City of Davao vs. RTC of Davao City

A statutory provision that prescribes conditions for the future repeal of a tax exemption is void as an undue restraint on the plenary power of the legislature, as it partakes of the nature of an irrepealable law; accordingly, the GSIS's real property tax exemption was withdrawn by the Local Government Code of 1992.

The Government Service Insurance System (GSIS) is a government-owned and controlled corporation (GOCC) established in 1937 under Commonwealth Act No. 186, providing insurance and pension benefits to government employees. Its original charter and subsequent amendments, particularly P.D. No. 1146 (the Revised Government Service Insurance Act of 1977) as amended by P.D. No. 1981, granted the GSIS exemption from all taxes and imposed conditions on the withdrawal of that exemption. The Local Government Code of 1992 (R.A. No. 7160), a statute implementing the constitutional mandate for local autonomy, withdrew tax exemptions previously enjoyed by GOCCs, including real property tax exemptions, subject to enumerated exceptions. The tension between the GSIS's special charter exemption and the general withdrawal of exemptions under the Local Government Code gave rise to the dispute.

On April 8, 1994, the GSIS Davao City branch office received a Notice of Public Auction scheduling the public bidding of GSIS properties located in Matina and Ulas, Davao City for non-payment of realty taxes for the years 1992 to 1994, totaling ₱295,721.61. The auction was subsequently reset by virtue of a deadline extension allowed by Davao City for the payment of delinquent real property taxes. On July 28, 1994, the GSIS received Warrants of Levy and Notices of Levy on three parcels of land it owned. Another Notice of Public Auction was received on August 29, 1994, setting the auction sale for September 20, 1994.

On September 13, 1994, the GSIS filed a Petition for Certiorari, Prohibition, Mandamus and/or Declaratory Relief with the RTC of Davao City, seeking to enjoin the auction sale. The case was raffled to Branch 12, presided by Judge Maximo Magno Libre, who issued a temporary restraining order the same day, effectively enjoining the auction sale scheduled seven days later. Following an exchange of arguments, the RTC issued an Order dated April 3, 1995 issuing a writ of preliminary injunction effective for the duration of the suit.

At the pre-trial, the parties agreed that the sole issue was purely a question of law: whether Sections 234 and 534 of the Local Government Code, which withdrew real property tax exemptions of GOCCs, also withdrew the GSIS's right to exemption from the realty taxes sought to be levied by Davao City. The parties submitted their respective memoranda.

On May 28, 1996, the RTC rendered the decision assailed before the Supreme Court. The RTC concluded that notwithstanding the enactment of the Local Government Code, the GSIS retained its exemption from all taxes, including real estate taxes, citing Section 33 of P.D. No. 1146, as amended by P.D. No. 1981. The RTC noted that the earlier law prescribed two conditions for the withdrawal of the tax exemption: (1) that Section 33 be expressly and categorically repealed by law, and (2) that a provision be enacted to substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the GSIS fund. The RTC found that neither condition had been satisfied by the Local Government Code. The RTC likewise relied on a Legal Opinion of the Secretary of Justice and a memorandum from the Office of the President, both concluding that Section 33 was not repealed by the Local Government Code. Petitioners' Motion for Reconsideration was denied on October 30, 1996, prompting the present petition.

• Withdrawal of Tax Exemption by the Local Government Code: Petitioners argued that the exemption granted in Section 33 of P.D. No. 1146, as amended, was effectively withdrawn upon the enactment of the Local Government Code, particularly Sections 193 and 294 thereof, which made the GSIS, along with all other GOCCs, subject to realty taxes.
• Repealing Clause: Petitioners pointed out that under Section 534(f) of the Local Government Code, even special laws such as P.D. No. 1146 that are inconsistent with the Local Government Code are repealed or modified accordingly.

