate with theleast governmental intervention. The concept of this zone was explained by Senator Guingona inthis wise:

Senator Guingona. Mr. President, the special economic zone is successful in many places,particularly Hong Kong, which is a free port. The difference between a special economic zone andan industrial estate is simply expansive in the sense that the commercial activities, including theestablishment of banks, services, financial institutions, agro-industrial activities, maybe agriculture to

a certain extent.

This delineates the activities that would have the least of government intervention, and therunning of the affairs of the special economic zone would be run principally by the investorsthemselves, similar to a housing subdivision, where the subdivision owners elect theirrepresentatives to run the affairs of the subdivision, to set the policies, to set the guidelines.
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We would like to see Subic area converted into a little Hong Kong, Mr. President, where thereis a hub of free port and free entry, free duties and activities to a maximum spur generation ofinvestment and jobs.

While the investor is reluctant to come in the Philippines, as a rule, because of red tape andperceived delays, we envision this special economic zone to be an area where there will be

minimum government interference.

The initial outlay may not only come from the Government or the Authority as envisioned here, butfrom them themselves, because they would be encouraged to invest not only for the land but also forthe buildings and factories. As long as they are convinced that in such an area they can do businessand reap reasonable profits, then many from other parts, both local and foreign, would invest, Mr.President.33(Emphasis, added)

With minimum interference from the government, investors can, in general, engage in any kind ofbusiness as well as import and export any article into and out of the Freeport. These are among therights accorded to Subic Bay Freeport Enterprises under Section 39 of the Rules and RegulationsImplementing RA 7227, thus

SEC. 39. Rights and Obligations.- SBF Enterprises shall have the following rights and obligations:

a. To freely engage in any business, trade, manufacturing, financial or service activity, and to importand export freely all types of goods into and out of the SBF, subject to the provisions of the Act,these Rules and other regulations that may be promulgated by the SBMA;

Citing, inter alia, the interpellations of Senator Enrile, petitioners claim that the "free flow ormovement of goods and capital" only means that goods and material brought within the Freeportshall not be subject to customs duties and other taxes and should not be construed as an openfloodgate for entry of all kinds of goods. They thus surmise that the importation ban on motorvehicles is applicable within the Freeport. Pertinent interpellations of Senator Enrile on the conceptof Freeport is as follows:

Senator Enrile: Mr. President, I think we are talking here of sovereign concepts, not territorialconcepts. The concept that we are supposed to craft here is to carve out a portion of our terrestrialdomain as well as our adjacent waters and say to the world: "Well, you can set up your factories inthis area that we are circumscribing, and bringing your equipment and bringing your goods, you arenot subject to any taxes and duties because you are not within the customs jurisdiction of theRepublic of the Philippines, whether you store the goods or only for purposes of transshipment orwhether you make them into finished products again to be reexported to other lands."

x x x x

My understanding of a "free port" is, we are in effect carving out a part of our territory andmake it as if it were foreign territory for purposes of our customs laws, and that people cancome, bring their goods, store them there and bring them out again, as long as they do notcome into the domestic commerce of the Republic.

We do not really care whether these goods are stored here. The only thing that we care is for ourpeople to have an employment because of the entry of these goods that are being discharged,warehoused and reloaded into the ships so that they can be exported. That will generateemployment for us. For as long as that is done, we are saying, in effect, that we have the leastcontact with our tariff and customs laws and our tax laws. Therefore, we consider these goods as
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outside of the customs jurisdiction of the Republic of the Philippines as yet, until we draw them fromthis territory and bring them inside our domestic commerce. In which case, they have to passthrough our customs gate. I thought we are carving out this entire area and convert it into this kind ofconcept.34

However, contrary to the claim of petitioners, there is nothing in the foregoing excerpts which

absolutely limits the incentive to Freeport investors only to exemption from customs duties andtaxes. Mindful of the legislative intent to attract investors, enhance investment and boost theeconomy, the legislature could not have limited the enticement only to exemption from taxes. Theminimum interference policy of the government on the Freeport extends to the kind of business thatinvestors may embark on and the articles which they may import or export into and out of the zone.

