Taxation Law II Local Taxation Cases

Atty. Rommel Geocaniga

[184] G.R. No. 152492 October 16, 2003 1. Automatic per unit 10.00

PALMA DEVELOPMENT CORPORATION, petitioner, 2. Ford Fiera 10.00

vs.
MUNICIPALITY OF MALANGAS, ZAMBOANGA DEL SUR, respondent.
3. Trucks 10.00

DECISION
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PANGANIBAN, J.:
b) Other Goods, Construction Material products:

In accordance with the Local Government Code of 1991, a municipal ordinance

imposing fees on goods that pass through the issuing municipalitys territory is null
and void.
The Case
1 2
The Petition for Review before us assails the August 31, 2001 Decision and the
February 6, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 56477.
The dispositive portion of the challenged Decision reads as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the assailed Decision is VACATED
and SET ASIDE, and this case is ordered REMANDED to the court a quo for the
reception of evidence of the parties on the matter or point delineated in the final
sentence above-stated."4
The assailed Resolution denied petitioners Motion for Reconsideration.
1. Bamboo craft 20.00
2. Bangus/Kilo 0.30
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41. Rice and corn grits/sack 0.50"5
Accordingly, the service fees imposed by Section 5G.01 of the ordinance was paid
by petitioner under protest. It contended that under Republic Act No. 7160,
otherwise known as the Local Government Code of 1991, municipal governments
did not have the authority to tax goods and vehicles that passed through their
jurisdictions. Thereafter, before the Regional Trial Court (RTC) of Pagadian City,
petitioner filed against the Municipality of Malangas on November 20, 1995, an
action for declaratory relief assailing the validity of Section 5G.01 of the municipal
ordinance.

The Facts
The facts are undisputed. Petitioner Palma Development Corporation is engaged in
milling and selling rice and corn to wholesalers in Zamboanga City. It uses the
municipal port of Malangas, Zamboanga del Sur as transshipment point for its
goods. The port, as well as the surrounding roads leading to it, belong to and are
maintained by the Municipality of Malangas, Zamboanga del Sur.
On January 16, 1994, the municipality passed Municipal Revenue Code No. 09,
Series of 1993, which was subsequently approved by the Sangguniang Panlalawigan
of Zamboanga del Sur in Resolution No. 1330 dated August 4, 1994. Section 5G.01
of the ordinance reads:
On the premise that the case involved the validity of a municipal ordinance, the RTC
directed respondent to secure the opinion of the Office of the Solicitor General. The
trial court likewise ordered that the opinions of the Departments of Finance and of
Justice be sought. As these opinions were still unavailable as of October 17, 1996,
petitioners counsel filed, without objection from respondent, a Manifestation
seeking the submission of the case for the RTCs decision on a pure question of law.
In due time, the trial court rendered its November 13, 1996 Decision declaring the
entire Municipal Revenue Code No. 09 as ultra vires and, hence, null and void.
Ruling of the Court of Appeals

"Section 5G.01. Imposition of fees. There shall be collected service fee for its use of
the municipal road[s] or streets leading to the wharf and to any point along the
shorelines within the jurisdiction of the municipality and for police surveillance on all
goods and all equipment harbored or sheltered in the premises of the wharf and
other within the jurisdiction of this municipality in the following schedule:
a) Vehicles and Equipment: rate of fee
The CA held that local government units already had revenue-raising powers as
provided for under Sections 153 and 155 of RA No. 7160. It ruled as well that within
the purview of these provisions -- and therefore valid -- is Section 5G.01, which
provides for a "service fee for the use of the municipal road or streets leading to the
wharf and to any point along the shorelines within the jurisdiction of the
municipality" and "for police surveillance on all goods and all equipment harbored or
sheltered in the premises of the wharf and other within the jurisdiction of this
municipality."

However, since both parties had submitted the case to the trial court for decision on
a pure question of law without a full-blown trial on the merits, the CA could not
determine whether the facts of the case were within the ambit of the aforecited
sections of RA No. 7160. The appellate court ruled that petitioner still had to adduce
evidence to substantiate its allegations that the assailed ordinance had imposed
fees on the movement of goods within the Municipality of Malangas in the guise of a
toll fee for the use of municipal roads and a service fee for police surveillance. Thus,
the CA held that the absence of such evidence necessitated the remand of the case
to the trial court.
Hence, this Petition.6
Issues
Petitioner raises the following issues for our consideration:
"1. Whether or not the Court of Appeals erred when it ordered that the
extant case be remanded to the lower court for reception of evidence.
"2. Whether or not the Court of Appeals erred when it ruled that a full
blown trial on the merits is necessary and that plaintiff-appellee, now
petitioner, has to adduce evidence to substantiate its thesis that the
assailed municipal ordinance, in fact, imposes fees on the movement of
goods within the jurisdiction of the defendant and that this imposition is
merely in the guise of a toll fee for the use of municipal roads and service
fee for police surveillance.
"3. Whether or not the Court of Appeals erred when it did not rule that the
questioned municipal ordinance is contrary to the provisions of R.A. No.
7160 or the Local Government Code of the Philippines."7
In brief, the issues boil down to the following: 1) whether Section 5G.01 of
Municipal Revenue Code No. 09 is valid; and 2) whether the remand of the case to
the trial court is necessary.
The Courts Ruling
The Petition is meritorious.
First Issue:
Validity of the Imposed Fees
Petitioner argues that while respondent has the power to tax or impose fees on
vehicles using its roads, it cannot tax the goods that are transported by the
vehicles. The provision of the ordinance imposing a service fee for police
surveillance on goods is allegedly contrary to Section 133(e) of RA No. 7160, which
reads:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
"Section 133. Common Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
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e) Taxes, fees and charges and other impositions upon goods carried into and out
of, or passing through, the territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or
charges in any form whatsoever upon such goods or merchandise;"
On the other hand, respondent maintains that the subject fees are intended for
services rendered, the use of municipal roads and police surveillance. The fees are
supposedly not covered by the prohibited impositions under Section 133(e) of RA
No. 7160.8 It further contends that it was empowered by the express mandate of
Sections 153 and 155 of RA No. 7160 to enact Section 5G.01 of the ordinance. The
pertinent provisions of this statute read as follows:
"Section 153. Service Fees and Charges. -- Local government units may impose and
collect such reasonable fees and charges for services rendered.
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"Section 155. Toll Fees or Charges. -- The sanggunian concerned may prescribe the
terms and conditions and fix the rates for the imposition of toll fees or charges for
the use of any public road, pier or wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the local government unit
concerned: Provided, That no such toll fees or charges shall be collected from
officers and enlisted men of the Armed Forces of the Philippines and members of the
Philippine National Police on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are sixty-five (65) years or
older.1a\^/phi1.net
"When public safety and welfare so requires, the sanggunian concerned may
discontinue the collection of the tolls, and thereafter the said facility shall be free
and open for public use."
Respondent claims that there is no proof that the 0.50 fee for every sack of rice or
corn is a fraudulent legislation enacted to subvert the limitation imposed by Section
133(e) of RA No. 7160. Moreover, it argues that allowing petitioner to use its roads
without paying the 0.50 fee for every sack of rice or corn would contravene the
principle of unjust enrichment.
By express language of Sections 153 and 155 of RA No. 7160, local government
units, through their Sanggunian, may prescribe the terms and conditions for the
imposition of toll fees or charges for the use of any public road, pier or wharf funded
and constructed by them. A service fee imposed on vehicles using municipal roads
leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits
the imposition, in the guise of wharfage, of fees -- as well as all other taxes or
charges in any form whatsoever -- on goods or merchandise. It is therefore

irrelevant if the fees imposed are actually for police surveillance on the goods,
because any other form of imposition on goods passing through the territorial
jurisdiction of the municipality is clearly prohibited by Section 133(e).
Under Section 131(y) of RA No. 7160, wharfage is defined as "a fee assessed
against the cargo of a vessel engaged in foreign or domestic trade based on
quantity, weight, or measure received and/or discharged by vessel." It is apparent
that a wharfage does not lose its basic character by being labeled as a service fee
"for police surveillance on all goods."
Unpersuasive is the contention of respondent that petitioner would unjustly be
enriched at the formers expense. Though the rules thereon apply equally well to
the government,9 for unjust enrichment to be deemed present, two conditions must
generally concur: (a) a person is unjustly benefited, and (b) such benefit is derived
at anothers expense or damage.10
In the instant case, the benefits from the use of the municipal roads and the wharf
were not unjustly derived by petitioner. Those benefits resulted from the
infrastructure that the municipality was mandated by law to provide.11There is no
unjust enrichment where the one receiving the benefit has a legal right or
entitlement thereto, or when there is no causal relation between ones enrichment
and the others impoverishment.12
Second Issue:
Remand of the Case
Petitioner asserts that the remand of the case to the trial court for further reception
of evidence is unnecessary, because the facts are undisputed by both parties. It has
already been clearly established, without need for further evidence, that petitioner
transports rice and corn on board trucks that pass through the municipal roads
leading to the wharf. Under protest, it paid the service fees, a fact that respondent
has readily admitted without qualification.
Respondent, on the other hand, is silent on the issue of the remand of the case to
the trial court. The former merely defends the validity of the ordinance, arguing
neither for nor against the remand.
We rule against the remand. Not only is it frowned upon by the Rules of Court;13 it is
also unnecessary on the basis of the facts established by the admissions of the
parties. Besides, the fact sought to be established with the reception of additional
evidence is irrelevant to the due settlement of the case.
The pertinent portion of the assailed CA Decision reads:
"To be stressed is the fact that local government units now have the following
common revenue raising powers under the Local Government Code:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Section 153. Service Fees and Charges. -- Local government units may impose and
collect such reasonable fees and charges for services rendered.
xxxxxxxxx
Section 155. Toll Fees or Charges. -- The Sanggunian concerned may prescribe the
terms and conditions and fix the rates for the imposition of toll fees or charges for
the use of any public road, pier or wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the local government unit
concerned: Provided, That no such toll fees or charges shall be collected from
officers and enlisted men of the Armed Forces of the Philippines and members of the
Philippine National Police on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are sixty-five (65) years or older.
When public safety and welfare so requires, the Sanggunian concerned may
discontinue the collection of the tolls, and thereafter the said facility shall be free
and open for public use. x x x
"As we see it, the disputed municipal ordinance, which provides for a service fee for
the use of the municipal road or streets leading to the wharf and to any point along
the shorelines within the jurisdiction of the municipality and for police surveillance
on all goods and all equipment harbored or sheltered in the premises of the wharf
and other within the jurisdiction of this municipality, seems to fall within the
compass of the above cited provisions of R.A. No. 7160. As elsewhere indicated, the
parties in this case, nonetheless, chose to submit the issue to the Trial Court on a
pure question of law, without a full-blown trial on the merits: consequently, we are
not prepared to say, at this juncture, that the facts of the case inevitably call for the
application, and/or that these make out a clear-cut case within the ambit and
purview, of the aforecited section. The plaintiff, thus, has to adduce evidence to
substantiate its thesis that the assailed municipal ordinance, in fact, imposes fees
on the movement of goods within the jurisdiction of the defendant, and that this
imposition is merely in the guise of a toll fee for the use of municipal roads and
service fee for police surveillance. Competent evidence upon this score must, thus,
be presented."14
We note that Section 5G.01 imposes two types of service fees: 1) one for the use of
the municipal roads and 2) another for police surveillance on all goods and
equipment sheltered in the premises of the wharf. The amount of service fees,
however, is based on the type of vehicle that passes through the road and the type
of goods being transported.1a\^/phi1.net
While both parties admit that the service fees imposed are for the use of the
municipal roads, petitioner maintains that the service fee for police surveillance on
goods harbored on the wharf is in the guise of a wharfage,15 a prohibited imposition
under Section 133(e) of RA No. 7160.
Thus, the CA held that the case should be remanded to the trial court in order to
resolve this factual dispute. The appellate court noted that under Section 155 of RA
No. 7160, municipalities apparently now have the power to impose fees for the use
of municipal roads.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

Nevertheless, a remand is still unnecessary even if the service fee charged against
the goods are for police surveillance, because Section 133(e) of RA No. 7160
expressly prohibits the imposition of all other taxes, fees or charges in any form
whatsoever upon the merchandise or goods that pass through the territorial
jurisdiction of local government units. It is therefore immaterial to the instant case
whether the service fee on the goods is for police surveillance or not, since the
subject provision of the revenue ordinance is invalid. Reception of further evidence
to establish this fact would not legalize the imposition of such fee in any way.

Furthermore, neither party disputes any of the other material facts of the case.
From their respective Briefs before the CA and their Memoranda before this Court,
they do not dispute the fact that petitioner, from its principal place of business,
transports rice and corn on board trucks bound for respondents wharf. The trucks
traverse the municipal roads en route to the wharf, where the sacks of rice and corn
are manually loaded into marine vessels bound for Zamboanga City. Likewise
undisputed is the fact that respondent imposed and collected fees under the
ordinance from petitioner. The former admits that it has been collecting, in addition
to the fees on vehicles, 0.50 for every sack of rice or corn that the latter has been
shipping through the wharf.16

The foregoing allegations are formal judicial admissions that are conclusive upon the
parties making them. They require no further proof in accordance with Section 4 of
Rule 129 of the Rules of Court, which reads:

"SEC. 4. Judicial admissions. An admission, verbal or written, made by a party in

the course of the proceedings in the same case, does not require proof. The
admission may be contradicted only by showing that it was made through palpable
mistake or that no such admission was made."

Judicial admissions made by parties in the pleadings, in the course of the trial, or in
other proceedings in the same case are conclusive. No further evidence is required
to prove them. Moreover, they cannot be contradicted unless it is shown that they
have been made through palpable mistake, or that they have not been made at
all.17

WHEREFORE, the Petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are hereby SET ASIDE. The imposition of a service fee for police
surveillance on all goods harbored or sheltered in the premises of the municipal port
of Malangas under Sec. 5G.01 of the Malangas Municipal Revenue Code No. 09,
series of 1993, is declared NULL AND VOID for being violative of Republic Act No.
7160.

SO ORDERED.

[185] [G.R. No. 126232. November 27, 1998]
THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE
CHAVEZ, and MANUEL DJ SIAYNGCO in their capacity as PROVINCIAL
GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL LEGAL ADVISE,
respectively, petitioners, vs. THE HONORABLE COURT OF APPEALS
(FORMER SPECIAL 12TH DIVISION), PUBLIC CEMENT
CORPORATION, respondents.
DECISION
ROMERO, J.:
Before us is a petition for certiorari seeking the reversal of the decision of the
Court of Appeals dated September 27, 1995 declaring petitioner without authority to
levy taxes on stones, sand, gravel, earth and other quarry resources extracted from
private lands, as well as the August 26, 1996 resolution of the appellate court
denying its motion for reconsideration.
The facts are as follows:
On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial
Ordinance No. 3, known as "An ordinance Enacting the Revenue Code of the
Bulacan Province," which was to take effect on July 1, 1992, section 21 of the
ordinance provides as follows:
Section 21. Imposition of Tax. There is hereby levied and collected a tax of 10% of
the fair market value in the locality per cubic meter of ordinary stones, sand, gravel,
earth and other quarry resources, such, but not limited to marble, granite, volcanic
cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of
seas, lakes, rivers, streams, creeks and other public waters within its territorial
jurisdiction. (Italics ours)
Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated
November 11, 1993, assessed private respondent Republic Cement Corporation
(hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale and
silica from several parcels of private land in the province during the third quarter of
1992 until the second quarter of 1993. Believing that the province, on the basis of
above-said ordinance, had no authority to impose taxes on quarry resources
extracted from private lands, Republic Cement formally contested the same on
December 23, 1993. The same was, however, denied by the Provincial Treasurer on
January 17, 1994. Republic Cement, consequently filed a petition for declaratory
relief with the Regional Trial Court of Bulacan on February 14, 1994. The province
filed a motion to dismiss Republic Cement's petition, which was granted by the trial
court on May 13, 1993, which ruled that declaratory relief was improper, allegedly
because a breach of the ordinance had been committed by Republic Cement.
On July 11, 1994, Republic Cement filed a petition for certiorari with the
Supreme Court seeking to reverse the trial court's dismissal of their petition. The
Court, in a resolution dated July 27, 1994, referred the same to the Court of
Appeals, where it was docketed as CA G.R. SP No. 34915. The appellate court
required petitioners to file a comment, which they did on September 7, 1994.
In the interim, the Province of Bulacan issued a warrant of levy against
Republic Cement, allegedly because of its unpaid tax liabilities. Negotiations
between Republic Cement and petitioners resulted in an agreement and modus
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
vivendi on December 12, 1994, whereby Republic Cement agreed to pay under
protest P1,262,346.00, 50% of the tax assessed by petitioner, in exchange for the
lifting of the warrant of levy. Furthermore, Republic Cement and petitioners agreed
to limit the issue for resolution by the Court of Appeals to the question as to
whether or not the provincial government could impose and/or assess taxes on
quarry resources extracted by Republic Cement from private lands pursuant to
Section 21 of the Provincial Ordinance No. 3. This agreement and modus
vivendi were embodied in a joint manifestation and motion signed by Governor
Roberto Pagdanganan, on behalf of the Province of Bulacan, by Provincial Treasurer
Florence Chavez, and by Provincial Legal Officer Manuel Siayngco, as petitioner's
counsel and filed with the Court of Appeals on December 13, 1994. In a resolution
dated December 29, 1994, the appellate court approved the same and limited the
issue to be resolved to the question whether or not the provincial government could
impose taxes on stones, sand, gravel, earth and other quarry resources extracted
from private lands.
After due trial, the Court of Appeals, on September 27, 1995, rendered the
following judgment:
WHEREFORE, judgment is hereby rendered declaring the Province of
Bulacan under its Provincial Ordinance No. 3 entitled "An Ordinance
Enacting the Revenue Code of Bulacan Province" to be without legal
authority to impose and assess taxes on quarry resources extracted by
RCC from private lands, hence the interpretation of Respondent
Treasurer of Chapter II, Article D, Section 21 of the Ordinance, and the
assessment made by the Province of Bulacan against RCC is null and
void.
Petitioner's motion for reconsideration, as well as their supplemental motion
for reconsideration, was denied by the appellate court on august 26, 1996, hence
this appeal.
Petitioner's claim that the Court of Appeals erred in:
1. NOT HAVING OUTRIGHTLY DISMISSED THE SUBJECT PETITION
ON THE GROUND THAT THE SAME IS NOT THE
APPROPRIATE REMEDY FROM THE TRIAL COURT'S GRANT
OF THE PRIVATE RESPONDENTS' (HEREIN PETITIONER)
MOTION TO DISMISS;
2. NOT DISMISSING THE SUBJECT PETITION FOR BEING
VIOLATIVE OF CIRCULAR 2-90 ISSUED BY THE SUPREME
COURT;
3. NOT DISMISSING THE PETITION FOR REVIEW ON THE GROUND
THAT THE TRIAL COURT'S ORDER OF MAY 13, 1994 HAD
LONG BECOME FINAL AND EXECUTORY;
4. GOING BEYOND THE PARAMETERS OF ITS APPELLATE
JURISDICTION IN RENDERING THE SEPTEMBER 27, 1995
DECISION;
5. HOLDING THAT PRIVATE RESPONDENT (HEREIN PETITIONER)
ARE ESTOPPED FROM RAISING THE PROCEDURAL ISSUE IN
THE MOTION FOR RECONSIDERATION;

6. THE INTERPRETATION OF SECTION 134 OF THE LOCAL
GOVERNMENT CODE AS STATED IN THE SECOND TO THE
LAST PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER 27, 1995
DECISION;
7. SUSTAINING THE ALLEGATIONS OF HEREIN RESPONDENT
WHICH UNJUSTLY DEPRIVED PETITIONER THE POWER TO
CREATE ITS OWN SOURCES OF REVENUE;
8. DECLARING THAT THE ASSESSMENT MADE BY THE PROVINCE
OF BULACAN AGAINST RCC AS NULL AND VOID WHICH IN
EFFECT IS A COLLATERAL ATTACK ON PROVINCIAL
ORDINANCE NO. 3; AND
9. FAILING TO CONSIDER THE REGALIAN DOCTRINE IN FAVOR OF
THE LOCAL GOVERNMENT.
The issues raised by petitioners are devoid of merit. The number and diversity
of errors raised by appellants impel us, however, to discuss the points
raised seriatim.
In their first assignment of error, petitioners contend that instead of filing a
petition for certiorari with the Supreme Court, Republic Cement should have
appealed from the order of the trial court dismissing their petition. Citing Martinez
vs. CA,[1] they allege that a motion to dismiss is a final order, the remedy against
which is not a petition for certiorari, but an appeal, regardless of the questions
sought to be raised on appeal, whether of fact or of law, whether involving
jurisdiction or grave abuse of discretion of the trial court.
Petitioners' argument is misleading. While it is true that the remedy against a
final order is an appeal, and not a petition for certiorari, the petition referred to is a
petition for certiorari under Rule 65. As stated in Martinez, the party aggrieved does
not have the option to substitute the special civil action for certiorari under Rule 65
for the remedy of appeal. The existence and availability of the right of appeal are
antithetical to the availment of the special civil action for certiorari.
Republic Cement did not, however, file a petition for certiorari under Rule 65,
but an appeal by certiorari under Rule 45. Even law students know
that certiorari under Rule 45 is a mode of appeal, an appeal from the Regional Trial
Court being taken in either of two ways (a) by writ of error (involving questions of
fact and law) and (b) by certiorari (limited only to issues of law), with an appeal
by certiorari being brought to the Supreme Court, there being no provision of law
for taking appeals by certiorari to the Court of Appeals.[2] It is thus clearly apparent
that Republic Cement correctly contested the trial court's order of dismissal by filing
an appeal by certiorari under Rule 45. In fact, petitioners, in their second
assignment of error, admit that a petition for review on certiorari under Rule 45 is
available to a party aggrieved by an order granting a motion to dismiss. [3] They
claim, however, that Republic Cement could not avail of the same allegedly because
the latter raised issues of fact, which is prohibited, Rule 45 providing that "(t)he
petition shall raise only questions of law which must be distinctly set forth."[4] In this
respect, petitioners claim that Republic Cement's petition should have been
dismissed by the appellate court, Circular 2-90 providing:
4. Erroneous Appeals. - An appeal taken to either the Supreme Court or
the Court of Appeals by the wrong or inappropriate mode shall be
dismissed.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
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d) No transfer of appeals erroneously taken. -- No transfers of appeals
erroneously taken to the Supreme Court or to the Court of Appeals to
whichever of these Tribunals has appropriate appellate jurisdiction will
be allowed; continued ignorance or wilful disregard of the law on appeals
will not be tolerated.
Petitioners even fault the Court for referring Republic Cement's petition to the
Court of Appeals, claiming that the same should have been dismissed pursuant to
Circular 2-90. Petitioners conveniently overlook the other provisions of Circular 2-
90, specifically 4b) thereof, which provides:
b) Raising factual issues in appeal by certiorari. - Although submission of
issues of fact in an appeal by certiorari taken to the Supreme Court from
the regional trial court is ordinarily proscribed, the Supreme Court
nonetheless retains the option, in the exercise of its sound discretion and
considering the attendant circumstances, either itself to take cognizance
of and decide such issues or to refer them to the Court of Appeals for
determination.
As can be clearly adduced from the foregoing, when an appeal
by certiorari under Rule 45 erroneously raises factual issues, the Court has the
option to refer the petition to the Court of Appeals. The exercise by the Court of this
option may not now be questioned by petitioners.
As the trial court's order was properly appealed by Republic Cement, the trial
court's May 13, 1994 order never became final and executory, rendering petitioner's
third assignment of error moot and academic.
Petitioners' fourth and fifth assignment of errors are likewise without
merit. Petitioners assert that the Court of Appeals could only rule on the propriety of
the trial court's dismissal of Republic Cement's petition for declaratory relief,
allegedly because that was the sole relief sought by the latter in its petition
for certiorari. Petitioners claim that the appellate court overstepped its jurisdiction
when it declared null and void the assessment made by the Province of Bulacan
against Republic Cement.
Petitioners gloss over the fact that, during the proceedings before the Court of
Appeals, they entered into an agreement and modus vivendi whereby they limited
the issue for resolution to the question as to whether or not the provincial
government could impose and/or assess taxes on stones, sand, gravel, earth and
other quarry resources extracted by Republic Cement from private lands. This
agreement and modus vivendi were approved by the appellate court on December
29, 1994. All throughout the proceedings, petitioners never questioned the
authority of the Court of Appeals to decide this issue, an issue which it brought itself
within the purview of the appellate court. Only when an adverse decision was
rendered by the Court of Appeals did petitioners question the jurisdiction of the
former.
Petitioners are barred by the doctrine of estoppel from contesting the authority
of the Court of Appeals to decide the instant case, as this Court has consistently
held that "(a) party cannot invoke the jurisdiction of a court to secure affirmative
relief against his opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction."[5] The Supreme Court frowns upon the
undesirable practice of a party submitting his case for decision and then accepting

the judgment, only if favorable, and attacking it for lack of jurisdiction when
adverse.[6]
In a desperate attempt to ward off defeat, petitioners now repudiate the
above-mentioned agreement and modus vivendi, claiming that the same was not
binding in the Province of Bulacan, not having been authorized by the Sangguniang
Panlalawigan of Bulacan. While it is true that the Provincial Governor can enter into
contract and obligate the province only upon authority of the sangguniang
panlalawigan,[7] the same is inapplicable to the case at bar. The agreement
and modus vivendi may have been signed by petitioner Roberto Pagdanganan, as
Governor of the Province of Bulacan, without authorization from the sangguniang
panlalawigan, but it was also signed by Manuel Siayngco, the Provincial Legal
Officer, in his capacity as such, and as counsel of petitioners.
It is a well-settled rule that all proceedings in court to enforce a remedy, to
bring a claim, demand, cause of action or subject matter of a suit to hearing, trial,
determination, judgment and execution are within the exclusive control of the
attorney.[8] With respect to such matters of ordinary judicial procedure, the attorney
needs no special authority to bind his client.[9] Such questions as what action or
pleading to file, where and when to file it, what are its formal requirements, what
should be the theory of the case, what defenses to raise, how may the claim or
defense be proved, when to rest the case, as well as those affecting the competency
of a witness, the sufficiency, relevancy, materiality or immateriality of certain
evidence and the burden of proof are within the authority of the attorney to
decide.[10] Whatever decision an attorney makes on any of these procedural
questions, even if it adversely affects a client's case, will generally bind a client. The
agreement and modus vivendi signed by petitioner's counsel is binding upon
petitioners, even if the Sanggunian had not authorized the same, limitation of issues
being a procedural question falling within the exclusive authority of the attorney to
decide.
In any case, the remaining issues raised by petitioner are likewise devoid of
merit, a province having no authority to impose taxes on stones, sand, gravel, earth
and other quarry resources extracted from private lands. The pertinent provisions of
the Local Government Code are as follows:
Sec. 134. Scope of Taxing Powers. - Except as otherwise provided in this
Code, the province may levy only the taxes, fees, and charges as
provided in this Article.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The
province may levy and collect not more than ten percent (10%) of fair
market value in the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National
Internal Revenue Code, as amended, extracted from public lands or from
the beds of seas, lakes, rivers, streams, creeks, and other public waters
within its territorial jurisdiction.
x x x x x x x x x (Italics supplied)
The appellate court, on the basis of Section 134, ruled that a province was
empowered to impose taxes only on sand, gravel, and other quarry resources
extracted from public lands, its authority to tax being limited by said provision only
to those taxes, fees and charges provided in Article One, Chapter 2, Title One of
Book II of the Local Government Code.[11] On the other hand, petitioners claim that
Sections 129[12] and 186[13] of the Local Government Code authorizes the province
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
to impose taxes other than those specifically enumerated under the Local
Government Code.
The Court of Appeals erred in ruling that a province can impose only the taxes
specifically mentioned under the Local Government Code. As correctly pointed out
by petitioners, Section 186 allows a province to levy taxes other than those
specifically enumerated under the Code, subject to the conditions specified therein.
This finding, nevertheless, affords cold comfort to petitioners as they are still
prohibited from imposing taxes on stones, sand, gravel, earth and other quarry
resources extracted from private lands. The tax imposed by the Province of Bulacan
is an excise tax, being a tax upon the performance, carrying on, or exercise of an
activity.[14] The Local Government Code provides:
Section 133. - Common Limitations on the Taxing Powers of Local
Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxxxxxxxx
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
xxxxxxxxx
A province may not, therefore, levy excise taxes on articles already taxed by
the National Internal Revenue Code. Unfortunately for petitioners, the National
Internal Revenue Code provides:
Section 151. - Mineral Products. -
(A) Rates of Tax. - There shall be levied, assessed and collected on
minerals, mineral products and quarry resources, excise tax as follows:
xxxxxxxxx
(2) On all nonmetallic minerals and quarry resources, a tax of
two percent (2%) based on the actual market value of the
gross output thereof at the time of removal, in case of those
locally extracted or produced; or the values used by the
Bureau of Customs in determining tariff and customs duties,
net of excise tax and value-added tax, in the case of
importation.
xxxxxxxxx
(B) [Definition of Terms]. - For purposes of this Section, the term-
xxxxxxxxx
(4) Quarry resources shall mean any common stone or other
common mineral substances as the Director of the Bureau of
Mines and Geo-Sciences may declare to be quarry resources
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

such as, but not restricted to, marl, marble, granite, volcanic
cinders, basalt, tuff and rock phosphate; Provided, That they
contain no metal or metals or other valuable minerals in
economically workable quantities.

It is clearly apparent from the above provision that the National Internal
Revenue Code levies a tax on all quarry resources, regardless of origin, whether
extracted from public or private land. Thus, a province may not ordinarily impose
taxes on stones, sand, gravel, earth and other quarry resources, as the same are
already taxed under the National Internal Revenue Code. The province can,
however, impose a tax on stones, sand, gravel, earth and other quarry resources
extracted from public land because it is expressly empowered to do so under the
Local Government Code. As to stones, sand, gravel, earth and other quarry
resources extracted from private land, however, it may not do so, because of the
limitation provided by Section 133 of the Code in relation to Section 151 of the
National Internal Revenue Code.

Given the above disquisition, petitioners cannot claim that the appellate court
unjustly deprived them of the power to create their sources of revenue, their
assessment of taxes against Republic Cement being ultra vires, traversing as it does
the limitations set by the Local Government Code.

Petitioners likewise aver that the appellate court's declaration of nullity of its
assessment against Republic Cement is a collateral attack on Provincial Ordinance
No. 3, which is prohibited by public policy.[15] Contrary to petitioners' claim, the
legality of the ordinance was never questioned by the Court of Appeals. Rather,
what the appellate court questioned was petitioners' assessment of taxes on
Republic Cement on the basis of Provincial Ordinance No. 3, not the ordinance itself.

Furthermore, Section 21 of Provincial Ordinance No. 3 is practically only a

reproduction of Section 138 of the Local Government Code. A cursory reading of
both would show that both refer to ordinary sand, stone, gravel, earth and other
quarry resources extracted from public lands. Even if we disregard the limitation set
by Section 133 of the Local Government Code, petitioners may not impose taxes on
stones, sand, gravel, earth and other quarry resources extracted from private lands
on the basis of Section 21 of Provincial Ordinance No. 3 as the latter clearly applies
only to quarry resources extracted from public lands. Petitioners may not invoke the
Regalian doctrine to extend the coverage of their ordinance to quarry resources
extracted from private lands, for taxes, being burdens, are not to be presumed
beyond what the applicable statute expressly and clearly declares, tax statutes
being construed strictissimi juris against the government.[16]

WHEREFORE, premises considered, the instant petition is DISMISSED for lack

of merit and the decision of the Court of Appeals is hereby AFFIRMED in toto. Costs
against petitioner.

SO ORDERED.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[186] G.R. No. 166408 October 6, 2008 now hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns, shall pay a franchise tax equivalent
to three percent (3%) of all gross receipts of the radio/television
QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, petitioners,
business transacted under this franchise by the grantee, its
vs.
successors or assigns, and the said percentage tax shall be in lieu
ABS-CBN BROADCASTING CORPORATION, respondent.
of all taxes on this franchise or earnings thereof; Provided that the
grantee, its successors or assigns shall continue to be liable for income
DECISION taxes under Title II of the National Internal Revenue Code pursuant to
Section 2 of Executive No. 72 unless the latter enactment is amended or
REYES, R.T., J.: repealed, in which case the amendment or repeal shall be applicable
thereto. (Emphasis added)

CLAIMS for tax exemption must be based on language in law too plain to be
mistaken. It cannot be made out of inference or implication. ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in
view of the above provision in R.A. No. 9766 that it "shall pay a franchise tax x x x
in lieu of all taxes," the corporation developed the opinion that it is not liable to pay
The principle is relevant in this petition for review on certiorari of the Decision1 of the local franchise tax imposed by Quezon City. Consequently, ABS-CBN paid under
the Court of Appeals (CA) and that2 of the Regional Trial Court (RTC) ordering the protest the local franchise tax imposed by Quezon City on the dates, in the amounts
refund and declaring invalid the imposition and collection of local franchise tax by and under the official receipts as follows:
the City Treasurer of Quezon City on ABS-CBN Broadcasting Corporation (ABS-
CBN).
O.R. No. Date Amount Paid
The Facts 2464274 7/18/1995 P 1,489,977.28
2484651 10/20/1995 1,489,977.28
Petitioner City Government of Quezon City is a local government unit duly organized 2536134 1/22/1996 2,880,975.65
and existing by virtue of Republic Act (R.A.) No. 537, otherwise known as the 8354906 1/23/1997 8,621,470.83
Revised Charter of Quezon City. Petitioner City Treasurer of Quezon City is primarily
48756 1/23/1997 2,731,135.81
responsible for the imposition and collection of taxes within the territorial
jurisdiction of Quezon City. 67352 4/3/1997 2,731,135.81
Total P19,944,672.665
Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, 3 a franchise
tax was imposed on businesses operating within its jurisdiction. The provision On January 29, 1997, ABS-CBN filed a written claim for refund for local franchise
states: tax paid to Quezon City for 1996 and for the first quarter of 1997 in the total
amount of Fourteen Million Two Hundred Thirty-Three Thousand Five Hundred
Section 31. Imposition of Tax. - Any provision of special laws or grant of Eighty-Two and 29/100 centavos (P14,233,582.29) broken down as follows:
tax exemption to the contrary notwithstanding, any person, corporation,
partnership or association enjoying a franchise whether issued by the
O.R. No. Date Amount Paid
national government or local government and, doing business in Quezon
City, shall pay a franchise tax at the rate of ten percent (10%) of one 2536134 1-22-96 P 2,880,975.65
percent (1%) for 1993-1994, twenty percent (20%) of one percent (1%) 8354906 1-23-97 8,621,470.83
for 1995, and thirty percent (30%) of one percent (1%) for 1996 and the 0048756 1-23-97 2,731,135.81
succeeding years thereafter, of gross receipts and sales derived from the
operation of the business in Quezon City during the preceding calendar Total P14,233,582.296
year.
In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN reiterated
On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio its claim for refund of local franchise taxes paid.
and television broadcasting stations in the Philippines under R.A. No. 7966.4 Section
8 of R.A. No. 7966 provides the tax liabilities of ABS-CBN which reads: On June 25, 1997, for failure to obtain any response from the Quezon City
Treasurer, ABS-CBN filed a complaint before the RTC in Quezon City seeking the
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall be declaration of nullity of the imposition of local franchise tax by the City Government
liable to pay the same taxes on their real estate, buildings and personal of Quezon City for being unconstitutional. It likewise prayed for the refund of local
property, exclusive of this franchise, as other persons or corporations are franchise tax in the amount of Nineteen Million Nine Hundred Forty-Four Thousand

Six Hundred Seventy-Two and 66/100 centavos (P19,944,672.66) broken down as
follows:
O.R. No. Date Amount Paid
2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28
2536134 1-22-96 2,880,975.65
8354906 1-23-97 8,621,470.83
0048756 1-23-97 2,731,135.81
0067352 4-03-97 2,731,135.81
Total P19,944,672.667
Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766 could
not have been intended to prevail over a constitutional mandate which ensures the
viability and self-sufficiency of local government units. Further, that taxes collectible
by and payable to the local government were distinct from taxes collectible by and
payable to the national government, considering that the Constitution specifically
declared that the taxes imposed by local government units "shall accrue exclusively
to the local governments." Lastly, the City contended that the exemption claimed by
ABS-CBN under R.A. No. 7966 was withdrawn by Congress when the Local
Government Code (LGC) was passed.8 Section 193 of the LGC provides:
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical,
including government-owned or -controlled corporations, except
local water districts, cooperatives duly registered under R.A. 6938, non-
stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Emphasis added)
On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its claim for
refund the local franchise tax paid for the third quarter of 1997 in the amount of
Two Million Seven Hundred Thirty-One Thousand One Hundred Thirty-Five and
81/100 centavos (P2,731,135.81) and of other amounts of local franchise tax as
may have been and will be paid by ABS-CBN until the resolution of the case.
Quezon City insisted that the claim for refund must fail because of the absence of a
prior written claim for it.
RTC and CA Dispositions
On January 20, 1999, the RTC rendered judgment declaring as invalid the
imposition on and collection from ABS-CBN of local franchise tax paid pursuant to
Quezon City Ordinance No. SP-91, S-93, after the enactment of R.A. No. 7966, and
ordered the refund of all payments made. The dispositive portion of the RTC
decision reads:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
WHEREFORE, judgment is hereby rendered declaring the imposition on and
collection from plaintiff ABS-CBN BROADCASTING CORPORATION of local
franchise taxes pursuant to Quezon City Ordinance No. SP-91, S-93 after
the enactment of Republic Act No. 7966 to be invalid, and, accordingly, the
Court hereby orders the defendants to refund all its payments made after
the effectivity of its legislative franchise on May 3, 1995.
SO ORDERED.9
In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in
Section 8 of R.A. No. 7966 absolutely excused ABS-CBN from the payment of local
franchise tax imposed under Quezon City Ordinance No. SP-91, S-93. The intent of
the legislature to excuse ABS-CBN from payment of local franchise tax could be
discerned from the usage of the "in lieu of all taxes" provision and from the absence
of any qualification except income taxes. Had Congress intended to exclude taxes
imposed from the exemption, it would have expressly mentioned so in a fashion
similar to the proviso on income taxes.
The RTC also based its ruling on the 1990 case of Province of Misamis Oriental v.
Cagayan Electric Power and Light Company, Inc. (CEPALCO).10 In said case, the
exemption of respondent electric company CEPALCO from payment of provincial
franchise tax was upheld on the ground that the franchise of CEPALCO was a special
law, while the Local Tax Code, on which the provincial ordinance imposing the local
franchise tax was based, was a general law. Further, it was held that whenever
there is a conflict between two laws, one special and particular and the other
general, the special law must be taken as intended to constitute an exception to the
general act.
The RTC noted that the legislative franchise of ABS-CBN was granted years after the
effectivity of the LGC. Thus, it was unavoidable to conclude that Section 8 of R.A.
No. 7966 was an exception since the legislature ought to be presumed to have
enacted it with the knowledge and awareness of the existence and prior enactment
of Section 13711 of the LGC.
In addition, the RTC, again citing the case of Province of Misamis Oriental v.
Cagayan Electric Power and Light Company, Inc. (CEPALCO),12 ruled that the
imposition of the local franchise tax was an impairment of ABS-CBN's contract with
the government. The imposition of another franchise on the corporation by the local
authority would constitute an impairment of the former's charter, which is in the
nature of a private contract between it and the government.
As to the amounts to be refunded, the RTC rejected Quezon City's position that a
written claim for refund pursuant to Section 196 of the LGC was a condition sine
qua non before filing the case in court. The RTC ruled that although Fourteen Million
Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and 29/100 centavos
(P14,233,582.29) was the only amount stated in the letter to the Quezon City
Treasurer claiming refund, ABS-CBN should nonetheless be also refunded of all
payments made after the effectivity of R.A. No. 7966. The inaction of the City
Treasurer on the claim for refund of ABS-CBN legally rendered any further claims
for refund on the part of plaintiff absurd and futile in relation to the succeeding
payments.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

The City of Quezon and its Treasurer filed a motion for reconsideration which was The second issue, being procedural in nature, shall be dealt with immediately. But
subsequently denied by the RTC. Thus, appeal was made to the CA. On September there are other resultant issues linked to the first.
1, 2004, the CA dismissed the petition of Quezon City and its Treasurer. According
to the appellate court, the issues raised were purely legal questions cognizable only
I. The dismissal by the CA of petitioners' appeal is in order because it
by the Supreme Court. The CA ratiocinated:
raised purely legal issues, namely:

For another, the issues which appellants submit for this Court's
1) Whether appellee, whose franchise expressly provides that its payment
consideration are more of legal query necessitating a legal opinion rather
of franchise tax shall be in lieu of all taxes in this franchise or earnings
than a call for adjudication on the matter in dispute.
thereof, is absolutely excused from paying the franchise tax imposed by
appellants;
xxxx
2) Whether appellants' imposition of local franchise tax is a violation of
The first issue has earlier been categorized in Province of Misamis Oriental appellee's legislative franchise; and
v. Cagayan Electric and Power Co., Inc. to be a legal one. There is no more
argument to this.
3) Whether one can do away with the requirement on prior written claim
for refund.15
The next issue although it may need the reexamination of the pertinent
provisions of the local franchise and the legislative franchise given to
Obviously, these are purely legal questions, cognizable by this Court, to the
appellee, also needs no evaluation of facts. It suffices that there may be a
exclusion of all other courts. There is a question of law when the doubt or difference
conflict which may need to be reconciled, without regard to the factual
arises as to what the law is pertaining to a certain state of facts.16
backdrop of the case.

Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA
The last issue deals with a legal question, because whether or not there is
under Rule 41 raising only questions of law is erroneous and shall be dismissed,
a prior written claim for refund is no longer in dispute. Rather, the question
issues of pure law not being within its jurisdiction.17Consequently, the dismissal by
revolves on whether the said requirement may be dispensed with, which
the CA of petitioners' appeal was in order.
obviously is not a factual issue.13

In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the
On September 23, 2004, petitioner moved for reconsideration. The motion was,
appeal of petitioner was valid, considering the issues raised there were pure
however, denied by the CA in its Resolution dated December 16, 2004. Hence, the
questions of law, viz.:
present recourse.

Petitioners interposed an appeal to the Court of Appeals but it was

Issues
dismissed for being the wrong mode of appeal. The appellate court held
that since the issue being raised is whether the RTC has jurisdiction over
Petitioner submits the following issues for resolution: the subject matter of the case, which is a question of law, the appeal
should have been elevated to the Supreme Court under Rule 45 of the
1997 Rules of Civil Procedure, as amended. Section 2, Rule 41 of the same
I.
Rules which governs appeals from judgments and final orders of the RTC to
the Court of Appeals, provides:
Whether or not the phrase "in lieu of all taxes" indicated in the franchise of
the respondent appellee (Section 8 of RA 7966) serves to exempt it from
SEC. 2. Modes of appeal. -
the payment of the local franchise tax imposed by the petitioners-
appellants.
(a) Ordinary appeal. - The appeal to the Court of Appeals in cases
decided by the Regional Trial Court in the exercise of its original
II.
jurisdiction shall be taken by filing a notice of appeal with the
court which rendered the judgment or final order appealed from
Whether or not the petitioners-appellants raised factual and legal issues before the and serving a copy thereof upon the adverse party. No record on
Honorable Court of Appeals.14 appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these Rules
Our Ruling so require. In such cases, the record on appeal shall be filed and
served in like manner.

(b) Petition for review. - The appeal to the Court of Appeals in
cases decided by the Regional Trial Court in the exercise of its
appellate jurisdiction shall be by petition for review in accordance
with Rule 42.
(c) Appeal by certiorari. - In all cases where only questions of law
are raised or involved, the appeal shall be to the Supreme Court
by petition for review on certiorari in accordance with Rule 45.
In Macawili Gold Mining and Development Co., Inc. v. Court of Appeals, we
summarized the rule on appeals as follows:
(1) In all cases decided by the RTC in the exercise of its original
jurisdiction, appeal may be made to the Court of Appeals by mere
notice of appeal where the appellant raises questions of fact or
mixed questions of fact and law;
(2) In all cases decided by the RTC in the exercise of its original
jurisdiction where the appellant raises only questions of law, the
appeal must be taken to the Supreme Court on a petition for
review on certiorari under Rule 45;
(3) All appeals from judgments rendered by the RTC in the
exercise of its appellate jurisdiction, regardless of whether the
appellant raises questions of fact, questions of law, or mixed
questions of fact and law, shall be brought to the Court of Appeals
by filing a petition for review under Rule 42.
It is not disputed that the issue brought by petitioners to the Court of
Appeals involves the jurisdiction of the RTC over the subject matter of the
case. We have a long standing rule that a court's jurisdiction over the
subject matter of an action is conferred only by the Constitution or by
statute. Otherwise put, jurisdiction of a court over the subject matter of
the action is a matter of law. Consequently, issues which deal with the
jurisdiction of a court over the subject matter of a case are pure questions
of law. As petitioners' appeal solely involves a question of law, they should
have directly taken their appeal to this Court by filing a petition for review
on certiorari under Rule 45, not an ordinary appeal with the Court of
Appeals under Rule 41. Clearly, the appellate court did not err in holding
that petitioners pursued the wrong mode of appeal.
Indeed, the Court of Appeals did not err in dismissing petitioners' appeal.
Section 2, Rule 50 of the same Rules provides that an appeal from the RTC
to the Court of Appeals raising only questions of law shall be dismissed;
and that an appeal erroneously taken to the Court of Appeals shall be
dismissed outright, x x x.19(Emphasis added)
However, to serve the demands of substantial justice and equity, the Court opts to
relax procedural rules and rule upon on the merits of the case. In Ong Lim Sing Jr.
v. FEB Leasing and Finance Corporation,20 this Court stated:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Courts have the prerogative to relax procedural rules of even the most
mandatory character, mindful of the duty to reconcile both the need to
speedily put an end to litigation and the parties' right to due process. In
numerous cases, this Court has allowed liberal construction of the rules
when to do so would serve the demands of substantial justice and equity.
In Aguam v. Court of Appeals, the Court explained:
"The court has the discretion to dismiss or not to dismiss an
appellant's appeal. It is a power conferred on the court, not a
duty. The "discretion must be a sound one, to be exercised in
accordance with the tenets of justice and fair play, having in mind
the circumstances obtaining in each case." Technicalities,
however, must be avoided. The law abhors technicalities that
impede the cause of justice. The court's primary duty is to render
or dispense justice. "A litigation is not a game of technicalities."
"Lawsuits unlike duels are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant
consideration from courts." Litigations must be decided on their
merits and not on technicality. Every party litigant must be
afforded the amplest opportunity for the proper and just
determination of his cause, free from the unacceptable plea of
technicalities. Thus, dismissal of appeals purely on technical
grounds is frowned upon where the policy of the court is to
encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense;
rules of procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course of
action for the court to excuse a technical lapse and afford the
parties a review of the case on appeal to attain the ends of justice
rather than dispose of the case on technicality and cause a grave
injustice to the parties, giving a false impression of speedy
disposal of cases while actually resulting in more delay, if not a
miscarriage of justice.21
II. The "in lieu of all taxes" provision in its franchise does not exempt ABS-
CBN from payment of local franchise tax.
A. The present controversy essentially boils down to a dispute between the inherent
taxing power of Congress and the delegated authority to tax of local governments
under the 1987 Constitution and effected under the LGC of 1991.
The power of the local government of Quezon City to impose franchise tax is based
on Section 151 in relation to Section 137 of the LGC, to wit:
Section 137. Franchise Tax. - Notwithstanding any exemption granted by
any law or other special law, the province may impose a tax on businesses
enjoying a franchise, at the rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized within its territorial jurisdiction.
xxx

xxxx
Section 151. Scope of Taxing Powers. - Except as otherwise provided in
this Code, the city may levy the taxes, fees and charges which the province
or municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and component cities shall
accrue to them and distributed in accordance with the provisions of this
Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes. (Emphasis
supplied)
Such taxing power by the local government, however, is limited in the sense that
Congress can enact legislation granting exemptions. This principle was upheld in
City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.22 Said
this Court:
This thus raises the question of whether or not the City's Revenue Code
pursuant to which the city treasurer of Quezon City levied real property
taxes against Bayantel's real properties located within the City effectively
withdrew the tax exemption enjoyed by Bayantel under its franchise, as
amended.
Bayantel answers the poser in the negative arguing that once again it is
only "liable to pay the same taxes, as any other persons or corporations on
all its real or personal properties, exclusive of its franchise."
Bayantel's posture is well-taken. While the system of local government
taxation has changed with the onset of the 1987 Constitution, the power of
local government units to tax is still limited. As we explained in Mactan
Cebu International Airport Authority:
"The power to tax is primarily vested in the Congress; however, in
our jurisdiction, it may be exercised by local legislative bodies, no
longer merely be virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of
the Constitution. Under the latter, the exercise of the power may
be subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy
of local autonomy. x x x"
Clearly then, while a new slant on the subject of local taxation now prevails
in the sense that the former doctrine of local government units' delegated
power to tax had been effectively modified with Article X, Section 5 of the
1987 Constitution now in place, the basic doctrine on local taxation
remains essentially the same. For as the Court stressed in Mactan, "the
power to tax is [still] primarily vested in the Congress."
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J.,
himself a Commissioner of the 1986 Constitutional Commission which
crafted the 1987 Constitution, thus:
"What is the effect of Section 5 on the fiscal position of municipal
corporations? Section 5 does not change the doctrine that
municipal corporations do not possess inherent powers of
taxation. What it does is to confer municipal corporations a
general power to levy taxes and otherwise create sources of
revenue. They no longer have to wait for a statutory grant of
these powers. The power of the legislative authority relative to the
fiscal powers of local governments has been reduced to the
authority to impose limitations on municipal powers. Moreover,
these limitations must be "consistent with the basic policy of local
autonomy." The important legal effect of Section 5 is thus to
reverse the principle that doubts are resolved against municipal
corporations. Henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of
municipal corporations. It is understood, however, that taxes
imposed by local government must be for a public purpose,
uniform within a locality, must not be confiscatory, and must be
within the jurisdiction of the local unit to pass."
In net effect, the controversy presently before the Court involves, at
bottom, a clash between the inherent taxing power of the legislature,
which necessarily includes the power to exempt, and the local
government's delegated power to tax under the aegis of the 1987
Constitution.
Now to go back to the Quezon City Revenue Code which imposed real
estate taxes on all real properties within the city's territory and removed
exemptions theretofore "previously granted to, or presently enjoyed by all
persons, whether natural or juridical [x x x]" there can really be no dispute
that the power of the Quezon City Government to tax is limited by Section
232 of the LGC which expressly provides that "a province or city or
municipality within the Metropolitan Manila Area may levy an annual ad
valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted." Under this law, the
Legislature highlighted its power to thereafter exempt certain realties from
the taxing power of local government units. An interpretation denying
Congress such power to exempt would reduce the phrase "not hereinafter
specifically exempted" as a pure jargon, without meaning whatsoever.
Needless to state, such absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs.
City of Davao, this Court has upheld the power of Congress to grant
exemptions over the power of local government units to impose taxes.
There, the Court wrote:
"Indeed, the grant of taxing powers to local government units
under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a

declared national policy. The legal effect of the constitutional grant
to local governments simply means that in interpreting statutory
provisions on municipal taxing powers, doubts must be resolved in
favor of municipal corporations."23 (Emphasis supplied)
In the case under review, the Philippine Congress enacted R.A. No. 7966 on March
30, 1995, subsequent to the effectivity of the LGC on January 1, 1992. Under it,
ABS-CBN was granted the franchise to install and operate radio and television
broadcasting stations in the Philippines. Likewise, Section 8 imposed on ABS-CBN
the duty of paying 3% franchise tax. It bears stressing, however, that payment of
the percentage franchise tax shall be "in lieu of all taxes" on the said franchise.24
Congress has the inherent power to tax, which includes the power to grant tax
exemptions. On the other hand, the power of Quezon City to tax is prescribed by
Section 151 in relation to Section 137 of the LGC which expressly provides that
notwithstanding any exemption granted by any law or other special law, the City
may impose a franchise tax. It must be noted that Section 137 of the LGC does not
prohibit grant of future exemptions. As earlier discussed, this Court in City
Government of Quezon City v. Bayan Telecommunications, Inc.25 sustained the
power of Congress to grant tax exemptions over and above the power of the local
government's delegated power to tax.
B. The more pertinent issue now to consider is whether or not by passing R.A. No.
7966, which contains the "in lieu of all taxes" provision, Congress intended to
exempt ABS-CBN from local franchise tax.
Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does
not expressly exempt it from payment of local franchise tax. They contend that a
tax exemption cannot be created by mere implication and that one who claims tax
exemptions must be able to justify his claim by clearest grant of organic law or
statute.
Taxes are what civilized people pay for civilized society. They are the lifeblood of the
nation. Thus, statutes granting tax exemptions are construed stricissimi
juris against the taxpayer and liberally in favor of the taxing authority. A claim of
tax exemption must be clearly shown and based on language in law too plain to be
mistaken. Otherwise stated, taxation is the rule, exemption is the exception.26 The
burden of proof rests upon the party claiming the exemption to prove that it is in
fact covered by the exemption so claimed.27
The basis for the rule on strict construction to statutory provisions granting tax
exemptions or deductions is to minimize differential treatment and foster
impartiality, fairness and equality of treatment among taxpayers.28 He who claims
an exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions from
taxation are not favored in law, nor are they presumed. They must be expressed in
the clearest and most unambiguous language and not left to mere implications. It
has been held that "exemptions are never presumed, the burden is on the claimant
to establish clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words, since
taxation is the rule and exemption the exception, the intention to make an
exemption ought to be expressed in clear and unambiguous terms.29
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three
(3) percent of all gross receipts of the radio/television business transacted under
the franchise and the franchise tax shall be "in lieu of all taxes" on the franchise or
earnings thereof.
The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly
provide what kind of taxes ABS-CBN is exempted from. It is not clear whether the
exemption would include both local, whether municipal, city or provincial, and
national tax. What is clear is that ABS-CBN shall be liable to pay three (3) percent
franchise tax and income taxes under Title II of the NIRC. But whether the "in lieu
of all taxes provision" would include exemption from local tax is not unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be
clearly established and cannot be made out of inference or implications but must be
laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes"
provision should be construed against ABS-CBN. ABS-CBN has the burden to prove
that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in
this regard.
ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal
Revenue,30 Manila Railroad v. Rafferty,31 Philippine Railway Co. v. Collector of
Internal Revenue,32 and Visayan Electric Co. v. David33 to support its claim that that
the "in lieu of all taxes" clause includes exemption from all taxes.
However, a review of the foregoing case law reveals that the grantees' respective
franchises expressly exempt them from municipal and provincial taxes. Said the
Court in Manila Railroad v. Rafferty:34
On the 7th day of July 1906, by an Act of the Philippine Legislature, a
special charter was granted to the Manila Railroad Company. Subsection 12
of Section 1 of said Act (No. 1510) provides that:
"In consideration of the premises and of the granting of this
concession or franchise, there shall be paid by the grantee to the
Philippine Government, annually, for the period of thirty (30)
years from the date hereof, an amount equal to one-half (1/2) of
one per cent of the gross earnings of the grantee in respect of the
lines covered hereby for the preceding year; after said period of
thirty (30) years, and for the fifty (50) years thereafter, the
amount so to be paid annually shall be an amount equal to one
and one-half (1 1/2) per cent of such gross earnings for the
preceding year; and after such period of eighty (80) years, the
percentage and amount so to be paid annually by the grantee
shall be fixed by the Philippine Government.
Such annual payments, when promptly and fully made by the
grantee, shall be in lieu of all taxes of every name and nature -
municipal, provincial or central - upon its capital stock, franchises,
right of way, earnings, and all other property owned or operated
by the grantee under this concession or
franchise."35 (Underscoring supplied)

In the case under review, ABS-CBN's franchise did not embody an exemption similar
to those in Carcar, Manila Railroad, Philippine Railway, and Visayan Electric. Too,
the franchise failed to specify the taxing authority from whose jurisdiction the taxing
power is withheld, whether municipal, provincial, or national. In fine, since ABS-CBN
failed to justify its claim for exemption from local franchise tax, by a grant
expressed in terms "too plain to be mistaken" its claim for exemption for local
franchise tax must fail.
C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become functus
officio with the abolition of the franchise tax on broadcasting companies with yearly
gross receipts exceeding Ten Million Pesos.
In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu of
all taxes" provision contained in Section 8 of R.A. No. 7966, ABS-CBN is exempt
from the payment of the local franchise tax. The RTC further pronounced that ABS-
CBN shall instead be liable to pay a franchise tax of 3% of all gross receipts in lieu
of all other taxes.
On this score, the RTC ruling is flawed. In keeping with the laws that have been
passed since the grant of ABS-CBN's franchise, the corporation should now be
subject to VAT, instead of the 3% franchise tax.
At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was subject
to 3% franchise tax under Section 117(b) of the 1977 National Internal Revenue
Code (NIRC), as amended, viz.:
SECTION 117. Tax on franchises. - Any provision of general or special laws
to the contrary notwithstanding, there shall be levied, assessed and
collected in respect to all franchise, upon the gross receipts from the
business covered by the law granting the franchise, a tax in accordance
with the schedule prescribed hereunder:
(a) On electric utilities, city gas, and water supplies Two (2%)
percent
(b) On telephone and/or telegraph systems, radio and/or
broadcasting stations Three (3%) percent
(c) On other franchises Five (5%) percent. (Emphasis supplied)
On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value Added
Tax Law,36 took effect and subjected to VAT those services rendered by radio and/or
broadcasting stations. Section 3 of R.A. No. 7716 provides:
Section 3. Section 102 of the National Internal Revenue Code, as amended
is hereby further amended to read as follows:
SEC. 102. Value-added tax on sale of services and use or lease of
properties. - (a) Rate and base of tax. - There shall be levied,
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
assessed and collected, as value-added tax equivalent to 10% of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase "sale or exchange of services" means the performance
of all kinds of services in the Philippines, for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; x x x services of
franchise grantees of telephone and telegraph, radio and
television broadcasting and all other franchise grantees except
those under Section 117 of this Code; x x x (Emphasis supplied)
Notably, under the same law, "telephone and/or telegraph systems, broadcasting
stations and other franchise grantees" were omitted from the list of entities subject
to franchise tax. The impression was that these entities were subject to 10% VAT
but not to franchise tax. Only the franchise tax on "electric, gas and water utilities"
remained. Section 12 of R.A. No. 7716 provides:
Section 12. Section 117 of the National Internal Revenue Code, as
amended, is hereby further amended to read as follows:
SEC. 117. Tax on Franchises. - Any provision of general or special
law to the contrary notwithstanding there shall be levied, assessed
and collected in respect to all franchises on electric, gas and water
utilities a tax of two percent (2%) on the gross receipts derived
from the business covered by the law granting the franchise.
(Emphasis added)
Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more
amendments to the NIRC. Radio and/or television companies whose annual gross
receipts do not exceed P10,000,000.00 were granted the option to choose between
paying 3% national franchise tax or 10% VAT. Section 9 of R.A. No. 8241 provides:
SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as
follows:
"Sec. 12. Section 117 of the National Internal Revenue Code, as amended,
is hereby further amended to read as follows:
"Sec. 117. Tax on franchise. - Any provision of general or special
law to the contrary, notwithstanding, there shall be levied,
assessed and collected in respect to all franchises on radio and/or
television broadcasting companies whose annual gross receipts of
the preceding year does not exceed Ten million pesos
(P10,000,000.00), subject to Section 107(d) of this Code, a tax of
three percent (3%) and on electric, gas and water utilities, a tax
of two percent (2%) on the gross receipts derived from the
business covered by the law granting the franchise: Provided,
however, That radio and television broadcasting companies
referred to in this section, shall have an option to be registered as
a value-added tax payer and pay the tax due thereon: Provided,
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

further, That once the option is exercised, it shall not be revoked.

(Emphasis supplied)

On the other hand, radio and/or television companies with yearly gross
receipts exceeding P10,000,000.00 were subject to 10% VAT, pursuant to Section
102 of the NIRC.

On January 1, 1998, R.A. No. 842439 was passed confirming the 10% VAT liability of
radio and/or television companies with yearly gross receipts
exceeding P10,000,000.00.

R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005. The
said law further amended the NIRC by increasing the rate of VAT to 12%. The
effectivity of the imposition of the 12% VAT was later moved from January 1, 2006
to February 1, 2006.

In consonance with the above survey of pertinent laws on the matter, ABS-CBN is
subject to the payment of VAT. It does not have the option to choose between the
payment of franchise tax or VAT since it is a broadcasting company with yearly
gross receipts exceeding Ten Million Pesos (P10,000,000.00).

VAT is a percentage tax imposed on any person whether or not a franchise grantee,
who in the course of trade or business, sells, barters, exchanges, leases, goods or
properties, renders services. It is also levied on every importation of goods whether
or not in the course of trade or business. The tax base of the VAT is limited only to
the value added to such goods, properties, or services by the seller, transferor or
lessor. Further, the VAT is an indirect tax and can be passed on to the buyer.

The franchise tax, on the other hand, is a percentage tax imposed only on franchise
holders. It is imposed under Section 119 of the Tax Code and is a direct liability of
the franchise grantee.

The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It cannot
apply when what is paid is a tax other than a franchise tax. Since the franchise tax
on the broadcasting companies with yearly gross receipts exceeding ten million
pesos has been abolished, the "in lieu of all taxes" clause has now become functus
officio, rendered inoperative.

In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in
lieu of all taxes" clause in its franchise failed to specify the taxes the company is
sought to be exempted from. Neither did it particularize the jurisdiction from which
the taxing power is withheld. Second, the clause has become functus officio because
as the law now stands, ABS-CBN is no longer subject to a franchise tax. It is now
liable for VAT.

WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED

AND SET ASIDE. The petition in the trial court for refund of local franchise tax
is DISMISSED.

SO ORDERED.

[187.1] G.R. No. 155491
SMART COSMART COMMUNICATIONS, Promulgated:
INC., September 16, 2008
Petitioner,
- versus -
THE CITY OF DAVAO, represented
herein by its Mayor HON. RODRIGO R.
DUTERTE, and the SANGGUNIANG
PANLUNGSOD OF DAVAO CITY,
Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
filed by Smart Communications, Inc. (Smart) against the City of Davao,
represented by its Mayor, Hon. Rodrigo R. Duterte, and the Sangguniang
Panlungsod of Davao City, to annul the Decision1 dated July 19, 2002 of the
Regional Trial Court (RTC) and its Order2 dated September 26, 2002 in Sp.
Civil Case No. 28,976-2002.
The Facts
On February 18, 2002, Smart filed a special civil action for declaratory
relief3 under Rule 63 of the Rules of Court, for the ascertainment of its rights
and obligations under the Tax Code of the City of Davao,4particularly Section
1, Article 10 thereof, the pertinent portion of which reads:
Notwithstanding any exemption granted by any law or other special law, there
is hereby imposed a tax on businesses enjoying a franchise, at a rate of
seventy-five percent (75%) of one percent (1%) of the gross annual receipts
for the preceding calendar year based on the income or receipts realized
within the territorial jurisdiction of Davao City.
Smart contends that its telecenter in Davao City is exempt from payment of
franchise tax to the City, on the following grounds: (a) the issuance of its
franchise under Republic Act (R.A.) No. 72945subsequent to R.A. No. 7160
shows the clear legislative intent to exempt it from the provisions of R.A.
7160;6 (b) Section 137 of R.A. No. 7160 can only apply to exemptions already
existing at the time of its effectivity and not to future exemptions; (c) the
power of the City of Davao to impose a franchise tax is subject to statutory
limitations such as the "in lieu of all taxes" clause found in Section 9 of R.A.
No. 7294; and (d) the imposition of franchise tax by the City of Davao would
amount to a violation of the constitutional provision against impairment of
contracts.7
On March 2, 2002, respondents filed their Answer8 in which they contested
the tax exemption claimed by Smart. They invoked the power granted by the
Constitution to local government units to create their own sources of
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
revenue.9
On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal
issues were involved in the case, the RTC issued an order requiring the parties
to submit their respective memoranda and, thereafter, the case would be
deemed submitted for resolution.10
On July 19, 2002, the RTC rendered its Decision11 denying the petition. The
trial court noted that the ambiguity of the "in lieu of all taxes" provision in
R.A. No. 7294, on whether it covers both national and local taxes, must be
resolved against the taxpayer.12 The RTC ratiocinated that tax exemptions are
construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority and, thus, those who assert a tax exemption must justify it
with words too plain to be mistaken and too categorical not to be
misinterpreted.13 On the issue of violation of the non-impairment clause of the
Constitution, the trial court cited Mactan Cebu International Airport Authority
v. Marcos,14 and declared that the citys power to tax is based not merely on a
valid delegation of legislative power but on the direct authority granted to it
by the fundamental law. It added that while such power may be subject to
restrictions or conditions imposed by Congress, any such legislated limitation
must be consistent with the basic policy of local autonomy.15
Smart filed a motion for reconsideration which was denied by the trial court in
an Order16 dated September 26, 2002.
Thus, the instant case.
Smart assigns the following errors:
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294), WHICH CONTAINS THE "IN LIEU OF
ALL TAXES" CLAUSE, AND WHICH IS A SPECIAL LAW ENACTED SUBSEQUENT
TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAX MAY BE IMPOSED
ON PETITIONER BY RESPONDENT CITY.
[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONERS FRANCHISE
IS A GENERAL LAW AND DID NOT REPEAL RELEVANT PROVISIONS
REGARDING FRANCHISE TAX OF THE LOCAL GOVERNMENT CODE, WHICH
ACCORDING TO THE COURT IS A SPECIAL LAW.
[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE
LOCAL GOVERNMENT CODE, WHICH, IN RELATION TO SECTION 151
THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE THE FRANCHISE TAX, AND
SECTION 193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF TAX
EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND
193 OF THE LOCAL GOVERNMENT CODE REFER ONLY TO EXEMPTIONS
ALREADY EXISTING AT THE TIME OF ITS ENACTMENT BUT NOT TO FUTURE

EXEMPTIONS.
[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY
CONSTRUCTION THAT TAX EXEMPTIONS ARE CONSTRUED STRICTLY
AGAINST THE TAXPAYER.
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONERS
FRANCHISE (REPUBLIC ACT NO. 7294) HAS BEEN AMENDED AND EXPANDED
BY SECTION 23 OF REPUBLIC ACT NO. 7925, "THE PUBLIC
TELECOMMUNICATIONS POLICY ACT," TAKING INTO ACCOUNT THE
FRANCHISE OF GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229),
WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED SUBSEQUENT TO
THE LOCAL GOVERNMENT CODE, THEREBY PROVIDING AN ADDITIONAL
GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE
DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT
FINANCE, THAT PETITIONER IS EXEMPT FROM THE PAYMENT OF THE
FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS UNDER THE
LOCAL GOVERNMENT CODE.
[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF
THE LOCAL FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE
CONSTITUTIONAL PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS.
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.17
The Issue
In sum, the pivotal issue in this case is whether Smart is liable to pay the
franchise tax imposed by the City of Davao.
The Ruling of the Court
We rule in the affirmative.
I. Prospective Effect of R.A. No. 7160
On March 27, 1992, Smarts legislative franchise (R.A. No. 7294) took effect.
Section 9 thereof, quoted hereunder, is at the heart of the present
controversy:
Section 9. Tax provisions. The grantee, its successors or assigns shall be
liable to pay the same taxes on their real estate buildings and personal
property, exclusive of' this franchise, as other persons or corporations which
are now or hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns shall pay a franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under this
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
franchise by the grantee, its successors or assigns and the said percentage
shall be in lieu of all taxes on this franchise or earnings thereof: Provided,
That the grantee, its successors or assigns shall continue to be liable for
income taxes payable under Title II of the National Internal Revenue Code
pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or repeal shall be
applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the
Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall be
subject to audit by the Bureau of Internal Revenue. (Emphasis supplied.)
Smart alleges that the "in lieu of all taxes" clause in Section 9 of its franchise
exempts it from all taxes, both local and national, except the national
franchise tax (now VAT), income tax, and real property tax.18
On January 1, 1992, two months ahead of Smarts franchise, the Local
Government Code (R.A. No. 7160) took effect. Section 137, in relation to
Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the
local government units; while Section 193 thereof provided for the withdrawal
of tax exemption privileges granted prior to the issuance of R.A. No. 7160
except for those expressly mentioned therein, viz.:
Section 137. Franchise Tax. Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses
enjoying a franchise, at the rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year,
or any fraction thereon, as provided herein.
Section 151. Scope of Taxing Powers. Except as otherwise provided in this
Code, the city may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent component
cities shall accrue to them and distributed in accordance with the provisions of
this Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes.
Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-

owned or controlled corporations, except local water districts, cooperatives
duly registered under RA No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code. (Emphasis supplied.)
Smart argues that it is not covered by Section 137, in relation to Section 151
of R.A. No. 7160, because its franchise was granted after the effectivity of the
said law. We agree with Smarts contention on this matter. The withdrawal of
tax exemptions or incentives provided in R.A. No. 7160 can only affect those
franchises granted prior to the effectivity of the law. The intention of the
legislature to remove all tax exemptions or incentives granted prior to the
said law is evident in the language of Section 193 of R.A. No. 7160. No
interpretation is necessary.
II. The "in lieu of all taxes" Clause in R.A. No. 7294
The "in lieu of all taxes" clause in Smarts franchise is put in issue before the
Court. In order to ascertain its meaning, consistent with fundamentals of
statutory construction, all the words in the statute must be considered. The
grant of tax exemption by R.A. No. 7294 is not to be interpreted from a
consideration of a single portion or of isolated words or clauses, but from a
general view of the act as a whole. Every part of the statute must be
construed with reference to the context.19
Smart is of the view that the only taxes it may be made to bear under its
franchise are the national franchise tax (now VAT), income tax, and real
property tax.20 It claims exemption from the local franchise tax because the
"in lieu of taxes" clause in its franchise does not distinguish between national
and local taxes.21
We pay heed that R.A. No. 7294 is not definite in granting exemption to
Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a
franchise tax equivalent to three percent (3%) of all gross receipts of the
business transacted under the franchise and the said percentage shall be in
lieu of all taxes on the franchise or earnings thereof. R.A. No 7294 does not
expressly provide what kind of taxes Smart is exempted from. It is not clear
whether the "in lieu of all taxes" provision in the franchise of Smart would
include exemption from local or national taxation. What is clear is that Smart
shall pay franchise tax equivalent to three percent (3%) of all gross receipts
of the business transacted under its franchise. But whether the franchise tax
exemption would include exemption from exactions by both the local and the
national government is not unequivocal.
The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether
Smart is exempted from both local and national franchise tax must be
construed strictly against Smart which claims the exemption. Smart has the
burden of proving that, aside from the imposed 3% franchise tax, Congress
intended it to be exempt from all kinds of franchise taxes whether local or
national. However, Smart failed in this regard.
Tax exemptions are never presumed and are strictly construed against the
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
taxpayer and liberally in favor of the taxing authority.22 They can only be
given force when the grant is clear and categorical.23 The surrender of the
power to tax, when claimed, must be clearly shown by a language that will
admit of no reasonable construction consistent with the reservation of the
power. If the intention of the legislature is open to doubt, then the intention
of the legislature must be resolved in favor of the State.24
In this case, the doubt must be resolved in favor of the City of Davao. The "in
lieu of all taxes" clause applies only to national internal revenue taxes and not
to local taxes. As appropriately pointed out in the separate opinion of Justice
Antonio T. Carpio in a similar case25 involving a demand for exemption from
local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes,
other than income tax, imposed under the National Internal Revenue Code.
The "in lieu of all taxes" clause does not apply to local taxes. The proviso in
the first paragraph of Section 9 of Smart's franchise states that the grantee
shall "continue to be liable for income taxes payable under Title II of the
National Internal Revenue Code." Also, the second paragraph of Section 9
speaks of tax returns filed and taxes paid to the "Commissioner of Internal
Revenue or his duly authorized representative in accordance with the National
Internal Revenue Code." Moreover, the same paragraph declares that the tax
returns "shall be subject to audit by the Bureau of Internal Revenue." Nothing
is mentioned in Section 9 about local taxes. The clear intent is for the "in lieu
of all taxes" clause to apply only to taxes under the National Internal Revenue
Code and not to local taxes. Even with respect to national internal revenue
taxes, the "in lieu of all taxes" clause does not apply to income tax.
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to
also apply to local taxes, Congress would have expressly mentioned the
exemption from municipal and provincial taxes. Congress could have used the
language in Section 9(b) of Clavecilla's old franchise, as follows:
x x x in lieu of any and all taxes of any kind, nature or description levied,
established or collected by any authority whatsoever, municipal, provincial or
national, from which the grantee is hereby expressly exempted, x x x.
(Emphasis supplied).
However, Congress did not expressly exempt Smart from local taxes.
Congress used the "in lieu of all taxes" clause only in reference to national
internal revenue taxes. The only interpretation, under the rule on strict
construction of tax exemptions, is that the "in lieu of all taxes" clause in
Smart's franchise refers only to national and not to local taxes.
It should be noted that the "in lieu of all taxes" clause in R.A. No. 7294 has
become functus officio with the abolition of the franchise tax on
telecommunications companies.26 As admitted by Smart in its pleadings, it is
no longer paying the 3% franchise tax mandated in its franchise. Currently,
Smart along with other telecommunications companies pays the uniform 10%
value-added tax.27

The VAT on sale of services of telephone franchise grantees is equivalent to
10% of gross receipts derived from the sale or exchange of services.28 R.A.
No. 7716, as amended by the Expanded Value Added Tax Law (R.A. No.
8241), the pertinent portion of which is hereunder quoted, amended Section 9
of R.A. No. 7294:
SEC. 102. Value-added tax on sale of services and use or lease of properties.
(a) Rate and base of tax. There shall be levied assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services;
lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, rest houses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers; dealers in securities;
lending investors; transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire and other
domestic common carriers by land, air, and water relative to their transport of
goods or cargoes; services of franchise grantees of telephone and telegraph,
radio and television broadcasting and all other franchise grantees except
those under Section 117 of this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance companies
(except their crop insurances) including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. x x x.29
R.A. No. 7716, specifically Section 20 thereof, expressly repealed the
provisions of all special laws relative to the rate of franchise taxes. It also
repealed, amended, or modified all other laws, orders, issuances, rules and
regulations, or parts thereof which are inconsistent with it.30 In effect, the "in
lieu of all taxes" clause in R.A. No. 7294 was rendered ineffective by the
advent of the VAT Law.31
However, the franchise tax that the City of Davao may impose must comply
with Sections 137 and 151 of R.A. No. 7160. Thus, the local franchise tax that
may be imposed by the City must not exceed 50% of 1% of the gross annual
receipts for the preceding calendar year based on the income on receipts
realized within the territorial jurisdiction of Davao.
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the "in lieu of all taxes" clause is to be
construed as an exemption from local franchise taxes, Smart submits the
opinion of the Department of Finance, through the BLGF, dated August 13,
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
1998 and February 24, 1998, regarding the franchises of Smart and Globe,
respectively.32 Smart presents the same arguments as the Philippine Long
Distance Telephone Company in the previous cases already decided by this
Court.33 As previously held by the Court, the findings of the BLGF are not
conclusive on the courts:
[T]he BLGF opined that 23 of R.A. No. 7925 amended the franchise of
petitioner and in effect restored its exemptions from local taxes. Petitioner
contends that courts should not set aside conclusions reached by the BLGF
because its function is precisely the study of local tax problems and it has
necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose findings on
questions of fact are given weight and deference in the courts. The authorities
cited by petitioner pertain to the Court of Tax Appeals, a highly specialized
court which performs judicial functions as it was created for the review of tax
cases. In contrast, the BLGF was created merely to provide consultative
services and technical assistance to local governments and the general public
on local taxation, real property assessment, and other related matters, among
others. The question raised by petitioner is a legal question, to wit, the
interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for
claiming expertise for the BLGF that administrative agencies are said to
possess in their respective fields.
Petitioner likewise argues that the BLGF enjoys the presumption of regularity
in the performance of its duty. It does enjoy this presumption, but this has
nothing to do with the question in this case. This case does not concern the
regularity of performance of the BLGF in the exercise of its duties, but the
correctness of its interpretation of a provision of law.34
IV. Tax Exclusion/Tax Exemption
Smart gives another perspective of the "in lieu of all taxes" clause in Section 9
of R.A. No. 7294 in order to avoid the payment of local franchise tax. It says
that, viewed from another angle, the "in lieu of all taxes" clause partakes of
the nature of a tax exclusion and not a tax exemption. A tax exemption
means that the taxpayer does not pay any tax at all. Smart pays VAT, income
tax, and real property tax. Thus, what it enjoys is more accurately a tax
exclusion.35
However, as previously held by the Court, both in their nature and effect,
there is no essential difference between a tax exemption and a tax exclusion.
An exemption is an immunity or a privilege; it is the freedom from a charge or
burden to which others are subjected. An exclusion, on the other hand, is the
removal of otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions. An exclusion is, thus,
also an immunity or privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that a tax exemption should be
applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions.36

V. Section 23 of R.A. No. 7925
To further its claim, Smart invokes Section 23 of the Public
Telecommunications Policy Act (R.A. No. 7925):
SECTION 23. Equality of Treatment in the Telecommunications Industry.
Any advantage, favor, privilege, exemption, or immunity granted under
existing franchises, or may hereafter be granted, shall ipso facto become part
of previously granted telecommunications franchise and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise,
the life span of the franchise, or the type of service authorized by the
franchise. (Emphasis supplied.)
In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in
connection with the franchise of Globe (R.A. No. 7227),37 which was enacted
on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the
"most favored treatment clause" or the "equality clause," the provision in the
franchise of Globe exempting it from local taxes is automatically incorporated
in the franchise of Smart.38 Smart posits that, since the franchise of Globe
contains a provision exempting it from municipal or local franchise tax, this
provision should also benefit Smart by virtue of Section 23 of R.A. No. 7925.
The provision in Globes franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the Philippines each year
after the audit and approval of the accounts as prescribed in this Act, one and
one-half per centum of all gross receipts from business transacted under this
franchise by the said grantee in the Philippines, in lieu of any and all taxes of
any kind, nature or description levied, established or collected by any
authority whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, effective from the date of the approval
of Republic Act Numbered Sixteen hundred eighteen.39
We find no reason to disturb the previous pronouncements of this Court
regarding the interpretation of Section 23 of R.A. No. 7925. As aptly explained
in the en banc decision of this Court in Philippine Long Distance Telephone
Company, Inc. v. City of Davao,40 and recently in Digital Telecommunications
Philippines, Inc. (Digitel) v. Province of Pangasinan,41 Congress, in approving
Section 23 of R.A. No. 7925, did not intend it to operate as a blanket tax
exemption to all telecommunications entities.42 The language of Section 23 of
R.A. No. 7925 and the proceedings of both Houses of Congress are bereft of
anything that would signify the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been
withdrawn by R.A. No. 7160.43 The term "exemption" in Section 23 of R.A. No.
7925 does not mean tax exemption. The term refers to exemption from
certain regulations and requirements imposed by the National
Telecommunications Commission.44
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature
incontrovertibly stated that it will be liable for one and one-half per centum of
all gross receipts from business transacted under the franchise, in lieu of any
and all taxes of any kind, nature, or description levied, established, or
collected by any authority whatsoever, municipal, provincial, or national, from
which the grantee is hereby expressly exempted.45 The grant of exemption
from municipal, provincial, or national is clear and categorical that aside
from the franchise tax collected by virtue of R.A. No. 7229, no other franchise
tax may be collected from Globe regardless of who the taxing power is. No
such provision is found in the franchise of Smart; the kind of tax from which it
is exempted is not clearly specified.
As previously explained by the Court, the stance of Smart would lead to
absurd consequences.
The acceptance of petitioner's theory would result in absurd consequences. To
illustrate: In its franchise, Globe is required to pay a franchise tax of only one
and one-half percentum (1%) of all gross receipts from its transactions
while Smart is required to pay a tax of three percent (3%) on all gross
receipts from business transacted. Petitioner's theory would require that, to
level the playing field, any "advantage, favor, privilege, exemption, or
immunity" granted to Globe must be extended to all telecommunications
companies, including Smart. If, later, Congress again grants a franchise to
another telecommunications company imposing, say, one percent (1%)
franchise tax, then all other telecommunications franchises will have to be
adjusted to "level the playing field" so to speak. This could not have been the
intent of Congress in enacting 23 of Rep. Act 7925. Petitioner's theory will
leave the Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It
is different if Congress enacts a law specifically granting uniform advantages,
favor, privilege, exemption, or immunity to all telecommunications entities.46
VI. Non-impairment Clause of the Constitution
Another argument of Smart is that the imposition of the local franchise tax by
the City of Davao would violate the constitutional prohibition against
impairment of contracts. The franchise, according to petitioner, is in the
nature of a contract between the government and Smart.47
However, we find that there is no violation of Article III, Section 10 of the
1987 Philippine Constitution. As previously discussed, the franchise of Smart
does not expressly provide for exemption from local taxes. Absent the express
provision on such exemption under the franchise, we are constrained to rule
against it. The "in lieu of all taxes" clause in Section 9 of R.A. No. 7294 leaves
much room for interpretation. Due to this ambiguity in the law, the doubt
must be resolved against the grant of tax exemption.
Moreover, Smarts franchise was granted with the express condition that it is
subject to amendment, alteration, or repeal.48 As held in Tolentino v.
Secretary of Finance: 49
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

It is enough to say that the parties to a contract cannot, through the exercise
of prophetic discernment, fetter the exercise of the taxing power of the State.
For not only are existing laws read into contracts in order to fix obligations as
between parties, but the reservation of essential attributes of sovereign power
is also read into contracts as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the maintenance of a
government which retains adequate authority to secure the peace and good
order of society.

