Hijo Plantation Inc. vs. Central Bank of the Philippines

An administrative regulation that imposes a tax at a rate or period not authorized by the plain terms of the statute is void for being in excess of the delegated authority; in case of conflict, the basic law prevails and the regulation must fall.

Republic Act No. 6125 took effect on May 1, 1970, imposing a stabilization tax on the gross F.O.B. peso proceeds of certain enumerated export products at graduated rates covering fiscal years 1970–1971 through 1973–1974. A catch-all provision subjected any export product not enumerated—but whose aggregate annual F.O.B. value exceeded US$5 million in any calendar year during the law’s effectivity—to the rates of tax in force during the fiscal year following the calendar year the threshold was reached. The banana industry was not among the originally enumerated products; in 1971, it crossed the US$5 million threshold for the first time, triggering the catch-all clause and raising the question of when and at what rate the tax would apply.

N/A — The case was an original action for certiorari and prohibition directly filed in the Supreme Court.

• The Parties: Petitioners Hijo Plantation, Inc., Davao Fruits Corporation, Twin Rivers Plantation, Inc., and Marsman & Co., Inc. are domestic corporations engaged in producing and exporting bananas from Mindanao. Respondent Central Bank of the Philippines is the government agency charged with implementing R.A. 6125.

• Enactment of R.A. No. 6125: Approved on May 1, 1970, the law imposed a graduated stabilization tax on certain export products. Section 1 provided schedules for enumerated goods and, in its final paragraph, stated that any export product whose aggregate annual F.O.B. value exceeded US$5 million in any one calendar year shall be subject to the rates of tax in force during the fiscal year following its reaching that aggregate value.

• Triggering of the Catch-All Provision: During the first nine months of 1971, total banana exports attained an annual aggregate F.O.B. value of P8,949,000.00, surpassing the US$5 million mark. The banana industry thus became a newly covered product under the catch-all provision.

• Request for Clarification: Faced with ambiguity as to when the tax would accrue and at what rate, petitioners, through counsel, wrote to the Central Bank on November 5, 1971. They expressed the view that the stabilization tax would become due only on July 1, 1972, at the rate of 4% of F.O.B. peso proceeds for exports shipped from July 1, 1972 to June 30, 1973—i.e., the fiscal year following the threshold year, consistent with the statutory text.

• Monetary Board Resolution No. 1995: In response, the Central Bank issued Monetary Board Resolution No. 1995 dated December 3, 1971, which fixed the following rates: (1) for bananas shipped January 1, 1972 to June 30, 1972—6%; (2) July 1, 1972 to June 30, 1973—4%; (3) July 1, 1973 to June 30, 1974—2%. The resolution was communicated to petitioners by letter dated December 17, 1971.

• Protest and Collection: Petitioners sought reconsideration on December 27, 1971, which was denied on January 20, 1972. The Central Bank, through its agent bank, Rizal Commercial Banking Corporation, proceeded to collect the stabilization tax from petitioners under protest as prescribed by the resolution.

• Petition: Petitioners filed the present original action for certiorari and prohibition, arguing that the resolution contravened R.A. No. 6125 and was issued in excess of jurisdiction.

• Prospective Application and Correct Rate: Petitioners argued that Section 1 of R.A. 6125 made the tax payable only in the fiscal year following the calendar year the US$5 million threshold was reached. Since the threshold was exceeded in 1971, the tax became due only from July 1, 1972 at the 4% rate for fiscal year 1972–1973, not starting January 1, 1972 at 6%.

• Invalid Retroactive Effect: Petitioners maintained that the resolution gave the law an impermissible retroactive effect by imposing a 6% rate for shipments from January 1, 1972—the rate associated with fiscal year 1971–1972, which had already commenced before the threshold was met. The resolution was, therefore, contrary to legislative intent and beyond the Central Bank’s statutory authority.

• Delegated Rule-Making Authority: Respondent Central Bank countered that Section 1 did not specify the exact commencement date for collection from newly covered products; it merely prescribed the applicable rates. The silence of the law authorized the Central Bank, pursuant to its rule-making power under Section 6 of R.A. 6125, to issue regulations fixing the date when collection would begin. Monetary Board Resolution No. 1995 was a valid exercise of that delegated authority.

• Validity of Implementing Regulation: Whether Monetary Board Resolution No. 1995, which imposed the stabilization tax on banana exports at 6% starting January 1, 1972, is void for being inconsistent with the provisions of Republic Act No. 6125.

• Validity of Implementing Regulation: The resolution was declared void. Under the final paragraph of Section 1 of R.A. 6125, a newly covered export product becomes subject to the tax at the rates of tax in force during the fiscal year following the calendar year the US$5 million threshold was reached. Since the banana industry reached the threshold in calendar year 1971, the fiscal year following was July 1, 1972 to June 30, 1973, for which schedule (b) prescribed a rate of 4%, not 6%. By setting a 6% rate for shipments from January 1, 1972 to June 30, 1972 (a period falling within fiscal year 1971–1972), the resolution imposed liability earlier and at a higher rate than the statute allowed. Although the Central Bank possessed delegated authority to issue implementing rules, that power is limited to regulations consonant with the law; a regulation that conflicts with or subverts the statute cannot be sustained. The basic law must prevail.

• Limits of Delegated Rule-Making Power — Administrative regulations promulgated pursuant to legislative authority have the force of law only when they are in harmony with the general purposes and objects of the enabling statute. A regulation that runs counter to the provisions of the basic law is void. The statute prevails over the regulation because the regulation cannot go beyond the terms of the law; rules that subvert the statute cannot be sanctioned. A public official must locate a grant of power in the statute before exercising it; departmental zeal may not outrun the authority conferred by law.

• “There is no dispute that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law.”

• “Rules that subvert the statute cannot be sanctioned.”

• “Except for constitutional officials who can trace their competence to act to the fundamental law itself, a public official must locate to the statute relied upon a grant of power before he can exercise it. Department zeal may not be permitted to outrun the authority conferred by statute.”

• United States v. Tupasi Molina, 29 Phil. 119 (1914) — Followed; established that valid implementing regulations have the force of law but must conform to the law.
• Director of Forestry v. Muñoz, 23 SCRA 1183 — Followed; a regulation conflicting with the law cannot be sustained.
• People v. Lim, 108 Phil. 1091 — Followed; the basic law prevails over an inconsistent implementing regulation.
• University of Sto. Tomas v. Board of Tax Appeals, 93 Phil. 376 — Followed; rules subverting the statute cannot be sanctioned.
• Del Mar v. Philippine Veterans Administration, 51 SCRA 340 — Followed; reiterated the same principle.
• Radio Communications of the Philippines, Inc. v. Santiago, 58 SCRA 493 (1974) — Followed; a public official must locate authority in the statute; departmental zeal cannot outrun the granted power.

• Section 1, Republic Act No. 6125 — Imposed a stabilization tax on exports and included a catch-all provision subjecting products exceeding US$5 million aggregate annual F.O.B. value to the rates of tax in force during the fiscal year following the calendar year the threshold was reached. Applied to invalidate the resolution that imposed tax earlier and at a higher rate than the statutory text allowed.
• Section 6, Republic Act No. 6125 — Authorized the Central Bank to promulgate rules and regulations to carry out the provisions of the Act. Applied to define the scope of delegated authority, which did not extend to altering the substantive terms of the tax.

Melencio-Herrera (Chairperson), Padilla, Sarmiento — all concurred.