A contrary interpretation would defeat the very purpose of the Freeport and drive away investors.

It does not mean, however, that the right of Freeport enterprises to import all types of goods andarticle is absolute. Such right is of course subject to the limitation that articles absolutely prohibitedby law cannot be imported into the Freeport.35Nevertheless, in determining whether the prohibitionwould apply to the Freeport, resort to the purpose of the prohibition is necessary.

In issuing EO 156, particularly the prohibition on importation under Article 2, Section 3.1, thePresident envisioned to rationalize the importation of used motor vehicles and to enhance thecapabilities of the Philippine motor manufacturing firms to be globally competitive producers ofcompletely build-up units and their parts and components for the local and export markets.36In

justifying the issuance of EO 156, petitioners alleged that there has been a decline in the sales ofnew vehicles and a remarkable growth of the sales of imported used motor vehicles. To address thesame, the President issued the questioned EO to prevent further erosion of the already depressedmarket base of the local motor vehicle industry and to curtail the harmful effects of the increase inthe importation of used motor vehicles.37

Taking our bearings from the foregoing discussions, we hold that the importation ban runs afoulthe third requisitefor a valid administrative order. To be valid, an administrative issuance must notbe ultra viresor beyond the limits of the authority conferred. It must not supplant or modify the

Constitution, its enabling statute and other existing laws, for such is the sole function of thelegislature which the other branches of the government cannot usurp. As held in United BFHomeowners Association v. BF Homes,Inc.:38

The rule-making power of a public administrative body is a delegated legislative power, which it maynot use either to abridge the authority given it by Congress or the Constitution or to enlarge its powerbeyond the scope intended. Constitutional and statutory provisions control what rules andregulations may be promulgated by such a body, as well as with respect to what fields are subject toregulation by it. It may not make rules and regulations which are inconsistent with the provisions ofthe Constitution or a statute, particularly the statute it is administering or which created it, or whichare in derogation of, or defeat, the purpose of a statute.

In the instant case, the subject matter of the laws authorizing the President to regulate or forbidimportation of used motor vehicles, is the domestic industry. EO 156, however, exceeded thescope of its application by extending the prohibition on the importation of used cars to the Freeport,which RA 7227, considers to some extent, a foreign territory. The domesticindustrywhich the EOseeks to protect is actually the "customs territory" which is defined under the Rules andRegulations Implementing RA 7227, as follows:

"the portion of the Philippines outside the Subic Bay Freeport where the Tariff and CustomsCode of the Philippines and other national tariff and customs laws are in force and effect."39
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The proscription in the importation of used motor vehicles should be operative only outside theFreeport and the inclusion of said zone within the ambit of the prohibition is an invalid modification ofRA 7227. Indeed, when the application of an administrative issuance modifies existing laws orexceeds the intended scope, as in the instant case, the issuance becomes void, not only forbeing ultra vires, but also for being unreasonable.

This brings us to the fourth requisite. It is an axiom in administrative law that administrativeauthorities should not act arbitrarily and capriciously in the issuance of rules and regulations. To bevalid, such rules and regulations must be reasonable and fairly adapted to secure the end in view. Ifshown to bear no reasonable relation to the purposes for which they were authorized to be issued,then they must be held to be invalid.40

There is no doubt that the issuance of the ban to protect the domestic industryis a reasonableexercise of police power. The deterioration of the local motor manufacturing firms due to the influx ofimported used motor vehicles is an urgent national concern that needs to be swiftly addressed bythe President. In the exercise of delegated police power, the executive can therefore validlyproscribe the importation of these vehicles. Thus, inTaxicab Operators of Metro Manila, Inc. v. Boardof Transportation,41the Court held that a regulation phasing out taxi cabs more than six years old isa valid exercise of police power. The regulation was sustained as reasonable holding that thepurpose thereof was to promote the convenience and comfort and protect the safety of thepassengers.