In truth, the Contract Clause has never been thought as a limitation on the
exercise of the States power of taxation save only where a tax exemption has
been granted for a valid consideration. x x x.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.

SO ORDERED.

[187.2] G.R. No. 155491 July 21, 2009
SMART COMMUNICATIONS, INC., Petitioner,
vs.
THE CITY OF DAVAO, represented herein by its Mayor Hon. RODRIGO
DUTERTE, and the SANGGUNIANG PANLUNSOD OF DAVAO
CITY, Respondents.
RESOLUTION
NACHURA, J.:
Before the Court is a Motion for Reconsideration1 filed by Smart Communications,
Inc. (Smart) of the Decision2 of the Court dated September 16, 2008, denying its
appeal of the Decision and Order of the Regional Trial Court (RTC) of Davao City,
dated July 19, 2002 and September 26, 2002, respectively.
Briefly, the factual antecedents are as follows:
On February 18, 2002, Smart filed a special civil action for declaratory relief 3 for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao,
which imposes a franchise tax on businesses enjoying a franchise within the
territorial jurisdiction of Davao. Smart avers that its telecenter in Davao City is
exempt from payment of franchise tax to the City.
On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a
motion for reconsideration, which was denied by the trial court in an Order dated
September 26, 2002. Smart filed an appeal before this Court, but the same was
denied in a decision dated September 16, 2008. Hence, the instant motion for
reconsideration raising the following grounds: (1) the "in lieu of all taxes" clause in
Smarts franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of
strict construction against tax exemptions is not applicable; (2) the "in lieu of all
taxes" clause is not rendered ineffective by the Expanded VAT Law; (3) Section 23
of Republic Act No. 79254 (RA 7925) includes a tax exemption; and (4) the
imposition of a local franchise tax on Smart would violate the constitutional
prohibition against impairment of the obligation of contracts.
Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue.
Section 9 of Smarts legislative franchise contains the contentious "in lieu of all
taxes" clause. The Section reads:
Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to
pay the same taxes on their real estate buildings and personal property, exclusive
of this franchise, as other persons or corporations which are now or hereafter may
be required by law to pay. In addition thereto, the grantee, its successors or assigns
shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the
business transacted under this franchise by the grantee, its successors or assigns
and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof: Provided, That the grantee, its successors or assigns shall continue to be
liable for income taxes payable under Title II of the National Internal Revenue Code
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or repeal shall be applicable
thereto.
xxx5
Section 23 of RA 7925, otherwise known as the most favored treatment clause or
equality clause, contains the word "exemption," viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of the service authorized by the franchise.6
A review of the recent decisions of the Court on the matter of exemptions from local
franchise tax and the interpretation of the word "exemption" found in Section 23 of
RA 7925 is imperative in order to resolve this issue once and for all.
In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of
Pangasinan,7 Digitel used as an argument the "in lieu of all taxes" clauses/provisos
found in the legislative franchises of Globe,8 Smart and Bell,9 vis--vis Section 23 of
RA 7925, in order to claim exemption from the payment of local franchise tax.
Digitel claimed, just like the petitioner in this case, that it was exempt from the
payment of any other taxes except the national franchise and income taxes. Digitel
alleged that Smart was exempted from the payment of local franchise tax.
However, it failed to substantiate its allegation, and, thus, the Court denied Digitels
claim for exemption from provincial franchise tax. Cited was the ruling of the Court
in PLDT v. City of Davao,10 wherein the Court, speaking through Mr. Justice Vicente
V. Mendoza, held that in approving Section 23 of RA No. 7925, Congress did not
intend it to operate as a blanket tax exemption to all telecommunications entities.
Section 23 cannot be considered as having amended PLDTs franchise so as to
entitle it to exemption from the imposition of local franchise taxes. The Court
further held that tax exemptions are highly disfavored and that a tax exemption
must be expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even in the instances
when it is granted, the exemption must be interpreted in strictissimi juris against
the taxpayer and liberally in favor of the taxing authority.
The Court also clarified the meaning of the word "exemption" in Section 23 of RA
7925: that the word "exemption" as used in the statute refers or pertains merely to
an exemption from regulatory or reporting requirements of the Department of
Transportation and Communication or the National Transmission Corporation and
not to an exemption from the grantees tax liability.
In Philippine Long Distance Telephone Company (PLDT) v. Province of
Laguna,11 PLDT was a holder of a legislative franchise under Act No. 3436, as
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

amended. On August 24, 1991, the terms and conditions of its franchise were
consolidated under Republic Act No. 7082, Section 12 of which embodies the so-
called "in-lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its gross receipts, which
franchise tax shall be "in lieu of all taxes." The issue that the Court had to resolve
was whether PLDT was liable to pay franchise tax to the Province of Laguna in view
of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925.lawph!l

Applying the rule of strict construction of laws granting tax exemptions and the rule
that doubts are resolved in favor of municipal corporations in interpreting statutory
provisions on municipal taxing powers, the Court held that Section 23 of RA 7925
could not be considered as having amended petitioner's franchise so as to entitle it
to exemption from the imposition of local franchise taxes.

In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v.
City of Davao12 and PLDT v. City of Bacolod,13 in denying the claim for exemption
from the payment of local franchise tax.

In sum, the aforecited jurisprudence suggests that aside from the national franchise
tax, the franchisee is still liable to pay the local franchise tax, unless it is expressly
and unequivocally exempted from the payment thereof under its legislative
franchise. The "in lieu of all taxes" clause in a legislative franchise should
categorically state that the exemption applies to both local and national taxes;
otherwise, the exemption claimed should be strictly construed against the taxpayer
and liberally in favor of the taxing authority.

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not
remove or abolish the payment of local franchise tax. It merely replaced the
national franchise tax that was previously paid by telecommunications franchise
holders and in its stead imposed a ten percent (10%) VAT in accordance with
Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not
prohibit nor abolish the imposition of local franchise tax by cities or municipaties.

The power to tax by local government units emanates from Section 5, Article X of
the Constitution which empowers them to create their own sources of revenues and
to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide. The imposition of local franchise tax is not inconsistent with
the advent of the VAT, which renders functus officio the franchise tax paid to the
national government. VAT inures to the benefit of the national government, while a
local franchise tax is a revenue of the local government unit.

WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.

SO ORDERED.

[188] G.R. No. 125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY
and ADORACION C. ARELLANO, in her official capacity as City Treasurer of
Batangas, respondents.
MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals
dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the
Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which
dismissed petitioners' complaint for a business tax refund imposed by the City of
Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as
amended, to contract, install and operate oil pipelines. The original pipeline
concession was granted in 19671 and renewed by the Energy Regulatory Board in
1992. 2
Sometime in January 1995, petitioner applied for a mayor's permit with the Office of
the Mayor of Batangas City. However, before the mayor's permit could be issued,
the respondent City Treasurer required petitioner to pay a local tax based on its
gross receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In
order not to hamper its operations, petitioner paid the tax under protest in the
amount of P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent
City Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a
government concession granted under the Petroleum Act. It is
engaged in the business of transporting petroleum products from
the Batangas refineries, via pipeline, to Sucat and JTF Pandacan
Terminals. As such, our Company is exempt from paying tax on
gross receipts under Section 133 of the Local Government Code of
1991 . . . .
Moreover, Transportation contractors are not included in the
enumeration of contractors under Section 131, Paragraph (h) of
the Local Government Code. Therefore, the authority to impose
tax "on contractors and other independent contractors" under
Section 143, Paragraph (e) of the Local Government Code does
not include the power to levy on transportation contractors.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
The imposition and assessment cannot be categorized as a mere
fee authorized under Section 147 of the Local Government Code.
The said section limits the imposition of fees and charges on
business to such amounts as may be commensurate to the cost of
regulation, inspection, and licensing. Hence, assuming arguendo
that FPIC is liable for the license fee, the imposition thereof based
on gross receipts is violative of the aforecited provision. The
amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing.
The fee is already a revenue raising measure, and not a mere
regulatory imposition.4
On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot
claim exemption under Section 133 (j) of the Local Government Code.5
On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint6 for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City
Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition
and collection of the business tax on its gross receipts violates Section 133 of the
Local Government Code; (2) the authority of cities to impose and collect a tax on
the gross receipts of "contractors and independent contractors" under Sec. 141 (e)
and 151 does not include the authority to collect such taxes on transportation
contractors for, as defined under Sec. 131 (h), the term "contractors" excludes
transportation contractors; and, (3) the City Treasurer illegally and erroneously
imposed and collected the said tax, thus meriting the immediate refund of the tax
paid.7
Traversing the complaint, the respondents argued that petitioner cannot be exempt
from taxes under Section 133 (j) of the Local Government Code as said exemption
applies only to "transportation contractors and persons engaged in the
transportation by hire and common carriers by air, land and water." Respondents
assert that pipelines are not included in the term "common carrier" which refers
solely to ordinary carriers such as trucks, trains, ships and the like. Respondents
further posit that the term "common carrier" under the said code pertains to the
mode or manner by which a product is delivered to its destination.8
On October 3, 1994, the trial court rendered a decision dismissing the complaint,
ruling in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become
unclear. It is a rule that tax exemptions are to be strictly
construed against the taxpayer, taxes being the lifeblood of the
government. Exemption may therefore be granted only by clear
and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under
Republic Act 387. (Exhibit A) whose concession was lately

renewed by the Energy Regulatory Board (Exhibit B). Yet neither
said law nor the deed of concession grant any tax exemption upon
the plaintiff.
Even the Local Government Code imposes a tax on franchise
holders under Sec. 137 of the Local Tax Code. Such being the
situation obtained in this case (exemption being unclear and
equivocal) resort to distinctions or other considerations may be of
help:
1. That the exemption granted
under Sec. 133 (j)
encompasses only common
carriers so as not to
overburden the riding public or
commuters with
taxes. Plaintiff is not a The test for determining whether a party is a common carrier of goods is:
common carrier, but a special
carrier extending its services
and facilities to a single
specific or "special customer"
under a "special contract."
2. The Local Tax Code of 1992
was basically enacted to give
more and effective local
autonomy to local
governments than the
previous enactments, to make
them economically and
financially viable to serve the
people and discharge their
functions with a concomitant
obligation to accept certain
devolution of powers, . . . So,
consistent with this policy even
franchise grantees are taxed
(Sec. 137) and contractors are
also taxed under Sec. 143 (e)
and 151 of the Code.9
Petitioner assailed the aforesaid decision before this Court via a petition for review.
On February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication. 10 On November 29, 1995, the respondent court
rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint.
Petitioner's motion for reconsideration was denied on July 18, 1996. 12
Hence, this petition. At first, the petition was denied due course in a Resolution
dated November 11, 1996. 13Petitioner moved for a reconsideration which was
granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition was
reinstated.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the
exemption sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the
public as engaged in the business of transporting persons or property from place to
place, for compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation,
firm or association engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air, for compensation, offering their services to
the public."
1. He must be engaged in the
business of carrying goods for
others as a public
employment, and must hold
himself out as ready to engage
in the transportation of goods
for person generally as a
business and not as a casual
occupation;
2. He must undertake to carry
goods of the kind to which his
business is confined;
3. He must undertake to carry
by the method by which his
business is conducted and
over his established roads;
and
4. The transportation must be
for hire. 15
Based on the above definitions and requirements, there is no doubt that petitioner
is a common carrier. It is engaged in the business of transporting or carrying
goods, i.e. petroleum products, for hire as a public employment. It undertakes to
carry for all persons indifferently, that is, to all persons who choose to employ its
services, and transports the goods by land and for compensation. The fact that
petitioner has a limited clientele does not exclude it from the definition of a common
carrier. In De Guzman vs. Court of Appeals 16we ruled that:
The above article (Art. 1732, Civil Code) makes
no distinction between one whose principal
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

business activity is the carrying of persons or irrigation system gas, electric

goods or both, and one who does such carrying light heat and power, water
only as an ancillary activity (in local idiom, as a supply andpower
"sideline"). Article 1732 . . . avoids making any petroleum, sewerage system,
distinction between a person or enterprise wire or wireless
offering transportation service on communications systems, wire
a regular or scheduled basis and one offering or wireless broadcasting
such service on an occasional, episodic or stations and other similar
unscheduled basis. Neither does Article 1732 public services. (Emphasis
distinguish between a carrier offering its services Supplied)
to the "general public," i.e., the general
community or population, and one who offers
Also, respondent's argument that the term "common carrier" as used in Section 133
services or solicits business only from a narrow
(j) of the Local Government Code refers only to common carriers transporting goods
segment of the general population. We think
and passengers through moving vehicles or vessels either by land, sea or water, is
that Article 1877 deliberately refrained from
erroneous.
making such distinctions.

As correctly pointed out by petitioner, the definition of "common carriers" in the

So understood, the concept of "common carrier"
Civil Code makes no distinction as to the means of transporting, as long as it is by
under Article 1732 may be seen to coincide
land, water or air. It does not provide that the transportation of the passengers or
neatly with the notion of "public service," under
goods should be by motor vehicle. In fact, in the United States, oil pipe line
the Public Service Act (Commonwealth Act No.
operators are considered common carriers. 17
1416, as amended) which at least partially
supplements the law on common carriers set
forth in the Civil Code. Under Section 13, Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is
paragraph (b) of the Public Service Act, "public considered a "common carrier." Thus, Article 86 thereof provides that:
service" includes:
Art. 86. Pipe line concessionaire as common
every person that now or carrier. A pipe line shall have the preferential
hereafter may own, operate. right to utilize installations for the transportation
manage, or control in the of petroleum owned by him, but is obligated to
Philippines, for hire or utilize the remaining transportation capacity pro
compensation, with general or rata for the transportation of such other
limited clientele, whether petroleum as may be offered by others for
permanent, occasional or transport, and to charge without discrimination
accidental, and done for such rates as may have been approved by the
general business purposes, Secretary of Agriculture and Natural Resources.
any common carrier, railroad,
street railway, traction railway, Republic Act 387 also regards petroleum operation as a public utility. Pertinent
subway motor vehicle, either portion of Article 7 thereof provides:
for freight or passenger, or
both, with or without fixed
route and whatever may be its that everything relating to the exploration for
classification, freight or carrier and exploitation of petroleum . . . and
service of any class, express everything relating to the manufacture, refining,
service, steamboat, or storage, or transportation by special methods of
steamship line, pontines, petroleum, is hereby declared to be a public
ferries and water utility. (Emphasis Supplied)
craft, engaged in the
transportation of passengers The Bureau of Internal Revenue likewise considers the petitioner a "common
or freight or both, shipyard, carrier." In BIR Ruling No. 069-83, it declared:
marine repair shop, wharf or
dock, ice plant, ice-
refrigeration plant, canal, . . . since [petitioner] is a pipeline
concessionaire that is engaged only in
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

transporting petroleum products, it is considered MR. AQUINO (A.). Thank you Mr. Speaker.
a common carrier under Republic Act No. 387 . .
. . Such being the case, it is not subject to
Still on page 95, subparagraph 5, on taxes on
withholding tax prescribed by Revenue
the business of transportation. This appears to
Regulations No. 13-78, as amended.
be one of those being deemed to be exempted
from the taxing powers of the local government
From the foregoing disquisition, there is no doubt that petitioner is a "common units. May we know the reason why the
carrier" and, therefore, exempt from the business tax as provided for in Section 133 transportation business is being excluded from
(j), of the Local Government Code, to wit: the taxing powers of the local government units?

Sec. 133. Common Limitations on the
Powers of Local Government Units.
otherwise provided herein, the exercise
taxing powers of provinces,
municipalities, and barangays shall not
to the levy of the following:
Taxing MR. JAVIER (E.). Mr. Speaker, there is an
Unless exception contained in Section 121 (now Sec.
of the 131), line 16, paragraph 5. It states that local
cities, government units may not impose taxes on the
extend business of transportation, except as otherwise
provided in this code.

xxx xxx xxx Now, Mr. Speaker, if the Gentleman would care
to go to page 98 of Book II, one can see there
that provinces have the power to impose a tax
(j) Taxes on
on business enjoying a franchise at the rate of
the gross
not more than one-half of 1 percent of the gross
receipts of
annual receipts. So, transportation contractors
transportatio
who are enjoying a franchise would be subject
n contractors
to tax by the province. That is the exception, Mr.
and persons
Speaker.
engaged in
the
transportatio What we want to guard against here, Mr.
n of Speaker, is the imposition of taxes by local
passengers government units on the carrier business. Local
or freight by government units may impose taxes on top of
hire and what is already being imposed by the National
common Internal Revenue Code which is the so-called
carriers by "common carriers tax." We do not want a
air, land or duplication of this tax, so we just provided for
water, an exception under Section 125 [now Sec. 137]
except as that a province may impose this tax at a specific
provided in rate.
this Code.
MR. AQUINO (A.). Thank you for that
The deliberations conducted in the House of Representatives on the Local clarification, Mr. Speaker. . . . 18
Government Code of 1991 are illuminating:
It is clear that the legislative intent in excluding from the taxing power of the local
MR. AQUINO (A). Thank you, Mr. Speaker. government unit the imposition of business tax against common carriers is to
prevent a duplication of the so-called "common carrier's tax."
Mr. Speaker, we would like to proceed to page
95, line Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again
on its gross receipts in its transportation of petroleum business would defeat the
1. It states: "SEC. 121 [now Sec. 131]. Common
purpose of the Local Government Code.
Limitations on the Taxing Powers of Local
Government Units." . . .
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court
of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and
SET ASIDE.

SO ORDERED.

[189] G.R. No. 158881 April 16, 2008
PETRON CORPORATION, petitioner,
vs.
MAYOR TOBIAS M. TIANGCO, and MUNICIPAL TREASURER MANUEL T.
ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METRO MANILA, respondents.
DECISION
TINGA, J.:
The novel but important issue before us is whether a local government unit is
empowered under the Local Government Code (the LGC) to impose business taxes
on persons or entities engaged in the sale of petroleum products.
I.
The present Petition for Review on Certiorari under Rule 45 filed by petitioner Petron
Corporation (Petron) directly assails the Decision of the Regional Trial Court (RTC)
of Malabon, Branch 74, which dismissed petitioners complaint for cancellation of
assessment made by the then municipality (now City) of Navotas (Navotas) for
deficiency taxes, and ordering the payment of P10,204,916.17 pesos in business
taxes to Navotas. As the issues raised are pure questions of law, we need not dwell
on the facts at length.
Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas.
Through that depot, it has engaged in the selling of diesel fuels to vessels used in
commercial fishing in and around Manila Bay.1 On 1 March 2002, Petron received a
letter from the office of Navotas Mayor, respondent Toby Tiangco, wherein the
corporation was assessed taxes "relative to the figures covering sale of diesel
declared by your Navotas Terminal from 1997 to 2001."2 The stated total amount
due was P6,259,087.62, a figure derived from the gross sales of the depot during
the years in question. The computation sheets3 that were attached to the letter
made reference to Ordinance 92-03, or the New Navotas Revenue Code (Navotas
Revenue Code), though such enactment was not cited in the letter itself.
Petron duly filed with Navotas a letter-protest to the notice of assessment pursuant
to Section 195 of the Code. It argued that it was exempt from local business taxes
in view of Art. 232(h) of the Implementing Rules (IRR) of the Code, as well as a
ruling of the Bureau of Local Government Finance of the Department of Finance
dated 31 July 1995, the latter stating that sales of petroleum fuels are not subject
to local taxation. The letter-protest was denied by the Navotas Municipal Treasurer,
respondent Manuel T. Enriquez, in a letter dated 8 May 2002.4 This was followed by
a letter from the Mayor dated 15 May 2002, captioned "Final Demand to Pay,"
requiring that Petron pay the assessed amount within five (5) days from receipt
thereof, with a threat of closure of Petrons operations within Navotas should there
be no payment.5 Petron, through counsel, replied to the Mayor by another letter
posing objections to the threat of closure. The Mayor did not respond to this last
letter.6
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Thus, on 20 May 2002, Petron filed with the Malabon RTC a Complaint for
Cancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of a
Temporary Restraining Order (TRO) and/or Preliminary Injunction. The quested TRO
was not issued by the Malabon RTC upon manifestation of respondents that they
would not proceed with the closure of Petrons Navotas bulk plant until after the
RTC shall have decided the case on the merits.7 However, while the case was
pending decision, respondents refused to issue a business permit to Petron, thus
prompting Petron to file a Supplemental Complaint with Prayer for Preliminary
Mandatory Injunction against respondents.8
On 5 May 2003, the Malabon RTC rendered its Decision dismissing Petrons
complaint and ordering the payment of the assessed amount.9 Eleven days later,
Petron received a Closure Order from the Mayor, directing Petron to cease and
desist from operating the bulk plant. Petron sought a TRO from the Malabon RTC,
but this was denied.10Petron also filed a motion for reconsideration of the order of
denial, but this was likewise denied.11
On 4 August 2003, this Court issued a TRO, enjoining the respondents from closing
Petrons Navotas bulk plant or otherwise interfering in its operations.12
II.
As earlier stated, Petron has opted to assail the RTC Decision directly before this
Court since the matter at hand involves pure questions of law, a characterization
conceded by the RTC Decision itself. Particularly, the controversy hinges on the
correct interpretation of Section 133(h) of the LGC, and the applicability of Article
232 (h) of the IRR.
Section 133(h) of the LGC reads as follows:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. - Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and Barangays shall
not extend to the levy of the following:
xxx
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
Evidently, Section 133 prescribes the limitations on the capacity of local government
units to exercise their taxing powers otherwise granted to them under the LGC.
Apparently, paragraph (h) of the Section mentions two kinds of taxes which cannot
be imposed by local government units, namely: "excise taxes on articles
enumerated under the National Internal Revenue Code [(NIRC)], as amended;" and
"taxes, fees or charges on petroleum products."
The power of a municipality to impose business taxes is provided for in Section 143
of the LGC. Under the provision, a municipality is authorized to impose business

taxes on a whole host of business activities. Suffice it to say, unless there is another
provision of law which states otherwise, Section 143, broad in scope as it is, would
undoubtedly cover the business of selling diesel fuels, or any other petroleum
product for that matter.
Nonetheless, Article 232 of the IRR defines with more particularity the capacity of a
municipality to impose taxes on businesses. The enumeration that follows is
generally a positive list of businesses which may be subjected to business taxes,
and paragraph (h) of Article 232 does allow the imposition of local business taxes
"[o]n any business not otherwise specified in the preceding paragraphs which the
sanggunian concerned may deem proper to tax," but subject to this important
qualification, thus:
"xxx provided further, that in line with existing national policy, any
business engaged in the production, manufacture, refining, distribution or
sale of oil, gasoline and other petroleum products shall not be subject to
any local tax imposed on this article.
Notably, the Malabon RTC declared Art. 232(h) of the IRR void because the Code
purportedly does not contain a provision prohibiting the imposition of business taxes
on petroleum products.13 This submission warrants close examination as well.
With all the relevant provisions of law laid out, we address the core issues
submitted by Petron, namely: first, is the challenged tax on sale of the diesel fuels
an excise tax on an article enumerated under the NIRC, thusly prohibited under
Section 133(h) of the Code?; second, is the challenged tax prohibited by Section
133(h) under the proviso, "taxes, fees or charges on petroleum products"? and;
third, does Art. 232(h) of the IRR similarly prohibit the imposition of the challenged
tax?
III.
As earlier observed, Section 133(h) provides two kinds of taxes which cannot be
imposed by local government units: "excise taxes on articles enumerated" under the
NIRC, as amended; and "taxes, fees or charges on petroleum products." There is no
doubt that among the excise taxes on articles enumerated under the NIRC are those
levied on petroleum products, per Section 148 of the NIRC.
We first consider Petrons argument that the "business taxes" on its sale of diesel
fuels partakes of an excise tax, which if true, could invalidate the challenged tax
solely on the basis of the phrase "excise taxes on articles enumerated under the
[NIRC]." To support this argument, it cites Cordero v. Conda,14 Allied Thread Co.
Inc. v. City Mayor of Manila,15 and Iloilo Bottlers, Inc. v. City of Iloilo,16 as having
explained that "an excise tax is a tax upon the performance, carrying on, or the
exercise of an activity."17 Respondents, on the other hand, argue that what the
provision prohibits is the imposition of excise taxes on petroleum products, but not
the imposition of business taxes on the same. They cite Philippine Petroleum
Corporation v. Municipality of Pililia,18 where the Court had noted, "[a] tax on
business is distinct from a tax on the article itself."19
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Petrons argument is fraught with far-reaching implications, for if it were sustained,
it would mean that local government units are barred from imposing business taxes
on any of the articles subject to excise taxes under the NIRC. These would include
alcohol products,20 tobacco products,21 mineral products22 automobiles,23 and such
non-essential goods as jewelry, goods made of precious metals, perfumes, and
yachts and other vessels intended for pleasure or sports.24
Admittedly, the proffered definition of an excise tax as "a tax upon the performance,
carrying on, or exercise of some right, privilege, activity, calling or occupation"
derives from the compendium American Jurisprudence, popularly referred to as Am
Jur,,25 and has been cited in previous decisions of this Court, including those cited
by Petron itself. Such a definition would not have been inconsistent with previous
incarnations of our Tax Code, such as the NIRC of 1939,26 as amended, or the NIRC
of 197727 because in those laws the term "excise tax" was not used at all. In
contrast, the nomenclature used in those prior laws in referring to taxes imposed on
specific articles was "specific tax."28 Yet beginning with the National Internal
Revenue Code of 1986, as amended, the term "excise taxes" was used and defined
as applicable "to goods manufactured or produced in the Philippines and to things
imported."29 This definition was carried over into the present NIRC of
1997.30 Further, these two latest codes categorize two different kinds of excise
taxes: "specific tax" which is imposed and based on weight or volume capacity or
any other physical unit of measurement; and "ad valorem tax" which is imposed
and based on the selling price or other specified value of the goods. In other words,
the meaning of "excise tax" has undergone a transformation, morphing from the Am
Jur definition to its current signification which is a tax on certain specified goods or
articles.
The change in perspective brought forth by the use of the term "excise tax" in a
different connotation was not lost on the departed author Jose Nolledo as he
accorded divergent treatments in his 1973 and 1994 commentaries on our tax laws.
Writing in 1973, and essentially alluding to the Am Jur definition of "excise tax,"
Nolledo observed:
Are specific taxes, taxes on property or excise taxes
In the case of Meralco v. Trinidad ([G.R.] 16738, 1925) it was
held that specific taxes are property taxes, a ruling which seems
to be erroneous. Specific taxes are truly excise taxes for the fact
that the value of the property taxed is taken into account will not
change the nature of the tax. It is correct to say that specific
taxes are taxes on the privilege to import, manufacture and
remove from storage certain articles specified by law.31
In contrast, after the tax code was amended to classify specific taxes as a subset of
excise taxes, Nolledo, in his 1994 commentaries, wrote:
1. Excise taxes, as used in the Tax Code, refers to taxes applicable to
certain specified goods or articles manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition
and to things imported into the Philippines. They are either specific or ad
valorem.

2. Nature of excise taxes. They are imposed directly on certain specified
goods. (infra) They are, therefore, taxes on property. (see Medina vs. City
of Baguio, 91 Phil. 854.)
A tax is not excise where it does not subject directly the produce or goods
to tax but indirectly as an incident to, or in connection with, the business to
be taxed.32
In their 2004 commentaries, De Leon and De Leon restate the Am Jur definition of
excise tax, and observe that the term is "synonymous with privilege tax and [both
terms] are often used interchangeably."33 At the same time, they offer a caveat that
"[e]xcise tax, as [defined by Am Jur], is not to be confused with excise tax imposed
[by the NIRC] on certain specified articles manufactured or produced in, or imported
into, the Philippines, for domestic sale or consumption or for any other
disposition."34
It is evident that Am Jur aside, the current definition of an excise tax is that of a tax
levied on a specific article, rather than one "upon the performance, carrying on, or
the exercise of an activity." This current definition was already in place when the
Code was enacted in 1991, and we can only presume that it was what the Congress
had intended as it specified that local government units could not impose "excise
taxes on articles enumerated under the [NIRC]." This prohibition must pertain to
the same kind of excise taxes as imposed by the NIRC, and not those previously
defined "excise taxes" which were not integrated or denominated as such in our
present tax law.
It is quite apparent, therefore, that our current body of taxation law does not
explicitly accommodate the traditional definition of excise tax offered by Petron. In
fact, absent any statutory adoption of the traditional definition, it may be said that
starting in 1986 excise taxes in this jurisdiction refer exclusively to specific or ad
valorem taxes imposed under the NIRC. At the very least, it is this concept of excise
tax which we can reasonably assume that Congress had in mind and actually
adopted when it crafted the Code. The palpable absurdity that ensues should the
alternative interpretation prevail all but strengthens this position.
Thus, Petrons argument concerning excise taxes is founded not on what the NIRC
or the Code actually provides, but on a non-statutory definition sourced from a legal
paradigm that is no longer applicable in this jurisdiction. That such definition was
referred to again in our 1998 decision in Province of Bulacan v. Court of Appeals35 is
ultimately of little consequence, and so is Petrons reliance on such ruling. The Court
therein had correctly nullified, on the basis of Section 133(h) of the Code, a
province-imposed tax "of 10% of the fair market value in the locality per cubic
meter of ordinary stones, sand, gravel, earth and other quarry resources xxx
extracted from public lands," because it noted that under Section 151 of the NIRC,
all nonmetallic minerals and quarry resources were assessed with excise taxes of
"two percent (2%) based on the actual market value of the gross output thereof at
the time of removal, in case of those locally extracted or produced".36 Additionally,
the Court also observed that the case had emanated from an attempt to impose the
said tax on quarry resources from private lands, despite the clear language of the
tax ordinance limiting the tax to such resources extracted from public lands.37 On
that score alone, the case could have been correctly decided.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
It is true that the Court had additionally reasoned in Province of Bulacan that "[t]he
tax imposed by the Province of Bulacan is an excise tax, being a tax upon the
performance, carrying on, or exercise of an activity." As earlier noted, such
definition of excise tax however was not explicitly carried over into the NIRC and
was even superseded beginning with the 1986 amendments thereto. To insist on
utilizing this definition simply because it had been reiterated in Province of Bulacan,
unnecessary as such reiteration may have been to the resolution of that case, would
have the unfortunate effect of infusing life into a concept that is diametrically
inconsistent with the present state of the law.
We thus can assert with clear comfort that excise taxes, as imposed under the
NIRC, do not pertain to "the performance, carrying on, or exercise of an activity," at
least not to the extent of equating excise with business taxes.
IV.
We next consider whether the clause "taxes, fees or charges on petroleum
products" in Section 133(h) precludes local government units from imposing
business taxes based on the sale of petroleum products.
The power of a municipality to impose business taxes derives from Section 143 of
the Code that specifically enumerates several types of business on which it may
impose taxes, including manufacturers, wholesalers, distributors, dealers of any
article of commerce of whatever nature;38 those engaged in the export or commerce
of essential commodities;39 retailers;40 contractors and other independent
contractors;41 banks and financial institutions;42 and peddlers engaged in the sale of
any merchandise or article of commerce.43 This obviously broad power is further
supplemented by paragraph (h) of Section 143 which authorizes the sanggunian to
impose taxes on any other businesses not otherwise specified under Section 143
which the sanggunian concerned may deem proper to tax.44
This ability of local government units to impose business or other local taxes is
ultimately rooted in the 1987 Constitution. Section 5, Article X assures that "[e]ach
local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees and charges," though the power is "subject to such
guidelines and limitations as the Congress may provide." There is no doubt that
following the 1987 Constitution and the Code, the fiscal autonomy of local
government units has received greater affirmation than ever. Previous decisions
that have been skeptical of the viability, if not the wisdom of reposing fiscal
autonomy to local government units have fallen by the wayside.
Respondents cite our declaration in City Government of San Pablo v. Reyes45 that
following the 1987 Constitution the rule thenceforth "in interpreting statutory
provisions on municipal fiscal powers, doubts will have to be resolved in favor of
municipal corporations."46 Such policy is also echoed in Section 5(a) of the Code,
which states that "[a]ny provision on a power of a local government unit shall be
liberally interpreted in its favor, and in case of doubt, any question thereon shall be
resolved in favor of devolution of powers and of the lower local government unit."
But somewhat conversely, Section 5(b) then proceeds to assert that "[i]n case of
doubt, any tax ordinance or revenue measure shall be construed strictly against the
local government unit enacting it, and liberally in favor of the taxpayer." 47 And this
latter qualification has to be respected as a constitutionally authorized limitation

which Congress has seen fit to provide. Evidently, local fiscal autonomy should not
necessarily translate into abject deference to the power of local government units to
impose taxes.
Congress has the constitutional authority to impose limitations on the power to tax
of local government units, and Section 133 of the Code is one such limitation.
Indeed, the provision is the explicit statutory impediment to the enjoyment of
absolute taxing power by local government units, not to mention the reality that
such power is a delegated power. To cite one example, under Section 133(g), local
government units are disallowed from levying business taxes on "business
enterprises certified to by the Board of Investments as pioneer or non-pioneer for a
period of six (6) and (4) four years, respectively from the date of registration."
Section 133(h) states that local government units "shall not extend to the levy of
xxx taxes, fees or charges on petroleum products." Respondents assert that the
phrase "taxes, fees or charges on petroleum products" pertains to the imposition of
direct or excise taxes on petroleum products, and not business taxes. If the phrase
actually pertains to excise taxes, then it would be an exercise in utter redundancy,
since the preceding phrase already prohibits the imposition of excise taxes on
articles already subject to such taxes under the NIRC, such as petroleum products.
There would be no sense on the part of the legislature to twice emphasize in the
same sentence that excise taxes on petroleum products are beyond the pale of local
government taxation.
It appears that this argument of respondents was fashioned on the basis of the
pronouncement of the Court in Philippine Petroleum Corporation v. Municipality of
Pililla, thus:48
xxx [W]hile Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of
P.D. 231 as amended by P.D. 426, wherein the municipality is granted the
right to levy taxes on business of manufacturers, importers, producers of
any article of commerce of whatever kind or nature. A tax on business is
distinct from a tax on the article itself. Thus, if the imposition of tax on
business of manufacturers, etc. in petroleum products contravenes a
declared national policy, it should have been expressly stated in P.D. No.
436.
The dicta that "[a] tax on a business is distinct from a tax on the article itself" might
at first blush somehow lend support to respondents position, yet that dicta has not
since been reprised by this Court. It is likewise worth observing that Pililla did
involve a tax ordinance that imposed business taxes on an enterprise engaged in
the manufacture and storage of petroleum products.
Significantly, the legal milieu governing Pililla is vastly different from that existing at
bar, to the extent that the earlier case could not be presently controlling.
At the time the taxes sought to be collected in Pililla were imposed, there was no
national law in place similar to Section 133(h) of the Code that barred local "taxes,
fees or charges on petroleum products." There were circulars to that effect issued
by the Finance Department, yet the Court could not validate such issuances since
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
under the tax laws then in place "no exemptions were given to manufacturers,
wholesalers, retailers, or dealers in petroleum products."49 In fact, the Court
tellingly observed that "if the imposition of tax on business of manufacturers, etc. in
petroleum products contravenes a declared national policy, it should have been
expressly stated in P.D. No. 436."50Such expression conspiciously missing in P.D.
No. 436 is now found in Section 133(h).
In view of the difference in statutory paradigm between this case and Pililla, the
latter case is severely diminished as applicable precedent at bar. The Court then
was correct in observing that a mere administrative circular could not prohibit a
local tax that is not otherwise barred under a national statute, yet in this case that
conflict is not present since the Code explicitly prohibits the imposition of several
classes of local taxes, including those on petroleum products. The final and only
straw Pililla provides that respondents can still grasp at is the bare statement that
"[a] tax on a business is distinct from a tax on the article itself," 51 a sentence which
could have been omitted from that decision without any effect.
We can concede that a tax on a business is distinct from a tax on the article itself,
or for that matter, that a business tax is distinct from an excise tax. However, such
distinction is immaterial insofar as the latter part of Section 133(h) is concerned, for
the phrase "taxes, fees or charges on petroleum products" does not qualify the kind
of taxes, fees or charges that could withstand the absolute prohibition imposed by
the provision. It would have been a different matter had Congress, in crafting
Section 133(h), barred "excise taxes" or "direct taxes," or any category of taxes
only, for then it would be understood that only such specified taxes on petroleum
products could not be imposed under the prohibition. The absence of such a
qualification leads to the conclusion that all sorts of taxes on petroleum products,
including business taxes, are prohibited by Section 133(h). Where the law does not
distinguish, we should not distinguish.
The language of Section 133(h) makes plain that the prohibition with respect to
petroleum products extends not only to excise taxes thereon, but all "taxes, fees
and charges." The earlier reference in paragraph (h) to excise taxes comprehends a
wider range of subjects of taxation: all articles already covered by excise taxation
under the NIRC, such as alcohol products, tobacco products, mineral products,
automobiles, and such non-essential goods as jewelry, goods made of precious
metals, perfumes, and yachts and other vessels intended for pleasure or sports. In
contrast, the later reference to "taxes, fees and charges" pertains only to one class
of articles of the many subjects of excise taxes, specifically, "petroleum products".
While local government units are authorized to burden all such other class of goods
with "taxes, fees and charges," excepting excise taxes, a specific prohibition is
imposed barring the levying of any other type of taxes with respect to petroleum
products.
V.
We no longer need to dwell on the arguments centering on Article 232 of the IRR.
As earlier stated, the provision explicitly stipulates that "in line with existing national
policy, any business engaged in the production, manufacture, refining, distribution
or sale of oil, gasoline and other petroleum products shall not be subject to any
local tax imposed on this article [on business taxes]." The RTC went as far as to

declare Article 232 as "invalid" on the premise that the prohibition was not similarly
warranted under the Code.
Assuming that the Code does not, in fact, prohibit the imposition of business taxes
on petroleum products, we would agree that the IRR could not impose such a
prohibition. With our ruling that Section 133(h) does indeed prohibit the imposition
of local business taxes on petroleum products, however, the RTC declaration that
Article 232 was invalid is, in turn, itself invalid. Even absent Article 232, local
government units cannot impose business taxes on petroleum products. If anything,
Article 232 merely reiterates what the Code itself already provides, with the
additional explanation that such prohibition was "in line with existing national
policy."
VI.
We have said all that need be said for the resolution of this case, but there is one
more line of argument raised by respondents that deserves a remark. Respondents
argue, "assuming... that the Oversight Committee [that drafted the IRR] can
legislate, that the "existing national policy" referred to in Article 232 had been
superseded by Republic Act No. 8180, or the Oil Deregulation Law. Boiled down to
its essence, the argument is that since the oil industry is presently deregulated the
basis for exempting petroleum products from business taxes no longer exists.
Of course, the starting premise for this argument, that the IRR can establish a tax
or an exemption, is false and has been flatly rejected by this Court before.52 The
Code itself does not connect its prohibition on taxation of petroleum products with
any existing or future national oil policy, so the change in such national policy with
the regime of oil deregulation is ultimately of no moment. Still, we can divine the
reasoning behind singling out petroleum products, among all other commodities, as
beyond the power of local government units to levy local taxes.
Why the special concern over petroleum products? The answer is quite evident to all
sentient persons. In this age where unfortunately dependence on petroleum as fuel
has yet no equally feasible alternative, the cost of petroleum products, though fully
controlled by private enterprise, remains an area of public concern. To be blunt
about it, there is an inevitable link between the fluctuation of oil prices and the
prices of every other commodity. The reality, indeed, is oil is a political commodity.
Such fact has received recognition from this Court. "[O]il [is] a commodity whose
supply and price affect the ebb and flow of the lifeblood of the nation. Its shortage
of supply or a slight, upward spiral in its price shakes our economic foundation.
Studies show that the areas most impacted by the movement of oil are food
manufacture, land transport, trade, electricity and water."53 "[T]he upswing and
downswing of our economy materially depend on the oscillation of
oil."54 "Fluctuations in the supply and price of oil products have a dramatic effect on
economic development and public welfare."55
It can be reasonably presumed that if municipalities, cities and provinces were
authorized to impose business taxes on manufacturers and retailers of petroleum
products, the resulting losses to these enterprises would be passed on to the
consumers, triggering the chain of increases that normally accompany the increase
in oil prices. No similarly massive trigger effect would ensue upon the imposition of
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
business taxes on other commodities, including those already subject to excise
taxation under the NIRC.
It may very well be that the policy of deregulation, which was not yet in effect at
the time of the enactment of the Local Government Code, has changed the
complexion of the issue, for unlike before, oil companies are free at will to increase
oil prices, thus mitigating the similarly arbitrary consequences that could develop if
petroleum products were subject to local taxes. Still, it cannot be denied that
subjecting petroleum products to business taxes apart from the taxes already
imposed by Congress in this age of deregulation would lead to the same result had
they been so taxed during the era of oil regulation the increase of oil prices. We
do not discount the authority of Congress to enact measures that facilitate the
increase in oil prices; witness the Oil Deregulation Law and the most recent
Expanded VAT Law. Yet these hard choices are presumably made by Congress with
the expectation that the negative effects of increased oil prices are offset by the
other economic benefits promised by those new laws (i.e., a more vibrant oil
industry; increased government revenue).
The Court defers to the other branches of government in the formulation of oil
policy, but when the choices are made through legislation, the Court expects that
the choices are deliberate, considering that the stakes are virtually all-in. Herein,
respondents may be bolstered by the constitutional and statutory policy favoring
local fiscal autonomy, but it would be utter indolence to reflexively affirm such
policy when the inevitable effect is an increase in oil prices. Any prudent
adjudication should fully ascertain the mandate of local government units to impose
taxes on petroleum products, and such mandate should be cast in so specific terms
as to leave no dispute as to the legislative intendment to extend such power in the
name of local autonomy. What we have found instead, from the plain letter of the
law is an explicit disinclination on the part of the legislature to impart that particular
taxing power to local government units.
While Section 133(h) does not generally bar the imposition of business taxes on
articles burdened by excise taxes under the NIRC, it specifically prohibits local
government units from extending the levy of any kind of "taxes, fees or charges on
petroleum products." Accordingly, the subject tax assessment is ultra vires and
void.
WHEREFORE, the Petition is GRANTED. The Decision of the Regional Trial Court of
Malabon City in Civil Case No. 3380-MN is REVERSED and SET ASIDE and the
subject assessment for
deficiency taxes on petitioner is ordered CANCELLED. The Temporary Restraining
Order dated 4 August 2003 is hereby made PERMANENT. No pronouncement as to
costs.
SO ORDERED.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[190] G.R. No. 183137 April 10, 2013 Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect
on January 1, 2006.
PELIZLOY REALTY CORPORATION, represented herein by its President,
GREGORY K. LOY, Petitioner, It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement
vs. tax on gross receipts from admission fees for resorts, swimming pools, bath houses,
THE PROVINCE OF BENGUET, Respondent. hot springs, and tourist spots is an ultra vires act on the part of the Province of
Benguet. Thus, it filed an appeal/petition before the Secretary of Justice on January
27, 2006.
DECISION

The appeal/petition was filed within the thirty (30)-day period from the effectivity of
LEONEN, J.:
a tax ordinance allowed by Section 187 of Republic Act No. 7160, otherwise known
as the Local Government Code (LGC).1 The appeal/petition was docketed as MSO-
The principal issue in this case is the scope of authority of a province to impose an OSJ Case No. 03-2006.
amusement tax.
Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court receipt of the appeal to render a decision. After the lapse of which, the aggrieved
praying that the December 10, 2007 decision of the Regional Trial Court,- Branch party may file appropriate proceedings with a court of competent jurisdiction.
62, La Trinidad, Benguet in Civil Case No. 06-CV-2232 be reversed and set aside
and a new one issued in which: ( 1) respondent Province of Benguet is declared as
Treating the Secretary of Justice's failure to decide on its appeal/petition within the
having no authority to levy amusement taxes on admission fees for resorts,
sixty (60) days provided by Section 187 of the LGC as an implied denial of such
swimming pools, bath houses, hot springs, tourist spots, and other places for
appeal/petition, Pelizloy filed a Petition for Declaratory Relief and Injunction before
recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code of
the Regional Trial Court, Branch 62, La Trinidad, Benguet. The petition was
2005 is declared null and void; and (3) the respondent Province of Benguet is
docketed as Civil Case No. 06-CV-2232.
permanently enjoined from enforcing Section 59, Article X of the Benguet Provincial
Revenue Code of 2005.
Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a
percentage tax in violation of the limitation on the taxing powers of local
Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is
government units (LGUs) under Section 133 (i) of the LGC. Thus, it was null and
designed for recreation and which has facilities like swimming pools, a spa and
void ab initio. Section 133 (i) of the LGC provides:
function halls. It is located at Asin, Angalisan, Municipality of Tuba, Province of
Benguet.
Section 133. Common Limitations on the Taxing Powers of Local Government Units.
- Unless otherwise provided herein, the exercise of the taxing powers of provinces,
On December 8, 2005, the Provincial Board of the Province of Benguet approved
cities, municipalities, and barangays shall not extend to the levy of the following:
Provincial Tax Ordinance No. 05-107, otherwise known as the Benguet Revenue
Code of 2005 ("Tax Ordinance"). Section 59, Article X of the Tax Ordinance levied a
ten percent (10%) amusement tax on gross receipts from admissions to "resorts, xxx
swimming pools, bath houses, hot springs and tourist spots." Specifically, it
provides the following:
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein
Article Ten: Amusement Tax on Admission
The Province of Benguet assailed the Petition for Declaratory Relief and Injunction
Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the as an improper remedy. It alleged that once a tax liability has attached, the only
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, remedy of a taxpayer is to pay the tax and to sue for recovery after exhausting
cockpits, dancing halls, dancing schools, night or day clubs, and other places of administrative remedies.2
amusement at the rate of thirty percent (30%) of the gross receipts from admission
fees; and
On substantive grounds, the Province of Benguet argued that the phrase other
places of amusement in Section 140 (a) of the LGC3 encompasses resorts,
A tax of ten percent (10%) of gross receipts from admission fees for boxing, swimming pools, bath houses, hot springs, and tourist spots since "Article 220 (b)
resorts, swimming pools, bath houses, hot springs, and tourist spots is likewise (sic)" of the LGC defines "amusement" as "pleasurable diversion and entertainment
levied. [Emphasis and underscoring supplied] x x x synonymous to relaxation, avocation, pastime, or fun." 4 However, the Province
of Benguet erroneously cited Section 220 (b) of the LGC. Section 220 of the LGC

refers to valuation of real property for real estate tax purposes. Section 131 (b) of
the LGC, the provision which actually defines "amusement", states:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to
relaxation, avocation, pastime, or fun On December 10, 2007, the RTC rendered the
assailed Decision dismissing the Petition for Declaratory Relief and Injunction for
lack of merit.
Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the
validity of Section 59, Article X of the Tax Ordinance, the RTC noted that, while
Section 59, Article X imposes a percentage tax, Section 133 (i) of the LGC itself
allowed for exceptions. It noted that what the LGC prohibits is not the imposition by
LGUs of percentage taxes in general but the "imposition and levy of percentage tax
on sales, barters, etc., on goods and services only."5It further gave credence to the
Province of Benguet's assertion that resorts, swimming pools, bath houses, hot
springs, and tourist spots are encompassed by the phrase other places of
amusement in Section 140 of the LGC.
On May 21, 2008, the RTC denied Pelizloys Motion for Reconsideration.
Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of
law. It assailed the legality of Section 59, Article X of the Tax Ordinance as being a
(supposedly) prohibited percentage tax per Section 133 (i) of the LGC.
In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC,
argued that Section 59, Article X of the Tax Ordinance does not levy a percentage
tax "because the imposition is not based on the total gross receipts of services of
the petitioner but solely and actually limited on the gross receipts of the admission
fees collected."6 In addition, it argued that provinces can validly impose amusement
taxes on resorts, swimming pools, bath houses, hot springs, and tourist spots, these
being amusement places.
For resolution in this petition are the following issues:
1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-
107, otherwise known as the Benguet Revenue Code of 2005, levies a
percentage tax.
2. Whether or not provinces are authorized to impose amusement taxes on
admission fees to resorts, swimming pools, bath houses, hot springs, and
tourist spots for being "amusement places" under the Local Government
Code.
The power to tax "is an attribute of sovereignty,"7 and as such, inheres in the State.
Such, however, is not true for provinces, cities, municipalities and barangays as
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
they are not the sovereign;8 rather, they are mere "territorial and political
subdivisions of the Republic of the Philippines".9
The rule governing the taxing power of provinces, cities, muncipalities and
barangays is summarized in Icard v. City Council of Baguio:10
It is settled that a municipal corporation unlike a sovereign state is clothed with no
inherent power of taxation. The charter or statute must plainly show an intent to
confer that power or the municipality, cannot assume it. And the power when
granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of
the term used in granting that power must be resolved against the municipality.
Inferences, implications, deductions all these have no place in the interpretation
of the taxing power of a municipal corporation.11 [Underscoring supplied]
Therefore, the power of a province to tax is limited to the extent that such power is
delegated to it either by the Constitution or by statute. Section 5, Article X of the
1987 Constitution is clear on this point:
Section 5. Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments. [Underscoring supplied]
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer
vested exclusively on Congress; local legislative bodies are now given direct
authority to levy taxes, fees and other charges."12 Nevertheless, such authority is
"subject to such guidelines and limitations as the Congress may provide".13
In conformity with Section 3, Article X of the 1987 Constitution,14 Congress enacted
Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
Book II of the LGC governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing
powers of LGUS found below.
First, Section 130 provides for the following fundamental principles governing the
taxing powers of LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's
ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy,
or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in
no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure
solely to the benefit of, and be subject to the disposition by, the LGU
levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of
taxation.
Second, Section 133 provides for the common limitations on the taxing powers of
LGUs. Specifically, Section 133 (i) prohibits the levy by LGUs of percentage or
value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided by the LGC.
As it is Pelizloys contention that Section 59, Article X of the Tax Ordinance levies a
prohibited percentage tax, it is crucial to understand first the concept of a
percentage tax.
In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc., 15 the
Supreme Court defined percentage tax as a "tax measured by a certain percentage
of the gross selling price or gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings derived by any person engaged in the
sale of services." Also, Republic Act No. 8424, otherwise known as the National
Internal Revenue Code (NIRC), in Section 125, Title V,16 lists amusement taxes as
among the (other) percentage taxes which are levied regardless of whether or not a
taxpayer is already liable to pay value-added tax (VAT).
Amusement taxes are fixed at a certain percentage of the gross receipts incurred by
certain specified establishments.
Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of
amusement taxes by the NIRC, amusement taxes are percentage taxes as correctly
argued by Pelizloy.
However, provinces are not barred from levying amusement taxes even if
amusement taxes are a form of percentage taxes. Section 133 (i) of the LGC
prohibits the levy of percentage taxes "except as otherwise provided" by the LGC.
Section 140 of the LGC provides:
SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to
be collected from the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement at a rate of
not more than thirty percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters of cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the
provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
cinematographic films.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
(c) The holding of operas, concerts, dramas, recitals, painting and art
exhibitions, flower shows, musical programs, literary and oratorical
presentations, except pop, rock, or similar concerts shall be exempt from
the payment of the tax herein imposed.
(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms
and conditions for the payment of tax. In case of fraud or failure to pay the
tax, the Sangguniang Panlalawigan may impose such surcharges, interests
and penalties.
(e) The proceeds from the amusement tax shall be shared equally by the
province and the municipality where such amusement places are located.
[Underscoring supplied]
Evidently, Section 140 of the LGC carves a clear exception to the general rule in
Section 133 (i). Section 140 expressly allows for the imposition by provinces of
amusement taxes on "the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement."
However, resorts, swimming pools, bath houses, hot springs, and tourist spots are
not among those places expressly mentioned by Section 140 of the LGC as being
subject to amusement taxes. Thus, the determination of whether amusement taxes
may be levied on admissions to resorts, swimming pools, bath houses, hot springs,
and tourist spots hinges on whether the phrase other places of amusement
encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots.
Under the principle of ejusdem generis, "where a general word or phrase follows an
enumeration of particular and specific words of the same class or where the latter
follow the former, the general word or phrase is to be construed to include, or to be
restricted to persons, things or cases akin to, resembling, or of the same kind or
class as those specifically mentioned."17
The purpose and rationale of the principle was explained by the Court in National
Power Corporation v. Angas18 as follows:
The purpose of the rule on ejusdem generis is to give effect to both the particular
and general words, by treating the particular words as indicating the class and the
general words as including all that is embraced in said class, although not
specifically named by the particular words. This is justified on the ground that if the
lawmaking body intended the general terms to be used in their unrestricted sense,
it would have not made an enumeration of particular subjects but would have used
only general terms. [2 Sutherland, Statutory Construction, 3rd ed., pp. 395-400].19
In Philippine Basketball Association v. Court of Appeals,20 the Supreme Court had an
opportunity to interpret a starkly similar provision or the counterpart provision of
Section 140 of the LGC in the Local Tax Code then in effect. Petitioner Philippine
Basketball Association (PBA) contended that it was subject to the imposition by
LGUs of amusement taxes (as opposed to amusement taxes imposed by the
national government).1wphi1 In support of its contentions, it cited Section 13 of
Presidential Decree No. 231, otherwise known as the Local Tax Code of 1973,
(which is analogous to Section 140 of the LGC) providing the following:

Section 13. Amusement tax on admission. - The province shall impose a tax on
admission to be collected from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of amusement xxx.
Applying the principle of ejusdem generis, the Supreme Court rejected PBA's
assertions and noted that:
In determining the meaning of the phrase 'other places of amusement', one must
refer to the prior enumeration of theaters, cinematographs, concert halls and
circuses with artistic expression as their common characteristic. Professional
basketball games do not fall under the same category as theaters, cinematographs,
concert halls and circuses as the latter basically belong to artistic forms of
entertainment while the former caters to sports and gaming.21 [Underscoring
supplied]
However, even as the phrase other places of amusement was already clarified in
Philippine Basketball Association, Section 140 of the LGC adds to the enumeration of
'places of amusement' which may properly be subject to amusement tax. Section
140 specifically mentions 'boxing stadia' in addition to "theaters, cinematographs,
concert halls and circuses" which were already mentioned in PD No. 231. Also,
'artistic expression' as a characteristic does not pertain to 'boxing stadia'.
In the present case, the Court need not embark on a laborious effort at statutory
construction. Section 131 (c) of the LGC already provides a clear definition of
amusement places:
Section 131. Definition of Terms. - When used in this Title, the term:
xxx
(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other
places of amusement where one seeks admission to entertain oneself by seeing or
viewing the show or performances [Underscoring supplied]
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a
common typifying characteristic in that they are all venues primarily for the staging
of spectacles or the holding of public shows, exhibitions, performances, and other
events meant to be viewed by an audience. Accordingly, other places of
amusement must be interpreted in light of the typifying characteristic of being
venues "where one seeks admission to entertain oneself by seeing or viewing the
show or performances" or being venues primarily used to stage spectacles or hold
public shows, exhibitions, performances, and other events meant to be viewed by
an audience.
As defined in The New Oxford American Dictionary,22 show means "a spectacle or
display of something, typically an impressive one";23 while performance means "an
act of staging or presenting a play, a concert, or other form of entertainment." 24 As
such, the ordinary definitions of the words show and performance denote not only admission fees from boxing stadia.
visual engagement (i.e., the seeing or viewing of things) but also active doing (e.g.,
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
displaying, staging or presenting) such that actions are manifested to, and
(correspondingly) perceived by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs
and tourist spots cannot be considered venues primarily "where one seeks
admission to entertain oneself by seeing or viewing the show or performances".
While it is true that they may be venues where people are visually engaged, they
are not primarily venues for their proprietors or operators to actively display, stage
or present shows and/or performances.
Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not
belong to the same category or class as theaters, cinemas, concert halls, circuses,
and boxing stadia. It follows that they cannot be considered as among the other
places of amusement contemplated by Section 140 of the LGC and which may
properly be subject to amusement taxes.
At this juncture, it is helpful to recall this Courts pronouncements in Icard:
The power to tax when granted to a province is to be construed in strictissimi juris.
Any doubt or ambiguity arising out of the term used in granting that power must be
resolved against the province. Inferences, implications, deductions all these
have no place in the interpretation of the taxing power of a province.25
In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a
clear basis for determining what constitutes the 'other places of amusement' which
may properly be subject to amusement tax impositions by provinces. There is no
reason for going beyond such basis. To do otherwise would be to countenance an
arbitrary interpretation/application of a tax law and to inflict an injustice on
unassuming taxpayers.
The previous pronouncements notwithstanding, it will be noted that it is only the
second paragraph of Section 59, Article X of the Tax Ordinance which imposes
amusement taxes on "resorts, swimming pools, bath houses, hot springs, and
tourist spots". The first paragraph of Section 59, Article X of the Tax Ordinance
refers to "theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing
schools, night or day clubs, and other places of amusement".1wphi1 In any case,
the issues raised by Pelizloy are pertinent only with respect to the second paragraph
of Section 59, Article X of the Tax Ordinance. Thus, there is no reason to invalidate
the first paragraph of Section 59, Article X of the Tax Ordinance. Any declaration as
to the Province of Benguet's lack of authority to levy amusement taxes must be
limited to admission fees to resorts, swimming pools, bath houses, hot springs and
tourist spots.
Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not
limited to resorts, swimming pools, bath houses, hot springs, and tourist spots but
also covers admission fees for boxing. As Section 140 of the LGC allows for the
imposition of amusement taxes on gross receipts from admission fees to boxing
stadia, Section 59, Article X of the Tax Ordinance must be sustained with respect to
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

WHEREFORE, the petition for review on certiorari is GRANTED. The second

paragraph of Section 59, Article X of the Benguet Provincial Revenue Code of 2005,
in so far as it imposes amusement taxes on admission fees to resorts, swimming
pools, bath houses, hot springs and tourist spots, is declared null and void.
Respondent Province of Benguet is permanently enjoined from enforcing the second
paragraph of Section 59, Article X of the Benguet Provincial Revenue Code of 2005
with respect to resorts, swimming pools, bath houses, hot springs and tourist spots.

SO ORDERED.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[191] DECISION
G.R. No. 120051 December 10, 2014
CITY OF MANILA, HON. ALFREDO S. LIM, as Mayor of the City of Manila, and ANTHONY Y. ACEVEDO, City
Treasurer, Petitioners,
vs. LEONARDO-DE CASTRO, J.:
HON. ANGEL VALERA COLET, as Presiding Judge, Regional Trial Court of Manila (Br. 43), and MALAYSIAN AIRLINE
SYSTEM, Respondents.
x-----------------------x
G.R. No. 121613 Before the Court are 10 consolidated Petitions, the issue at the crux of which is the
MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, LTD., FLAGSHIP TANKERS CORP., CORE INDO MARITIME CORP., constitutionality and/or validity of Section 21(B) of Ordinance No. 7794 of the City
and CORE MARITIME CORP., Petitioners,
vs.
1
of Manila, otherwise known as the Revenue Code of the City of Manila (Manila
CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD and CITY
TREASURER ANTHONY ACEVEDO, Respondents.
Revenue Code), as amended by Ordinance No. 7807.2
x-----------------------x
G.R. No. 121675
EASTERN
vs.
SHIPPING LINES, INC., Petitioner, I
CITY COUNCIL OF MANILA, THE MAYOR OF MANILA and THE CITY OF MANILA, Respondents.
x-----------------------x
G.R. No. 121704 ANTECEDENT FACTS
WILLIAM LINES, INC., NEGROS NAVIGATION CO., INC., LORENZO SHIPPING CORPORATION, CARLOS A. GOTHONG
LINES, INC., ABOITIZ SHIPPING CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION, ABOITIZ HAULERS, INC., and
SOLID SHIPPING LINES CORPORATION, Petitioners,
vs. The Manila Revenue Code was enacted on June 22, 1993 by the City Council of
REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA,
SANGGUNIANG PANLUNGSOD, and CITY TREASURER ANTHONY ACEVEDO, Respondents. Manila and approved on June 29, 1993 by then Manila Mayor Alfredo S. Lim (Lim).
x-----------------------x
G.R. Nos. 121720-28
Section 21(B) of said Code originally provided:
PNOC SHIPPING AND TRANSPORT CORPORATION, Petitioner,
vs.
HON. JUAN T. NABONG, JR., Presiding Judge, Regional Trial Court of Manila, Branch 32; THE CITY OF MANILA; MAYOR Section 21. Tax on Businesses Subject to the Excise, Value-Added or Percentage
ALFREDO LIM; VICE MAYOR LITO ATIENZA; SANGGUNIANG PANLUNGSOD, and CITY TREASURER ANTHONY
ACEVEDO, Respondents. Taxes Under the NIRC. - On any of the following businesses and articles of
x-----------------------x
G.R. Nos. 121847-55
commerce subject to the excise, value-added or percentage taxes under the
MAERSK-FILIPINAS, INC., AMERICAN PRESIDENT LINES, SEA-LAND SERVICES, INC., OVERSEAS FREIGHTERS SHIPPING, National Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax
INC., DONGNAMA SHIPPING CO., LTD., FLAGSHIP TANKERS, CORE INDO MARITIME CORP., CORE MARITIME CORP., and
EASTERN SHIPPING LINES, INC., Petitioners, of three percent (3%) per annum on the gross sales or receipts of the preceding
vs. calendar year is hereby imposed:
CITY OF MANILA, HON. MAYOR ALFREDO S. LIM, HON. VICE MAYOR LITO ATIENZA, JR., SANGGUNIANG PANLUNGSOD NG
MAYNILA, and CITY TREASURER ANTHONY Y. ACEBEDO and their agents or representatives, and HON. JUDGE JUAN C.
NABONG, JR., Branch 32, Regional Trial Court of Manila,Respondents,
WILLIAM LINES, INC., NEGROS NAVIGATION CO., INC., LORENZO SHIPPING CORPORATION, CARLOS A. GOTHONG xxxx
LINES, INC., ABOITIZ SHIPPING CORPORATION, ABOITIZ AIR TRANSPORT CORPORATION, ABOITIZ HAULERS, INC.,
SOLID SHIPPING LINES CORPORATION and PNOC SHIPPING & TRANSPORT CORPORATION, Intervenors.
x-----------------------x
G.R. No. 122333 B) On the gross receipts of keepers of garages, cars for rent or hire driven by the
COSCO CONTAINER LINES and HEUNG-A SHIPPING CO., LTD., both represented by their Resident Agent, Wallem lessee, transportation contractors, persons who transport passenger or freight for
Philippines Shipping, Inc.; DSR SENATOR LINES, COMPANIA SUD AMERICANA DE VAPORES S.A., and ARIMURA SANGYO
COMPANY, LTD., all represented by theirResident Agent, C.F. Sharp Shipping Agencies, Incorporated; PACIFIC hire, and common carriers by land, air or water, except owners of bancas and
INTERNATIONAL LINES (PTE) LTD. and PACIFIC EAGLE LINES (PTE) LTD., both represented by their Resident Agent, TMS
Ship Agencies, Inc.; COMPAGNIE MARITIME D' AFFRETEMENT (CMA), represented by its Resident Agent, Inchcape
owners of animal-drawn two-wheel vehicle.
Shipping Services; EVERETT ORIENT LINES, INC., represented by its Resident Agent, Everett Steamship Corporation;
YANGMING MARINE TRANSPORT CORP., represented by its Resident Agent, Sky International, Inc.; NIPON YUSEN
KAISHA, represented by its Resident Agent, Fil-Japan Shipping Corporation; HYUNDAI MERCHANT MARINE CO. LTD.,
represented by its Resident Agent, Citadel Lines; MALAYSIAN INTERNATIONAL SHIPPING CORPORATION BERHAD,
Shortly thereafter, Ordinance No. 7807 was enacted by the City Council of Manila on
represented by its Resident Agent, Royal Cargo Agencies, Inc.; BOLT ORIENT LINE, represented by its Resident Agent, September 27, 1993 and approved by Mayor Lim on September 29, 1993, already
FILSOV Shipping Company, Inc.; MITSUI-O.S.K. LINES, LTD., represented by its Resident Agent, Magsaysay Agencies,
Inc.; PHILS., MICRONESIA & ORIENT NAVIGATION CO. (PMSO LINE), represented by its Resident Agent, Van Transport amending several provisions of the Manila Revenue Code. Section 21 of the Manila
Company, Inc.; LLOYD TRIESTINO DI NAVIGAZIONE S.P.A.N. and COMPAGNIE GENERALE MARITIME, both represented Revenue Code, as amended, imposed a lower tax rate on the businesses that fell
by their Resident Agent, F.E. Zuellig (M), Inc.; and MADRIGAL-WAN HAI LINES, Petitioners,
vs. under it, and paragraph (B) thereof read as follows:
CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD and City Treasurer
ANTHONY Y. ACEBEDO, Respondents,
x-----------------------x
G.R. No. 122335 Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage
SULPICIO LINES, INC., Petitioner, Taxes Under the NIRC On any of the following businesses and articles of
vs.
REGIONAL TRIAL COURT OF MANILA, BRANCH 32, CITY OF MANILA MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, commerce subject to the excise, value-added or percentage taxes under the
SANGGUNIANG PANLUNGSOD and CITY TREASURER ANTHONY ACEVEDO, Respondents.
x-----------------------x
National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax
G.R. No. 122349 of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross sales or
ASSOCIATION OF INTERNATIONAL SHIPPING LINES, INC., in its own behalf and in representation of its
Members, Petitioner, receipts of the preceding calendar year is hereby imposed:
vs.
CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, SANGGUNIANG PANLUNGSOD and CITY
TREASURER ANTHONY ACEVEDO, Respondents.
x-----------------------x
xxxx
G.R. No. 124855
DONGNAMA SHIPPING CO., LTD. and KYOWA SHIPPING LTD. herein represented by SKY INTERNATIONAL,
INC., Petitioners,
vs.
B) On the gross receipts of keepers of garages, cars for rent or hire driven by the
COURT OF APPEALS, CITY OF MANILA MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, CITY COUNCIL OF MANILA, and lessee, transportation contractors, persons who transport passenger or freight for
CITY TREASURER ANTHONY ACEVEDO, Respondents.

hire, and common carriers by land, air or water, except owners of bancas and
owners of animal-drawn two-wheel vehicle.
The City of Manila, through its City Treasurer, began imposing and collecting the
business tax under Section 21(B) of the Manila Revenue Code, as amended,
beginning January 1994.
G.R. No. 120051
Malaysian Airline System (MAS) isa foreign corporation organized and existing under
the laws of Malaysia. It is licensed to engage in business in the Philippines by the
Securities and Exchange Commission (SEC), particularly in the airline business
which involves the transportation of passengers and cargo for hire. Its principal
office and place of business in the Philippines is located in the City of Manila.
As MAS was renewing its business permit for 1994, it was assessed by the City
Treasurer of Manila on January 17, 1994 for the following taxes and fees:
Mayors permit and regulatory fees P 10,307.50
Municipal license tax or business tax 1,100,000.00
3
Total P 1,110,307.50
MAS, believing that it was exempt from the municipal license tax or business tax,
tendered, via Far East Bank and Trust Company (FEBTC) Check No. 06564 dated
January 19, 1994,only the amount of 10,307.50 for the mayors permit and
regulatory fees. The City Treasurer of Manila refused to accept FEBTC Check No.
06564.
Consequently, on January 20, 1994,MAS instituted Civil Case No. 94-69052, to
consign with the trial court the amount of 10,307.50 for mayors permit and
regulatory fees; to challenge the assessment against it by the City Treasurer of
Manila in the amount of 1,100,000.00 for municipal license tax or business tax;
and to have Section 21(B) of the Manila Revenue Code, as amended, on which said
assessment for municipal license tax or business tax was based, be declared invalid
or null and void. Civil Case No. 94-69052 was assigned to the Regional Trial Court
(RTC) of Manila, Branch 43.
4
On April 3, 1995, RTC-Branch 43 rendered a Decision in favor of MAS. The
dispositive portion of said Decision reads:
WHEREFORE, the foregoing disquisitions considered, judgment is hereby rendered in
favor of the plaintiff against the defendants:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
1. Declaring the consignation valid and made in accordance with law;
2. Ordering defendants to issue to plaintiff the mayors permit or permit to
operate for 1994, the necessary certificates and official receipts evidencing
payment of [plaintiffs] liabilities for mayors permit fee and other
regulatory fees for 1994; and,
3. Declaring Section 21(B) of Ordinance No. 7794, as amended by
Ordinance No. 7807, of the City of Manila as invalid or null and void insofar
as it imposes a business tax on transportation contractors, persons
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, or that plaintiff is exempt from the tax
imposed by said section 21(B).
4. Declaring plaintiffs obligation to the defendant City of Manila for
mayors permit fee and other regulatory fees for 1994 as having been paid
and extinguished without any liability for surcharges, interests or any
additional amount whatsoever.
Not having been proven, the prayer for the payment of attorneys fees is denied. No
pronouncement as to costs.5
The City of Manila, Mayor Lim, and City Treasurer Anthony Y. Acevedo (Acevedo)
filed with the Court a Petition for Review on Certiorari,6 assailing the Decision dated
April 3, 1995 of RTC-Branch 43 in Civil Case No. 94-69052 based on pure questions
of law. They assigned the following errors on the part of RTC-Branch 43:
4.1. That the trial court erred in declaring Section 21(B) of [the Manila
Revenue Code, as amended,]as invalid or null and void.
4.2. That the trial court erred indeclaring the consignation valid and made
in accordance with law.7
The City of Manila, Mayor Lim, and City Treasurer Acevedo prayed in their Petition
that the Court (1) reverse and set aside the assailed RTC Decision; and (2) affirm
the constitutionality and validity of Section 21(B) of the Manila Revenue Code, as
amended. The Petition was docketed as G.R. No. 120051.
MAS filed its Comment,8 to which the City of Manila, Mayor Lim, and City Treasurer
Acevedo filed their Reply.9
G.R. No. 121613
Because they were assessed and/or compelled to pay business taxes pursuant to
Section 21(B) of the Manila Revenue Code, as amended, before they were issued
their business permits for 1994, several corporations, with principal offices in Manila
and operating as "transportation contractors, persons who transport passenger or
freight for hire, and common carriers by land, air or water," filed their respective
petitions before the Manila RTC against the City of Manila, Mayor Lim, Vice Mayor
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

enjoin the implementation of Section 21(B) of the Manila Revenue Code, as

Civil Case Petitioner RTC-Branch amended.
No. No.
RTC-Branch 32 issued a TRO11 on January 14, 1994 in favor of petitioners Maersk,
APL, Flagship Tankers, CIMC, and CMC. The TRO was effective for 20 days and
94-68861 Maersk Filipinas, Inc. (Maersk) 32 ordered respondent City of Manila and local officials to cease and desist from
implementing Section 21(B) of the Manila Revenue Code, as amended, while the
prayer for a writ of preliminary injunction was scheduled for presentation of
94-68862 American President Lines, Ltd. (APL) 33
evidence. On February 3, 1992, after hearing, RTC-Branch 32 issued an Order
granting the prayer of petitioners Maersk, APL, Flagship Tankers, CIMC, CMC, and
94-68863 Sea-Land Services, Inc. (SeaLand) 34 OFSI for the issuance of a Writ of Preliminary Injunction,12 with the condition that
each of said petitioner corporations should post an injunction bond in the amount of
50,000.00. The Writ of Preliminary Injunction enjoined respondent City of Manila
94-68919 Overseas Freighters Shipping, Inc. (OFSI) 55 and local officials from: (1) imposing, enforcing, assessing, and collecting the taxes
under Section 21(B) of the Manila Revenue Code, as amended; and (2) denying to
petitioners Maersk, APL, Flagship Tankers, CIMC, CMC, and OFSI their business
94-68936 Dongnama Shipping Co., Ltd. (Dongnama) and Kyowa 47 permits and licenses for 1994. In another Order dated April 22, 1994, RTC-Branch
Shipping, Ltd. (Kyowa) 32 granted the prayer of intervenor corporations for the issuance of a similar Writ of
Preliminary Injunction.

94-68939 Flagship Tankers Corp. (Flagship Tankers) 21

In its Decision13 dated August 28, 1995 in Civil Case Nos. 94-68861, 94-68862, 94-
68863, 94-68919, 94-68936, 94-68939,94-68940, 94-68941, and 94-69028, RTC-
94-68940 Core Indo Maritime Corp. (CIMC) 21 Branch 32 upheld the power of the respondent City of Manila, as a local government
unit (LGU), to levy the business tax under Section 21(B) of the Manila Revenue
Code, as amended, consistent with the basic policy of local autonomy. Ultimately,
94-68941 Core Maritime Corp. (CMC) 21 RTC-Branch 32 decreed:

94-6902810 Eastern Shipping Lines, Inc. (Eastern Shipping) WHEREFORE, the petitions, the supplemental petitions, and the petitions or
complaints in intervention in all these cases are DISMISSED.

Lito Atienza (Atienza), the City Council of Manila/Sangguniang Panlungsod ng

Maynila, and City Treasurer Acevedo. Said petitions were separately docketed and All temporary restraining orders are cancelled, all writs of preliminary injunction are
raffled to different RTC Branches, to wit: recalled and dissolved, and the injunction bonds cancelled.14

All of the aforementioned cases were later consolidated before RTCBranch 32. Maersk, APL, Flagship Tankers, CIMC, and CMC (collectively referred to herein as
Maersk, et al.), filed a direct appeal before the Court. Initially, Maersk, et al., filed a
motion for extension of time to file their petition for review on certiorari. Upon filing
Several more corporations with principal offices in Manila and engaged in the same of said motion, they were assessed docket and legal fees in the amount of 420.00,
line of business as the above-named petitioner corporations filed which they fully paid. The motion for extension of time was granted by the Court in
petitions/complaints-in-intervention in the pending cases, namely: William Lines, a Resolution15 dated October 4, 1995. Within the extended period, Maersk, et al.,
Inc. (William Lines); Negros Navigation Co., Inc. (Negros Navigation); Lorenzo filed their Petition for Review on Certiorari with prayer for issuance of a writ of
Shipping Corp. (Lorenzo Shipping); Carlos A. Gothong Lines, Inc. (Gothong Lines); preliminary injunction and TRO,16 docketed as G.R. No. 121613, naming RTC-Branch
Aboitiz Shipping Corp., Aboitiz Air Transport Corp., and Aboitiz Haulers, Inc. 32, the City ofManila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod
(collectively referred to as the Aboitiz Group); Solid Shipping Lines Corp. (Solid ng Maynila, and City Treasurer Acevedo, as respondents. Maersk, et al., submitted
Shipping); and PNOC Shipping & Transport Corp. (PSTC). for resolution by the Court a lone question of law, viz.:

Petitioner and intervenor corporations essentially sought the (1) declaration of
Section 21(B) of the Manila Revenue Code, as amended, as void/invalid for being
contrary to the Constitution and the Local Government Code (LGC) of 1991; (2)
refund of the business taxes that the petitioner and intervenor corporations paid
under protest; and (3) the issuance of a temporary restraining order (TRO), writ of
preliminary injunction, writ of prohibition, and/or writ of permanent injunction to
Whether or not Section 21(B) of Ordinance No. 7794, otherwise known as the
Revenue Code of the City of Manila, as amended by Section 1(G) of Ordinance No.
7807, is valid and constitutional.17
Meanwhile, Maersk, et al., also filed with RTC-Branch 32 a Motion to Stay or Restore
Writ of Preliminary Injunction, presenting a Memorandum issued by City Treasurer

Acevedo already ordering the collection of the business tax under Section 21(B) of
the Manila Revenue Code, as amended. In an Order18 dated October 16, 1995, RTC-
Branch 32 granted the Motion of Maersk, et al., after finding the same to be
meritorious and in conformity with Rule 39, Section 4 of the Rules of Court, on the
condition that Maersk, et al., would increase their injunction bond from 50,000.00
each to 800,000.00 each, or for a total of 4,000,000.00. With this latest
development, Maersk, et al., filed with the Court a Supplemental Petition and Motion
praying for the confirmation of the RTC Order dated October 16, 1995 restoring the
Writ of Preliminary Injunction and deletion of the name of RTC-Branch 32 from the
caption of the Petition in G.R. No. 121613 as the trial court is not a necessary party.
On October 23, 1995 though, the Court issued a Resolution19 in G.R. No. 121613 in
which it resolved as follows:
On the basis of the foregoing, the Court RESOLVED to DISMISS the petition for
review on certiorari for non-compliance with the above mentioned requirement no.
1, [Maersk, et al.,] having failed to remit the amount of 202.00 as payment for the
balance of the prescribed legal fees. Accordingly, the supplemental petition and
motion of [Maersk, et al.,] dated October 17, 1995 praying that the lower courts
order restoring the Writ of Preliminary Injunction be confirmed and that the
Regional Trial Court of Manila, Branch 32, be deleted from the caption of the
petition for not being a necessary party is NOTED WITHOUT ACTION.
Maersk, et al., filed a Motion for Reconsideration20 of the foregoing Resolution dated
October 23, 1995 of the Court. Maersk, et al., argued that the dismissal of their
Petition by minute resolution would deprive them of their property rights on mere
technical grounds. Maersk, et al., had no intention of not paying the amount of
202.00, which consisted of sheriffs fee of 200.00 and clerks commission of
2.00, charged in connection with their prayer for the issuance of a preliminary
injunction and TRO. While Maersk, et al., did include such a prayer in their Petition,
the same had already become moot and academic after RTC-Branch 32 issued the
Order dated October 16, 1995 restoring and reinstating the Writ of Preliminary
Injunction in favor of Maersk, et al. In their Supplemental Petition and Motion in
G.R. No. 121613, Maersk, et al., was then only seeking the confirmation by the
Court of the Order dated October 16, 1995 of RTC-Branch 32 and, in effect,
withdrawing their prayer for the issuance of a writ of preliminary injunction and TRO
by the Court. Besides, Maersk, et al., submitted that the sheriffs fee of 200.00 and
clerks commission of 2.00 were not part of the "legal fees" required for perfecting
an appeal from the decision of the Court of Appeals or the RTC. The sheriffs fee and
clerks commission would merely be "deposited" with the Court, which implied that
said amounts would be "refunded" to Maersk, et al., in case the Court decided not
to issue the TRO prayed for. In fact, when Maersk, et al., filed their motion for
extension of time tofile their petition for review on certiorari, they fully paid the
docket and legal fees as computed by the cashier of the Court; and when they
actually filed their Petition for Review on Certiorari with prayer for issuance of a writ
of preliminary injunction and TRO, they were not assessed and required to pay
additional legal fees. In any event, Maersk, et al., had already deposited with the
Cashiers Office of the Court the amount of 202.00. Maersk, et al., asserted that
their case is meritorious and that dismissal is discretionary for the appellate court
and discretion must be exercised wisely and prudently, never capriciously, with a
view to substantial justice. Consequently, Maersk, et al., prayed that the Court
reconsider its Resolution dated October 23, 1995 and give due course to and
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
squarely resolve their Petition and Supplemental Petition and Motion in G.R. No.
121613.
Counsel for Maersk, et al., subsequently submitted a joint Memorandum21 for the
petitioners in G.R. Nos. 121613, 122333, and 122349.
G.R. No. 121675
Eastern Shipping was the petitioner in Civil Case No. 94-69028, which was
consolidated with Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-
68936, 94-68939, 94-68940, and 94-68941, before RTC-Branch 32.
Since the Decision dated August 28,1995 of RTC-Branch 32 in the consolidated
cases was contrary to its interest, Eastern Shipping appealed the same before the
Court through a Petition for Review on Certiorari with Prayer for Preliminary
Injunction and/or Temporary Restraining Order,22 with the City Council of Manila,
the Mayor of Manila, and the City of Manila, as respondents. In its Petition, docketed
as G.R. No. 121675, Eastern Shipping raised pure questionsof law and argued two
fundamental issues:
I.
WHETHER OR NOT SECTION 21 OF [THE MANILA REVENUE CODE, AS AMENDED,]
IS VALID AND CONSTITUTIONAL.
II.
IN THE REMOTE POSSIBILITYTHAT THE QUESTIONED ORDINANCE IS DECLARED
VALID AND CONSTITUTIONAL, WHETHER OR NOT [EASTERN SHIPPING] IS LIABLE
TO PAY THE BUSINESS TAX BASED ON GROSS RECEIPTS DERIVED FROM
INCOMING FREIGHTS ONLY OR OUTGOING FREIGHTS ONLY OR BOTH.23
The Office of the City Legal Officer, on behalf of the City of Manila, Mayor Lim, Vice
Mayor Atienza, the City Council of Manila/Sangguniang Panlungsod ng Maynila, and
City Treasurer Acevedo, filed a joint Comment24 on the Petitions in G.R. Nos.
121675, 121720-28, and 121847-55. Eastern Shipping later on filed its
Memorandum.25
G.R. No. 121704
William Lines, Negros Navigation, Lorenzo Shipping, Gothong Lines, the Aboitiz
Group, and Solid Shipping (collectively referred to herein as William Lines, et al.)
are duly organized domestic corporations principally engaged in the business of
operating domestic shipping vessels for the transportation of cargoes and
passengers, except Aboitiz Air Transport Corp., which is engaged in the
transportation of cargoes by air, and Aboitiz Haulers, Inc. which is engaged in the
business of domestic freight and hauling by land. William Lines, et al., all have
principal addresses in Manila.

