This document discusses a case between two corporations, Planters and Fertiphil, regarding a levy imposed on fertilizer sales under a presidential decree. The decree required Fertiphil to pay ₱10 per bag of fertilizer sold, with the funds remitted to Planters. Fertiphil paid ₱6.6 million under protest and sued for a refund after the decree was revoked. The court ruled the levy unconstitutional because it primarily generated revenue for a private entity, Planters, rather than for public purpose, as required for a valid tax. Even viewed as an exercise of police power, the decree failed the test of serving the general public interest and using reasonably necessary means.
This document discusses a case between two corporations, Planters and Fertiphil, regarding a levy imposed on fertilizer sales under a presidential decree. The decree required Fertiphil to pay ₱10 per bag of fertilizer sold, with the funds remitted to Planters. Fertiphil paid ₱6.6 million under protest and sued for a refund after the decree was revoked. The court ruled the levy unconstitutional because it primarily generated revenue for a private entity, Planters, rather than for public purpose, as required for a valid tax. Even viewed as an exercise of police power, the decree failed the test of serving the general public interest and using reasonably necessary means.
This document discusses a case between two corporations, Planters and Fertiphil, regarding a levy imposed on fertilizer sales under a presidential decree. The decree required Fertiphil to pay ₱10 per bag of fertilizer sold, with the funds remitted to Planters. Fertiphil paid ₱6.6 million under protest and sued for a refund after the decree was revoked. The court ruled the levy unconstitutional because it primarily generated revenue for a private entity, Planters, rather than for public purpose, as required for a valid tax. Even viewed as an exercise of police power, the decree failed the test of serving the general public interest and using reasonably necessary means.
This document discusses a case between two corporations, Planters and Fertiphil, regarding a levy imposed on fertilizer sales under a presidential decree. The decree required Fertiphil to pay ₱10 per bag of fertilizer sold, with the funds remitted to Planters. Fertiphil paid ₱6.6 million under protest and sued for a refund after the decree was revoked. The court ruled the levy unconstitutional because it primarily generated revenue for a private entity, Planters, rather than for public purpose, as required for a valid tax. Even viewed as an exercise of police power, the decree failed the test of serving the general public interest and using reasonably necessary means.
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws.3 They are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among others, for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the Philippines.
Pursuant to the LOI, Fertiphil paid ₱10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid ₱6,689,144 to FPA from July 8, 1985 to January 24, 1986.6
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the ₱10 levy. With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No. 1465, but PPI refused to accede to the demand.7
Fertiphil filed a complaint for collection and damages8 against FPA and PPI with the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process of law.9 Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the seller.
RTC - in favor of Fertiphil, the LOI fails to meet "public purpose".
CA - affirmed RTC's decision
Issue:
Ruling: the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power,41 the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. A plain reading of the LOI also supports the conclusion that the levy was for revenue generation. The LOI expressly provided that the levy was imposed "until adequate capital is raised to make PPI viable." Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI. the LOI expressly provided that the levy be imposed to benefit PPI, a private company. the LOI provides that the imposition of the ₱10 levy was conditional and dependent upon PPI becoming financially "viable." This suggests that the levy was actually imposed to benefit PPI. the levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI.49 This proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to give undue benefit and advantage to PPI. the levy was used to pay the corporate debts of PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons.46 The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose.
Jurisprudence states that "public purpose" should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice.
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid for failing to comply with the test of "lawful subjects" and "lawful means." Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished from those of particular class, requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals
