CASE DIGEST: Manila Memorial Park vs. Secretary of the Department of Social Welfare and Development

 

G.R. No. 175356, December 03, 2013

MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC., Petitioners, v. SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT AND THE SECRETARY OF THE DEPARTMENT OF FINANCE, Respondent.

FACTS:

Petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc. are domestic corporations engaged in the business of providing funeral and burial services. Petitioners assail the constitutionality of Section 4 of RA No. 7432, as amended by RA 9257, and the implementing rules and regulations issued by the DSWD and DOF insofar as these allow business establishments to claim the 20% discount given to senior citizens as a tax deduction.

To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006, which provides that only that portion of the gross sales EXCLUSIVELY USED, CONSUMED OR ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales discount; Only the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes.

The DSWD likewise issued its own Rules and Regulations Implementing RA 9257.

Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying that Section 4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations issued by the DSWD and the DOF be declared unconstitutional insofar as these allow business establishments to claim the 20% discount given to senior citizens as a tax deduction; that the DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment of the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution, which provides that: “private property shall not be taken for public use without just compensation.” In support of their position, petitioners cite Central Luzon Drug Corporation, where it was ruled that the 20% discount privilege constitutes taking of private property for public use which requires the payment of just compensation, and Carlos Superdrug Corporation v. Department of Social Welfare and Development, where it was acknowledged that the tax deduction scheme does not meet the definition of just compensation.

Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation that the tax deduction scheme adopted by the government is justified by police power. They assert that “although both police power and the power of eminent domain have the general welfare for their object, there are still traditional distinctions between the two” and that “eminent domain cannot be made less supreme than police power.” Petitioners further claim that the legislature, in amending RA 7432, relied on an erroneous contemporaneous construction that prior payment of taxes is required for tax credit.

ISSUE:

WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND X X X ITS IMPLEMENTING RULES AND REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE 20% DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.

RULING:

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State considers them an integral part of our society.

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as “the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs.” It is “the power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same.”

For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to general welfare.

A fair reading of Carlos Superdrug Corporation would show that the Court ruled therein that the 20% discount is a valid exercise of police power. Thus, even if the current law, through its tax deduction scheme (which abandoned the tax credit scheme under the previous law), does not provide for a peso for peso reimbursement of the 20% discount given by private establishments, no constitutional infirmity obtains because, being a valid exercise of police power, payment of just compensation is not warranted.

Police power is the inherent power of the State to regulate or to restrain the use of liberty and property for public welfare. The only limitation is that the restriction imposed should be reasonable, not oppressive. In other words, to be a valid exercise of police power, it must have a lawful subject or objective and a lawful method of accomplishing the goal.60 Under the police power of the State, “property rights of individuals may be subjected to restraints and burdens in order to fulfill the objectives of the government.” The State “may interfere with personal liberty, property, lawful businesses and occupations to promote the general welfare [as long as] the interference is reasonable and not arbitrary.” Eminent domain, on the other hand, is the inherent power of the State to take or appropriate private property for public use. The Constitution, however, requires that private property shall not be taken without due process of law and the payment of just compensation.

In the exercise of police power, a property right is impaired by regulation, or the use of property is merely prohibited, regulated or restricted to promote public welfare. In such cases, there is no compensable taking, hence, payment of just compensation is not required. It has, thus, been observed that, in the exercise of police power (as distinguished from eminent domain), although the regulation affects the right of ownership, none of the bundle of rights which constitute ownership is appropriated for use by or for the benefit of the public.

On the other hand, in the exercise of the power of eminent domain, property interests are appropriated and applied to some public purpose which necessitates the payment of just compensation therefor. Normally, the title to and possession of the property are transferred to the expropriating authority.

As to its nature and effects, the 20% discount is a regulation affecting the ability of private establishments to price their products and services relative to a special class of individuals, senior citizens, for which the Constitution affords preferential concern. In turn, this affects the amount of profits or income/gross sales that a private establishment can derive from senior citizens. In other words, the subject regulation affects the pricing, and, hence, the profitability of a private establishment. However, it does not purport to appropriate or burden specific properties, used in the operation or conduct of the business of private establishments, for the use or benefit of the public, or senior citizens for that matter, but merely regulates the pricing of goods and services relative to, and the amount of profits or income/gross sales that such private establishments may derive from, senior citizens.

The subject regulation may be said to be similar to, but with substantial distinctions from, price control or rate of return on investment control laws which are traditionally regarded as police power measures. These laws generally regulate public utilities or industries/enterprises imbued with public interest in order to protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by controlling the rate of return on investment of these corporations considering that they have a monopoly over the goods or services that they provide to the general public. The subject regulation differs therefrom in that (1) the discount does not prevent the establishments from adjusting the level of prices of their goods and services, and (2) the discount does not apply to all customers of a given establishment but only to the class of senior citizens. Nonetheless, to the degree material to the resolution of this case, the 20% discount may be properly viewed as belonging to the category of price regulatory measures which affect the profitability of establishments subjected thereto.

On its face, therefore, the subject regulation is a police power measure.