William Lines, et al., paid under protest to the City of Manila the business taxes
assessed against them for the first quarter of 1994, based on Section 21(B) of the
Manila RevenueCode, as amended. They were intervenors in Civil Case Nos. 94-
68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-
68941, and 94-69028, before RTCBranch 32.
William Lines, et al., challenged the Decision dated August 28, 1995 rendered by
RTC-Branch 32 in said civil cases through a Petition for Review on Certiorari with
Prayer for Issuance of a Preliminary Injunction and for a Temporary Restraining
Order,26 docketed as G.R. No. 121704. They identified as respondents the City
ofManila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, the Sangguniang
Panlungsod ng Maynila, and RTC-Branch 32 Presiding Judge Juan C. Nabong, Jr.
(Nabong). William Lines, et al., assigned three major errors urportedly committed
by RTC-Branch 32:
A. The RTC erred in failing to declare the aforecited Section 21(B) of [the Manila
Revenue Code, as amended, as] ultra vires and therefore null and void because
such sections violate the Provisions of the LGC x x x.
xxxx
B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of power
couched in general terms is the exception referred or adverted to in Section 133(j)
of the LGC.
C. The RTC erred in holding that there are only four basic requirements for a valid
exercise of the power of the City of Manila to levy tax.27
In their Memorandum,28 William Lines, et al., focused their discussion on the
following issues: I. IS COMPLIANCE WITH THE GUIDELINES AND LIMITATIONS SET
FORTH IN BOOK II TITLE I OF THE LOCAL GOVERNMENT [CODE](LGC) NECESSARY
FOR THE VALIDITY OF SEC. 21(B)OF [THE MANILA REVENUE CODE, AS AMENDED]?
II. DID SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED]
VIOLATE SUCH GUIDELINES AND LIMITATIONS OF THE LGC?
III. IS SEC. 21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,]
INVALID, ULTRA VIRES AND UNLAWFUL?29
G.R. Nos. 121720-28
PSTC is a government owned and controlled corporation engaged in the business of
shipping, tinkering, lighterage, barging, towing, transport, and shipment of goods,
chattels, petroleum and other products, marine, and maritime commerce in general.
Pursuant to Section 21(B) of the Manila Revenue Code, as amended, PSTC was
assessed by the City of Manilafor business tax in the amount of 2,233,994.35,
representing 50% of 1% of the gross receipts earned by PSTC in the year 1993
which amounted to 446,798,871.87. The total amount of business tax due was
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
payable infour equal parts every quarter of 1994. PSTC paid under protest on
January 19, 1994 the business tax for the first quarter of 1994 in the amount of
558,498.59, and on April 20, 1994 the business tax for the second quarter of 1994
in the amount of 558,498.59, evidenced by Municipal License Receipt Nos. 003483
and 0057675, respectively. PSTC claimed it had no other recourse but to pay to the
City of Manila the assessed local business tax, considering the latter had threatened
to cancel its license to operate if said taxes were not paid. PSTC, by way of letters
dated February 21, 1994 and April 27, 1994, filed protests or claims for refund with
the City Treasurer of Manila, but the letters were not acted upon.
PSTC intervened in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-
68936, 94-68939, 94-68940, 94-68941, and 94-69028 before RTC-Branch 32.
Unsatisfied with the Decision dated August 28, 1995 rendered by RTC-Branch 32 in
the said civil cases, PSTC filed with the Court a Petition for Review on Certiorari with
Prayer for Temporary Restraining Order and/or Preliminary Injunction,30 against
Presiding Judge Nabong of RTC Branch 32, the City of Manila, Mayor Lim, Vice
Mayor Atienza, City Treasurer Acevedo, and the Sangguniang Panlungsod ng
Maynila. In its Petition, docketed as G.R. No. 121720-28, PSTC maintained that
RTCBranch 32 erred thus:
I
IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILA,
A MERE MUNICIPAL CORPORATION, HAS NO INHERENT POWER OF TAXATION.
II
EVEN ASSUMING ARGUENDO THAT SUCH POWER IS CATEGORICALLY GRANTED BY
STATUTE, THE SAME IS SUBJECT TO SUCH GUIDELINES AND LIMITATIONS
PROVIDED BY CONGRESS UNDER SECTION 133 OF THE LOCAL GOVERNMENT CODE
OF 1991 AND, AS TO WHICH, NONE WAS GIVEN TO RESPONDENT CITY OF MANILA.
III
IN FAILING TO REALIZE AND CONSIDER THAT AN ORDINANCE WHICH AMENDS,
ENLARGES OR LIMITS THE PROVISIONS OF A STATUTE CONSTITUTES AN
UNCONSTITUTIONAL AND ILLEGAL DEROGATION OF LEGISLATIVE POWER, HENCE,
THE ORDINANCE IS INVALID AND VOID AB-INITIO.
IV
IN FAILING TO REALIZE AND CONSIDER THAT THE RESPONDENT CITY OF MANILAS
[REVENUE CODE, AS AMENDED, PARTICULARLY SECTION 21(B) THEREOF] WHICH
IMPOSES 50% OF 1% OF THE GROSS SALES OR RECEIPT OF THE NEXT PRECEDING
YEAR, ON TOP OF THE NATIONAL INTERNAL REVENUE TAXES ALREADY IMPOSED
UNDER THE NATIONAL INTERNAL REVENUE CODE, IS UNREASONABLE, UNJUST,
UNFAIR OR OPPRESSIVE, CONFISCATORY, AND CONTRAVENES THE CONSTITUTION
OR STATUTE,HENCE, THE ORDINANCE IS INVALID AND NULL AND VOID AB-INITIO.

V OFSI questioned the legality of Section 21(B) of the Manila Revenue Code, as
IN FAILING TO REALIZE AND CONSIDER THAT THE TAX IMPOSED UNDER SECTION
21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] PARTAKES THE NATURE OF
A SALES TAX OR A PERCENTAGE TAX BEYOND THE TAXING POWER OF THE
RESPONDENT CITY OF MANILA TO IMPOSE, HENCE, UNENFORCEABLE BY
RESPONDENT CITY OFFICIALS.
VI
IN FAILING TO REALIZE AND CONSIDER THAT [PSTC] IS SPECIFICALLY EXEMPTED
FROM LOCAL GOVERNMENT TAXES IMPOSED UNDER THE LOCAL GOVERNMENT
CODE OF 1991, PURSUANT TO SECTION 115 OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED BY REPUBLIC ACT 7761.31
As mentioned previously, the Officeof the City Legal Officer, on behalf of the City of
Manila, MayorLim, Vice Mayor Atienza, the City Council of Manila/Sangguniang
Panlungsod ng Maynila, and City Treasurer Acevedo, filed a joint Comment on the
Petitions in G.R. Nos. 121675, 121720-28, and 121847-55.
PSTC filed its Memorandum,32 summing up its issues and arguments, to wit:
ISSUES SUBMITTED FOR RESOLUTION
1. WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS
AMENDED,] IS VALID AND CONSTITUTIONAL.
2. IN THE NEGATIVE[,] WHETHER OR NOT RESPONDENTS CAN BE
COMPELLED TO REFUND THE TAXES WRONGFULLY AND ERRONEOUSLY
COLLECTED UNDER THE ASSAILED ORDINANCE.
ARGUMENTS IN SUPPORT OF THE MEMORANDUM
I. THE ASSAILED ORDINANCE ISA CLEAR USURPATION OF LEGISLATIVE
POWER, HENCE,UNCONSTITUTIONAL AND VOID AB-INITIO.
II. THE ASSAILED ORDINANCE IN ITSELF IS UNJUST, UNFAIR, OR
EXCESSIVE, CONFISCATORY AND IN RESTRAINT OF TRADE AND IN
EFFECT CONSTITUTES AN UNLAWFUL TAKING OF PROPERTY WITHOUT
DUE PROCESS OF LAW.33
G.R. Nos. 121847-55
OFSI is a domestic corporation engaged in business as a transportation contractor.
It also represents, as a general agent in the Philippines, ZIM Israel Navigation Co.,
Ltd. and Gold Star Line, Hong Kong, which are engaged in the transport by common
carrier of export/import goods to and from the Philippines. Its offices are located in
Intramuros, Manila.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
amended, in a Petition for Declaratory Relief with Prayer for Preliminary Injunction
and/or Temporary Restraining Order, which was docketed as Civil Case No. 94-
68919 and originally raffled to RTC-Branch 55. Civil Case No. 94-68919 was
eventually consolidated with Civil Case Nos. 94-68861, 94-68862,94-68863, 94-
68936, 94-68939, 94-68940, 94-68941, and 94-69028 before RTC-Branch32.
During the pendency of said civil cases, OFSI paid under protest on January 20,
1994 the business tax for the first quarter of 1994 amounting to 181,928.97.
Pursuant to Section 196 of the Local Government Code (LGC),OFSI wrote the City
Treasurer of Manila a letter dated March 1, 1994 claiming refund of the business tax
it had paid. The letter was received by the City Treasurers Office of Manila on March
3, 1994. The City Treasurers Office of Manila had seven days from receipt of the
letter to refund the amount paid, but more than two months had passed and OFSI
received no response from the City Treasurer. To avoid multiplicity of suits, OFSI
filed a Supplemental Petition in Civil Case No. 94-68919 to incorporate its claim for
refund of the business tax it had paid for the first quarter of 1994.
Aggrieved by the Decision dated August 28, 1995 of RTC-Branch 32 in Civil Case
Nos. 94-68861, 94-68862,94-68863, 94-68919, 94-68936, 94-68939, 94-68940,
94-68941, and 94-69028, OFSI sought recourse from the Court by filing a Petition
for Review by Certiorari with Prayer for the Issuance of a Preliminary Injunction
and/or Temporary Restraining Order,34 naming as respondents the City of Manila,
Mayor Lim, Vice Mayor Atienza, the City Council of Manila, City Treasurer Acevedo,
and Presiding Judge Nabong of RTC-Branch 32. The Petition of OFSI, docketed as
G.R. Nos. 121847-55, presented for consideration and resolution of the Court the
following:
Assignment of Errors
THE RESPONDENT HONORABLE JUDGE ERRED IN HIS FINDING THAT SECTION
21(B) OF [THE MANILA REVENUE CODE, AS AMENDED,] IS VALID AND
CONSTITUTIONAL.
Legal Issues Involved In This Petition
WHETHER OR NOT SECTION 21(B) OF [THE MANILA REVENUE CODE, AS
AMENDED,] IS VALID AND CONSTITUTIONAL.
WHETHER OR NOT A WRIT OF PRELIMINARY INJUNCTION AND/OR TEMPORARY
RESTRAINING ORDER MAY BE ISSUED BY THE HONORABLE COURT.35
In a subsequent Manifestation,36 OFSI informed the Court that RTCBranch 32 issued
an Order dated October 26, 1995 granting its Motion to Restore Injunction Pending
Appeal; reinstating and restoring the Writ of Preliminary Injunction lifted on August
28, 1995; and requiring OFSI to post a bond in the increased amount of
300,000.00.
A joint Comment on the Petitions in G.R. Nos. 121675, 121720-28, and 121847-55
was filed by the Office of the City Legal Officer, on behalf of the City of Manila,
MayorLim, Vice Mayor Atienza, the City Council of Manila/Sangguniang Panlungsod
ng Maynila, and City Treasurer Acevedo.

The Reply37 of OFSI was the last pleading filed in G.R. Nos. 121847-55.
G.R. No. 122333
After RTC-Branch 32 rendered its Decision in Civil Case Nos. 94-68861, 94-68862,
94-68863,94-68919, 94-68936, 94-68939, 94-68940, 94-68941, and 94-69028 on
August 28, 1995, upholding the constitutionality and validity of Section 21(B) of the
Manila Revenue Code, as amended, and lifting the Writs of Preliminary Injunction
issued in said cases, the City of Manila and its officials resumed the enforcement of
the local business tax in question. City Treasurer Acevedo issued a Memorandum
dated September 7, 1995, instructing Oscar S. Dizon, Acting Chief, License Division,
City Treasurers Office of Manila, to prepare the complete staff work "for the
collection of the unpaid taxes, plus interests" imposed by Section 21(B) of the
Manila Revenue Code, as amended, against shipping companies and other common
carriers.
A Petition for Prohibition with Temporary Restraining Order and/or Preliminary
Injunction38 was jointly filed before the Court by several foreign and domestic
corporations doing business in Manila as shipping companies and/or common
carriers, namely: Cosco Container Lines (Cosco) and Heung-A Shipping Co., LTD.,
both represented by their resident agent, Wallem Philippines Shipping, Inc.; DSR
Senator Lines, Compania Sud Americana de Vapores S.A., and Arimura Sangyo
Company, Ltd., all represented by their resident agent, C.F. Sharp Shipping
Agencies, Inc.; Pacific International Lines (PTE) Ltd. and Pacific Eagle Lines (PTE)
Ltd., both represented by their resident agent, TMS Ship Agencies, Inc.; Compagnie
Maritime D Affretement (CMA), represented by its resident Agent, Inchcape
Shipping Services; Everett Orient Lines, Inc., represented by it resident agent,
Everett Steamship Corporation; Yangming Marine Transport Corp., represented by
its resident agent, Sky International, Inc.; Nipon Yusen Kaisha, represented by its
resident agent, Fil-Japan Shipping Corporation; Hyundai Merchant Marine Co., Ltd.,
represented by its resident agent, Citadel Lines; Malaysian International Shipping
Corporation Berhad, represented by its resident agent, Royal Cargo Agencies, Inc.;
Bolt Orient Line, represented by its resident agent, FILSOV Shipping Company, Inc.;
Mitsui-O.S.K. Lines, Ltd., represented by its resident agent, Magsaysay Agencies,
Inc.; Phils., Micronesia & Orient Navigation Co. (PMSO Line), represented by its
resident agent, Van Transport Company, Inc.; Lloyd Triestino di Navigazione
S.P.A.N. and Compagnie Generale Maritime, both represented by their resident
agent, F.E. Zuellig (M), Inc.; and MadrigalWan Hai Lines (collectively referred to
herein as Cosco, et al.).
The Petition of Cosco, et al., was docketed as G.R. No. 122333. In their Petition,
Cosco, et al., presented for resolution of the Court the principal issue of whether or
not Section 21(B) of the Manila Revenue Code, as amended, is constitutional.
Cosco, et al., posited that Section 21(B) of the Manila Revenue Code, as amended,
is unconstitutional and void ab initio because it was enacted by the Sangguniang
Panlungsod ng Maynila, which was presided over by Vice Mayor Atienza, approved
by Mayor Lim, and implemented and enforced by City Treasurer Acevedo, ultra
viresand in violation of constitutional and statutory limitations on the taxing power
of LGUs. Hence, Cosco, et al., prayed for the issuance of a writ of prohibition to
restrain, enjoin, and prohibit respondents City of Manila, Mayor Lim, Vice Mayor
Atienza, Sangguniang Panlungsod, and City Treasurer Acevedo, from enforcing
Section 21(B) of the Manila Revenue Code, as amended.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
A joint Memorandum was filed on behalf of the petitioners in G.R. Nos. 121613,
122333, and 122349.
G.R. No. 122335
Sulpicio Lines, Inc. (Sulpicio Lines) is a domestic corporation, holding office in North
Harbor, Manila, whose principal business is the operation of domestic shipping
vessels for the transportation of cargoes and passengers.
Sulpicio Lines and Gothong Lines jointly filed a complaint for declaratory relief with
prayer for the issuance of a writ of preliminary injunction, which was docketed as
Civil Case No. 94-69141 and raffled to RTC-Branch 44. Sulpicio Lines and Gothong
Lines asked the trial court to determine the validity of Section 21(B)of the Manila
Revenue Code, as amended, as well as the rights and duties of said shipping
companies thereunder. However, after being informed that Maersk already filed a
similar case, i.e., Civil Case No. 94-68861 before RTC-Branch 32, Gothong Lines
decided to withdraw as complainant in Civil Case No. 94-69141 and simply
intervene in Civil Case No. 94-68861. As a result, Sulpicio Lines became the sole
complainant in Civil Case No. 94-69141. Sulpicio Lines then filed a Motion to
Consolidate Civil Case No. 94-69141 with Civil Case No. 94-68861 which was
granted.
On August 28, 1995, RTC-Branch 32 rendered a Decision in Civil Case Nos. 94-
68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-
68941, and 94-69028. Civil Case No. 94-69141 was not included in the caption of
the Decision,although the complaint of Sulpicio Lines was mentioned in the body of
the same Decision.
Sulpicio Lines did not formally receive a copy of the aforementioned Decision dated
August 28, 1995 of RTC-Branch 32 and was merely informed of the same by the
petitioners/intervenors in the other civil cases. This prompted Sulpicio Lines to file
with RTC-Branch 32 a Motion for Clarificatory Order seeking to verifyif said Decision
included and was binding on Sulpicio Lines. Acting on the Motion of Sulpicio Lines,
RTC-Branch 32 issued an Order39 on October 16, 1995, which reads:
Although Civil Case No. 94-64191 is not included in the caption of the above
Decision, the Decision against all the petitioners, intervenors, most specifically
against intervenor Carlos A. Gothong Lines, Inc. is binding and enforceable against
Sulpicio Lines, Inc. because Civil Case No. 94-64191 had been consolidated with
Civil Case No. 94-68861.
WHEREFORE, the Decision and the dispositive portion of the Decision rendered on
August 28, 1995, shall apply to and binds Sulpicio Lines, Inc. x x x.
After Sulpicio Lines confirmed that the Decision dated August 28, 1995 of RTC-
Branch 32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936,
94-68939, 94-68940, 94-68941, and 94-69028, was also applicable to and binding
upon it,it filed with the Court a Petition for Review on Certiorari with Prayer for
Issuance ofa Preliminary Injunction and for a Temporary Restraining
Order,40 against the City of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer

Acevedo, the Sangguniang Panlungsod ng Maynila, and Presiding Judge Nabong of
RTC-Branch 32. The appeal of Sulpicio Lines was docketed as G.R. No. 122335.
The assignment of errors in the Petition of Sulpicio Lines was the same as that in
the Petition of William Lines, et al., in G.R. No. 121704, viz.:
A. The RTC erred in failing to declare that the aforecited Section 21(B) of
[the Manila Revenue Code, as amended, as] ultra vires and therefore null
and void because such sections of the Ordinances of the City of Manila
violate the Provisions of the LGC x x x
xxxx
B. The RTC erred in holding that Sec. 143(h) which is an omnibus grant of
power couched in general terms is the exception referred or adverted to in
Section 133(j) of the LGC.
C. The RTC erred in holding that there are only four basic requirements for
a valid exercise of the power of the City of Manila to levy tax.41
On January 31, 1996, the Court issued a Resolution42 referring the Petition of
Sulpicio Lines in G.R. No. 122335 to the Court of Appeals for proper determination
and disposition pursuant to Section 9, paragraph 3 of Batas Pambansa Blg. 129,
which granted the Court of Appeals "exclusive appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards of Regional Trial Courts and
quasi-judicial agencies, instrumentalities, boards or commission." At the Court of
Appeals, the Petition of Sulpicio Lines was docketed as CA-G.R. SP No. 39973. In a
Resolution43 dated April 12, 1996, the appellate court directed the respondents City
of Manila, Mayor Lim, Vice Mayor Atienza, City Treasurer Acevedo, the Sangguniang
Panlungsod ng Maynila, and Presiding Judge Nabong of RTC-Branch 32, to file their
Comments.
In the meantime, Sulpicio Lines filed with the Court in G.R. No. 122335 a Motion for
Reconsideration of the Resolution dated January 31, 1996 and for
Consolidation.44 Sulpicio Lines prayed that the Resolution dated January 31, 1996 of
the Court inG.R. No. 122335 be withdrawn; that the rolloof G.R. No. 122335 be
transmitted back to the Court; and that G.R. No. 122335 be consolidated with the
other cases pending before the Court en banc questioning the Decision dated
August 28, 1995 of RTC-Branch 32 which upheld the constitutionality and validity of
Section 21(B) of the Manila Revenue Code, as amended.
After several copies of its Resolutions were returned unserved on the respondents in
G.R. Nos. 122335, 122349, and 124855, the Court issued a Resolution45 on
December 2, 1997 dispensing with the filing of a Comment by the respondents in
the three cases.
G.R. No. 122349
The Association of International Shipping Lines, Inc. (AISL) is a nonstock domestic
corporation the members of which are mostly foreign corporations duly licensed to
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
do business in the Philippines, specifically: American Transport Lines, Inc.,
represented by its resident agent, Anchor International Shipping Agency, Inc.;
Australian National Line, Fleet Trans International, and United Arab Shipping Co., all
represented by their resident agent, Jardine Davies Transport; Dongnama Shipping
Co., Ltd., represented by its resident agent, Uni-Ship Incorporated; Hanjin Shipping
Company, Ltd., represented by its resident agent, MOF Company, Inc.; Hapag-Lloyd
A/G, represented by its resident agent, Hapag-Lloyd Phils., Inc.; Kawasaki Kisen
Kaisha, represented by its resident agent, Transmar Agencies, Inc.; Knutsen Line,
represented by its resident agent, AWB Trade International; Kyowa Line,
represented by its resident agent, Sky International, Inc.; NeptuneOrient Line,
represented by its resident agent, Overseas Agency Services, Inc.; Orient Overseas
Container Line, represented by its resident agent, OOCL (Philippines), Inc.; P&O
Containers, Ltd., P&O Swire Containersand WILH Wilhelmsen Line A/S, all
represented by their resident agent, Soriamont Steamship Agencies; Regional
Container Lines (Pte) Ltd., represented by its resident agent, South China Lines
Phils., Inc.; Senator Line Bremen Germany, represented by its resident agent, C.F.
Sharp & Company; Tokyo Senpaku Kaisha, Ltd., represented by its resident agent,
Fil-Japan Shipping Corporation; Uniglory Line, represented by its resident agent,
Don Tim Shipping Corporation; Wan Hai Lines, Ltd., represented by its resident
agent, Eastern Shipping Agencies, Inc.; Westwind Line, represented by its resident
agent, Westwind Shipping Corporation; Zim Israel Navigation Co., Ltd., represented
by its resident agent, Overseas Freighters Shipping, Inc.; Eastern Shipping Lines,
Inc.; Nedlloyd Lines, Inc.; Philippine President Lines, Ltd.; and Sea-Land Service,
Inc.
After RTC-Branch 32 rendered its Decision dated August 28, 1995 in Civil Case Nos.
94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-
68941,and 94-69028, upholding the constitutionality and validity of Section 21(B) of
the Manila Revenue Code, as amended; and City Treasurer Acevedo issued the
Memorandum dated September 7, 1995 ordering the collection of the business tax
under the questioned provision of the local tax ordinance, AISL, for itself and on
behalf and for the benefit of its above-named members, filed before the Court a
Petition for Prohibition with Temporary Restraining Order and/or Preliminary
Injunction46 against the City of Manila, Mayor Lim, Vice Mayor Atienza, City
Treasurer Acevedo, and the Sangguniang Panlungsod ng Maynila. The Petition of
AISL, docketed as G.R. No. 122349, was substantially similar to the Petition of
Cosco, et al., in G.R. No. 122333.
In its Resolution dated December 2, 1997, the Court dispensed with the filing of a
Comment by the respondents in G.R. Nos. 122335, 122349, and 124855.
The only other pleading in G.R. No. 122349 is a joint Memorandum filed on behalf of
the petitioners inG.R. Nos. 121613, 122333, and 122349.
G.R. No. 124855
Dongnama and Kyowa are foreign corporations, organized and existing under the
laws of the Republic of Korea and Japan, respectively. Both shipping companies are
doing business in the Philippines through their resident agent, Sky International,
Inc.(Sky International), with office in Binondo, Manila.

Dongnama and Kyowa, through Sky International, lodged a petition to declare
unconstitutional Section 21(B)of the Manila Revenue Code, as amended, with prayer
for a writ ofpreliminary injunction and TRO, docketed as Civil Case No. 94-68936
and initially raffled to RTC-Branch 47, but later consolidated with Civil Case Nos. 94-
68861, 94-68862, 94-68863, 94-68919, 94-68939, 94-68940, 94-68941, and 94-
69028 before RTC Branch 32. On August 28, 1995, RTC-Branch 32 rendered its
Decision in the consolidated civil cases upholding the constitutionality and validity of
Section 21(B) of the Manila Revenue Code, as amended.
Dongnama and Kyowa then filed with the Court a Petition for Certiorari with Urgent
Prayer for Restraining Order, seeking the annulment or modification of the foregoing
Decision of RTC-Branch 32. The Petition was docketed as G.R. No. 122120. Instead
of consolidating G.R. No. 122120 with the other pending cases that challenge the
constitutionality and validity of Section 21(B) of the Manila Revenue Code, as
amended, the Court issued a Resolution dated October 23, 1995 referring the
Petition in G.R. No. 122120 to the Court of Appeals for the following reason:
Considering that under Section 19(sic), paragraph (1) of Batas Pambansa Blg. 129,
the Court of Appeals now exercises original jurisdiction to issue writs of mandamus,
prohibitions, certiorari, habeas corpus, and quo warranto, and auxiliary writs or
processes, whether or not in aid of its appellate jurisdiction, the Court resolved to
REFER this case to the Court of Appeals, for disposition.47
The Petition for Certiorariof Dongnama and Kyowa was docketed as CA-G.R. SP No.
39188 before the Court ofAppeals. The Court of Appeals rendered its Decision48 in
CA-G.R. SP No. 39188 on March 29, 1996, finding no merit in the Petition of
Dongnama and Kyowa as RTC-Branch 32 did not act with grave abuse of discretion
when it ruled in its Decision dated August 28, 1995 that Section 21(B) of the Manila
Revenue Code, as amended, is valid and in clear conformity with the law and the
Constitution. In the end, the appellate court adjudged: WHEREFORE, IN VIEW OF
THE FOREGOING, the instant petition is hereby DENIED for lack of merit.49
Dongnama and Kyowa went back before the Court "by way of Petition for Review on
Certiorari under Rule 65 of the Rules of Court," docketed as G.R. No. 124355, based
on a lone assignment of error:
RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN
ASSUMING JURISDICTION OVER SUPREME COURT G.R. NO. 122120 ENTITLED
"DONGNAMA SHIPPING CO. LTD., AND KYOWA SHIPPING LTD. HEREIN
REPRESENTED BY SKY INTERNATIONAL INC. VS. HON. JUDGE JUAN C. NABONG
JR., CITY OF MANILA, MAYOR ALFREDO LIM, VICE MAYOR LITO ATIENZA, CITY
COUNCIL OF MANILA, AND CITY TREASURER ANTHONY ACEVEDO" WHEN IN FACT
AS PER SUPREME COURTS RESOLUTION DATED 23 OCTOBER 1995 IN RELATION
[TO] SECTION 9, PARAGRAPH (1) BATAS PAMBANSA BLG. 129, THE ORIGINAL
JURISDICTION PERTAINING TO THE COURT OF APPEALS REFERS TO THE ISSUANCE
OF WRIT OF CERTIORARI, AMONG OTHERS AND NOT TO PETITION FOR
CERTIORARI ON THE GROUND OF GRAVE ABUSE OF DISCRETION WHICH THE HON.
SUPREME COURT HAS EXCLUSIVE JURISDICTION.50
Dongnama and Kyowa specifically prayed:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
1. That this petition be given due course;
2. That the Decision dated 29 March 1996 be annulled and set aside
pending the resolution of the sameto be decided together with other
related cases by this Court;
3. That respondents Court of Appeals jurisdiction over the instant case be
limited to the issue on the propriety of the prayer for preliminary injunction
and restraining order in relation to the assailed Decision dated 28 August
1995 by RTC-Manila, Branch 32.51
The Court, in a Resolution dated December 2, 1997, dispensed with the filing of a
Comment by the respondents in G.R. Nos. 122335, 122349, and 124855.
Dongnama and Kyowa eventually filed a Memorandum.52
Consolidation of the 10 Petitions
The foregoing 10 cases were consolidated at different times and stages.53
On December 2, 1997, the Court issued a Resolution54 giving due course to the
Petitions and requiring the parties to simultaneously file their Memoranda within 20
days from notice. Among the parties to the 10 Petitions, Maersk, et al.; Eastern
Shipping; William Lines, et al.; PSTC; Cosco, et al.; AISL; and Dongnama and
Kyowa (petitioners in G.R. Nos.121613, 121675, 121704, 121720-28, 122333,
122349, and 124855, respectively) complied with the Resolution dated December 2,
1997 and submitted their Memoranda.
In a Resolution55 dated April 23, 2002, the Court resolved to consider the cases
submitted for deliberation.
The Court issued a Resolution56 on July 5, 2011 requiring the parties to the 10 cases
to move in the premises.
A copy of the Resolution dated July 5, 2011 was served upon and received by Atty.
Renato G. Dela Cruz (Dela Cruz), City Legal Officer of Manila, on behalf of the City
of Manila, Mayor Lim, Vice Mayor Atienza, the City Council of Manila/Sangguniang
Panlungsod ng Maynila, and City Treasurer Acevedo, the petitioners in G.R. No.
120051 and respondents in the other nine cases.1wphi1 Atty. Dela Cruz filed a
Manifestation57 informing the Court that despite exerting effort, he could no longer
locate the records for the 10 cases. The former lawyers who handled the cases had
long ceased to be connected with the City of Manila and both were already
deceased. Thus, Atty. Dela Cruz prayed that he be furnished copies of the petitions
and pleadings in the cases and be given a freshperiod of 10 days from receipt
thereof to submit his compliance with the Resolution dated July 5, 2011. The Court
granted Atty. Cruzs prayer in a Resolution58 dated April 24, 2012. Atty. Dela Cruz
once more moved for an extension of time to comply with the Resolution dated July
5, 2011, which the Court granted in a Resolution59 dated November 20, 2012.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

In a Resolution60 dated July 16, 2013, the Court took notice that Atty. Dela Cruz Code, as amended, was
failed to comply with the Resolution dated July 5, 2011 within the extended period constitutional and valid.
which expired on November 8, 2012. Resultantly, the Court resolved to require Atty.
Dela Cruz to(a) show cause why he should not be disciplinarily dealt with or held in
The City of Manila, Mayor Lim, Vice Mayor Atienza, the Sangguniang Panlungsod ng
contempt for such failure; and (b) comply with the Resolution dated July 5, 2011,
Maynila, and City Treasurer Acevedo argued that Section 21(B) was constitutional
both within 10 days from notice.
and valid. RTC-Branch 32, in its Decision dated August 28, 1995 in Civil Case Nos.
94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-68939, 94-68940, 94-
Atty. Sitro G. Tajonera (Tajonera) of the Office of the City Legal Officer of Manila 68941, and 94-69028, and the Court of Appeals, in its Decision dated March 29,
filed a Manifestation and Motion for Leave to Withdraw Petition in G.R. No. 1996 in CA-G.R. SP No. 39188, adopted the same position.
12005161 dated August 12, 2013. Atty. Tajonera moved for the withdrawal of the
Petition inG.R. No. 120051 on the ground that the issues therein had been rendered
The 1987 Constitution granted LGUs the power to create their own sources of
mootand academic by the Decisions of the Court in Coca-Cola Bottlers Philippines,
revenue and tolevy taxes, fees, and charges subject to the guidelines and
Inc. v. City of Manila62 and City of Manila v. Coca-Cola Bottlers Philippines,
limitations provided by Congress, consistent with the policy of local autonomy. This
Inc.63 (Coca-Cola cases), which declared with finality the unconstitutionality of
grant was reiterated in Section 129 of the LGC and the scope of tax powers of a city
Section 21 of the Manila Revenue Code, as amended.
such as Manila is described in Section 151 also of the LGC. Hence, the Constitution
and Congress, through the LGC, expressly granted LGUs the general power to tax.
Atty. Dela Cruz likewise filed a Compliance with the Courts Show Cause Resolution
dated July 16, 2013. According to Atty. Dela Cruz, he already resigned as City Legal
The enactment of Section 21(B) of the Manila Revenue Code, as amended, is
Officerof Manila effective May 31, 2013. Still, Atty. Dela Cruz explained:
statutorily ingrained. It is based on the exempting clause at the beginning of
Section 133, in conjunction with Section 143(h), of the LGC. The relevant provisions
c. Due to the multifarious duties that undersigned attended to and the many legal of the Code are reproduced below: SEC. 133. Common Limitations on the Taxing
problems that confronted the Mayor whom he had to assist in resolving them, he Powers of Local Government Units. Unless otherwise provided herein,the exercise
inadvertently overlooked the deadline set for submission of his compliance of the of the taxing powers of provinces, cities, municipalities, and barangays shall not
Courts directive which in fact lapsed without him having been reminded by Atty. extend to the levy of the following:
Karen Peralta of the unfulfilled obligation to this Honorable Court.
xxxx
d. For this, he acknowledges thathe was remiss in his duty to the Court and in
delegating it to another.
(j) Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
[e.] Undersigned begs the Courts clemency on his inability to submit the pleading or water,except as provided in this Code;
required of him and his fault in relying on his subordinate-lawyer to assist him in
complying with the Courts directive.
SEC. 143. Tax on Business. The municipality may impose taxes on the following
businesses:
[f.] Undersigned assures the Court that henceforth, he shall not commit the same
mistake or any neglect of duty or lack of respect to the Court.64
xxxx

II
(h) On any business, not otherwise specified in the preceding paragraphs, which the
sanggunian concerned may deem proper to tax: Provided, That on any business
ARGUMENTS OF THE PARTIES subject to the excise, value-added or percentage tax under the National Internal
Revenue Code, as amended,the rate of tax shall not exceedtwo percent (2%) of
gross sales or receipts of the preceding calendar year.
There is only one vital issue in all the 10 cases: Whether or not Section 21(B) of the
Manila Revenue Code, as amended, was in conformity with the Constitution and the
laws and, therefore, valid. The sanggunian concerned may prescribe a schedule of graduated tax rates but in
no case to exceed the rates prescribed herein. (Emphases supplied.)
There are two fundamental and opposing positions on the issue. Presented below
are summaries of the arguments in support of each. Inasmuch as "transportation contractors, persons who transport passenger or
freight for hire, and common carriers by land, air or water," are engaged in business
subject to excise, value added, or percentage tax under the National Internal
Section 21(B) of the Manila Revenue
Revenue Code (NIRC), as amended, then the City of Manila could lawfully levy local
business tax under Section 21(B) of the Manila Revenue Code, as amended. It is

irrelevant which of Sections 133(j) and 143(h) of the LGC is the special orgeneral
provision since there is an exempting clause in Section 133, that is, "Unless
otherwise provided herein," which means that even if the businesses enumerated
therein are exempted from the levy of local tax, if there is a provision to the
contrary, such as Section 143(h), the Sanggunian concerned could still impose the
local tax. As an alternative argument, Section 133(j) of the LGC is the general
provision on the limitations on the taxing power of the LGUs, while Section 143(h)
of the LGC is the specific provision on the businesses which the LGUs could tax; and
per the rules of statutory construction, the latter prevails over the former. To rule
otherwise and adopt the construction put forward by the opposing parties would
render Section 143(h) of the LGC a hollow decorative provision with no subject to
tax.
Moreover, the business tax imposed by Section 21(B) of the Manila Revenue Code,
as amended, complied with the limitations and conditions in the LGC for a valid local
tax: (1) The rate of tax did not exceed 2% of gross sales or receipts of the
preceding calendar year; (2) The tax is consistent with the basic policy of local
autonomy; (3) The tax is not unjust, excessive, oppressive, confiscatory, or
contrary to declared national policy; and (4) That a prior public hearing was
conducted for the purpose of enacting the Manila Revenue Code, as amended.
Section 21(B) of the Manila Revenue Code, as amended, also enjoyed the
presumption of constitutionality and validity. This presumption can only be
overridden by overwhelming evidence to the contrary. In Drilon v. Lim,65 the Court
already declared the Manila Revenue Code as valid given that the procedural
requirements for the enactment of the same had been observed. Lastly, taxes are
the lifeblood of the nation. Tax exemptions are construed strictly against the
taxpayer, and the burden is upon the person claiming exemption from the tax to
show a clear grant of exemption by organic law or statute.
Section 21(B) of the Manila Revenue
Code, as amended, was null and void
for being contrary to the Constitution
and the LGC.
On the other end of the spectrum, MAS; Maersk, et al.; Eastern Shipping; William
Lines, et al.; PSTC; OFSI; Cosco, et al.; Sulpicio Lines; AISL; and Dongnama and
Kyowa, asserted that Section 21(B) of the Manila Revenue Code, as amended, was
null and void because it violated the Constitution and the LGC. It was the position
affirmed by RTC-Branch 43 in its Decision dated April 3, 1995 in Civil Case No. 94-
69052.
Under the Philippine system of government, the power of taxation, while inherent in
the State in view of its sovereign prerogatives, is not inherent in municipal
corporations or LGUs. LGUs may exercise the power only if and to the extent that it
is delegated to them. One of the common limitations on the power to tax of LGUs is
Section 133(j) of the LGC, carried over from the Local Tax Code of 1973.
Section 133(j) expressly states that the taxing powers of the LGUs shall not extend
to the transportation business. Section 133(j) of the LGC is a special provision,
which prevails over Section 143(h) of the same Code, a general provision. This
interpretation would give effect to both Sections 133(j) and 143(h) of the LGC, and
contrary to the assertion of the City of Manila and its public officials, would not
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
render Section 143(h) useless, meaningless, and nugatory. There are other
businesses which the LGUs may tax under Section 143(h). Besides, incase of any
doubt, any tax ordinance or revenue measure shall be construed strictly against the
LGU enacting it and liberally in favor of the taxpayer, for taxes, being burdens, are
not to be presumed beyond what the applicable statute expressly and clearly
declares.
In addition, although Section 21(B) of the Manila Revenue Code, as amended,
imposed what was denominated as a "business tax," in reality it was a percentage
or sales tax. Business tax is imposed on the privilege of doing business, though it
may be computed as a percentage of gross sales. For business tax, there is no set
ratio between volume of sales and the amount of tax. Cities and municipalities are
given the power to impose business tax under Section 143(h) of the LGC. In
contrast, percentage or sales tax is based on gross sales or receipts. The
percentage bears a direct relationship to the sales or receipts generated by a
business, without regard for the extent of operation or size of the business. Cities
and municipalities may validly impose a tax on business, but consonant with the
limitations on local taxation, they may not impose percentage or sales tax on top of
what is already imposed in the NIRC. Section 21(B) of the Manila Revenue Code, as
amended, imposing on "transportation contractors, persons who transport
passenger or freight for hire, and common carriers by land, air or water," a tax of
50% of 1% of the gross sales orreceipts from the preceding year on top of the
national taxes already imposed by the NIRC was unjust, unfair, excessive,
confiscatory, and in restraint of economic trade.
And finally, Section 21(B) of the Manila Revenue Code, as amended, violated the
rule on uniformity in taxation. Uniformity in taxation should not be construed in a
pure geographical sense, i.e., that the questioned tax was imposed with the same
force and effect on all businesses located in Manila. Shipping companies should be
differentiated from other businesses. Aside from the risks and responsibilities the
shipping companies shoulder, their services are not confined within the territorial
limits of Manila alone but extend to other parts of the world. It is not uniformity for
the shipping companies to be classed and taxed under the same category with other
common carriers domiciled and plying Manila territory 24 hours a day.
III
RULING OF THE COURT
Resolution of pending incidents in
several cases.
Before delving into the merits of the 10 cases, there are pending incidents in three
cases that first need to be addressed:
(1) G.R. No. 120051: The City Legal Officerof Manila, as counsel for the City of
Manila, Mayor Lim, and City Treasurer Acevedo, petitioners in G.R. No. 120051, filed
a Manifestation and Motion for Leave to Withdraw Petition in G.R. No. 120051,
onthe ground that the issues therein had been rendered moot and academic by the
Decisions of the Court in the Coca-Cola cases, which declared with finality the
unconstitutionality of Section 21 of the Manila Revenue Code, as amended.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