The problem, however, lies with respect to the application of the importation ban to the Freeport. TheCourt finds no logic in the all encompassing application of the assailed provision to the Freeportwhich is outside the customs territory. As long as the used motor vehicles do not enter the customsterritory, the injury or harm sought to be prevented or remedied will not arise. The application of thelaw should be consistent with the purpose of and reason for the law. Ratione cessat lex, et cessatlex. When the reason for the law ceases, the law ceases. It is not the letter alone but the spirit of thelaw also that gives it life.42To apply the proscription to the Freeport would not serve the purpose ofthe EO. Instead of improving the general economy of the country, the application of the importationban in the Freeport would subvert the avowed purpose of RA 7227 which is to create a market that

would draw investors and ultimately boost the national economy.

In similar cases, we also declared void the administrative issuance or ordinances concerned forbeing unreasonable. To illustrate, in De la Cruz v. Paras,43the Court held as unreasonable andunconstitutional an ordinance characterized by overbreadth. In that case, the Municipality of Bocaue,Bulacan, prohibited the operation of all night clubs, cabarets and dance halls within its jurisdiction forthe protection of public morals. As explained by the Court:

x x x It cannot be said that such a sweeping exercise of a lawmaking power by Bocaue could qualifyunder the term reasonable. The objective of fostering public morals, a worthy and desirable end canbe attained by a measure that does not encompass too wide a field. Certainly the ordinance on itsface is characterized by overbreadth. The purpose sought to be achieved could have been attained

by reasonable restrictions rather than by an absolute prohibition. The admonition in Salaveria shouldbe heeded: "The Judiciary should not lightly set aside legislative action when there is not a clearinvasion of personal or property rights under the guise of police regulation." It is clear that in theguise of a police regulation, there was in this instance a clear invasion of personal or property rights,personal in the case of those individuals desirous of patronizing those night clubs and property interms of the investments made and salaries to be earned by those therein employed.

Lupangco v. Court of Appeals,44is a case involving a resolution issued by the ProfessionalRegulation Commission which prohibited examinees from attending review classes and receiving
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handout materials, tips, and the like three days before the date of examination in order to preservethe integrity and purity of the licensure examinations in accountancy. Besides being unreasonableon its face and violative of academic freedom, the measure was found to be more sweeping thanwhat was necessary, viz:

Needless to say, the enforcement of Resolution No. 105 is not a guarantee that the alleged leakages

in the licensure examinations will be eradicated or at least minimized. Making the examinees sufferby depriving them of legitimate means of review or preparation on those last three precious days when they should be refreshing themselves with all that they have learned in the review classes andpreparing their mental and psychological make-up for the examination day itself would be likeuprooting the tree to get rid of a rotten branch. What is needed to be done by the respondent is tofind out the source of such leakages and stop it right there. If corrupt officials or personnel should beterminated from their loss, then so be it. Fixers or swindlers should be flushed out. Strict guidelinesto be observed by examiners should be set up and if violations are committed, then licenses shouldbe suspended or revoked. x x x

In Lucena Grand Central Terminal, Inc. v. JAC Liner, Inc.,45the Court likewise struck down asunreasonable and overbreadth a city ordinance granting an exclusive franchise for 25 years,renewable for another 25 years, to one entity for the construction and operation of one common busand jeepney terminal facility in Lucena City. While professedly aimed towards alleviating the trafficcongestion alleged to have been caused by the existence of various bus and jeepney terminalswithin the city, the ordinance was held to be beyond what is reasonably necessary to solve the trafficproblem in the city.

By parity of reasoning, the importation ban in this case should also be declared void for its toosweeping and unnecessary application to the Freeport which has no bearing on the objective of theprohibition. If the aim of the EO is to prevent the entry of used motor vehicles from the Freeport tothe customs territory, the solution is not to forbid entry of these vehicles into the Freeport, but tointensify governmental campaign and measures to thwart illegal ingress of used motor vehicles intothe customs territory.

At this juncture, it must be mentioned that on June 19, 1993, President Fidel V. Ramos issuedExecutive Order No. 97-A, "Further Clarifying The Tax And Duty-Free Privilege Within The SubicSpecial Economic And Free Port Zone," Section 1 of which provides:

SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the SecuredArea of the Subic Special Economic and Free Port Zone:

1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be theonly completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals(Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capitalgoods, equipment, and consumer items tax and dutry-free. Consumption items, however, must beconsumed within the Secured Area. Removal of raw materials, capital goods, equipment and

consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall besubject to the usual taxes and duties, except as may be provided herein.