• Conditions for Repeal: Respondent GSIS contended that the requisites for repeal were laid down in Section 33 of P.D. No. 1146, as amended, namely that the repeal be done expressly and categorically by law, and that a provision be enacted to substitute the declared policy of exemption from taxes as an essential factor for the solvency of the GSIS fund.
• Historical Exemption: GSIS stressed that it had been exempt from taxation as far back as 1936, when its original charter was enacted through Commonwealth Act No. 186, and that the Supreme Court had previously recognized its "extraordinary exemption" in Testate Estate of Concordia T. Lim vs. City of Manila.
• General Repealing Provision: GSIS argued that Section 534(f) of the Local Government Code partakes of the nature of a general repealing provision, which is accorded less weight in light of the rule that implied repeals are not favored. Had the legislature intended to repeal Section 33, it would have included an appropriate retraction in the repealing clause.
• Voidity of Assessments: GSIS argued that the Notices of Assessment, Warrants and Notices of Levy, Notices of Public Auction Sale, and Annotations of the Notice of Levy were void ab initio if it remained exempt from realty taxation.

• Validity of Repeal Conditions: Whether the conditionalities imposed by the second paragraph of Section 33 of P.D. No. 1146, as amended by P.D. No. 1981, can validly restrain the power of subsequent legislatures to repeal the GSIS's tax exemption.
• Withdrawal of Tax Exemption: Whether the Local Government Code of 1992 effectively withdrew the GSIS's real property tax exemption for the years 1992 to 1994.
• Effect of R.A. No. 8291: Whether the Government Service Insurance System Act of 1997, which restored the GSIS's tax exemption, affects the collectibility of the real property taxes assessed for the years 1992 to 1994.

• Validity of Repeal Conditions: No. The conditionalities in Section 33 of P.D. No. 1146, as amended, are void as they impose an undue restraint on the plenary power of the legislature to amend or repeal laws, contrary to the prohibition against irrepealable laws.
• Withdrawal of Tax Exemption: Yes. Sections 193, 232, and 234 of the Local Government Code effectively withdrew the GSIS's real property tax exemption, the GSIS not falling under any of the enumerated exceptions in Section 234.
• Effect of R.A. No. 8291: The restoration of the exemption under R.A. No. 8291 does not affect the collectibility of the taxes assessed for 1992 to 1994, which were incurred while the Local Government Code provisions prevailed.

• Validity of Repeal Conditions: The second paragraph of Section 33 of P.D. No. 1146, as amended by P.D. No. 1981, effectively imposes restrictions on the competency of Congress to enact future legislation on the taxability of the GSIS. This constitutes an undue restraint on the plenary power of the legislature to amend or repeal laws. Among the implied substantive limitations on legislative power is the prohibition against the passage of irrepealable laws, as these deprive succeeding legislatures of the fundamental ability to craft laws responsive to changing circumstances. A legislative body cannot bind the actions of a future legislative body, both being regarded with equal footing and exercising the same plenary powers. While the conditionalities do not absolutely preclude repeal, they limit the powers of Congress by prescribing a particular mode of repeal, and the same rationale for prohibiting irrepealable laws applies. Only the Constitution may operate to preclude or place restrictions on the amendment or repeal of laws. The Court cited Duarte vs. Dade and Lewis' Southerland on Statutory Construction for the proposition that a legislature cannot bind a future legislature to a particular mode of repeal or declare in advance the effect of subsequent legislation upon existing statutes.

• Withdrawal of Tax Exemption: Absent the invalid conditionalities of Section 33, there is no impediment to squarely applying the express provisions of the Local Government Code. Section 193 withdraws all tax exemptions or incentives granted to all persons, including GOCCs, except those specifically enumerated. Section 232 authorizes local government units to levy an ad valorem real property tax on real property not specifically exempted. Section 234 enumerates the exemptions from real property tax, and GOCCs do not fall within any of the exceptions. The last paragraph of Section 234 unequivocally withdrew exemptions from real property taxes granted to all persons, including GOCCs, except as provided in the section. This analysis follows the precedent in Mactan-Cebu International Airport Authority vs. Marcos, where the Court held that Section 133 of the Local Government Code, which generally prohibits local taxation of national government agencies and instrumentalities, is qualified by Sections 232 and 234. Section 5 of the Local Government Code further mandates that any tax exemption shall be construed strictly against the person claiming it. The constitutional principle of local autonomy, enshrined in Article X of the 1987 Constitution, reinforces this construction.