The Court resolves to deny the motion to withdraw. on payment of appellate docket fees may be mitigated under exceptional
circumstances to better serve the interest of justice. As early as 1946, in the case of
Segovia v. Barrios, we ruled that where an appellant in good faith paid less than the
There already had been an exchange of pleadings between the parties in G.R. No.
correct amount for the docket fee because that was the amount he was required to
120051, i.e., Petition, Comment, and Reply. In a Resolution dated December 2,
pay by the clerk of court, and he promptly paid the balance, it is error to dismiss his
1997, the Court also already considered G.R. No. 120051 and all the other nine
appeal because every citizen has the right to assume and trust that a public
consolidated cases submitted for deliberation. At this stage, the decision to grant or
officer charged by law with certain duties knows his duties and performs them in
not to grant the motion to withdraw is fully within the discretion of the Court.66
accordance with law. To penalize such citizen for relying upon said officer in all good
faith is repugnant to justice.
The Court denies the motion to withdraw because the assertion by the City Legal
Officer of Manila that the Coca-Cola cases already rendered the issues in G.R. No.
The ruling in Segoviawas applied by this Court in subsequent cases where an
120051 moot and academic is erroneous. The Court did not declare in the Coca-Cola
appellants right to appeal was threatened by the mistake of public officers in
cases that Section 21 of the Manila Revenue Code, as amended, was
computing the correct amount of docket fee. Respondents draw attention to Rule
unconstitutional. What the Court held in the two Coca-Cola cases was that
41, 4 of the 1997 Rules of Civil Procedure which provides that the appellate court
Ordinance Nos. 7988 and 8011 (approved by then Mayor Atienza on February 25,
docket and other lawful fees must be paid in full to the clerk of the court which
2000 and February 22, 2001, respectively), amending Section 21 of the Manila
rendered the judgment or final order appealed from within the period for taking the
Revenue Code, werenull and void for (a) failure to comply with the publication
appeal. They argue that this Rule has overruled the decision in Segovia.
requirement for tax ordinances under Section 188 of the LGC; and (b) deletion of an
exempting proviso found in Section 143(h) of the LGC and the prior Section 21 of
the Manila Revenue Code, which opened the door to the double taxation of Coca- This contention is untenable. Rule41, 4 must be read in relation to Rule 50, 1(c)
Cola. Section 21 of the Manila Revenue Code, as it was amended by Ordinance No. which provides that:
7807, and more specifically, paragraph (B) thereof, was not the subject of a
constitutional review by the Court in the Coca-Cola cases.
An appeal may be dismissed by the Court of Appeals, on its own motion oron that of
the appellee, on the following grounds:
As for Atty. Dela Cruzs Compliance with the Courts Show Cause Resolution, the
Court finds the same satisfactory, although he is reminded to be more conscientious
xxxx
of his duties as legal counsel in the future, despite the heavy volume of his work
load.
(c) Failure of the appellant to pay the docket and other lawful fees as provided in
Section 4 of Rule 41.
(2) G.R. No. 121613: In a Resolution dated October 23, 1995, the Court dismissed
the Petition of Maersk, et al., for the latters failure to deposit sheriffs fee and
clerks commission in the total amount of 202.00; and in light of said dismissal, xxxx
noted without action the Supplemental Petition and Motion of Maersk, et al., praying
for the confirmation of the Writ of Preliminary Injunction restored by RTC-Branch 32 With the exception of 1(b), which refers to the failure to file notice of appeal or the
and deletion of RTC Branch 32 from the caption of G.R. No. 121613 for not being a record on appeal within the period prescribed by these Rules, the grounds
necessary party. In their pending Motion for Reconsideration of the Resolution dated enumerated in Rule 50, 1 are merely directory and not mandatory. This is plain
October 23, 1995, Maersk, et al., prayed that the Court give due course to and from the use of the permissive "may" in the text of the statute. Despite the
squarely resolve their Petition and Supplemental Petition and Motion. jurisdictional nature of the rule on payment of docket fee, therefore, the appellate
court still has the discretion to relax the rule in meritorious cases. The ruling in
The Court resolves to grant the Motion for Reconsideration of Maersk, et al. It sets Segoviais still good law which the appellate court, in the exercise of its discretion,
aside the Resolution dated October 23, 1995; reinstates the Petition of Maersk, et must apply in circumstances such as that in the present case where an appellant
al., in G.R. No. 121613; and gives due course to the Petition and Supplemental was, from the start, ready and willing to pay the correct amount of docket fee, but
Petition and Motion of Maersk, et al., in the said case. was unable to do so due to the error of an officer of the court in computing the
correct amount. To hold otherwise would be unjust and unwarranted. (Citations
omitted.)
Of particular relevance to the plight of Maersk, et al., herein is the following
discussion of the Court in Ayala Land, Inc. v. Carpo67:
The Court notes that Revised Circular No. 1-88, effective July 1, 1991, which was
cited in the Resolution dated October 23, 1995 as basis for the dismissal of the
To be sure, the remedy of appeal is a purely statutory right and one who seeks to
Petition of Maersk, et al., also used the word "may" in the first paragraph thereof:
avail thereof must comply with the statute or rule. For this reason, payment of the
full amount of the appellate court docket and other lawful fees within the
reglementary period is mandatory and jurisdictional. However, as we have ruled in (1) Payment of docketing and other fees. Section 1 of Rule 45 requires that
Aranas v. Endona, the strict application of the jurisdictional nature of the above rule petitions for review be filed and the required fees paid within the prescribed period.

Unless exempted by law or rule, such fees must be fully paid in accordance with this
Circular; otherwise, the Court maydeny the petition outright.The same rule shall
govern petitions under Rule 65. (Emphasis supplied.) Hence, denial of the petition
for review outright for failure to pay docketing and other fees within the prescribed
period was also directory and not mandatory upon the Court under Revised Circular
No. 1-88.
In the exercise of its discretion, the Court determines that there was meritorious
reason why Maersk, et al., paid docket and other legal fees within the prescribed
period, but short of the 202.00 for sheriffs fee and clerks commission. Maersk, et
al., were already assessed and required to pay the docket and legal fees when they
filed their Motion for Extension of Time to File Petition for Review on Certiorari. The
Motion did not yet indicate that the intended Petition would include a prayer for a
TRO, so the receiving clerk did not assess Maersk, et al., for sheriffs fee and clerks
commission. When Maersk, et al., actually filed their Petition with prayer for the
issuance of a writ of preliminary injunction and TRO, they were no longer assessed
additional fees by the receiving clerk. Maersk, et al., found out about the deficiency
in their legal fees upon their receipt of the Resolution dated October 23, 1995
already dismissing their Petition and noting without action their Supplemental
Petition and Motion. Maersk, et al., immediately filed a Motion for Reconsideration of
said Resolution, and also deposited their balance of 202.00 with the Court.
Given the circumstances, Maersk, et al., cannot be faulted for their failure to pay
the required legal fees for such failure was clearly not a dilatory tactic nor intended
to circumvent the Rules of Court. On the contrary, the subsequent payment by
Maersk, et al., of the 202.00 deficiency even before the Court had passed upon
their Motion for Reconsideration was indicative of their good faith and willingness to
comply with the Rules.68
Acting on the Supplemental Petition and Motion of Maersk, et al., the Court further
resolves to NOTE WITHOUT ACTION the prayer to confirm the Writ of Preliminary
Injunction restored by RTC-Branch 32 in light of the present judgment, and to
GRANTthe prayer to delete RTCBranch 32 from the caption of the caseas it was not
a necessary party.
(3) G.R. No. 122335: In a Resolution dated January 31, 1996, the Court referred
the Petition of Sulpicio Lines to the Court of Appeals. There is a pending Motion for
Reconsideration of the Resolution dated January 31, 1996 filed by Sulpicio Lines
seeking the withdrawal of the Resolution dated January 31, 1996 and transmittal of
the rolloof G.R. No. 122335 from the Court of Appeals back to the Court.
The Court resolves to grant the Motion for Reconsideration of Sulpicio Lines. It sets
aside the Resolution dated January 31, 1996 and gives due course to the Petition of
Sulpicio Lines in G.R. No. 122335.
The Petition for Review on Certiorari of Sulpicio Lines, filed under Rule 42 of the old
Rules of Court, should not have been referred to the Court of Appeals. It is true that
under Section 9, paragraph (3) of Batas Pambansa Blg. 129, the Court of Appeals
has "(e)xclusive appellate jurisdiction over all final judgments, resolutions, orders
orawards of Regional Trial Courts x x x." However, Rule 42 of the old Rules of Court,
then in effect, allowed an appeal straight from the RTC (formerly called Court of
First Instance) to the Supreme Court when the appeal raised pure questions of law:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
RULE 42
APPEAL FROM COURTS OF FIRST INSTANCE
TO SUPREME COURT
Section 1. Procedure. The procedure of appeal to the Supreme Court from Courts
of First Instance shall be governed by the same rules governing appeals to the
Court of Appeals, except as hereinafter provided.
Section 2. Appeals on pure question of law. Where the appellant states in his
notice of appeal or record on appeal that he will raise only questions of law, no
other question shall be allowed, and the evidence need not be elevated.
A cursory reading of the Petition for Review on Certiorariof Sulpicio Lines would
readily reveal that it appealed the Decision dated August 28, 1995 of RTC-Branch
32 in Civil Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-
68939, 94-68940, 94-68941,and 94-69028 based only on questions of law. The
Petition did not raise any question of fact and did not require the presentation or
elevation of evidence.
In G.R. No. 124855, Dongnama and Kyowa questioned the Resolution dated
October 23, 1995, which similarly referred their original Petition for Certiorari,
docketed as G.R. No. 122120, to the Court of Appeals, where it was docketed as
CA-G.R. SP No. 39188. The Resolution dated October 23, 1995 cited as basis for the
referral Section 9, paragraph (1) of Batas Pambansa Blg. 129 which gave the Court
of Appeals "[o]riginal jurisdiction to issue writs of mandamus, prohibition, certiorari,
habeas corpus,and quo warranto,and auxiliary writs or processes, whether or not in
aid of its appellate jurisdiction." The Court, however, will no longer address the
propriety of the referral of the original Petition of Dongnama and Kyowa to the
Court of Appeals since said issue has become moot and academic after the appellate
court rendered its Decision in CA-G.R. SP No. 39188 on March 29, 1996. The Court
will simply treat the Petition in G.R. No. 124855 as an appeal of the Decision dated
March 29,1996 of the Court of Appeals in CAG.R. SP No. 39188.
Ruling on the merits of the 10 Petitions.
The Court rules in favor of MAS; Maersk, et al.; Eastern Shipping; William Lines, et
al.; PSTC; OFSI; Cosco, et al.; Sulpicio Lines; AISL; and Dongnama and Kyowa.
Section 21(B) of the Manila Revenue Code, as amended, was null and void for being
beyond the power of the City of Manila and its public officials to enact, approve, and
implement under the LGC.
It is already well-settled that although the power to tax is inherent in the State, the
same is not true for the LGUs to whom the power must be delegated by Congress
and must be exercised within the guidelines and limitations that Congress may
provide. The Court expounded in Pelizloy Realty Corporation v. The Province of
Benguet69 that:
The power to tax "is an attribute of sovereignty," and as such, inheres in the State.
Such, however, is not true for provinces, cities, municipalities and barangays as
they are not the sovereign; rather, they are mere "territorial and political
subdivisions of the Republic of the Philippines".

The rule governing the taxing power of provinces, cities, municipalities and
barangays is summarized in Icard v. City Council of Baguio:
It is settled that a municipal corporation unlike a sovereign state is clothed with no
inherent power of taxation. The charter or statute must plainly show an intent to
confer that power or the municipality, cannot assume it. And the power when
granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of
the term used in granting that power must be resolved against the municipality.
Inferences, implications, deductions all these have no place in the interpretation
of the taxing power of a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is
delegated to it either by the Constitution or by statute. Section 5, Article X of the
1987 Constitution is clear on this point:
Section 5. Each local government unit shall have the power to create its own
sources of revenues and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
governments.
Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer
vested exclusively on Congress; local legislative bodies are now given direct
authority to levy taxes, fees and other charges." Nevertheless, such authority is
"subject to such guidelines and limitations as the Congress may provide".
In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted
Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
Book II of the LGC governs local taxation and fiscal matters.
Relevant provisions of Book II of the LGC establish the parameters of the taxing
powers of LGUs found below.
First, Section 130 provides for the following fundamental principles governing the
taxing powers of LGUs:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based asfar as practicable on the taxpayers
ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy,
or in the restraint of trade.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
3. The collection of local taxes, fees, charges and other impositions shall in
no case be let to any private person.
4. The revenue collected pursuant to the provisions of the LGC shall inure
solely to the benefit of, and be subject to the disposition by, the LGU
levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of
taxation.
Second, Section 133 provides for the common limitations on the taxing powers of
LGUs. x x x. (Underscoring and citations omitted.)
Among the common limitations on the taxing power of LGUs is Section 133(j) of the
LGC, which states that "[u]nless otherwise provided herein," the taxing power of
LGUs shall not extend to "[t]axes on the gross receipts of transportation contractors
and persons engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code[.]"
Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing
any tax on the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land,
orwater. Yet, confusion arose from the phrase "unless otherwise provided herein,"
found at the beginning of the said provision. The City of Manila and its public
officials insisted that said clause recognized the power of the municipality or city,
under Section 143(h) of the LGC, to impose tax "on any business subject to the
excise, value-added or percentage tax under the National Internal Revenue Code,
as amended." And it was pursuant to Section 143(h) of the LGC that the City of
Manila and its public officials enacted, approved,and implemented Section 21(B) of
the Manila Revenue Code, as amended.
The Court is not convinced. Section 133(j) of the LGC prevails over Section 143(h)
of the same Code, and Section 21(B) of the Manila Revenue Code, as amended, was
manifestly in contravention of the former.
First, Section 133(j) of the LGC is a specific provision that explicitly withholds from
any LGU, i.e., whether the province, city, municipality, or barangay, the power to
tax the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or
water.
In contrast, Section 143 of the LGC defines the general power of the municipality
(as well as the city, if read in relation to Section 15170 of the same Code) to tax
businesses within its jurisdiction. While paragraphs (a) to (g) thereof identify the
particular businesses and fix the imposable tax rates for each, paragraph (h) is
apparently the "catch-all provision" allowing the municipality to impose tax "on any
business, not otherwise specified in the preceding paragraphs, which the
sanggunian concerned may deem proper to tax[.]"

The succeeding proviso of Section 143(h) of the LGC, viz., "Provided, That on any
business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent
(2%) of gross sales or receipts of the preceding calendar year[,]" is not a specific
grant of power to the municipality or city to impose business tax on the gross sales
or receipts of such a business. Rather, the proviso only fixes a maximum rate of
imposable business tax in case the business taxed under Section 143(h) of the LGC
happens to be subject to excise, value added, or percentage tax under the NIRC.
The omnibus grant of power to municipalities and cities under Section 143(h) of the
LGC cannot overcome the specific exception/exemption in Section 133(j) of the
same Code. This is in accord with the rule on statutory construction that specific
provisions must prevail over general ones.71 A special and specific provision prevails
over a general provision irrespective of their relative positions in the statute.
Generalia specialibus non derogant. Where there is in the same statute a particular
enactment and also a general one which in its most comprehensive sense would
include what is embraced in the former, the particular enactmentmust be operative,
and the general enactment must be taken to affect only such cases within its
general language as are not within the provisions of the particular enactment.72
In the case at bar, the sanggunian of the municipality or city cannot enact an
ordinance imposing business tax on the gross receipts of transportation contractors,
persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land, or water, when said sanggunian was already specifically
prohibited from doing so. Any exception to the express prohibition under Section
133(j) of the LGC should be just as specific and unambiguous. Second, the
construction adopted by the Court gives effect to both Sections 133(j) and 143(h) of
the LGC. In construing a law, care should be taken that every part thereof be given
effect and a construction that could render a provision inoperative should be
avoided, and inconsistent provisions should be reconciled whenever possible as
parts of a harmonious whole.73
As pointed out by William Lines, et al., in their Petition, despite the prohibition
against LGUs imposing tax on the gross receipts of transportation contractors,
persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land, or water, under Section 133(j) of the LGC, there are still other
multiple businesses subject to excise, value added, or percentage tax under the
NIRC, which the municipalities and cities can still tax pursuant to Section 143(h) of
the LGC, such as:
1) Hotels and motels under Sec. 113 of the NIRC;
2) Caterers, taxed under Sec. 114 of the NIRC;
3) Dealers in securities, taxed under Sec. 116 of the NIRC;
4) Franchise holders, taxed under Sec. 117 of the NIRC;
5) Senders of overseas dispatch, message or communication originating in
the Philippines, taxed under Sec. 118 of the NIRC;
6) Banks and non-bank financial intermediaries, taxed under Sec. 119 of
the NIRC;
7) Finance companies, taxed under Sec. 120 of the NIRC; 8) Agents of
foreign insurance companies, taxed under Sec. 122 of the NIRC;
9) Amusement places, taxed under Sec. 123 of the NIRC;
10) Winners in horse races, taxed under Sec. 124 of the NIRC; and
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
11) Those who sell, barter, or exchange shares of stocks, taxed under Sec.
124-A of the NIRC.74
Thus, Section 143(h) of the LGC would not be "a hollow decorative provision with no
subject to tax." On the contrary, it would be Section 133(j) of the LGC which would
become inoperative should the Court accept the construction proffered by the City
of Manila and its public officials, because then, there would be no instance at all
when the gross receipts of the transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or
water, would not be subject to tax by the LGUs.
Third, Section 5(b) of the LGC itself, on Rules of Interpretation, provides:
SEC. 5. Rules of Interpretation. In the interpretation of the provisions of this Code,
the following rules shall apply:
xxxx
(b) In case of doubt, any tax ordinance or revenue measure shall be construed
strictly against the local government unit enacting it, and liberally in favor of the
taxpayer. Any tax exemption, incentive or relief granted by any local government
unit pursuant to the provisions of this Code shall be construed strictly against the
person claiming it[.]
The Court strictly construes Section 21(B) of the Manila Revenue Code, as
amended, against the City ofManila and its public officials and liberally in favor of
the transportation contractors, persons engaged in the transportation of passengers
or freight by hire, and common carriers by air, land, or water. Strictly assessed
against the guidelines and limitations set forth in the LGC, Section 21(B) of the
Manila Revenue Code, as amended, was enacted ultra vires.
And fourth, the construction adopted by the Court is in accordance with the
consistent intention of the laws to withhold from the LGUs the power to tax
transportation contractors,persons engaged in the transportation of passengers or
freight by hire, and common carriers by air, land, or water.
Even prior to Section 133(j) of the LGC, Section 5(e) of Presidential Decree No. 231,
otherwise known as The Local Tax Code, as amended, already limited the taxing
powers of LGUs as follows:
SEC. 5. Common limitations on the taxing powers of local government. The
exercise of the taxing powers of provinces, cities, municipalities and barrios shall
not extend to the imposition of the following:
xxxx
(e) Taxes on the business of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carries by air, land or
water except as otherwise provided in this Code, and taxes or fees for the

registration of motor vehicles and for the issuance of all kinds of licenses or permits
for the driving thereof;
The Court, in First Philippine Industrial Corp. v. Court of Appeals,75 expounded on
the lawmakers reason for exempting the gross receipts of common carriers from
the taxing powers of the LGUs:
From the foregoing disquisition, there is no doubt that petitioner is a "common
carrier" and, therefore, exempt from the business tax as provided for in Section 133
(j), of the Local Government Code x x x
xxxx
The deliberations conducted in the House of Representatives on the Local
Government Code of 1991 are illuminating:
"MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line 1. It states: "SEC. 121 (now
Sec. 131). Common Limitations on the Taxing Powers of Local Government Units." .
..
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of transportation. This
appears to be one of those being deemed to be exempted from the taxing powers of
the local government units. May we know the reason why the transportation
business is being excluded from the taxing powers of the local government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now
Sec. 131), line 16, paragraph 5. It states that local government units may not
impose taxes on the business of transportation, except as otherwise provided in this
code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can
see there that provinces have the power to impose a tax on business enjoying a
franchise at the rate of not more than one-half of 1 percent of the gross annual
receipts. So, transportation contractors who are enjoying a franchise would be
subject to tax by the province. That is the exception, Mr. Speaker.
What we want to guard against here, Mr. Speaker is the imposition of taxes by local
government units on the carrier business.1wphi1 Local government units may
impose taxes on top of what is already being imposed by the National Internal
Revenue Code which is the so-called "common carriers tax." We do not want a
duplication of this tax, so we just provided for an exception under Section 125 (now
Section 137) that a province may impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to
prevent a duplication of the so-called "common carriers tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code. To tax petitioner again on
its gross receipts in its transportation of petroleum business would defeat the
purpose of the Local Government Code. (Citations omitted.)
Consistent with the foregoing legislative intent, Republic Act No. 7716, more
popularly known as the Expanded Value-Added Tax (E-VAT) Law, which took effect
after the LGC on May 28, 1994, expressly amended the NIRC of 1977 and added to
Section 115 of the latter on "Percentage tax on carriers and keepers of garages,"
the following proscription: "The gross receipts of common carriers derived from
their incoming and outgoing freight shall not be subjected to the local taxes
imposed under Republic Act No. 7160, otherwise known as the Local Government
Code of 1991."
IV
DISPOSITIVE PORTION
WHEREFORE, in view of the foregoing, the Court hereby RESOLVES:
1. In G.R. No. 120051: (a) to DENY the Motion to Withdraw the Petition
filed by the Office of the City Legal Officer on behalf of the City of Manila,
Mayor Atienza, and City Treasurer Acevedo; and (b) to DECLARE as
SATISFACTORY the Compliance submitted by Atty. Dela Cruz;
2. In G.R. No. 121613: (a) to GRANT the Motion for Reconsideration of
Maersk, et al.; (b) to SET ASIDE the Resolution dated October 23, 1995;
(c) to REINSTATE the Petition of Maersk, et al.; (d) to GIVE DUE COURSE
to the Petition and the Supplemental Petition and Motion of Maersk, et al.;
( e) as regards the Supplemental Petition and Motion of Maersk, et al., to
NOTE WITHOUT ACTION the prayer to confirm the Writ of Preliminary
Injunction restored by RTC-Branch 32 in light of the present judgment, and
to GRANT the prayer to delete RTC Branch 32 from the caption of the case
for not being a necessary party; and
3. In G.R. No. 122335: (a) to GRANT the Motion for Reconsideration of
Sulpicio Lines; (b) to SET ASIDE the Resolution dated January 31, 1996;
and (c) to GIVE DUE COURSE to the Petition of Sulpicio Lines.
Furthermore, the Court hereby DECIDES:
1. To DECLARE Section 21(B) of the Manila Revenue Code, as amended,
null and void for being in violation of the guidelines and limitations on the
taxing powers of the LGUs under the LGC;
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

2. In G.R. No. 120051: (a) to DENY the Petition of the City of Manila,
Mayor Lim, and City Treasurer Acevedo; and (b) to AFFIRM the Decision
dated April 3, 1995 of RTC-Branch 43 in Civil Case No. 94-69052; and

3. In G.R. Nos. 121613, 121675, 121704, 121720-28, 121847-55, 122333,

122335, 122349, and 124855: (a) to GRANT the Petitions of Maersk, et al.;
Eastern Shipping; William Lines, et al.; PSTC; OFSI; Cosco, et al.; Sulpicio
Lines; AISL; and Dongnama and Kyowa, respectively; (b) to REVERSE and
SET ASIDE the Decision dated August 28, 1995 of RTC Branch 32 in Civil
Case Nos. 94-68861, 94-68862, 94-68863, 94-68919, 94-68936, 94-
68939, 94-68940, 94-68941, and 94-69028, and the Decision dated March
29, 1996 of the Court of Appeals in CA-G.R. SP No. 39188; (c) to ORDER
the City of Manila to refund to Maersk, et al.; Eastern Shipping; William
Lines, et al.; PSTC; OFSI; Cosco, et al.; Sulpicio Lines; AISL; and
Dongnama and Kyowa the business taxes assessed and collected against
said corporations under Section 21 (B) of the Manila Revenue Code, as
amended; and ( d) to MAKE PERMANENT the Writs of Preliminary
Injunction restored by RTC-Branch 32 during the pendency of the Petitions
at bar.

SO ORDERED.

[193] G.R. No. 180654 April 21, 2014
NATIONAL POWER CORPORATION, Petitioner,
vs.
PROVINCIAL GOVERNMENT OF BATAAN, SANGGUNIANG PANLALAWIGAN
OF BATAAN, PASTOR B. VICHUACO (IN HIS OFFICIAL CAPACITY AS
PROVINCIAL TREASURER OF BATAAN) and THE REGISTER OF DEEDS OF
THE PROVINCE OF BATAAN, Respondents.
DECISION
ABAD, J.:
This case is about the distinction between an action contesting a local tax
assessment and an action seeking to enjoin the local government from enforcing a
tax assessment against a person who claims that the taxable business does not
belong to him.
The Facts and the Case
On March 28, 2003 petitioner National Power Corporation (NPC) received a notice of
franchise tax delinquency from the respondent Provincial Government of Bataan
(the Province) for 45.9 million covering the years 2001, 2002, and 2003. The
Province based its assessment on the NPCs sale of electricity that it generated from
two power plants in Bataan.
Rather than pay the tax or reject it, the NPC chose to reserve its right to contest the
computation pending the decision of the Supreme Court in National Power
Corporation v. City of Cabanatuan,1 a case where the issue of the NPCs exemption
from the payment of local franchise tax was then pending.
On May 12 and 14, 2003 the Province again sent notices of tax due to the NPC,
calling its attention to the Courts Decision in National Power Corporation v. City of
Cabanatuan that held the NPC liable for the payment of local franchise tax. The NPC
replied, however, that it had ceased to be liable for the payment of that tax after
Congress enacted Republic Act (R.A.) 9136, also known as the Electric Power
Industry Reform Act (EPIRA) that took effect on June 26, 2001. The new law
relieved the NPC of the function of generating and supplying electricity beginning
that year. Consequently, the Province has no right to further assess it for the 2001,
2002, and 2003 local franchise tax.
Ignoring the NPCs view, the Province issued a "Warrant of Levy" on 14 real
properties that it used to own in Limay, Bataan. In March 2004 the Province caused
their sale at public auction with itself as the winning bidder. Shortly after, the NPC
received a copy of the Certificate of Sale of Real Property covering the auctioned
properties for 60,477,285.22, the amount of its franchise tax delinquency.
On July 7, 2004 the NPC filed with the Regional Trial Court (RTC) of Mariveles,
Bataan, a petition for declaration of nullity of the foreclosure sale with prayer for
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
preliminary mandatory injunction against the Province, the provincial treasurer, and
the Sangguniang Panlalawigan.
The NPC alleged that the foreclosure had no legal basis since R.A. 7160 which
authorized the collection of local franchise tax had been modified by the EPIRA. The
latter law provided that power generation is not a public utility operation requiring a
franchise, hence, not taxable. What remains subject to such tax is the business of
transmission and distribution of electricity since these required a national franchise.
As it happened, NPC had ceased by operation of the EPIRA in 2001 to engage in
power transmission, given that all its facilities for this function, including its
nationwide franchise, had been transferred to the National Transmission Corporation
(TRANSCO).
Thus, the NPC asked the RTC to issue a preliminary injunction, enjoining the
transfer of title and the sale of the foreclosed lands to Bataan and, after trial, to
make the injunction permanent, declare NPC exempt from the local franchise tax
and annul the foreclosure sale.
On November 3, 2005 the RTC dismissed the NPCs petition, stating that the
franchise tax was not based on ownership of property but on the NPCs exercise of
the privilege of doing business within Bataan. Further, the NPC presented no
evidence that it had ceased to operate its power plants in that jurisdiction.
The NPC appealed the RTC Decision to the Court of Appeals (CA) but the Province
moved to dismiss the same for lack of jurisdiction of that court over the subject
matter of the case. The Province pointed out that, although the NPC denominated
its suit before the RTC as one for declaration of nullity of foreclosure sale, it was
essentially a local tax case questioning the validity of the Provinces imposition of
the local franchise tax. Any appeal from the action should, therefore, be lodged with
the Court of Tax Appeals (CTA). On November 27, 2007 the CA granted the
Provinces motion and dismissed the petition on the ground cited.
Issue
The issue in this case is whether or not the CA erred in failing to rule that the NPC
no longer owned or operated the business subject to local franchise tax and that the
Province cannot execute on former NPC properties that had been taken from it and
transferred to other government corporations.
Ruling of the Court
The RTC found that the NPC failed to present evidence that it no longer owned or
operated the business subject to local franchise tax and that the properties the
Province levied on did not belong to it. But proving these things did not require the
presentation of evidence in this case since these events took place by operation of
law, particularly the EPIRA. Thus, Section 8 of the EPIRA provides:
SEC. 8. Creation of the National Transmission Company. There is hereby created a
National Transmission Corporation, hereinafter referred to as TRANSCO, which shall
assume the electrical transmission function of the National Power Corporation
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

(NPC), and have the power and functions hereinafter granted. The TRANSCO shall Section 49 above created the Power Sector Assets and Liabilities Management
assume the authority and responsibility of NPC for the planning, construction and Corporation (PSALM Corp.) and transferred to it all of the NPC's "generation assets"
centralized operation and maintenance of its high voltage transmission facilities, which would include the Bataan Thermal Plant. Clearly, the NPC had ceased running
including grid interconnections and ancillary services. its former power transmission and distribution business in Bataan by operation of
law from June 26, 2001. It is, therefore, not the proper party subject to the local
franchise tax for operating that business. Parenthetically, Section 49 also
Within six (6) months from the effectivity of this Act, the transmission and
transferred "all existing xx x liabilities" of the NPC to PSALM Corp., presumably
subtransmission facilities of NPC and all other assets related to transmission
including its unpaid liability for local franchise tax from January 1 to June 25, 2001.
operations, including the nationwide franchise of NPC for the operation of the
Consequently, such tax is collectible solely from PSALM Corp.
transmission system and the grid, shall be transferred to the TRANSCO. The
TRANSCO shall be wholly owned by the Power Sector Assets and Liabilities
Management Corporation (PSALM Corp.). An indispensable party is one who has an interest in the controversy or subject
matter and in whose absence there cannot be a determination between the parties
already before the court which is effective, complete or equitable.2Here, since the
The subtransmission functions and assets shall be segregated from the transmission
subject properties belong to PSALM Corp. and TRANSCO, they are certainly
functions, assets and liabilities for transparency and disposal: Provided, That the
indispensable parties to the case that must be necessarily included before it may
subtransmission assets shall be operated and maintained by TRANSCO until their
properly go forward. For this reason, the proceedings below that held the NPC liable
disposal to qualified distribution utilities which are in a position to take over the
for the local franchise tax is a nullity. It did not matter where the RTC Decision was
responsibility for operating, maintaining, upgrading, and expanding said assets. All
appealed, whether before the CA or the CTA.
transmission and subtransmission related liabilities of NPC shall be transferred to
and assumed by the PSALM Corp.
WHEREFORE, the Court GRANTS the petition of the National Power Corporation and
SETS ASIDE the Resolution of the Court of Appeals in CA-G.R. CV 87218 dated
TRANSCO shall negotiate with and thereafter transfer such functions, assets, and
November 27, 2007. It further REMANDS the case to the Regional Trial Court so
associated liabilities to the qualified distribution utility or utilities connected to such
that the Power Sector Assets and Liabilities Management Corporation and the
subtransmission facilities not later that two (2) years from the effectivity of this act
National Transmission Corporation may be impleaded as proper parties.
or the start of open access, whichever comes earlier: x x x.

SO ORDERED.
xxxx

The above created the TRANSCO and transferred to it the NPCs electrical
transmission function with effect on June 26, 2001. The NPC, therefore, ceased to
operate that business in Bataan by operation of law. Since the local franchise tax is
imposed on the privilege of operating a franchise, not a tax on the ownership of the
transmission facilities, it is clear that such tax is not a liability of the NPC.

Nor could the Province levy on the transmission facilities to satisfy the tax
assessment against the NPC since, as Section 8 above further provides, the latter
ceased to own those facilities six months from the effectivity of the EPIRA. Those
facilities have since belonged to TRANSCO.

The legislative emasculation of the NPC also covered its former power generation
function, which was the target of the Provinces effort to collect the local franchise
tax for 2001, 2002, and 2003. Section 49 of the EPIRA provides:

SEC. 49. Creation of Power Sector Assets and Liabilities Management Corporation. -
There is hereby created a government-owned and -controlled corporation to be
known as the "Power Sector Assets and Liabilities Management Corporation,"
hereinafter referred to as the "PSALM Corp.," which shall take ownership of all
existing NPC generation assets, liabilities, IPP contracts, real estate and all other
disposable assets. All outstanding obligations of the NPC arising from loans,
issuances of bonds, securities and other instruments of indebtedness shall be
transferred to and assumed by the PSALM Corp. within one hundred eighty (180)
days from the approval of this Act.1wphi1
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[194] G.R. No. 180639 June 29, 2010 Lepanto appealed the decision of the Second Division to the CTA En Banc.4 Three
justices of the CTA voted to affirm the decision but three justices dissented.
Because the needed vote of four members could not be obtained, the En Banc
LEPANTO CONSOLIDATED MINING COMPANY, Petitioner,
dismissed the appeal, resulting in the affirmance of the decision of the Second
vs.
Division. Lepantos motion for reconsideration met the same fate, hence, this
HON. MAURICIO B. AMBANLOC, in his capacity as the Provincial Treasurer
appeal.
of Benguet, Respondent.

The Issue Presented

DECISION

The sole issue presented in this case is whether or not Lepanto is liable for the tax
ABAD, J.:
imposed by the Province of Benguet on the sand and gravel that it extracted from
within the area of its mining claim and used exclusively in its mining operations.
This case is about the liability of a mining corporation for taxes imposed by a
province for the extraction of sand and gravel from areas covered by its mining
The Courts Rulings
lease with the national government and used exclusively in its mining operations.