In Tiu v. Court of Appeals46as reiterated in Coconut Oil Refiners Association, Inc. v. Torres,47thisprovision limiting the special privileges on tax and duty-free importation in the presently fenced-informer Subic Naval Base has been declared valid and constitutional and in accordance with RA7227. Consistent with these rulings and for easier management and monitoring of activities and toprevent fraudulent importation of merchandise and smuggling, the free flow and importation of usedmotor vehicles shall be operative only within the "secured area."
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In sum, the Court finds that Article 2, Section 3.1 of EO 156 is void insofar as it is made applicable tothe presently secured fenced-in former Subic Naval Base area as stated in Section 1.1 of EO 97-A.Pursuant to the separability clause48of EO 156, Section 3.1 is declared valid insofar as it applies tothe customs territory or the Philippine territory outside the presently secured fenced-in former SubicNaval Base area as stated in Section 1.1 of EO 97-A. Hence, used motor vehicles that come into thePhilippine territory viathe secured fenced-in former Subic Naval Base area may be stored, used or

traded therein, or exported out of the Philippine territory, but they cannot be imported into thePhilippine territory outside of the secured fenced-in former Subic Naval Base area.

WHEREFORE, the petitions are PARTIALLY GRANTED and the May 24, 2004 Decisions of Branch72, Regional Trial Court of Olongapo City, in Civil Case No. 20-0-04 and Civil Case No. 22-0-04; andthe February 14, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 63284, are MODIFIEDinsofar as they declared Article 2, Section 3.1 of Executive Order No. 156, void in its entirety.

Said provision is declared VALID insofar as it applies to the Philippine territory outside the presentlyfenced-in former Subic Naval Base area and VOID with respect to its application to the securedfenced-in former Subic Naval Base area.

SO ORDERED.

CONSUELO YNARES-SANTIAGOAssociate Justice

[G. R. No. 119775. October 24, 2003]

JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO CARIOFOUNDATION INC., CENTER FOR ALTERNATIVE SYSTEMSFOUNDATION INC., REGINA VICTORIA A. BENAFINREPRESENTED AND JOINED BY HER MOTHER MRS. ELISABENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BYHER MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PEREPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G.PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIASKEVAB, BETTY I. STRASSER, RUBY C. GIRON, URSULA C.

PEREZ ALIAS BA-YAY, EDILBERTO T. CLARAVALL, CARMENCAROMINA, LILIA G. YARANON, DIANE MONDOC, pet i t ioners,vs. VICTOR LIM, PRESIDENT, BASES CONVERSIONDEVELOPMENT AUTHORITY; JOHN HAY PORO POINTDEVELOPMENT CORPORATION, CITY OF BAGUIO, TUNTEX(B.V.I.) CO. LTD., ASIAWORLD INTERNATIONALE GROUP, INC.,
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DEPARTMENT OF ENVIRONMENT AND NATURALRESOURCES, respondents.

D E C I S I O N

CARPIO MORALES,J

.:

By the present petition for prohibition, mandamusand declaratory reliefwith prayer for a temporary restraining order (TRO) and/or writ of preliminaryinjunction, petitioners assail, in the main, the constitutionality of PresidentialProclamation No. 420, Series of 1994, CREATING AND DESIGNATINGAPORTION OF THE AREA COVERED BY THE FORMER CAMP JOHN [HAY]

AS THE JOHN HAY SPECIAL ECONOMIC ZONE PURSUANT TOREPUBLIC ACT NO. 7227.

