SC: FM decree on fertilizer levy unconstitutional

MANILA, Philippines – The Supreme Court recently affirmed a decision of the Court of Appeals and a Makati court declaring as unconstitutional an order issued by the late President Ferdinand Marcos that imposed a P10 levy for every bag of fertilizer to pay off debts of a private corporation.

The Marcos decree, Letter of Instruction (LOI) 1465, was issued in 1985 when Planters Products Inc. (PPI), a private company which imports and distributes fertilizer, pesticides and agricultural chemicals, was in deep financial trouble because of its huge corporate debts. 

The fertilizer tax was used to pay PPI’s corporate debts.

Documents showed that Fertiphil Corp. paid some P6.69 million to the Fertilizer and Pesticide Authority (FPA) from July 8, 1985 to Jan. 24, 1986 which in turn was deposited to PPI’s bank account.

However, after the EDSA People Power revolt that ousted Marcos in 1986, FPA voluntarily stopped collecting the P10 levy. Fertiphil demanded a refund from PPI.

PPI, however, ignored the demand of Fertiphil. This prompted Fertiphil to question the constitutionality of the LOI in its complaint for collection and damages filed before a Makati court.

Makati Judge Teofilo Guadiz, who ruled in favor of Fertiphil, said the levy violated the basic principle that taxes can only be levied for public purpose and ordered PPI to pay Fertiphil the sum of P6,698,144 “with interest at 12 percent from the time of judicial demand.”

Affirming the lower court’s decision, the Appellate Court said “when a statute’s public purpose is spoiled by private interest, the use of police power becomes a travesty which must be struck down for being an arbitrary exercise of government power.”

“The levy, no doubt was a big burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent,” the Appellate Court said.

On the other hand, the Supreme Court, in a decision penned by Associate Justice Ruben T. Reyes, said “an inherent limitation on the power of taxation is public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose.”

In its bid to retain the levies, PPI banked on the doctrine of operative fact, which provides that an unconstitutional law has an effect before being declared unconstitutional.

“We find the doctrine inapplicable,” the Supreme Court said.

The Supreme Court also said that as a general rule, an unconstitutional law is considered void.

“It produces no rights, imposes no duties and affords no protection. It has no legal effect. Being void, Fertiphil is not required to pay the levy. All levies paid should be refunded in accordance with the general civil code principle against unjust enrichment,” the SC said.

“We cannot allow PPI to profit from an unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by Fertiphil,” the Supreme Court said.