One. Lepanto claims that the tax on sand and gravel applied only to commercial
The Facts and the Case
extractions. In its case, it extracted these materials for use solely in its mining
operations. Lepanto did not supply other users for some profit. Thus, its extractions
The national government issued to petitioner Lepanto Consolidated Mining Company were not commercial and should not be subject to provincial tax.
(Lepanto) a mining lease contract covering, among others, its "TIKEM" leased
mining claim at Sitio Nayak, Barrio Palasan (Suyoc), Municipality of Mankayan,
The CTAs Second Division held, however, that sand and gravel taxes may be
Benguet. The contract granted Lepanto the right to extract and use for its purposes
imposed even on non-commercial extractions. Since Section 138 of the Local
all mineral deposits within the boundary lines of its mining claim. Upon inquiry, the
Government Code (Republic Act 7160) authorized provinces to impose a tax on the
Mines and Geo-sciences Bureau of the Department of Environment and Natural
extraction of sand and gravel from public lands, without distinguishing between
Resources (DENR) advised Lepanto that, under its contract, it did not have to get a
personal and commercial uses, then the tax should be deemed to cover extractions
permit to extract and use sand and gravel from within the mining claim for its
for both purposes. The provision reads:
operational and infrastructure needs. Based on this advice, Lepanto proceeded to
extract and remove sand, gravel, and other earth materials from the mining site.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. The province may
levy and collect not more than ten percent (10%) fair market value in the locality
Lepanto used the quarried materials to back-fill stopesportions of the earth
per cubic meter of ordinary stones, sand gravel, earth, and other quarry resources,
excavated as a result of miningreplacing what had been mined to maintain the
as defined under the National Internal Revenue Code, as amended, extracted from
integrity of the ground. It also used sand and gravel to construct and maintain
public lands or from the beds of seas, lakes, rivers, streams, creeks, and other
concrete structures needed in its mining operation, such as a tailings dam, access
public waters within its territorial jurisdiction.
roads, and offices. Its use of quarry resources, readily available within its mining
claim, was more practical and cheaper than having to outsource them.
But the CTA Second Division ruling overlooks the fact that Republic Act 7160 is not
the provincial governments basis for taxing Lepantos extraction. It is but the
Respondent Mauricio Ambanloc, the provincial treasurer of Benguet, sent a demand
general law that delegates to provinces the power to impose taxes on the extraction
letter to Lepanto, asking it to pay the province 1,901,893.22 as sand and gravel
of quarry resources. As it happens, the scope and validity of such delegation is not
tax, for the quarry materials that it extracted from its mining site from 1997 to
the issue in this case. The question of Lepantos liability for tax should be
2000. Lepanto sent a letter-protest to the provincial treasurer, but the latter denied
determined based on the revenue measure itself, which in this case, was the
the same, insisting on payment.
Revised Benguet Revenue Code (the revenue code).5 The relevant provisions of this
provincial revenue code reads:
Lepanto filed a petition with the Regional Trial Court (RTC) of Benguet to question
the assessment.1 The RTC ruled that Lepanto was liable for the amount assessed,
Article D. Tax on Sand, Gravel and Other Quarry Resources.
with interest at the rate of 2 percent per month from the time the tax should have
been paid. Lepanto appealed the RTC decision to the Court of Tax Appeals (CTA)
where it was raffled to its Second Division.2 The Second Division affirmed the ruling xxxx
of the RTC with the modification that the interest of 2 percent per month shall not
exceed 36 months.3
SECTION 3. Imposition of Tax. There shall be levied a tax of ten (10) percent of fair
market value in the locality per cubic meter of ordinary stones, sand, gravel, earth,
and other quarry resources, x x x applied for and expected to be extracted or

removed from public lands x x x within the territorial jurisdiction of Benguet
Province.
This provision may not apply in case of gratuitous permits for government projects
within Benguet Province.
SECTION 4. Conditions for the Issuance of Permit.
xxxx
(g) The permittee shall within ten (10) days after the end of each month submit to
the Provincial Treasurer, the Municipal Treasurer and Barangay Treasurer where the
materials are extracted, copies of sworn statement stating the quantity in terms of
cubic meter and kind of materials extracted or removed by him; the amount of tax
or fees paid; the quantity and kind of materials sold or disposed of during the period
covered by said report; the selling price per cubic meter; the names and addresses
of the buyers; and the quantity and kind of materials left in stock.
xxxx
SECTION 5. Mode, Time and Place of Payment. The tax shall be paid to the
Provincial Treasurer or his duly authorized representative before the approval by the
Provincial Governor of the permit to extract or remove the materials applied for and
before the said materials are extracted or removed. x x x
SECTION 6. Surcharges and Interests. Failure to pay the tax as provided herein
shall subject the permittee to a surcharge of Twenty-five (25%) percent of the
original amount of tax due plus Two (2%) percent per month of the unpaid amount
including the surcharges until such amount is fully paid, but in no case shall the
total amount or portion thereof exceed thirty-six (36) months. x x x
Lepanto insists that the subject tax intended to cover only commercial extractions
since the provincial revenue code referred to "fair market value of the resources,"
"quantity sold or disposed," "amount left in stock," "selling price," and "buyers
information."
Not necessarily. The provincial revenue code provides that the subject tax had to be
paid prior to the issuance of the permit to extract sand and gravel. Its Article D,
Section 2, enumerates four kinds of permits: commercial, industrial, special, and
gratuitous. Special permits covered only personal use of the extracted materials and
did not allow the permitees to sell materials coming from his concession.6 Among
applicants for permits, however, only gratuitous permits were exempt from the sand
and gravel tax. It follows that persons who applied for special permits needed to
pay the tax, even though they did not extract materials for commercial purposes.
Thus, the tax needed to be paid regardless of the applicability of the administrative
and reportorial requirements of that revenue code.
Two. Lepanto claims that the tax can only be levied against extractions by persons
or entities required to apply for permits to remove quarry resources. Since the
mining lease contract with the national government granted it the right to extract
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
and utilize all mineral deposits from within its mining claim, Lepanto claims that it
did not need to apply for a separate permit from the local government. Paragraph 9
of its Mining Lease Contract provides that:
This Lease hereby grants unto the LESSEE, his successors or assigns, the right to
extract and utilize for their own benefit all mineral deposits within the boundary
lines of the mining claim/s covered by this Lease continued vertically
downward.1avvphi1
But this merely declares that Lepantos extraction and use of mineral deposits bears
the consent of the national government, in line with the principle that exploration of
natural resources can only be done under the control and supervision of the State.
The contract makes no mention of any exemption from securing government
permits.
Lepanto invokes the Bureau of Mines and Geo-Sciences view that the mining
company did not require it to get any of the permits that Mines Administrative Order
MRD-27 might require.7 But that Bureaus view applied only to permits under MRD-
27. The Bureau has no authority to determine the applicability of local ordinances.
Besides, even the Bureau itself states that the exemption from MRD-27 is not
absolute as it shall not apply if the sand and gravel were to be disposed of
commercially. An exemption from the requirements of the provincial government
should have a clear basis, whether in law, ordinance, or even from the contract
itself. Unfortunately for Lepanto, it failed to show its entitlement to such exemption.
Three. Lepanto relies on the principle that when a company is taxed on its main
business, it is no longer taxable for engaging in an activity that is but a part of,
incidental to, and necessary to such main business. Lepanto points out that, since it
did not extract and use sand and gravel as independent activities but as integral
parts of its mining operations, it should not be subjected to a separate tax on the
same.
But in the cases where this principle has been applied, the taxes which were
stricken down were in the nature of business taxes. The reasoning behind those
cases was that the incidental activity could not be treated as a business separate
and distinct from the main business of the taxpayer. Here the tax is an excise tax
imposed on the privilege of extracting sand and gravel. And it is settled that
provincial governments can levy excise taxes on quarry resources independently
from the national government.8
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court
of Tax Appeals En Banc in CTA EB 201 dated May 17, 2007.
SO ORDERED.

[195] G.R. No. 154993 October 25, 2005
LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI
CITY, Petitioner,
vs.
BA LEPANTO CONDOMINUM CORPORATION, Respondent.
DECISION
Tinga, J.:
Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for
resolution of this Court two novel questions: one procedural, the other substantive,
yet both of obvious significance. The first pertains to the proper mode of judicial
review undertaken from decisions of the regional trial courts resolving the denial of
tax protests made by local government treasurers, pursuant to the Local
Government Code. The second is whether a local government unit can, under the
Local Government Code, impel a condominium corporation to pay business taxes.1
While we agree with the City Treasurers position on the first issue, there ultimately
is sufficient justification for the Court to overlook what is essentially a procedural
error. We uphold respondents on the second issue. Indeed, there are disturbing
aspects in both procedure and substance that attend the attempts by the City of
Makati to flex its taxing muscle. Considering that the tax imposition now in question
has utterly no basis in law, judicial relief is imperative. There are fewer indisputable
causes for the exercise of judicial review over the exercise of the taxing power than
when the tax is based on whim, and not on law.
The facts, as culled from the record, follow.
Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly
organized condominium corporation constituted in accordance with the
Condominium Act,2 which owns and holds title to the common and limited common
areas of the BA-Lepanto Condominium (the "Condominium"), situated in Paseo de
Roxas, Makati City. Its membership comprises the various unit owners of the
Condominium. The Corporation is authorized, under Article V of its Amended By-
Laws, to collect regular assessments from its members for operating expenses,
capital expenditures on the common areas, and other special assessments as
provided for in the Master Deed with Declaration of Restrictions of the
Condominium.
On 15 December 1998, the Corporation received a Notice of Assessment dated 14
December 1998 signed by the City Treasurer. The Notice of Assessment stated that
the Corporation is "liable to pay the correct city business taxes, fees and charges,"
computed as totaling 1,601,013.77 for the years 1995 to 1997.3 The Notice of
Assessment was silent as to the statutory basis of the business taxes assessed.
Through counsel, the Corporation responded with a written tax protest dated 12
February 1999, addressed to the City Treasurer. It was evident in the protest that
the Corporation was perplexed on the statutory basis of the tax assessment.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
With due respect, we submit that the Assessment has no basis as the Corporation is
not liable for business taxes and surcharges and interest thereon, under the Makati
[Revenue] Code or even under the [Local Government] Code.
The Makati [Revenue] Code and the [Local Government] Code do not contain any
provisions on which the Assessment could be based. One might argue that Sec.
3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or
operators of any business not specified in the said code. We submit, however, that
this is not applicable to the Corporation as the Corporation is not an owner or
operator of any business in the contemplation of the Makati [Revenue] Code and
even the [Local Government] Code.4
Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the
Makati Revenue Code, the Corporation proceeded to argue that under both the
Makati Code and the Local Government Code, "business" is defined as "trade or
commercial activity regularly engaged in as a means of livelihood or with a view to
profit." It was submitted that the Corporation, as a condominium corporation, was
organized not for profit, but to hold title over the common areas of the
Condominium, to manage the Condominium for the unit owners, and to hold title to
the parcels of land on which the Condominium was located. Neither was the
Corporation authorized, under its articles of incorporation or by-laws to engage in
profit-making activities. The assessments it did collect from the unit owners were
for capital expenditures and operating expenses.5
The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She
insisted that the collection of dues from the unit owners was effected primarily "to
sustain and maintain the expenses of the common areas, with the end in view [sic]
of getting full appreciative living values [sic] for the individual condominium
occupants and to command better marketable [sic] prices for those occupants" who
would in the future sell their respective units.6Thus, she concluded since the
"chances of getting higher prices for well-managed common areas of any
condominium are better and more effective that condominiums with poor [sic]
managed common areas," the corporation activity "is a profit venture making
[sic]".7
From the denial of the protest, the Corporation filed an Appeal with the Regional
Trial Court (RTC) of Makati.8 On 1 March 2000, the Makati RTC Branch 57 rendered
a Decision9 dismissing the appeal for lack of merit. Accepting the premise laid by
the City Treasurer, the RTC acknowledged, in sadly risible language:
Herein appellant, to defray the improvements and beautification of the common
areas, collect [sic] assessments from its members. Its end view is to get appreciate
living rules for the unit owners [sic], to give an impression to outsides [sic] of the
quality of service the condominium offers, so as to allow present owners to
command better prices in the event of sale.10
With this, the RTC concluded that the activities of the Corporation fell squarely
under the definition of "business" under Section 13(b) of the Local Government
Code, and thus subject to local business taxation.11

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule
42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition
was dismissed outright12 on the ground that only decisions of the RTC brought on
appeal from a first level court could be elevated for review under the mode of
review prescribed under Rule 42.13 However, the Corporation pointed out in
its Motion for Reconsideration that under Section 195 of the Local Government
Code, the remedy of the taxpayer on the denial of the protest filed with the local
treasurer is to appeal the denial with the court of competent
jurisdiction.14 Persuaded by this contention, the Court of Appeals reinstated the
petition.15
On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered
the Decision16 now assailed before this Court. The appellate court reversed the RTC
and declared that the Corporation was not liable to pay business taxes to the City of
Makati.17 In doing so, the Court of Appeals delved into jurisprudential definitions of
profit,18 and concluded that the Corporation was not engaged in profit. For one, it
was held that the very statutory concept of a condominium corporation showed that
it was not a juridical entity intended to make profit, as its sole purpose was to hold
title to the common areas in the condominium and to maintain the condominium.19
The Court of Appeals likewise cited provisions from the Corporations Amended
Articles of Incorporation and Amended By-Laws that, to its estimation, established
that the Corporation was not engaged in business and the assessment collected
from unit owners limited to those necessary to defray the expenses in the
maintenance of the common areas and management the condominium.20
Upon denial of her Motion for Reconsideration,21 the City Treasurer elevated the
present Petition for Review under Rule 45. It is argued that the Corporation is
engaged in business, for the dues collected from the different unit owners is utilized
towards the beautification and maintenance of the Condominium, resulting in "full
appreciative living values" for the condominium units which would command better
market prices should they be sold in the future. The City Treasurer likewise avers
that the rationale for business taxes is not on the income received or profit earned
by the business, but the privilege to engage in business. The fact that the
Corporation is empowered "to acquire, own, hold, enjoy, lease, operate and
maintain, and to convey sell, transfer or otherwise dispose of real or personal
property" allegedly qualifies "as incident to the fact of [the Corporations] act of
engaging in business.22
The City Treasurer also claims that the Corporation had filed the wrong mode of
appeal before the Court of Appeals when the latter filed its Petition for Review under
Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the
exercise of original jurisdiction, it being the first court which took cognizance of the
case. Accordingly, with the Corporation having pursued an erroneous mode of
appeal, the RTC Decision is deemed to have become final and executory.
First, we dispose of the procedural issue, which essentially boils down to whether
the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer
under Section 195 of the Local Government Code, exercises "original jurisdiction" or
"appellate jurisdiction." The question assumes a measure of importance to this
petition, for the adoption of the position of the City Treasurer that the mode of
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil
Procedure means that the decision of the RTC would have long become final and
executory by reason of the failure of the Corporation to file a notice of appeal.23
There are discernible conflicting views on the issue. The first, as expressed by the
Court of Appeals, holds that the RTC, in reviewing denials of protests by local
treasurers, exercises appellate jurisdiction. This position is anchored on the
language of Section 195 of the Local Government Code which states that the
remedy of the taxpayer whose protest is denied by the local treasurer is "to
appeal with the court of competent jurisdiction."24 Apparently though, the Local
Government Code does not elaborate on how such "appeal" should be undertaken.
The other view, as maintained by the City Treasurer, is that the jurisdiction
exercised by the RTC is original in character. This is the first time that the position
has been presented to the court for adjudication. Still, this argument does find
jurisprudential mooring in our ruling in Garcia v. De Jesus,25 where the Court
proffered the following distinction between original jurisdiction and appellate
jurisdiction: "Original jurisdiction is the power of the Court to take judicial
cognizance of a case instituted for judicial action for the first time under conditions
provided by law. Appellate jurisdiction is the authority of a Court higher in rank to
re-examine the final order or judgment of a lower Court which tried the case now
elevated for judicial review."26
The quoted definitions were taken from the commentaries of the esteemed Justice
Florenz Regalado. With the definitions as beacon, the review taken by the RTC over
the denial of the protest by the local treasurer would fall within that courts original
jurisdiction. In short, the review is the initial judicial cognizance of the matter.
Moreover, labeling the said review as an exercise of appellate jurisdiction is
inappropriate, since the denial of the protest is not the judgment or order of a lower
court, but of a local government official.
The stringent concept of original jurisdiction may seemingly be neutered by Rule 43
of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative
agencies and quasi-judicial tribunals or their officers whose decisions may be
reviewed by the Court of Appeals in the exercise of its appellate jurisdiction.
However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P.
129),27 ineluctably confers appellate jurisdiction on the Court of Appeals over final
rulings of quasi-judicial agencies, instrumentalities, boards or commission, by
explicitly using the phrase "appellate jurisdiction."28 The power to create or
characterize jurisdiction of courts belongs to the legislature. While the traditional
notion of appellate jurisdiction connotes judicial review over lower court decisions, it
has to yield to statutory redefinitions that clearly expand its breadth to encompass
even review of decisions of officers in the executive branches of government.
Yet significantly, the Local Government Code, or any other statute for that matter,
does not expressly confer appellate jurisdiction on the part of regional trial courts
from the denial of a tax protest by a local treasurer. On the other hand, Section 22
of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial
Courts, confining as it does said appellate jurisdiction to cases decided by
Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the
Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial
Courts over rulings made by non-judicial entities.

From these premises, it is evident that the stance of the City Treasurer is correct as
a matter of law, and that the proper remedy of the Corporation from the RTC
judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we
make this pronouncement subject to two important qualifications. First, in this
particular case there are nonetheless significant reasons for the Court to overlook
the procedural error and ultimately uphold the adjudication of the jurisdiction
exercised by the Court of Appeals in this case. Second, the doctrinal weight of the
pronouncement is confined to cases and controversies that emerged prior to the
enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the
Court of Tax Appeals (CTA).
Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA
exercises exclusive appellate jurisdiction to review on appeal decisions, orders or
resolutions of the Regional Trial Courts in local tax cases original decided or
resolved by them in the exercise of their originally or appellate jurisdiction.
Moreover, the provision also states that the review is triggered "by filing a petition
for review under a procedure analogous to that provided for under Rule 42 of the
1997 Rules of Civil Procedure."29
Republic Act No. 9282, however, would not apply to this case simply because it
arose prior to the effectivity of that law. To declare otherwise would be to institute a
jurisdictional rule derived not from express statutory grant, but from implication.
The jurisdiction of a court to take cognizance of a case should be clearly conferred
and should not be deemed to exist on mere implications,30 and this settled rule
would be needlessly emasculated should we declare that the Corporations position
is correct in law.
Be that as it may, characteristic of all procedural rules is adherence to the precept
that they should not be enforced blindly, especially if mechanical application would
defeat the higher ends that animates our civil procedurethe just, speedy and
inexpensive disposition of every action and proceeding.31 Indeed, we have
repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless
take cognizance of petitions raised on an erroneous mode of appeal and instead
treat these petitions in the manner as they should have appropriately been
filed.32 The Court of Appeals could very well have treated the Corporations petition
for review as an ordinary appeal.
Moreover, we recognize that the Corporations error in elevating the RTC decision
for review via Rule 42 actually worked to the benefit of the City Treasurer. There is
wider latitude on the part of the Court of Appeals to refuse cognizance over a
petition for review under Rule 42 than it would have over an ordinary appeal under
Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an
ordinary appeal prior to the transmission of the case records are when the appeal
was taken out of time or when the docket fees were not paid.33 On the other hand,
Section 6, Rule 42 provides that in order that the Court of Appeals may allow due
course to the petition for review, it must first make a prima facie finding that the
lower court has committed an error that would warrant the reversal or modification
of the decision under review.34 There is no similar requirement of a prima
faciedetermination of error in the case of ordinary appeal, which is perfected upon
the filing of the notice of appeal in due time.35
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Evidently, by employing the Rule 42 mode of review, the Corporation faced a
greater risk of having its petition rejected by the Court of Appeals as compared to
having filed an ordinary appeal under Rule 41. This was not an error that worked to
the prejudice of the City Treasurer.
We now proceed to the substantive issue, on whether the City of Makati may collect
business taxes on condominium corporations.
We begin with an overview of the power of a local government unit to impose
business taxes.
The power of local government units to impose taxes within its territorial jurisdiction
derives from the Constitution itself, which recognizes the power of these units "to
create its own sources of revenue and to levy taxes, fees, and charges subject to
such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy."36 These guidelines and limitations as provided by
Congress are in main contained in the Local Government Code of 1991 (the
"Code"), which provides for comprehensive instances when and how local
government units may impose taxes. The significant limitations are enumerated
primarily in Section 133 of the Code, which include among others, a prohibition on
the imposition of income taxes except when levied on banks and other financial
institutions.37 None of the other general limitations under Section 133 find
application to the case at bar.
The most well-known mode of local government taxation is perhaps the real
property tax, which is governed by Title II, Book II of the Code, and which bears no
application in this case. A different set of provisions, found under Title I of Book II,
governs other taxes imposable by local government units, including business taxes.
Under Section 151 of the Code, cities such as Makati are authorized to levy the
same taxes fees and charges as provinces and municipalities. It is in Article II, Title
II, Book II of the Code, governing municipal taxes, where the provisions on
business taxation relevant to this petition may be found.38
Section 143 of the Code specifically enumerates several types of business on which
municipalities and cities may impose taxes. These include manufacturers,
wholesalers, distributors, dealers of any article of commerce of whatever nature;
those engaged in the export or commerce of essential commodities; contractors and
other independent contractors; banks and financial institutions; and peddlers
engaged in the sale of any merchandise or article of commerce. Moreover, the
local sanggunian is also authorized to impose taxes on any other businesses not
otherwise specified under Section 143 which the sanggunian concerned may deem
proper to tax.
The coverage of business taxation particular to the City of Makati is provided by the
Makati Revenue Code ("Revenue Code"), enacted through Municipal Ordinance No.
92-072. The Revenue Code remains in effect as of this
writing. Article A, Chapter III of the Revenue Code governs business taxes in
Makati, and it is quite specific as to the particular businesses which are covered by
business taxes. To give a sample of the specified businesses under the Revenue

Code which are not enumerated under the Local Government Code, we cite Section
3A.02(f) of the Code, which levies a gross receipt tax :
(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of
Chapter III of this Code, and on owners or operators of business establishments
rendering or offering services such as: advertising agencies; animal hospitals;
assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders;
booking officers for film exchange; booking offices for transportation on commission
basis; breeding of game cocks and other sporting animals belonging to others;
business management services; collecting agencies; escort services; feasibility
studies; consultancy services; garages; garbage disposal contractors; gold and
silversmith shops; inspection services for incoming and outgoing cargoes; interior
decorating services; janitorial services; job placement or recruitment agencies;
landscaping contractors; lathe machine shops; management consultants not subject
to professional tax; medical and dental laboratories; mercantile agencies;
messsengerial services; operators of shoe shine stands; painting shops; perma
press establishments; rent-a-plant services; polo players; school for and/or horse-
back riding academy; real estate appraisers; real estate brokerages; photostatic,
white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles
and/or tricycles, furniture, shoes, watches, household appliances, boats,
typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for
repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing
shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals
and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational
and other schools not regulated by the Department of Education, Culture and
Sports, (DECS), day care centers; etc.39
Other provisions of the Revenue Code likewise subject hotel and restaurant owners
and operators40, real estate dealers, and lessors of real estate41 to business taxes.
Should the comprehensive listing not prove encompassing enough, there is also a
catch-all provision similar to that under the Local Government Code. This is found in
Section 3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business not specified above shall pay the tax at
the rate of two percent (2%) for 1993, two and one-half percent (2 %) for 1994
and 1995, and three percent (3%) for 1996 and the years thereafter of the gross
receipts during the preceding year.42
The initial inquiry is what provision of the Makati Revenue Code does the City
Treasurer rely on to make the Corporation liable for business taxes. Even at this
point, there already stands a problem with the City Treasurers cause of action.
Our careful examination of the record reveals a highly disconcerting fact. At no point
has the City Treasurer been candid enough to inform the Corporation, the RTC, the
Court of Appeals, or this Court for that matter, as to what exactly is the precise
statutory basis under the Makati Revenue Code for the levying of the business tax
on petitioner. We have examined all of the pleadings submitted by the City
Treasurer in all the antecedent judicial proceedings, as well as in this present
petition, and also the communications by the City Treasurer to the Corporation
which form part of the record. Nowhere therein is there any citation made by the
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
City Treasurer of any provision of the Revenue Code which would serve as the legal
authority for the collection of business taxes from condominiums in Makati.
Ostensibly, the notice of assessment, which stands as the first instance the taxpayer
is officially made aware of the pending tax liability, should be sufficiently informative
to apprise the taxpayer the legal basis of the tax. Section 195 of the Local
Government Code does not go as far as to expressly require that the notice of
assessment specifically cite the provision of the ordinance involved but it does
require that it state the nature of the tax, fee or charge, the amount of deficiency,
surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as the
amount of the assessment. There may have been prima facie compliance with the
requirement under Section 195. However in this case, the Revenue Code provides
multiple provisions on business taxes, and at varying rates. Hence, we could
appreciate the Corporations confusion, as expressed in its protest, as to the exact
legal basis for the tax.43 Reference to the local tax ordinance is vital, for the power
of local government units to impose local taxes is exercised through the appropriate
ordinance enacted by the sanggunian, and not by the Local Government Code
alone.44 What determines tax liability is the tax ordinance, the Local Government
Code being the enabling law for the local legislative body.
Moreover, a careful examination of the Revenue Code shows that while Section
3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides
for a different tax rate from that of the former provision, may be construed to be of
similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class
of businesses taxed under the provision, the listing, while it does not include
condominium-related enterprises, ends with the abbreviation "etc.", or "et cetera".
We do note our discomfort with the unlimited breadth and the dangerous
uncertainty which are the twin hallmarks of the words "et cetera." Certainly, we
cannot be disposed to uphold any tax imposition that derives its authority from
enigmatic and uncertain words such as "et cetera." Yet we cannot even say with
definiteness whether the tax imposed on the Corporation in this case is based on "et
cetera," or on Section 3A.02(m), or on any other provision of the Revenue Code.
Assuming that the assessment made on the Corporation is on a provision other than
Section 3A.02(m), the main legal issue takes on a different complexion. For
example, if it is based on "et cetera" under Section 3A.02(f), we would have to
examine whether the Corporation faces analogous comparison with the other
businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that regard, as she has been
silent all through out as to the exact basis for the tax imposition which she wishes
that this Court uphold. Indeed, there is only one thing that prevents this Court from
ruling that there has been a due process violation on account of the City Treasurers
failure to disclose on paper the statutory basis of the taxthat the Corporation itself
does not allege injury arising from such failure on the part of the City Treasurer.
We do not know why the Corporation chose not to put this issue into litigation,
though we can ultimately presume that no injury was sustained because the City
Treasurer failed to cite the specific statutory basis of the tax. What is essential
though is that the local treasurer be required to explain to the taxpayer with

sufficient particularity the basis of the tax, so as to leave no doubt in the mind of
the taxpayer as to the specific tax involved.
In this case, the Corporation seems confident enough in litigating despite the failure
of the City Treasurer to admit on what exact provision of the Revenue Code the tax
liability ensued. This is perhaps because the Corporation has anchored its central
argument on the position that the Local Government Code itself does not sanction
the imposition of business taxes against it. This position was sustained by the Court
of Appeals, and now merits our analysis.
As stated earlier, local tax on businesses is authorized under Section 143 of the
Local Government Code. The word "business" itself is defined under Section 131(d)
of the Code as "trade or commercial activity regularly engaged in as a means of
livelihood or with a view to profit."45 This definition of "business" takes on
importance, since Section 143 allows local government units to impose local taxes
on businesses other than those specified under the provision. Moreover, even those
business activities specifically named in Section 143 are themselves susceptible to
broad interpretation. For example, Section 143(b) authorizes the imposition of
business taxes on wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature.
It is thus imperative that in order that the Corporation may be subjected to
business taxes, its activities must fall within the definition of business as provided in
the Local Government Code. And to hold that they do is to ignore the very statutory
nature of a condominium corporation.
The creation of the condominium corporation is sanctioned by Republic Act No.
4726, otherwise known as the Condominium Act. Under the law, a condominium is
an interest in real property consisting of a separate interest in a unit in a residential,
industrial or commercial building and an undivided interest in common, directly or
indirectly, in the land on which it is located and in other common areas of the
building.46 To enable the orderly administration over these common areas which are
jointly owned by the various unit owners, the Condominium Act permits the creation
of a condominium corporation, which is specially formed for the purpose of holding
title to the common area, in which the holders of separate interests shall
automatically be members or shareholders, to the exclusion of others, in proportion
to the appurtenant interest of their respective
units.47 The necessity of a condominium corporation has not gained widespread
acceptance48, and even is merely permissible under the Condominium
Act.49 Nonetheless, the condominium corporation has been resorted to by many
condominium projects, such as the Corporation in this case.
In line with the authority of the condominium corporation to manage the
condominium project, it may be authorized, in the deed of restrictions, "to make
reasonable assessments to meet authorized expenditures, each condominium unit
to be assessed separately for its share of such expenses in proportion (unless
otherwise provided) to its owners fractional interest in any common areas."50 It is
the collection of these assessments from unit owners that form the basis of the City
Treasurers claim that the Corporation is doing business.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
The Condominium Act imposes several limitations on the condominium corporation
that prove crucial to the disposition of this case. Under Section 10 of the law, the
corporate purposes of a condominium corporation are limited to the holding of the
common areas, either in ownership or any other interest in real property recognized
by law; to the management of the project; and to such other purposes as may be
necessary, incidental or convenient to the accomplishment of such
purpose.51 Further, the same provision prohibits the articles of incorporation or by-
laws of the condominium corporation from containing any provisions which are
contrary to the provisions of the Condominium Act, the enabling or master deed, or
the declaration of restrictions of the condominium project.52
We can elicit from the Condominium Act that a condominium corporation is
precluded by statute from engaging in corporate activities other than the holding of
the common areas, the administration of the condominium project, and other acts
necessary, incidental or convenient to the accomplishment of such purposes.
Neither the maintenance of livelihood, nor the procurement of profit, fall within the
scope of permissible corporate purposes of a condominium corporation under the
Condominium Act.
The Court has examined the particular Articles of Incorporation and By-Laws of the
Corporation, and these documents unmistakably hew to the limitations contained in
the Condominium Act. Per the Articles of Incorporation, the Corporations corporate
purposes are limited to: (a) owning and holding title to the common and limited
common areas in the Condominium Project; (b) adopting such necessary measures
for the protection and safeguard of the unit owners and their property, including the
power to contract for security services and for insurance coverage on the entire
project; (c) making and adopting needful rules and regulations concerning the use,
enjoyment and occupancy of the units and common areas, including the power to
fix penalties and assessments for violation of such rules; (d) to provide for the
maintenance, repair, sanitation, and cleanliness of the common and limited common
areas; (e) to provide and contract for public utilities and other services to the
common areas; (f) to contract for the services of persons or firms to assist in the
management and operation of the Condominium Project; (g) to discharge any lien
or encumbrances upon the Condominium Project; (h) to enforce the terms
contained in the Master Deed with Declaration of Restrictions of the Project; (i) to
levy and
collect those assessments as provided in the Master Deed, in order to defray the
costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy,
lease operate and maintain, and to convey, sell transfer, mortgage or otherwise
dispose of real or personal property in connection with the purposes and activities of
the corporation; and (k) to exercise and perform such other powers reasonably
necessary, incidental or convenient to accomplish the foregoing purposes.53
Obviously, none of these stated corporate purposes are geared towards maintaining
a livelihood or the obtention of profit. Even though the Corporation is empowered to
levy assessments or dues from the unit owners, these amounts collected are not
intended for the incurrence of profit by the Corporation or its members, but to
shoulder the multitude of necessary expenses that arise from the maintenance of
the Condominium Project. Just as much is confirmed by Section 1, Article V of the
Amended By-Laws, which enumerate the particular expenses to be defrayed by the
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

regular assessments collected from the unit owners. These would include the . as the transaction of the lawful business of the corporation may reasonably and
salaries of the employees of the Corporation, and the cost of maintenance and necessarily require . . . ."60 Without this power, corporations, as juridical persons,
ordinary repairs of the common areas.54 would be deprived of the capacity to engage in most meaningful legal relations.

The City Treasurer nonetheless contends that the collection of these assessments Again, whatever capacity the Corporation may have pursuant to its power to
and dues are "with the end view of getting full appreciative living values" for the exercise acts of ownership over personal and real property is limited by its stated
condominium units, and as a result, profit is obtained once these units are sold at corporate purposes, which are by themselves further limited by the Condominium
higher prices. The Court cites with approval the two counterpoints raised by the Act. A condominium corporation, while enjoying such powers of ownership, is
Court of Appeals in rejecting this contention. First, if any profit is obtained by the prohibited by law from transacting its properties for the purpose of gainful profit.
sale of the units, it accrues not to the corporation but to the unit owner. Second, if
the unit owner does obtain profit from the sale of the corporation, the owner is
Accordingly, and with a significant degree of comfort, we hold that condominium
already required to pay capital gains tax on the appreciated value of the
corporations are generally exempt from local business taxation under the Local
condominium unit.55
Government Code, irrespective of any local ordinance that seeks to declare
otherwise.
Moreover, the logic on this point of the City Treasurer is baffling. By this rationale,
every Makati City car owner may be considered as being engaged in business, since
Still, we can note a possible exception to the rule. It is not unthinkable that the unit
the repairs or improvements on the car may be deemed oriented towards
owners of a condominium would band together to engage in activities for profit
appreciating the value of the car upon resale. There is an evident distinction
under the shelter of the condominium corporation.61 Such activity would be
between persons who spend on repairs and improvements on their personal and
prohibited under the Condominium Act, but if the fact is established, we see no
real property for the purpose of increasing its resale value, and those who defray
reason why the condominium corporation may be made liable by the local
such expenses for the purpose of preserving the property. The vast majority of
government unit for business taxes. Even though such activities would be
persons fall under the second category, and it would be highly specious to subject
considered as ultra vires, since they are engaged in beyond the legal capacity of the
these persons to local business taxes. The profit motive in such cases is hardly the
condominium corporation62, the principle of estoppel would preclude the corporation
driving factor behind such improvements, if it were contemplated at all. Any profit
or its officers and members from invoking the void nature of its undertakings for
that would be derived under such circumstances would merely be incidental, if not
profit as a means of acquitting itself of tax liability.
accidental.

Still, the City Treasurer has not posited the claim that the Corporation is engaged in
Besides, we shudder at the thought of upholding tax liability on the basis of the
business activities beyond the statutory purposes of a condominium corporation.
standard of "full appreciative living values", a phrase that defies statutory
The assessment appears to be based solely on the Corporations collection of
explication, commonsensical meaning, the English language, or even definition from
assessments from unit owners, such assessments being utilized to defray the
Google. The exercise of the power of taxation constitutes a deprivation of property
necessary expenses for the Condominium Project and the common areas. There is
under the
no contemplation of business, no orientation towards profit in this case. Hence, the
assailed tax assessment has no basis under the Local Government Code or the
due process clause,56 and the taxpayers right to due process is violated when Makati Revenue Code, and the insistence of the city in its collection of the void tax
arbitrary or oppressive methods are used in assessing and collecting taxes.57 The constitutes an attempt at deprivation of property without due process of law.
fact that the Corporation did not fall within the enumerated classes of taxable
businesses under either the Local Government Code or the Makati Revenue Code
WHEREFORE, the petition is DENIED. No costs.
already forewarns that a clear demonstration is essential on the part of the City
Treasurer on why the Corporation should be taxed anyway. "Full appreciative living
values" is nothing but blather in search of meaning, and to impose a tax hinged on SO ORDERED.
that standard is both arbitrary and oppressive.

The City Treasurer also contends that the fact that the Corporation is engaged in
business is evinced by the Articles of Incorporation, which specifically empowers the
Corporation "to acquire, own, hold, enjoy, lease, operate and maintain, and to
convey, sell, transfer mortgage or otherwise dispose of real or personal
property."58 What the City Treasurer fails to add is that every corporation

organized under the Corporation Code59 is so specifically empowered. Section 36(7)

of the Corporation Code states that every corporation incorporated under the Code
has the power and capacity "to purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real and personal property . .
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[196] G.R. No. 119122 August 8, 2000 On January 8, 1990, petitioner filed a petition for review2 with the Court of Tax
Appeals (respondent CTA) questioning the denial by respondent Commissioner of its
tax protest.
PHILIPPINE BASKETBALL ASSOCIATION, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS, AND COMMISSIONER OF On December 24, 1993, respondent CTA dismissed petitioner's petition, holding:
INTERNAL REVENUE,respondents.
"WHEREFORE, in all the foregoing, herein petition for review is hereby
PURISIMA, J.: DISMISSED for lack of merit and the Petitioner is hereby ORDERED to PAY
to the Respondent the amount of P5,864,260.84 as deficiency amusement
tax for the year 1987 plus 20% annual delinquency interest from July 22,
At bar is a petition for review on certiorari under Rule 45 of the Rules of Court
1989 which is the due date appearing on the notice and demand of the
seeking a review of the decision1 of the Court of Appeals in CA-G.R. SP No. 34095
Commissioner (i.e. 30 days from receipt of the assessment) until fully paid
which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 4419.
pursuant to the provisions of Sections 248 and 249 (c) (3) of the Tax Code,
as amended."3
The facts that matter are as follows:
Petitioner presented a motion for reconsideration4 of the said decision but the same
On June 21, 1989, the petitioner received an assessment letter from the was denied by respondent CTA in a resolution5 ALF dated April 8, 1994. Thereafter
Commissioner of Internal Revenue (respondent Commissioner) for the payment of and within the reglementary period for interposing appeals, petitioner appealed the
deficiency amusement tax computed thus: CTA decision to the Court of Appeals.

On November 21, 1994, the Court of Appeals rendered its questioned

Total gross receipts 1987
15% tax due thereon
Deficiency Amusement Tax
Decision,6 affirming the decision of the CTA and dismissing petitioner's appeal.
Petitioner filed a Motion for Reconsideration of said decision but to no avail. The
P19,970,928.00 same was denied by the Court of Appeals in a Resolution7 dated January 31, 1995.
Hence, this petition.1wphi1.nt
===========
Undaunted, petitioner found its way to this Court via the present petition,
2,995,639.20 contending that:

Less: Tax paid 602,063.35 "1. Respondent Court of Appeals erred in holding that the jurisdiction to
collect amusement taxes of PBA games is vested in the national
Deficiency amusement tax P2,393,575.85 government to the exclusion of the local governments.

Add: 75% surcharge
20% interest (2 years)
Total Amount Due & Collectible
1,795,181.89 "2. Respondent Court of Appeals erred in holding that Section 13 of the
Local Tax Code of 1973 limits local government units to theaters,
1,675,503.10 cinematographs, concert halls, circuses and other places of amusement in
the collection of the amusement tax.
P5,864,260.84
"3. Respondent Court of Appeals erred in holding that Revenue Regulations
No. 8-88 dated February 19, 1988 is an erroneous interpretation of law.
===========

"4. Respondent Court of Appeals erred in giving retroactive effect to the

revocation of Revenue Regulations 8-88.

On July 18, 1989, petitioner contested the assessment by filing a protest with "5. Respondent Court of Appeals erred when it failed to consider the
respondent Commissioner who denied the same on November 6, 1989. provisions of P.D. 851 the franchise of Petitioner, Section 8 of which
provides that amusement tax on admission receipts of Petitioner is 5%.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

"6. Respondent Court of Appeals erred in holding that the cession of
advertising and streamer spaces in the venue to a third person is subject
to amusement taxes.
"7. Respondent Court of Appeals erred in holding that the cession of
advertising and streamer spaces inside the venue is embraced within the
term 'gross receipts' as defined in Section 123 (6) of the Tax Code.
"8. Respondent Court of Appeals erred in holding that the amusement tax
liability of Petitioner is subject to a 75% surcharge."
The issues for resolution in this case may be simplified as follows:
The foregoing provision of law in point indicates that the province can only impose a
tax on admission from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of amusement. The
authority to tax professional basketball games is not therein included, as the same
is expressly embraced in PD 1959, which amended PD 1456 thus:
"SECTION 44. Section 268 of this Code, as amended, is hereby further
amended to read as follows:
'Sec. 268. Amusement taxes. There shall be collected from the
proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai,
race tracks and bowling alleys, a tax equivalent to:

1. Is the amusement tax on admission tickets to PBA games a national or local tax?
'1. Eighteen per centum in the case of cockpits;
Otherwise put, who between the national government and local government should
petitioner pay amusement taxes?
'2. Eighteen per centum in the case of cabarets, night or day
clubs;
2. Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc.
(VEI) subject to the payment of amusement tax?
'3. Fifteen per centum in the case of boxing exhibitions;
3. If ever petitioner is liable for the payment of deficiency amusement tax, is it
liable to pay a seventy-five percent (75%) surcharge on the deficiency amount due? '4. Fifteen per centum in the case of professional basketball
games as envisioned in Presidential Decree No. 871. Provided,
however. That the tax herein shall be in lieu of all other
Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973,
percentage taxes of whatever nature and description;
transferred the power and authority to levy and collect amusement taxes from the
sale of admission tickets to places of amusement from the national government to
the local governments. Petitioner cited BIR Memorandum Circular No. 49-73 '5. Thirty per centum in the case of Jai-Alai and race tracks; and
providing that the power to levy and collect amusement tax on admission tickets
was transferred to the local governments by virtue of the Local Tax Code; and BIR
'6. Fifteen per centum in the case of bowling alleys of their gross
Ruling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross
receipts, irrespective of whether or not any amount is charged or
receipts from admission tickets to places of amusement was transferred to local
paid for admission. For the purpose of the amusement tax, the
governments under P.D. No. 231, as amended."8 Further, petitioner opined that
term gross receipts' embraces all the receipts of the proprietor,
even assuming arguendo that respondent Commissioner revoked BIR Ruling No.
lessee or operator of the amusement place. Said gross receipts
231-86, the reversal, modification or revocation cannot be given retroactive effect
also include income from television, radio and motion picture
since even as late as 1988 (BIR Memorandum Circular No. 8-88), respondent
rights, if any. (A person or entity or association conducting any
Commissioner still recognized the jurisdiction of local governments to collect
activity subject to the tax herein imposed shall be similarly liable
amusement taxes.
for said tax with respect to such portion of the receipts derived by
him or it.)
The Court is not persuaded by petitioner's asseverations.
'The taxes imposed herein shall be payable at the end of each
The laws on the matter are succinct and clear and need no elaborate disquisition. quarter and it shall be the duty of the proprietor, lessee, or
Section 13 of the Local Tax Code provides: operator concerned, as well as any party liable, within twenty
days after the end of each quarter, to make a true and complete
return of the amount of the gross receipts derived during the
"SECTION 13. Amusement tax on admission. The province shall impose
preceding quarter and pay the tax due thereon. If the tax is not
a tax on admission to be collected from the proprietors, lessees, or
paid within the time prescribed above, the amount of the tax shall
operators of theaters, cinematographs, concert halls, circuses and other
be increased by twenty-five per centum, the increment to be part
places of amusement . . ."
of the tax.