Republic Act No. 7227, AN ACT ACCELERATING THE CONVERSION

OF MILITARY RESERVATIONS INTO OTHER PRODUCTIVE USES,CREATING THE BASES CONVERSION AND DEVELOPMENT AUTHORITYFOR THIS PURPOSE, PROVIDING FUNDS THEREFOR AND FOR OTHERPURPOSES, otherwise known as the Bases Conversion and Development

Act of 1992, which was enacted on March 13, 1992, set out the policy of thegovernment to accelerate the sound and balanced conversion into alternativeproductive uses of the former military bases under the 1947 Philippines-United States of America Military Bases Agreement, namely, the Clark andSubic military reservations as well as their extensions including the John HayStation (Camp John Hay or the camp) in the City of Baguio.[1]

As noted in its title, R.A. No. 7227 created public respondent BasesConversion and Development Authority[2](BCDA), vesting it with powerspertaining to the multifarious aspects of carrying out the ultimate objective ofutilizing the base areas in accordance with the declared government policy.

R.A. No. 7227 likewise created the Subic Special Economic [and FreePort] Zone (Subic SEZ) the metes and bounds of which were to be delineatedin a proclamation to be issued by the President of the Philippines.[3]

R.A. No. 7227 granted the Subic SEZ incentives ranging from tax and

duty-free importations, exemption of businesses therein from local andnational taxes, to other hallmarks of a liberalized financial and businessclimate.[4]

And R.A. No. 7227 expressly gave authority to the President tocreate through executive proclamation, subject to the concurrence of the localgovernment units directly affected, other Special Economic Zones (SEZ) in
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the areas covered respectively by the Clark military reservation, the WallaceAir Station in San Fernando, La Union, and Camp John Hay.[5]

On August 16, 1993, BCDA entered into a Memorandum of Agreementand Escrow Agreement with private respondents Tuntex (B.V.I.) Co., Ltd

(TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD), privatecorporations registered under the laws of the British Virgin Islands,preparatory to the formation of a joint venture for the development of PoroPoint in La Union and Camp John Hay as premier tourist destinations andrecreation centers. Four months later or on December 16, 1993, BCDA,TUNTEX and ASIAWORD executed a Joint Venture Agreement[6]whereby theybound themselves to put up a joint venture company known as the BaguioInternational Development and Management Corporation which would leaseareas within Camp John Hay and Poro Point for the purpose of turning suchplaces into principal tourist and recreation spots, as originally envisioned by

the parties under their Memorandum of Agreement.

The Baguio City government meanwhile passed a number of resolutions inresponse to the actions taken by BCDA as owner and administrator of CampJohn Hay.

By Resolution[7]of September 29, 1993, the Sangguniang PanlungsodofBaguio City (the sanggunian) officially asked BCDA to exclude all thebarangays partly or totally located within Camp John Hay from the reach orcoverage of any plan or program for its development.

By a subsequent Resolution[8]dated January 19, 1994,the sanggunian sought from BCDA an abdication, waiver or quitclaim of itsownership over the home lots being occupied by residents of nine (9)barangays surrounding the military reservation.

Still by another resolution passed on February 21, 1994,the sanggunian adopted and submitted to BCDA a 15-point concept for thedevelopment of Camp John Hay.[9]The sangguniansvision expressed, amongother things, a kind of development that affords protection to the environment,the making of a family-oriented type of tourist destination, priority inemployment opportunities for Baguio residents and free access to the base

area, guaranteed participation of the city government in the management andoperation of the camp, exclusion of the previously named nine barangaysfrom the area for development, and liability for local taxes of businesses to beestablished within the camp.[10]

BCDA, TUNTEX and ASIAWORLD agreed to some, but rejected ormodified the other proposals of the sanggunian.[11]They stressed the need to
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declare Camp John Hay a SEZ as a condition precedent to its fulldevelopment in accordance with the mandate of R.A. No. 7227.[12]

On May 11, 1994, the sanggunian passed a resolution requesting theMayor to order the determination of realty taxes which may otherwise be

collected from real properties of Camp John Hay.[13]

The resolution wasintended to intelligently guide the sanggunian in determining its position onwhether Camp John Hay be declared a SEZ, it (the sanggunian)being of theview that such declaration would exempt the camps property and theeconomic activity therein from local or national taxation.

