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CARLOS SUPERDRUG CORP. v. DEPARTMENT OF SOCIAL WELFARE

FACTS:

This case involves a petition for Prohibition with Prayer for Preliminary Injunction challenging the constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257, also known as the "Expanded Senior Citizens Act of 2003." The petitioners are domestic corporations and proprietors operating drugstores in the Philippines. The public respondents include the Department of Social Welfare and Development (DSWD), the Department of Health (DOH), the Department of Finance (DOF), the Department of Justice (DOJ), and the Department of Interior and Local Government (DILG), which have been tasked with monitoring the drugstores' compliance with the law, promulgating implementing rules and regulations, and prosecuting and revoking licenses of non-compliant establishments.

On February 26, 2004, R.A. No. 9257, which amends R.A. No. 7432, was signed into law by President Gloria Macapagal-Arroyo and became effective on March 21, 2004. Section 4(a) of the Act grants senior citizens a 20% discount on utilizing services in hotels, restaurants, recreation centers, and purchasing medicines in all establishments for their exclusive use. The law also allows establishments to claim these discounts as tax deductions based on the net cost of goods or services rendered.

The DSWD approved and adopted the Implementing Rules and Regulations of R.A. No. 9257 on May 28, 2004. These rules state that establishments may claim the discounts as tax deductions and must include the total claimed deduction in their gross sales receipts for tax purposes. The Bureau of Internal Revenue (BIR) and the DOF are tasked with issuing revenue regulations for the implementation of the tax deduction.

In July 2004, the Department of Finance clarified that the new law allows establishments to deduct the amount of discounts granted to senior citizens from their gross income for tax purposes. The tax deduction is equivalent to the marginal tax rate the establishment is liable to pay the government, while the establishment bears the remaining portion of the granted discounts.

In October 2004, the Department of Health issued Administrative Order No. 171, granting a 20% discount on the purchase of unbranded generic medicines for senior citizens. In November 2004, Administrative Order No. 177 was issued, amending A.O. No. 171 to extend the discount to both prescription and non-prescription medicines, whether branded or generic.

The petitioners argue that Section 4(a) of the Expanded Senior Citizens Act is confiscatory, violates the equal protection clause, and the 20% discount on medicines violates the constitutional guarantee of making essential goods and health services available at an affordable cost.

ISSUES:

  1. Whether Section 4(a) of the Expanded Senior Citizens Act is unconstitutional on the grounds of being confiscatory and violating the equal protection clause and the guarantee of affordable goods and services.

  2. Whether the tax deduction scheme as a reimbursement mechanism for the discount granted to senior citizens constitutes just compensation.

  3. Whether the grant of senior citizen discount is unduly oppressive to the business of the petitioners.

  4. Whether the respondent committed the crime of estafa.

  5. Whether the defense of good faith can be raised by the respondent.

RULING:

  1. Section 4(a) of the Expanded Senior Citizens Act is constitutional. The Court finds that the law is a legitimate exercise of the State's police power and is in accordance with the Constitution's provisions on social justice and health development. The law aims to promote the health and welfare of senior citizens and provide them with benefits and privileges. The imposition of the burden on private establishments to partly subsidize a government program is justified by the duty of the State to provide social security for the elderly and its policy of seeking the partnership of the private sector.

  2. The tax deduction scheme as a reimbursement mechanism for the discount granted to senior citizens does not amount to just compensation. The discount, treated as a deduction, reduces the net income of private establishments. This permanent reduction in total revenues is a forced subsidy and constitutes compensable taking for which private establishments should be entitled to just compensation.

  3. The petition is dismissed for lack of merit. The Court held that property rights must yield to the primacy of police power in order to promote the common good. The grant of senior citizen discount is a reasonable means to achieve the purpose of the law and is not arbitrary. Furthermore, the petitioners failed to present sufficient evidence to demonstrate the alleged confiscatory effect of the provision in question. Without such evidence, there is no basis for nullifying the provision. The Court also emphasized that the right to property has a social dimension and can be relinquished for the promotion of public good. The Court acknowledged the competitive nature of the pharmaceutical industry but concluded that the State can intervene in the operations of a business if it is in line with the exercise of police power.

  4. The respondent committed the crime of estafa.

  5. The court found that the respondent, with grave abuse of confidence, misappropriated the funds entrusted to him by the complainant. The respondent's act of converting the funds for his personal use constitutes estafa under the Revised Penal Code.

  6. The defense of good faith cannot be raised by the respondent.

  7. The court ruled that the defense of good faith is not applicable in this case. The respondent's act of misappropriating the funds is a clear violation of the complainant's trust. As such, the defense of good faith cannot exonerate the respondent from criminal liability.

PRINCIPLES:

  • Police power has general welfare as its object and can be justified in promoting the health and welfare of special groups, such as senior citizens.

  • Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. It is the measure of the owner's loss, not the taker's gain.

  • A tax deduction does not provide full reimbursement and, therefore, does not meet the definition of just compensation.

  • Estafa is committed when a person misappropriates or converts funds entrusted to him/her with abuse of confidence, to the prejudice of another.

  • Good faith is not a valid defense in estafa cases, especially when there is grave abuse of confidence involved.