Demaala v. Commission on Audit
NEW DOCTRINEFacts
The Antecedents: The Sangguniang Panlalawigan of Palawan enacted Provincial Ordinance No. 332-A, Series of 1995, which provided for an additional levy on real property tax for the special education fund (SEF) at the rate of 0.5%. The Municipality of Narra, Palawan, with petitioner Lucena D. Demaala as mayor, collected this SEF at the 0.5% rate. Procedural History: An Audit Observation Memorandum (AOM) questioned the 0.5% rate, asserting it should be 1% as provided in Section 235 of Republic Act No. 7160 (Local Government Code). Consequently, a Notice of Charge was issued against Demaala, the municipal treasurer, and payors for the supposed deficiency. Demaala's motion for reconsideration and subsequent appeal to the Commission on Audit (COA) Legal and Adjudication Office (LAO) were denied. The COA, in its Decision No. 2008-087, affirmed the LAO decision with modification, holding former Palawan Vice Governor Joel T. Reyes and other Sangguniang Panlalawigan members jointly and severally liable with Demaala and others. The COA's Resolution No. 2011-083 denied Demaala's motion for reconsideration. The Petition: Demaala filed a Petition for Certiorari with the Supreme Court, praying for the reversal of the COA's decisions, arguing that the COA committed grave abuse of discretion in holding that there was a deficiency and in holding her personally liable.
Issue(s)
Whether the respondent Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in holding that there was a deficiency in the Municipality of Narra’s collection of the additional levy for the special education fund. Whether the respondent Commission on Audit committed grave abuse of discretion amounting to lack or excess of jurisdiction in holding petitioner personally liable for the deficiency, assuming one existed.
Ruling
The Petition is GRANTED. Decision No. 2008-087 dated September 22, 2008 and Decision No. 2011-083 dated November 16, 2011 of the respondent Commission on Audit are ANNULLED and SET ASIDE.
Ratio Decidendi
On the first issue of deficiency in SEF collection: The Supreme Court ruled that setting the rate of the additional levy for the special education fund at less than 1% is within the taxing power of local government units and is consistent with the constitutional principle of local autonomy. The Court emphasized that the taxing power of local government units must be prescribed by law and construed strictly, but the 1987 Constitution, through Article X, Section 5, grants local government units the power to create their own sources of revenue, subject to guidelines and limitations by Congress, consistent with local autonomy. The Court interpreted Section 235 of the Local Government Code, which states that a province, city, or municipality within Metro Manila "may levy and collect an annual tax of one percent (1%)" for the SEF, as granting fiscal flexibility. The permissive language of "may" indicates it is not mandatory, and the 1% rate should be considered a maximum rate rather than an immutable edict. This interpretation favors local fiscal autonomy, allowing local government units to set rates appropriate to their specific contexts, as long as they act within the bounds of the law and with good faith. Therefore, the Sangguniang Panlalawigan of Palawan had the power to enact an ordinance providing for an additional levy at 0.5%, and the Municipality of Narra acted properly in collecting at this rate. On the second issue of personal liability: The Supreme Court found it improper to hold petitioner personally liable for the supposed deficiency. Having established that the collection at 0.5% was proper under the provincial ordinance, there was no deficiency to speak of, and thus no basis for holding the petitioner liable. Even if there were a contrary ruling on the rate, the Court distinguished the present case from Salalima v. Guingona, where provincial officials were held liable for enacting an invalid ordinance that caused the mishandling of SEF proceeds. In this case, the Municipality of Narra merely enforced a provincial ordinance that was presumed valid at the time of collection. The petitioner, as mayor, acted in good faith pursuant to this ordinance. The Court stressed that it would be unfair to expect municipal officials to disregard a duly passed ordinance that had not yet been invalidated by the courts. The presumption of validity of laws and ordinances means that officials who act in good faith based on them should not be held personally liable for subsequent invalidation.
Main Doctrine
The rate of the additional levy for the special education fund under Section 235 of the Local Government Code is a maximum rate, not an immutable edict, allowing local government units fiscal flexibility consistent with local autonomy. Municipal officials acting in good faith pursuant to a presumed valid ordinance cannot be held personally liable for deficiencies in collections.