More than a month later, however, the sanggunian passed Resolution No.255, (Series of 1994),[14]seeking and supporting, subject to its concurrence,the issuance by then President Ramos of a presidential proclamationdeclaring an area of 288.1 hectares of the camp as a SEZ in accordance withthe provisions of R.A. No. 7227. Together with this resolution was submitteda draft of the proposed proclamation for consideration by the President.[15]

On July 5, 1994 then President Ramos issued Proclamation No. 420,[16]thetitle of which was earlier indicated, which established a SEZ on a portion ofCamp John Hay and which reads as follows:

x x x

Pursuant to the powers vested in me by the law and the resolution of concurrence bythe City Council of Baguio, I, FIDEL V. RAMOS, President of the Philippines, do

hereby create and designate a portion of the area covered by the former John Hayreservation as embraced, covered, and defined by the 1947 Military Bases Agreementbetween the Philippines and the United States of America, as amended, as the JohnHay Special Economic Zone, and accordingly order:

SECTION 1. Coverage of John Hay Special Economic Zone.The John HaySpecial Economic Zone shall cover the area consisting of Two Hundred Eighty Eightand one/tenth (288.1) hectares, more or less, of the total of Six Hundred Seventy-Seven (677) hectares of the John Hay Reservation, more or less, which have beensurveyed and verified by the Department of Environment and Natural Resources

(DENR) as defined by the following technical description:

A parcel of land, situated in the City of Baguio, Province of Benguet, Island of Luzon,and particularly described in survey plans Psd-131102-002639 and Ccs-131102-000030 as approved on 16 August 1993 and 26 August 1993, respectively, by theDepartment of Environment and Natural Resources, in detail containing :
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Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot 15, and Lot 20 ofCcs-131102-000030

-and-

Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot 14, Lot 15, Lot 16,Lot 17, and Lot 18 of Psd-131102-002639 being portions of TCT No. T-3812, LRCRec. No. 87.

With a combined area of TWO HUNDRED EIGHTY EIGHT AND ONE/TENTHHECTARES (288.1 hectares); Provided that the area consisting of approximately Sixand two/tenth (6.2) hectares, more or less, presently occupied by the VOA and theresidence of the Ambassador of the United States, shall be considered as part of theSEZ only upon turnover of the properties to the government of the Republic of thePhilippines.

Sec. 2. Governing Body of the John Hay Special Economic Zone.Pursuant toSection 15 of Republic Act No. 7227, the Bases Conversion and DevelopmentAuthority is hereby established as the governing body of the John Hay SpecialEconomic Zone and, as such, authorized to determine the utilization and disposition ofthe lands comprising it, subject to private rights, if any, and in consultation andcoordination with the City Government of Baguio after consultation with itsinhabitants, and to promulgate the necessary policies, rules, and regulations to governand regulate the zone thru the John Hay Poro Point Development Corporation, whichis its implementing arm for its economic development and optimum utilization.

Sec. 3. Investment ClimateinJohn Hay Special Economic Zone.Pursuant toSection 5(m) and Section 15 of Republic Act No. 7227, the John Hay Poro PointDevelopment Corporation shall implement all necessary policies, rules, andregulations governing the zone, including investment incentives, in consultation withpertinent government departments. Among others, the zone shall have all theapplicable incentives of the Special Economic Zone under Section 12 of Republic ActNo. 7227 and those applicable incentives granted in the Export Processing Zones, theOmnibus Investment Code of 1987, the Foreign Investment Act of 1991, and newinvestment laws that may hereinafter be enacted.

Sec. 4. Role of Departments, Bureaus, Offices, Agencies and Instrumentalities.AllHeads of departments, bureaus, offices, agencies, and instrumentalities of thegovernment are hereby directed to give full support to Bases Conversion andDevelopment Authority and/or its implementing subsidiary or joint venture tofacilitate the necessary approvals to expedite the implementation of various projectsof the conversion program.


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Sec. 5. Local Authority.Except as herein provided, the affected local governmentunits shall retain their basic autonomy and identity.

Sec. 6. Repealing Clause.All orders, rules, and regulations, or parts thereof, whichare inconsistent with the provisions of this Proclamation, are hereby repealed,

amended, or modified accordingly.

Sec. 7. Effectivity. This proclamation shall take effect immediately.

Done in the City of Manila, this 5th day of July, in the year of Our Lord, nineteenhundred and ninety-four.