• Effect of R.A. No. 8291: The GSIS's tax-exempt status was withdrawn in 1992 by the Local Government Code but restored by the Government Service Insurance System Act of 1997 (R.A. No. 8291), the operative provision of which is Section 39. The subject real property taxes for the years 1992 to 1994 were assessed against the GSIS while the Local Government Code provisions prevailed and, thus, may be collected by the City of Davao. The Court noted that Section 39 of R.A. No. 8291 essentially replicates the flawed conditionalities of Section 33 of P.D. No. 1146, as amended, but declined to make any declaration regarding its validity, as the provision was not relevant to the case and was not ripe for judicial adjudication.

• Prohibition Against Irrepealable Laws — A legislature cannot enact laws that preclude or restrict the power of succeeding legislatures to amend or repeal those laws. Only the Constitution may operate to place restrictions on the amendment or repeal of laws. A statutory provision that prescribes conditions for the future repeal of a tax exemption is void as an undue restraint on the plenary power of the legislature, as it partakes of the nature of an irrepealable law. The same rationale applies to conditions that merely prescribe a particular mode of repeal, as these effectively limit the powers of future legislatures.

• Withdrawal of GOCC Tax Exemptions Under the Local Government Code — Sections 193, 232, and 234 of the Local Government Code of 1992 operate together to withdraw real property tax exemptions previously granted to GOCCs. Section 133's general prohibition on local taxation of national government agencies and instrumentalities is qualified by Section 232 (which authorizes real property taxation) and Section 234 (which enumerates specific exemptions). GOCCs do not fall within the enumerated exemptions in Section 234. The last paragraph of Section 234 unequivocally withdrew all real property tax exemptions of GOCCs upon the effectivity of the Code, except as specifically provided therein.

• Strict Construction of Tax Exemptions — Under Section 5(b) of the Local Government Code, any tax exemption, incentive, or relief shall be construed strictly against the person claiming it and liberally in favor of the taxing authority. This rule of statutory interpretation reinforces the withdrawal of the GSIS's tax exemption.

• "The second paragraph of Section 33 of P.D. No. 1146, as amended, effectively imposes restrictions on the competency of the Congress to enact future legislation on the taxability of the GSIS. This places an undue restraint on the plenary power of the legislature to amend or repeal laws, especially considering that it is a lawmaker's act that imposes such burden. Only the Constitution may operate to preclude or place restrictions on the amendment or repeal of laws." — This passage articulates the ratio decidendi: the conditionalities on repeal are void because they restrain future legislative power, a power that can only be limited by the Constitution.

• "It is a basic precept that among the implied substantive limitations on the legislative powers is the prohibition against the passage of irrepealable laws. Irrepealable laws deprive succeeding legislatures of the fundamental best senses carte blanche in crafting laws appropriate to the operative milieu." — This defines the doctrine against irrepealable laws and explains its theoretical foundation, frequently cited in discussions of legislative power.

• "If Congress has the inherent power to abrogate the GSIS itself, then it necessarily has the ability to inflict less detrimental burdens, such as abolishing its tax-exempt status." — This passage applies the a fortiori reasoning to demonstrate that the power to tax the GSIS is necessarily incidental to the power to abolish it, reinforcing the plenary nature of legislative authority.

• Mactan-Cebu International Airport Authority vs. Marcos, 330 Phil. 392 (1996) — Controlling precedent. The Court held that the Local Government Code withdrew the real property tax exemption of the MCIAA, a GOCC, by reading together Sections 133, 232, and 234. This case applied the same framework to the GSIS, distinguishing it only by the presence of the conditionalities in Section 33 of P.D. No. 1146, which the Court ultimately held void.

