GR 132527; (July, 2005) (Digest)
G.R. No. 132527 . July 29, 2005
COCONUT OIL REFINERS ASSOCIATION, INC., ET AL., Petitioners, vs. HON. RUBEN TORRES, ET AL., Respondents.
FACTS
Republic Act No. 7227 (the Bases Conversion and Development Act of 1992) authorized the creation of the Subic Special Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ). The law provided that these zones would be separate customs territories with tax and duty-free importation privileges. Crucially, Section 12(b) of RA 7227 explicitly stated that the exportation or removal of goods from the SSEZ to other parts of the Philippine territory “shall be subject to customs duties and taxes.” Subsequently, executive issuances, including Executive Orders No. 80 and 97-A, were promulgated, which allowed the operation of tax and duty-free shops within these zones that could sell imported goods to the general public, including local residents, without payment of customs duties and national taxes.
Petitioners, comprising various industry and labor groups, filed a Petition for Prohibition and Injunction. They argued that these executive issuances were unconstitutional for constituting executive lawmaking and for violating specific constitutional provisions, including the equal protection clause and provisions on unfair competition. Their core contention was that the executive acts illegally expanded the scope of RA 7227 by permitting the duty-free sale of imported goods for domestic consumption, which the law did not authorize.
ISSUE
Whether the executive issuances (EO No. 80, EO No. 97-A, and related BCDA resolutions) authorizing the operation of tax and duty-free shops selling imported goods to the general public within the SSEZ and CSEZ are valid.
RULING
The Supreme Court declared the challenged executive issuances NULL and VOID. The legal logic is anchored on the principle of separation of powers and the specific limitations of the underlying statute. RA 7227 granted tax and duty exemptions only on importations into the special economic zones. Section 12(b) is unequivocal: once goods are removed from the zone into the Philippine customs territory, they become subject to all applicable duties and taxes. The executive issuances, by allowing duty-free shops to sell imported goods locally, effectively exempted these goods from duties and taxes upon their removal from the zone for domestic consumption. This constitutes an amendment of the law, as it creates an exemption not provided by Congress.
The Court ruled that the power to tax and to grant tax exemptions is exclusively legislative. The President’s power is limited to executing the law as written. By creating a new exemption for goods leaving the zones for local sale, the executive branch exercised a legislative function. This is a clear case of executive lawmaking, which is impermissible under the Constitution. The issuances are invalid for having been issued without statutory basis and for contravening the explicit policy in RA 7227 that the Philippine customs territory begins at the zone’s borders. Consequently, the operation of the duty-free shops for domestic retail is illegal.