The issuance of Proclamation No. 420 spawned the present petition [17]forprohibition, mandamusand declaratory relief which was filed on April 25, 1995challenging, in the main, its constitutionality or validity as well as the legality of

the Memorandum of Agreement and Joint Venture Agreement between publicrespondent BCDA and private respondents TUNTEX and ASIAWORLD.

Petitioners allege as grounds for the allowance of the petition thefollowing:

I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990 (sic) IN SO FAR ASIT GRANTS TAX EXEMPTIONS IS INVALID AND ILLEGAL AS IT IS ANUNCONSTITUTIONAL EXERCISE BY THE PRESIDENT OF A POWER GRANTEDONLY TO THE LEGISLATURE.

II. PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT LIMITS THEPOWERS AND INTERFERES WITH THE AUTONOMY OF THE CITY OFBAGUIO IS INVALID, ILLEGAL AND UNCONSTITUTIONAL.

III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994 ISUNCONSTITUTIONAL IN THAT IT VIOLATES THE RULE THAT ALL TAXESSHOULD BE UNIFORM AND EQUITABLE.

IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY AND BETWEENPRIVATE AND PUBLIC RESPONDENTS BASES CONVERSION DEVELOPMENT

AUTHORITY HAVING BEEN ENTERED INTO ONLY BY DIRECT NEGOTIATIONIS ILLEGAL.

V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OFAGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE AND PUBLIC

RESPONDENT BASES CONVERSION DEVELOPMENTAUTHORITY IS (sic) ILLEGAL.

VI. THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS NOT HAVINGUNDERGONE ENVIRONMENTAL IMPACT ASSESSMENT IS BEING ILLEGALLYCONSIDERED WITHOUT A VALID ENVIRONMENTAL IMPACT ASSESSMENT.

A temporary restraining order and/or writ of preliminary injunction wasprayed for to enjoin BCDA, John Hay Poro Point Development Corporation
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and the city government from implementing Proclamation No. 420,and TUNTEX and ASIAWORLD from proceeding with their plan respectingCamp John Hays development pursuant to their Joint Venture Agreementwith BCDA.[18]

Public respondents, by their separate Comments, allege as moot andacademic the issues raised by the petition, the questioned Memorandum of

Agreement and Joint Venture Agreement having already been deemedabandoned by the inaction of the parties thereto prior to the filing of thepetition as in fact, by letter of November 21, 1995, BCDA formallynotified TUNTEX and ASIAWORLD of the revocation of their saidagreements.[19]

In maintaining the validity of Proclamation No. 420, respondents contendthat by extending to the John Hay SEZ economic incentives similar to thoseenjoyed by the Subic SEZ which was established under R.A. No. 7227, theproclamation is merely implementing the legislative intent of said law to turnthe US military bases into hubs of business activity or investment. Theyunderscore the point that the governments policy of bases conversion can notbe achieved without extending the same tax exemptions granted by R.A. No.7227 to Subic SEZ to other SEZs.

Denying that Proclamation No. 420 is in derogation of the local autonomyof Baguio City or that it is violative of the constitutional guarantee of equalprotection, respondents assail petitioners lack of standing to bring the presentsuit even as taxpayers and in the absence of any actual case or controversy

to warrant this Courts exercise of its power of judicial review over theproclamation.

Finally, respondents seek the outright dismissal of the petition for havingbeen filed in disregard of the hierarchy of courts and of the doctrine ofexhaustion of administrative remedies.

Replying,[20]petitioners aver that the doctrine of exhaustion ofadministrative remedies finds no application herein since they are invoking theexclusive authority of this Court under Section 21 of R.A. No. 7227 to enjoin orrestrain implementation of projects for conversion of the base areas; that the

established exceptions to the aforesaid doctrine obtain in the present petition;and that they possess the standing to bring the petition which is a taxpayerssuit.

Public respondents have filed their Rejoinder[21]and the parties have filedtheir respective memoranda.
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Before dwelling on the core issues, this Court shall first address thepreliminary procedural questions confronting the petition.