• Philippine Rural Electric Cooperatives Association, Inc. et al. vs. Secretary of Interior and Local Government, et al., 451 Phil. 683 (2003) — Followed. The Court cited this case as a recent reiteration of the Mactan ruling on the withdrawal of GOCC tax exemptions under the Local Government Code.

• Duarte vs. Dade, 32 Phil. 36 (1915) — Followed. The Court cited this case for the proposition, drawn from Lewis' Southerland on Statutory Construction, that a legislature cannot bind a future legislature to a particular mode of repeal or declare in advance the effect of subsequent legislation upon existing statutes.

• Testate Estate of Concordia T. Lim vs. City of Manila, G.R. No. 90639, 21 February 1990, 182 SCRA 482 — Referenced. The GSIS invoked this case as having recognized its "extraordinary exemption" from taxation. The Court did not rely on it in reversing the RTC.

• Section 33, P.D. No. 1146, as amended by P.D. No. 1981 (Revised Government Service Insurance Act of 1977) — Granted the GSIS exemption from all taxes and, as amended, imposed two conditions for the withdrawal of that exemption: (1) express and categorical repeal by law, and (2) enactment of a provision substituting the declared policy of exemption as an essential factor for the solvency of the fund. The Court held the conditionalities void as an unconstitutional restraint on future legislative power.

• Section 193, R.A. No. 7160 (Local Government Code of 1992) — Withdrew all tax exemption privileges granted to all persons, including GOCCs, except local water districts, cooperatives, non-stock and non-profit hospitals and educational institutions, upon the effectivity of the Code. Applied to withdraw the GSIS's tax exemption.

• Section 232, R.A. No. 7160 — Authorized provinces, cities, and municipalities to levy an annual ad valorem tax on real property not specifically exempted under Section 234. Found to qualify the general prohibition in Section 133.

• Section 234, R.A. No. 7160 — Enumerated exemptions from real property tax, limited to real property owned by the Republic or its political subdivisions, charitable institutions, machineries used by water districts and GOCCs engaged in water/power distribution, cooperatives, and pollution control equipment. The last paragraph withdrew all other real property tax exemptions of GOCCs. The GSIS was held not to fall within any enumerated exception.

• Section 133(o), R.A. No. 7160 — Prohibited local government units from levying taxes on the National Government, its agencies and instrumentalities. Held to be qualified by Sections 232 and 234, following Mactan.

• Section 5, R.A. No. 7160 — Provided rules of interpretation for the Code, including that tax exemptions shall be construed strictly against the person claiming them. Applied to construe the withdrawal of the GSIS's exemption in favor of Davao City.

• Section 534(f), R.A. No. 7160 — Repealing clause providing that special laws inconsistent with the Local Government Code are repealed or modified accordingly. Petitioners invoked this provision; the GSIS argued it was a general repealing clause entitled to less weight.

• Section 39, R.A. No. 8291 (Government Service Insurance System Act of 1997) — Restored the GSIS's tax exemption, replicating the conditionalities of Section 33 of P.D. No. 1146, as amended. The Court noted the replication but declined to rule on its validity, as the provision was not relevant to the taxes assessed for 1992 to 1994.

• Article X, Section 2, 1987 Constitution — Mandates the State to ensure the autonomy of local governments. Invoked as constitutional backdrop supporting the Local Government Code's withdrawal of GOCC tax exemptions.

• Article X, Section 5, 1987 Constitution — Empowers local governments to levy taxes, fees, and charges subject to congressional guidelines. Reinforced the constitutional principle of local autonomy underlying the Court's ruling.

Reynato S. Puno (Chairman), Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr., and Minita V. Chico-Nazario concurred in the decision. No separate concurring opinions were noted.