The judicial policy is and has always been that this Court will not entertaindirect resort to it except when the redress sought cannot be obtained in the

proper courts, or when exceptional and compelling circumstances warrantavailment of a remedy within and calling for the exercise of this Courtsprimary jurisdiction.[22]Neither will it entertain an action for declaratory relief,which is partly the nature of this petition, over which it has no original

jurisdiction.

Nonetheless, as it is only this Courtwhich has the power under Section21[23]of R.A. No. 7227 to enjoin implementation of projects for the developmentof the former US military reservations, the issuance of which injunctionpetitioners pray for, petitioners direct filing of the present petition with it isallowed. Over and above this procedural objection to the present suit, thisCourt retains full discretionary power to take cognizance of a petition fileddirectly to it if compelling reasons, or the nature and importance of the issuesraised, warrant.[24]Besides, remanding the case to the lower courts now would

just unduly prolong adjudication of the issues.

The transformation of a portion of the area covered by Camp John Hayinto a SEZ is not simply a re-classification of an area, a mere ascription of astatus to a place. It involves turning the former US military reservation into afocal point for investments by both local and foreign entities. It is to be madea site of vigorous business activity, ultimately serving as a spur to the

countrys long awaited economic growth. For, as R.A. No. 7227 unequivocallydeclares, it is the governments policy to enhance the benefits to be derivedfrom the base areas in order to promote the economic and social developmentof Central Luzon in particular and the country in general.[25]Like the Subic SEZ,the John Hay SEZ should also be turned into a self-sustaining, industrial,commercial, financial and investment center.[26]

More than the economic interests at stake, the development of Camp JohnHay as well as of the other base areas unquestionably has critical links to ahost of environmental and social concerns. Whatever use to which these

lands will be devoted will set a chain of events that can affect one way oranother the social and economic way of life of the communities where thebases are located, and ultimately the nation in general.

Underscoring the fragility of Baguio Citys ecology with its problem on thescarcity of its water supply, petitioners point out that the local and nationalgovernment are faced with the challenge of how to provide for an ecologicallysustainable, environmentally sound, equitable transition for the city in the
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wake of Camp John Hays reversion to the mass of governmentproperty.[27]But that is why R.A. No. 7227 emphasizes the sound andbalanced conversion of the Clark and Subic military reservations and theirextensions consistent with ecological andenvironmental standards.[28]Itcannot thus be gainsaid that the matter of conversion of the US bases into

SEZs, in this case Camp John Hay, assumes importance of a nationalmagnitude.

Convinced then that the present petition embodies crucial issues, thisCourt assumes jurisdiction over the petition.

As far as the questioned agreements between BCDAand TUNTEX and ASIAWORLD are concerned, the legal questions beingraised thereon by petitioners have indeed been rendered moot and academicby the revocation of such agreements. There are, however, other issuesposed by the petition, those which center on the constitutionality ofProclamation No. 420, which have not been mooted by the said superveningevent upon application of the rules for the judicial scrutiny of constitutionalcases. The issues boil down to:

(1) Whether the present petition complies with the requirements for this Courtsexercise of jurisdiction over constitutional issues;

(2) Whether Proclamation No. 420 is constitutional by providing for national andlocal tax exemption within and granting other economic incentives to the JohnHay Special Economic Zone; and

(3) Whether Proclamation No. 420 is constitutional for limiting or interfering with the

local autonomy of Baguio City;

It is settled that when questions of constitutional significance are raised,the court can exercise its power of judicial review only if the followingrequisites are present: (1) the existence of an actual and appropriate case; (2)a personal and substantial interest of the party raising the constitutionalquestion; (3) the exercise of judicial review is pleaded at the earliestopportunity; and (4) the constitutional question is the lis motaof the case.[29]

An actual case or controversy refers to an existing case or controversythat is appropriate or ripe for determination, not conjectural or

anticipatory.[30]

The controversy needs to be definite and concrete, bearingupon the legal relations of parties who are pitted against each other due totheir adverse legal interests.[31]There is in the present case a real clash ofinterests and rights between petitioners and respondents arising from theissuance of a presidential proclamation that converts a portion of the areacovered by Camp John Hay into a SEZ, the former insisting that such
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Tax Cases Full Text for Assignment No 3

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