'In case of willful neglect to file the return within the period
prescribed herein, or in case a false or fraudulent return is willfully
made, there shall be added to the tax or to the deficiency tax, in
case any payment has been made on the basis of the return
before the discovery of the falsity or fraud, a surcharge of fifty per
centum of its amount. The amount so added to any tax shall be
collected at the same time and in the same manner and as part of
the tax unless the tax has been paid before the discovery of the
falsity or fraud, in which case, the amount so assessed shall be
collected in the same manner as the tax." (emphasis ours)
From the foregoing it is clear that the "proprietor, lessee or operator of . . .
professional basketball games" is required to pay an amusement tax equivalent to
fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue,
which payment is a national tax. The said payment of amusement tax is in lieu of all
other percentage taxes of whatever nature and description.
While Section 13 of the Local Tax Code mentions "other places of amusement",
professional basketball games are definitely not within its scope. Under the principle
of ejusdem generis, where general words follow an enumeration of persons or
things, by words of a particular and specific meaning, such general words are not to
be construed in their widest extent, but are to be held as applying only to persons
or things of the same kind or class as those specifically mentioned.9 Thus, in
determining the meaning of the phrase "other places of amusement", one must
refer to the prior enumeration of theaters, cinematographs, concert halls and
circuses with artistic expression as their common characteristic. Professional
basketball games do not fall under the same category as theaters, cinematographs,
concert halls and circuses as the latter basically belong to artistic forms of
entertainment while the former caters to sports and gaming.
A historical analysis of pertinent laws does reveal the legislative intent to place
professional basketball games within the ambit of a national tax. The Local Tax
Code, which became effective on June 28, 1973, allowed the province to collect a
tax on admission from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of amusement. On January
6, 1976, the operation of petitioner was placed under the supervision and regulation
of the Games and Amusement Board by virtue of PD 871, with the proviso (Section
8) that ". . . all professional basketball games conducted by the Philippine
Basketball Association shall only be subject to amusement tax of five per cent of the
gross receipts from the sale of admission tickets." Then, on June 11, 1978, PD 1456
came into effect, increasing the amusement tax to ten per cent, with a categorical
referral to PD 871, to wit, "[t]en per centum in the case of professional basketball
games as envisioned in Presidential Decree No. 871 . . ." Later in 1984, PD 1959
increased the rate of amusement tax to fifteen percent by making reference also to
PD 871. With the reference to PD 871 by PD 1456 and PD 1959, there is a
recognition under the laws of this country that the amusement tax on professional
basketball games is a national, and not a local, tax. Even up to the present, the
category of amusement taxes on professional basketball games as a national tax
remains the same. This is so provided under Section 12510 of the 1997 National
Internal Revenue Code. Section 14011 of the Local Government Code of 1992
(Republic Act 7160), meanwhile, retained the areas (theaters, cinematographs,
concert halls, circuses and other places of amusement) where the province may
levy an amusement tax without including therein professional basketball games.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Likewise erroneous is the stance of petitioner that respondent Commissioner's
issuance of BIR Ruling No. 231-8612and BIR Revenue Memorandum Circular No. 8-
8813 both upholding the authority of the local government to collect amusement
taxes should bind the government or that, if there is any revocation or
modification of said rule, the same should operate prospectively.
It bears stressing that the government can never be in estoppel, particularly in
matters involving taxes. It is a well-known rule that erroneous application and
enforcement of the law by public officers do not preclude subsequent correct
application of the statute, and that the Government is never estopped by mistake or
error on the part of its agents.14
Untenable is the contention that income from the cession of streamer and
advertising spaces to VEI is not subject to amusement tax. The questioned proviso
may be found in Section 1 of PD 1456 which states:
"SECTION 1. Section 268 of the National Internal Revenue Code of 1977,
as amended, is hereby further amended to read as follows:
'Sec. 268. Amusement taxes. There shall be collected from the
proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai,
race tracks and bowling alleys, a tax equivalent to:
xxx xxx xxx
of their gross receipts, irrespective of whether or not any amount is charged or paid
for admission. For the purpose of the amusement tax, the term gross receipts'
embraces all the receipts of the proprietor, lessee or operator of the amusement
place. Said gross receipts also include income from television, radio and motion
picture rights, if any. (A person, or entity or association conducting any activity
subject to the tax herein imposed shall be similarly liable for said tax with respect to
such portion of the receipts derived by him or it.)" (emphasis ours)
The foregoing definition of gross receipts is broad enough to embrace the cession of
advertising and streamer spaces as the same embraces all the receipts of the
proprietor, lessee or operator of the amusement place. The law being clear, there is
no need for an extended interpretation.15
The last issue for resolution concerns the liability of petitioner for the payment of
surcharge and interest on the deficiency amount due. Petitioner contends that it is
not liable, as it acted in good faith, having relied upon the issuances of the
respondent Commissioner. This issue must necessarily fail as the same has never
been posed as an issue before the respondent court. Issues not raised in the court a
quo cannot be raised for the first time on appeal.16
All things studiedly considered, the Court rules that the petitioner is liable to pay
amusement tax to the national government, and not to the local government, in
accordance with the rates prescribed by PD 1959.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

WHEREFORE, the Petition is DENIED, and the Decisions of the Court of Appeals and
Court of Tax Appeals dated November 21, 1994 and December 24, 1993,
respectively AFFIRMED. No pronouncement as to costs.1wphi1.nt

SO ORDERED.

[197] G.R. No. 176667 November 22, 2007
ERICSSON TELECOMMUNICATIONS, INC., petitioner,
vs.
CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et
al.*, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in
Pasig City, is engaged in the design, engineering, and marketing of
telecommunication facilities/system. In an Assessment Notice dated October 25,
2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business
tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00
and P4,993,682.00, respectively, based on its gross revenues as reported in its
audited financial statements for the years 1997 and 1998. Petitioner filed a Protest
dated December 21, 2000, claiming that the computation of the local business tax
should be based on gross receipts and not on gross revenue.
The City of Pasig (respondent) issued another Notice of Assessment to petitioner on
November 19, 2001, this time based on business tax deficiencies for the years 2000
and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on
its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on
January 21, 2002, reiterating its position that the local business tax should be based
on gross receipts and not gross revenue.
Respondent denied petitioner's protest and gave the latter 30 days within which to
appeal the denial. This prompted petitioner to file a petition for review1 with the
Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and
cancellation of petitioner's deficiency local business taxes totaling P17,262,205.66.
Respondent and its City Treasurer filed a motion to dismiss on the grounds that the
court had no jurisdiction over the subject matter and that petitioner had no legal
capacity to sue. The RTC denied the motion in an Order dated December 3, 2002
due to respondents' failure to include a notice of hearing. Thereafter, the RTC
declared respondents in default and allowed petitioner to present evidence ex-
parte.
In a Decision2 dated March 8, 2004, the RTC canceled and set aside the
assessments made by respondent and its City Treasurer. The dispositive portion of
the RTC Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and ordering defendants to CANCEL and SET ASIDE
Assessment Notice dated October 25, 2000 and Notice of Assessment
dated November 19, 2001.
SO ORDERED.3
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
On appeal, the Court of Appeals (CA) rendered its Decision4 dated November 20,
2006, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby ordered SET ASIDE and
a new one entered DISMISSING the plaintiff/appellee's complaint WITHOUT
PREJUDICE.
SO ORDERED.5
The CA sustained respondent's claim that the petition filed with the RTC should have
been dismissed due to petitioner's failure to show that Atty. Maria Theresa B.
Ramos (Atty. Ramos), petitioner's Manager for Tax and Legal Affairs and the person
who signed the Verification and Certification of Non-Forum Shopping, was duly
authorized by the Board of Directors.
Its motion for reconsideration having been denied in a Resolution6 dated February
9, 2007, petitioner now comes before the Court via a Petition for Review
on Certiorari under Rule 45 of the Rules of Court, on the following grounds:
(1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK
OF SHOWING THAT THE SIGNATORY OF THE VERIFICATION/
CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN BEHALF
OF PETITIONER.
(2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO
RESPONDENT'S APPEAL, CONSIDERING THAT IT HAS NO JURISDICTION
OVER THE SAME, THE MATTERS TO BE RESOLVED BEING PURE
QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH
THIS HONORABLE COURT.
(3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER
RESPONDENT'S APPEAL, SAID COURT ERRED IN NOT DECIDING ON THE
MERITS OF THE CASE FOR THE SPEEDY DISPOSITION THEREOF,
CONSIDERING THAT THE DEFICIENCY LOCAL BUSINESS TAX
ASSESSMENTS ISSUED BY RESPONDENT ARE CLEARLY INVALID AND
CONTRARY TO THE PROVISIONS OF THE PASIG REVENUE CODE AND THE
LOCAL GOVERNMENT CODE.7
After receipt by the Court of respondent's complaint and petitioner's reply, the
petition is given due course and considered ready for decision without the need of
memoranda from the parties.
The Court grants the petition.
First, the complaint filed by petitioner with the RTC was erroneously dismissed by
the CA for failure of petitioner to show that its Manager for Tax and Legal Affairs,
Atty. Ramos, was authorized by the Board of Directors to sign the Verification and
Certification of Non-Forum Shopping in behalf of the petitioner corporation.

Time and again, the Court, under special circumstances and for compelling reasons,
sanctioned substantial compliance with the rule on the submission of verification
and certification against non-forum shopping.8
In General Milling Corporation v. National Labor Relations Commission,9 the Court
deemed as substantial compliance the belated attempt of the petitioner to attach to
the motion for reconsideration the board resolution/secretary's certificate, stating
that there was no attempt on the part of the petitioner to ignore the prescribed
procedural requirements.
In Shipside Incorporated v. Court of Appeals,10 the authority of the petitioner's
resident manager to sign the certification against forum shopping was submitted to
the CA only after the latter dismissed the petition. The Court considered the merits
of the case and the fact that the petitioner subsequently submitted a secretary's
certificate, as special circumstances or compelling reasons that justify tempering the
requirements in regard to the certificate of non-forum shopping.11
There were also cases where there was complete non-compliance with the rule on
certification against forum shopping and yet the Court proceeded to decide the case
on the merits in order to serve the ends of substantial justice.12
In the present case, petitioner submitted a Secretary's Certificate signed on May 6,
2002, whereby Atty. Ramos was authorized to file a protest at the local government
level and to "sign, execute and deliver any and all papers, documents and pleadings
relative to the said protest and to do and perform all such acts and things as may
be necessary to effect the foregoing."13
Applying the foregoing jurisprudence, the subsequent submission of the Secretary's
Certificate and the substantial merits of the petition, which will be shown forthwith,
justify a relaxation of the rule.
Second, the CA should have dismissed the appeal of respondent as it has no
jurisdiction over the case since the appeal involves a pure question of law. The CA
seriously erred in ruling that the appeal involves a mixed question of law and fact
necessitating an examination and evaluation of the audited financial statements and
other documents in order to determine petitioner's tax base.
There is a question of law when the doubt or difference is on what the law is on a
certain state of facts. On the other hand, there is a question of fact when the doubt
or difference is on the truth or falsity of the facts alleged.14 For a question to be one
of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must
rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed
is one of fact. Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is
whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it is a
question of fact.15
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
There is no dispute as to the veracity of the facts involved in the present case.
While there is an issue as to the correct amount of local business tax to be paid by
petitioner, its determination will not involve a look into petitioner's audited financial
statements or documents, as these are not disputed; rather, petitioner's correct tax
liability will be ascertained through an interpretation of the pertinent tax laws, i.e.,
whether the local business tax, as imposed by the Pasig City Revenue Code
(Ordinance No. 25-92) and the Local Government Code of 1991, should be based
on gross receipts, and not on gross revenue which respondent relied on in
computing petitioner's local business tax deficiency. This, clearly, is a question of
law, and beyond the jurisdiction of the CA.
Section 2(c), Rule 41 of the Rules of Court provides that in all cases where
questions of law are raised or involved, the appeal shall be to this Court by petition
for review on certiorari under Rule 45.
Thus, as correctly pointed out by petitioner, the appeal before the CA should have
been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which
provides:
Sec. 5. Grounds for dismissal of appeal.- The appeal may be dismissed
motu proprio or on motion of the respondent on the following grounds:
xxxx
(f) Error in the choice or mode of appeal.
xxxx
Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision
ordering respondent to cancel the Assessment Notices issued by respondent, and
therefore, would have rendered moot and academic the issue of whether the local
business tax on contractors should be based on gross receipts or gross revenues.
However, the higher interest of substantial justice dictates that this Court should
resolve the same, to evade further repetition of erroneous interpretation of the
law,16 for the guidance of the bench and bar.
As earlier stated, the substantive issue in this case is whether the local business tax
on contractors should be based on gross receipts or gross revenue.
Respondent assessed deficiency local business taxes on petitioner based on the
latter's gross revenue as reported in its financial statements, arguing that gross
receipts is synonymous with gross earnings/revenue, which, in turn, includes
uncollected earnings. Petitioner, however, contends that only the portion of the
revenues which were actually and constructively received should be considered in
determining its tax base.
Respondent is authorized to levy business taxes under Section 143 in relation to
Section 151 of the Local Government Code.

Insofar as petitioner is concerned, the applicable provision is subsection (e), Section
143 of the same Code covering contractors and other independent contractors, to
wit:
SEC. 143. Tax on Business. - The municipality may impose taxes on the
following businesses:
xxxx
(e) On contractors and other independent contractors, in accordance with
the following schedule:
With gross receipts for the preceding Amount of Tax Per
calendar year in the amount of: Annum
xxxx
(Emphasis supplied)
The above provision specifically refers to gross receipts which is defined under
Section 131 of the Local Government Code, as follows:
xxxx
(n) "Gross Sales or Receipts" include the total amount of money or its
equivalent representing the contract price, compensation or service fee,
including the amount charged or materials supplied with the services and
the deposits or advance payments actually or constructively received
during the taxable quarter for the services performed or to be performed
for another person excluding discounts if determinable at the time of sales,
sales return, excise tax, and value-added tax (VAT);
xxxx
The law is clear. Gross receipts include money or its equivalent actually or
constructively received in consideration of services rendered or articles sold,
exchanged or leased, whether actual or constructive.
In Commissioner of Internal Revenue v. Bank of Commerce,17 the Court
interpreted gross receipts as including those which were actually or constructively
received, viz.:
Actual receipt of interest income is not limited to physical receipt.
Actual receipt may either be physical receipt or constructive
receipt. When the depository bank withholds the final tax to pay the tax
liability of the lending bank, there is prior to the withholding a constructive
receipt by the lending bank of the amount withheld. From the amount
constructively received by the lending bank, the depository bank deducts
the final withholding tax and remits it to the government for the account of
the lending bank. Thus, the interest income actually received by the
lending bank, both physically and constructively, is the net interest plus the
amount withheld as final tax.
The concept of a withholding tax on income obviously and necessarily
implies that the amount of the tax withheld comes from the income earned
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
by the taxpayer. Since the amount of the tax withheld constitutes income
earned by the taxpayer, then that amount manifestly forms part of the
taxpayer's gross receipts. Because the amount withheld belongs to the
taxpayer, he can transfer its ownership to the government in payment of
his tax liability. The amount withheld indubitably comes from income of the
taxpayer, and thus forms part of his gross receipts. (Emphasis supplied)
Further elaboration was made by the Court in Commissioner of Internal Revenue v.
Bank of the Philippine Islands,18in this wise:
Receipt of income may be actual or constructive. We have held that the
withholding process results in the taxpayer's constructive receipt of the
income withheld, to wit:
By analogy, we apply to the receipt of income the rules
on actual and constructive possession provided in Articles 531 and 532 of
our Civil Code.
Under Article 531:
"Possession is acquired by the material occupation of a thing or
the exercise of a right, or by the fact that it is subject to the
action of our will, or by the proper acts and legal formalities
established for acquiring such right."
Article 532 states:
"Possession may be acquired by the same person who is to enjoy
it, by his legal representative, by his agent, or by any person
without any power whatever; but in the last case, the possession
shall not be considered as acquired until the person in whose
name the act of possession was executed has ratified the same,
without prejudice to the juridical consequences of negotiorum
gestio in a proper case."
The last means of acquiring possession under Article 531 refers to
juridical actsthe acquisition of possession by sufficient titleto
which the law gives the force of acts of possession. Respondent
argues that only items of income actually received should be
included in its gross receipts. It claims that since the amount had
already been withheld at source, it did not have actual receipt
thereof.
We clarify. Article 531 of the Civil Code clearly provides that the
acquisition of the right of possession is through the proper acts
and legal formalities established therefor. The withholding process
is one such act. There may not be actual receipt of the income
withheld; however, as provided for in Article 532, possession by
any person without any power whatsoever shall be considered as
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

acquired when ratified by the person in whose name the act of or expected to be received." (Section E [17] of the Statements of
possession is executed. Financial Accounting Standards No. 1).24

In our withholding tax system, possession is acquired by the
payor as the withholding agent of the government, because the
taxpayer ratifies the very act of possession for the government.
There is thus constructive receipt. The processes of bookkeeping
and accounting for interest on deposits and yield on deposit
substitutes that are subjected to FWT are indeedfor legal
purposestantamount to delivery, receipt or remittance.19
In petitioner's case, its audited financial statements reflect income or revenue which
accrued to it during the taxable period although not yet actually or constructively
received or paid. This is because petitioner uses the accrual method of accounting,
where income is reportable when all the events have occurred that fix the
taxpayer's right to receive the income, and the amount can be determined with
reasonable accuracy; the right to receive income, and not the actual receipt,
determines when to include the amount in gross income.25

Revenue Regulations No. 16-2005 dated September 1, 200520 defined and gave
examples of "constructive receipt", to wit:
SEC. 4. 108-4. Definition of Gross Receipts. -- x x x
"Constructive receipt" occurs when the money consideration or its
equivalent is placed at the control of the person who rendered the service
without restrictions by the payor. The following are examples of
constructive receipts:
(1) deposit in banks which are made available to the seller of services
without restrictions;
(2) issuance by the debtor of a notice to offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered; and
(3) transfer of the amounts retained by the payor to the account of the
contractor.
The imposition of local business tax based on petitioner's gross revenue will
inevitably result in the constitutionally proscribed double taxation taxing of the
same person twice by the same jurisdiction for the same thing26 inasmuch as
petitioner's revenue or income for a taxable year will definitely include its gross
receipts already reported during the previous year and for which local business tax
has already been paid.
Thus, respondent committed a palpable error when it assessed petitioner's local
business tax based on its gross revenue as reported in its audited financial
statements, as Section 143 of the Local Government Code and Section 22(e) of the
Pasig Revenue Code clearly provide that the tax should be computed based on gross
receipts.
WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006
and Resolution dated February 9, 2007 issued by the Court of Appeals are SET
ASIDE, and the Decision dated March 8, 2004 rendered by the Regional Trial Court
of Pasig, Branch 168 is REINSTATED.
SO ORDERED.

There is, therefore, constructive receipt, when the consideration for the articles
sold, exchanged or leased, or the services rendered has already been placed under
the control of the person who sold the goods or rendered the services without any
restriction by the payor.

In contrast, gross revenue covers money or its equivalent actually or constructively

received, including the value of services rendered or articles sold,
exchanged or leased, the payment of which is yet to be received. This is in
consonance with the International Financial Reporting Standards,21 which
defines revenue as the gross inflow of economic benefits (cash, receivables, and
other assets) arising from the ordinary operating activities of an enterprise (such as
sales of goods, sales of services, interest, royalties, and dividends),22 which is
measured at the fair value of the consideration received or receivable.23

As aptly stated by the RTC:

"[R]evenue from services rendered is recognized when services have

been performed and are billable." It is "recorded at the amount received

[198] G.R. No. L-30745 January 18, 1978
PHILIPPINE MATCH CO., LTD., plaintiff-appellant,
vs.
THE CITY OF CEBU and JESUS E. ZABATE, Acting City Treasurer, defendants-
appellees.
Pelaez, Pelaez & Pelaez for appellant.
Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.
AQUINO, J.:
This case is about the legality of the tax collected by the City of Cebu on sales of
matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to
customers outside of the City.
Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and
also approved by the provincial board) is "an ordinance imposing a quarterly tax on
gross sales or receipts of merchants, dealers, importers and manufacturers of any
commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%)
on the gross sales, receipts or value of commodities sold, bartered, exchanged or
manufactured in the city in excess of P2,000 a quarter.
Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of
goods or commodities stored in the City of Cebu, or if not stored are sold" in that
city, "shall be considered as sales" in the city and shall be taxable.
Thus, it would seem that under the tax ordinance sales of matches consummated
outside of the city are taxable as long as the matches sold are taken from the
company's stock stored in Cebu City.
The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the
manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships
cases or cartons of matches from Manila to its branch office in Cebu City for
storage, sale and distribution within the territories and districts under its Cebu
branch or the whole Visayas-Mindanao region. Cebu City itself is just one of the
eleven districts under the company's Cebu City branch office.
The company does not question the tax on the matches of matches consummated in
Cebu City, meaning matches sold and delivered within the city.
It assails the legality of the tax which the city treasurer collected on out-of- town
deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City
but shipped directly to customers outside of the city; (2) transfers of matches to
newsmen assigned to different agencies outside of the city and (3) shipments of
matches to provincial customers pursuant to salesmen's instructions.
The company paid under protest to the city t the sum of P12,844.61 as one percent
sales tax on those three classes of out-of-town deliveries of matches for the second
quarter of 1961 to the second quarter of 1963.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
In paying the tax the company accomplished the verified forms furnished by the city
treasurers office. It submitted a statement indicating the four kinds of transactions
enumerated above, the total sales, and a summary of the deliveries to the different
agencies, as well as the invoice numbers, names of customers, the value of the
sales, the transfers of matches to salesmen outside of Cebu City, and the
computation of taxes.
Sales of matches booked and paid for in Cebu City but shipped directly to customers
outside of the city refer to orders for matches made in the city by the company's
customers, by means of personal or phone calls, for which sales invoices are issued,
and then the matches are shipped from the bodega in the city, where the matches
had been stored, to the place of business or residences of the customers outside of
the city, duly covered by bills of lading The matches are used and consumed outside
of the city.
Transfers of matches to salesmen assigned to different agencies outside of the city
embrace equipments of matches from the branch office in the city to the salesmen
(provided with panel cars) assigned within the province of Cebu and in the different
districts in the Visayas and Mindanao under the jurisdiction or supervision of the
Cebu City branch office. The shipments are covered by bills of lading. No sales
invoices whatever are issued. The matches received by the salesmen constitute
their direct cash accountability to the company. The salesmen sell the matches
within their respective territories. They issue cash sales invoices and remit the
proceeds of the sales to the company's Cebu branch office. The value of the unsold
matches constitutes their stock liability. The matches are used and consumed
outside of the city.
Shipments of matches to provincial customers pursuant to newsmens instructions
embrace orders, by letter or telegram sent to the branch office by the company's
salesmen assigned outside of the city. The matches are shipped from the company's
bodega in the city to the customers residing outside of the city. The salesmen issue
the sales invoices. The proceeds of the sale, for which the salesmen are accountable
are remitted to the branch office. As in the first and seconds of transactions above-
mentioned, the matches are consumed and used outside of the city.
The company in its letter of April 15, 1961 to the city treasurer sought the refund of
the sales tax paid for out-of-town deliveries of matches. It invoked Shell Company
of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, 105 Phil. 1263. In
that case sales of oil and petroleum products effected outside the territorial limits of
Sipocot, were held not to be subject to the tax imposed by an ordinance of that
municipality.
The city treasurer denied the request. His stand is that under section 9 of the
ordinance all out-of-town deliveries of latches stored in the city are subject to the
sales tax imposed by the ordinance.
On August 12, 1963 the company filed the complaint herein, praying that the
ordinance be d void insofar as it taxed the deliveries of matches outside of Cebu
City, that the city be ordered to refund to the company the said sum of P12,844.61
as excess sales tax paid, and that the city treasurer be ordered to pay damages.

After hearing, the trial court sustained the tax on the sales of matches booked and
paid for in Cebu City although the matches were shipped directly to customers
outside of the city. The lower court held that the said sales were consummated in
Cebu City because delivery to the carrier in the city is deemed to be a delivery to
the customers outside of the city.
But the trial court invalidated the tax on transfers of matches to salesmen assigned
to different agencies outside of the city and on shipments of matches to provincial
customers pursuant to the instructions of the newsmen It ordered the defendants to
refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town
deliveries with legal rate of interest from the respective dates of payment.
The trial court characterized the tax on the other two transactions as a "storage tax"
and not a sales tax. It assumed that the sales were consummated outside of the
city and, hence, beyond the city's taxing power.
The city did not appeal from that decision. The company appealed from that portion
of the decision upholding the tax on sales of matches to customers outside of the
city but which sales were booked and paid for in Cebu City, and also from the
dismissal of its claim for damages against the city treasurer.
The issue is whether the City of Cebu can tax sales of matches which were perfected
and paid for in Cebu City but the matches were delivered to customers outside of
the City.
We hold that the appeal is devoid of merit bemuse the city can validly tax the sales
of matches to customers outside of the city as long as the orders were booked and
paid for in the company's branch office in the city. Those matches can be regarded
as sold in the city, as contemplated in the ordinance, because the matches were
delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to
the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs. Yangco, 38 Phil. 602).
A different interpretation would defeat the tax ordinance in question or encourage
tax evasion through the simple expedient of arranging for the delivery of the
matches at the out. skirts of the city through the purchase were effected and paid
for in the company's branch office in the city.
The municipal board of Cebu City is empowered "to provide for the levy and
collection of taxes for general and purposes in accordance with law" (Sec. 17[a],
Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu
city).
The taxing power validly delegated to cities and municipalities is defined in the Local
Autonomy Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the Philippines,
Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976, 69 SCRA 460),
which took effect on June 19, 1959 and which provides:
SEC. 2. Taxation. Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and municipal
districts shall have authority to impose municipal license taxes or
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities,. municipalities or
municipal districts by requiring them to secure licenses at rates
fixed by the municipal board or city council of the city, the
municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for
services rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes,
licenses or fees;
Provided, That municipalities and municipal districts shall, in no
case, impose any percentage tax on sales or other taxes in any
form based thereon nor impose taxes on articles subject to
specific tax, except gasoline, under the provisions of the National
International Revenue Code;
Provided, however, That no city, municipality or municipal districts
may levy or impose any of the following: (here follows an
enumeration of internal revenue taxes)
xxx xxx xxx *
Note that the prohibition against the imposition of percentage taxes (formerly
provided for in section 1 of Commonwealth Act No. 472) refers to municipalities and
municipal districts but not to chartered cities. (See Local Tax Code, P.D. No. 231.
Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan Samar, 120
Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L-23794, February
17, 1968, 22 SCRA 603).
Note further that the taxing power of cities, municipalities and municipal districts
may be used (1) "upon any person engaged in any occupation or business, or
exercising any privilege" therein; (2) for services rendered by those political
subdivisions or rendered in connection with any business, profession or occupation
being conducted therein, and (3) to levy, for public purposes, just and uniform
taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117
Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City).
Applying that jurisdictional test to the instant case, it is at once obvious that sales
of matches to customers outside oil Cebu City, which sales were booked and paid
for in the company's branch office in the city, are subject to the city's taxing power.
The instant case is easily distinguishable from the Shell Company case where the
price of the oil sold was paid outside of the municipality of Sipocot, the entity
imposing the tax.
On the other hand, the ruling in Municipality of Jose Panganiban, Province of
Camarines Norte vs. Shell Company of the Philippines, Ltd., L-18349, July 30, 1966,
17 SCRA 778 that the place of delivery determines the taxable situs of the property
to be taxed cannot properly be invoked in this case. Republic Act No. 1435, the law
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

which enabled the Municipality of Jose Panganiban to levy the sales tax involved in treasurer acted wilfully or was grossly t in not refunding to the plaintiff the taxes
that case, specifies that the tax may be levied upon oils "distributed within the which it paid under protest on out-of-town sales of matches.
limits of the city or municipality", meaning the place where the oils were delivered.
That feature of the Jose Panganiban case distinguished it from this case.
The record clearly reveals that the city treasurer honestly believed that he was
justified under section 9 of the tax ordinance in collecting the sales tax on out-of-
The sales in the instant case were in the city and the matches sold were stored in town deliveries, considering that the company's branch office was located in Cebu
the city. The fact that the matches were delivered to customers, whose places of City and that all out-of-town purchase order for matches were filled up by the
business were outside of the city, would not place those sales beyond the city's branch office and the sales were duly reported to it.
taxing power. Those sales formed part of the merchandising business being
assigned on by the company in the city. In essence, they are the same as sales of
The city treasurer acted within the scope of his authority and in consonance with his
matches fully consummated in the city.
bona fide interpretation of the tax ordinance. The fact that his action was not
completely sustained by the courts would not him liable for We have upheld his act
Furthermore, because the sellers place of business is in Cebu City, it cannot be of taxing sales of matches booked and paid for in the city.
sensibly argued that such sales should be considered as transactions subject to the
taxing power of the political subdivisions where the customers resided and accepted
"As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y
delivery of the matches sold.
liable to one injured in consequence of an act performed within the scope of his
official authority, and in the line of his official duty." "Where an officer is invested
The company in its second assignment of error contends that the trial court erred in with discretion and is empowered to exercise his judgment in matters brought
not ordering defendant acting city treasurer to pay exemplary damages of P20,000 before him. he is sometimes called a quasi-judicial officer, and when so acting he is
and attorney's fees. usually given immunity from liability to persons who may be injured as the result or
an erroneous or mistaken decision, however erroneous his judgment may be.
provided the acts complained of are done within the scope of the officer's authority
The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil
and without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in Philippine
Code. It is argued that the city treasurer refused and neglected without just cause
Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241).
to perform his duty and to act with justice and good faith. The company faults the
city treasurer for not following the opinion of the city fiscals, as legal adviser of the
city, that all out-of-town deliveries of matches are not subject to sales tax because It has been held that an erroneous interpretation of an ordinance does not
such transactions were effected outside of the city's territorial limits. constitute nor does it amount to bad faith that would entitle an aggrieved party to
an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That
salutary in addition to moral temperate, liquidated or compensatory damages (Art.
In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance
2229, Civil Code). Attorney's fees are being claimed herein as actual damages. We
in question he was simply complying with his duty as collector of taxes (Sec. 50,
find that it would not be just and equitable to award attorney's fees in this case
Revised Charter of Cebu City). Moreover, he had no choice but to enforce the
against the City of Cebu and its (See Art. 2208, Civil Code).
ordinance because according to section 357 of the Revised Manual of Instruction to
Treasurer's "a tax ordinance win be enforced in accordance with its provisions" until
d illegal or void by a competent court, or otherwise revoked by the council or board WHEREFORE, the trial court's judgment is affirmed. No costs.
from which it originated.
SO ORDERED.
Furthermore, the Secretary of Finance had reminded the city treasurer that a tax
ordinance approved by the provincial board is operative and must be enforced
without prejudice to the right of any affected taxpayer to assail its legality in the
judicial forum. The fiscals opinion on the legality of an ordinance is merely advisory
and has no binding effect.

Article 27 of the Civil Code provides that "any person suffering material or moral
lose because a public servant or employee refuses or neglects, without just cause,
to perform his official duty may file an action for damages and other relief against
the latter, without prejudice to any disciplinary administrative action that may be
taken."

Article 27 presupposes that the refuse or omission of a public official is attributable

to malice or inexcusable negligence. In this case, it cannot be said that the city

[199] G.R. No. 177332, October 01, 2014
NATIONAL POWER CORPORATION, Petitioner, v. CITY OF CABANATUAN,
REPRESENTED BY ITS CITY MAYOR, HON. HONORATO PEREZ, Respondents.
DECISION
LEONEN, J.:
This is a petition for review1 under Rule 45, seeking to annul and set aside the
January 15, 2007 decision2 and April 3, 2007 resolution3 of the Court of Appeals in
CA-G.R. SP. No. 88377. The questioned decision dismissed petitioner's petition for
certiorari and affirmed the October 25, 2004 order 4 of the Regional Trial Court of
Cabanatuan City (Branch 30) directing the issuance of a writ of execution against
petitioner for the satisfaction of the amount of P11,172,479.55, representing the
balance of petitioner's franchise tax liabilities plus 25% surcharge from 1992 to
2002. The resolution denied petitioner's motion for reconsideration.
Antecedents
The City of Cabanatuan (the City) assessed the National Power Corporation
(NAPOCOR) a franchise tax amounting to P808,606.41, representing 75% of 1% of
its gross receipts for 1992. NAPOCOR refused to pay, arguing that it is exempt from
paying the franchise tax.5 Consequently, on November 9, 1993, the City filed a
complaint6 before the Regional Trial Court of Cabanatuan City, demanding
NAPOCOR to pay the assessed tax due plus 25% surcharge and interest of 2% per
month of the unpaid tax, and costs of suit.
In the order7 dated January 25, 1996, the trial court declared that the City could not
impose a franchise tax on NAPOCOR and accordingly dismissed the complaint for
lack of merit. In the March 12, 2001 decision8 of the Court of Appeals (Eighth
Division) in CA-G.R. CV No. 53297, the appellate court reversed the trial court and
found NAPOCOR liable to pay franchise tax, as follows:chanRoblesvirtualLawlibrary
IN VIEW OF THE FOREGOING, the decision appealed from is SET
ASIDE and REVERSED. Defendant-appellee National Power Corporation is hereby
ordered to pay the City of Cabanatuan, to wit:
1. The sum of P808,606.41 representing business tax based on gross receipts
for the year 1992, and
2. The tax due every year thereafter based [o]n the gross receipts earned by
NPC,
3. In all cases, to pay a surcharge of 25% of the tax due and unpaid, and
4. The sum of P10,000.00 as litigation expenses.
SO ORDERED.9
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
In its April 9, 2003 decision,10 this court affirmed the Court of Appeals' March 12,
2001 decision and July 10, 2001 resolution. In its August 27, 2003 resolution,11 this
court denied with finality NAPOCOR's motion for reconsideration.
After the court's decision had become final, the City filed with the trial court a
motion for execution12dated December 1, 2003 to collect the sum of
P24,030,565.2613 (inclusive of the 25% surcharge of P13,744,096.69). In its
comment,14 NAPOCOR prayed that the issuance of the writ be suspended pending
resolution of its protest letter dated December 12, 2003 filed with the City Treasurer
of Cabanatuan City on the computation of the surcharge. NAPOCOR also informed
the court of its payment to the City Treasurer of P12,868,085.71 in satisfaction of
the judgment award.15chanrobleslaw
Subsequently, the City filed a supplemental motion for execution16 dated January
29, 2004, claiming that the gross receipts upon which NAPOCOR's franchise tax
liabilities are to be determined should include transactions within the coverage area
of Nueva Ecija Electric Cooperative III and sales from the different municipalities of
the provinces of Tarlac, Pangasinan, Baler, and Dingalan, Aurora. According to
information allegedly gathered by the City, these were transacted and
consummated at NAPOCOR's sub-station in Cabanatuan City.17chanrobleslaw
NAPOCOR filed its comment/opposition18 dated March 29, 2004, praying that the
supplemental motion be denied for having raised new factual matters. NAPOCOR
emphasized that "the Court of Appeals Decision limits the franchise tax payable
based on the gross receipts from sales to Cabanatuan City's electric
cooperative."19chanrobleslaw
The City filed an amended motion for execution dated June 29, 2004,20 praying that
"a writ of execution be issued by [the] Court directing [NAPOCOR] to pay . . . the
amount of P69,751,918.19 without prejudice to the collection of the balance, if
any."21 NAPOCOR filed its comment22 again, praying that' the grant of the amended
motion be denied and/or suspended pending final resolution of its protest.
On October 25, 2004, the trial court issued the order23 resolving the pending
motions filed by the City and NAPOCOR's corresponding comments. The trial court
agreed with NAPOCOR that "the tenor of the decision [sought to be executed] limits
the franchise tax payable on gross receipts from sales to [the City's] electric
cooperative."24 However, the trial court sustained the City's computation of the
surcharge totalling P13,744,096.69 over NAPOCOR's claim of P2,571,617.14
only.25chanrobleslaw
NAPOCOR assailed the trial court's order dated October 25, 2004 through a petition
for certiorari26 with the Court of Appeals.
On January 15, 2007, the Court of Appeals promulgated the assailed decision
dismissing' NAPOCOR's petition for certiorari and affirming the trial court's order. It
held that since the franchise tax due was computed yearly, the 25%) surcharge
should also be computed yearly based on the total unpaid tax for each particular
year.27 The appellate court agreed with the City's reasoning that non-imposition of
the surcharge on a cumulative basis would encourage rather than discourage non-
payment of taxes.28 In its resolution29 dated April 3, 2007, the Court of Appeals also
denied NAPOCOR's motion for reconsideration.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

Hence, the present petition for review30 was filed. surcharge/penalty of P13,744,096.69.

According to petitioner, the trial court and the Court of Appeals disregarded the
provisions of Section 168 of Republic Act No. 7160 or the Local Government Code of
1991, which provides:chanRoblesvirtualLawlibrary
SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. The
sanggunian may impose a surcharge not exceeding twenty-five (25%) of the
amount of taxes, fees or charges not paid on time and an interest at the rate not
exceeding two percent (2%) per month of the unpaid taxes, fees or charges
including surcharges, until such amount is fully paid but in no case shall the total
interest on the unpaid amount or portion thereof exceed thirty-six (36) months.
(Emphasis supplied)
Petitioner submits that from the foregoing provision, the surcharge should only be
P2,571,617.14, computed by applying the 25% surcharge against the total amount
of taxes not paid on time, which is the total amount of tax due from 1992 to 2002,
or P10,286,468.57. In imposing a surcharge of P13,744,096.69 instead of
P2,571,617.14, the trial court allegedly "varied and/or exceeded the terms of the
judgment sought to be executed."31chanrobleslaw
Issue
This Court finds the computation of the [respondent] more in accord with the
decision in this case. The [petitioner] was imposed taxes based on the gross
receipts yearly. The tax due was computed yearly and therefore, it can be
interpreted to mean that the 25% surcharge should also be computed yearly based
on the unpaid tax due for each particular year.
Based on these computations, by adding the total tax due for the year 1992 to 2002
(P10,286,468.57), the total surcharge/penalty (P13,744,096.69) and the litigation
expenses (P10,000.00) as contained in the dispositive portion, the [petitioner] has a
total liability of P24,040,565.26. Since the [petitioner] has already paid the sum of
P12,868,085.71; its total liability therefore is P11,172,479.55.33 (Emphasis
supplied)
The trial court sustained respondent's computation of the surcharge based on the
total unpaid tax for each year [proper tax for the year + unpaid tax of the previous
year/s], which, in effect, resulted in the imposition of the 25% surcharge for every
year of default in the payment of a franchise tax, thereby arriving at the total
amount of P13,744,096.69. Petitioner, on the other hand, insists a one-time
application of the 25% surcharge based on the total franchise tax due and unpaid
(P10,286,468.57 from 1992 to 2002), arriving at the sum of only P2,571,617.14.

The sole issue before the court is the proper interpretation for purposes of execution This court's ruling
of the dispositive portion of the Court of Appeals' decision in CA-G.R. CV No. 53297,
promulgated on March 12, 2001 (which was affirmed by this court's April 9, 2003 The petition is meritorious.
decision in G.R. No. 149110). The dispositive portion
reads:chanRoblesvirtualLawlibrary The trial court's order of execution,
as affirmed by the Court of Appeals,
exceeded the judgment sought to be
IN VIEW OF THE FOREGOING, the decision appealed from is SET
executed
ASIDE and REVERSED. Defendant-appellee National Power Corporation is hereby
ordered to pay the City of Cabanatuan, to wit:
Respondent's computation of the surcharge, as sustained by the trial court and the
1. The sum of P808,606.41 representing business tax based on gross receipts for
Court of Appeals, varies the terms of the judgment sought to be executed and
the year 1992, and
contravenes Section 168 of the Local Government Code.
2. The tax due every year thereafter based [o]n the gross receipts earned by NPC,
3. In all cases, to pay a surcharge of 25% of the tax due and unpaid, and
To repeat, respondent computed the surcharge based on the total unpaid tax for
4. The sum of P10,000.00 as litigation expenses.32 (Emphasis supplied)
each particular year. For example, in 1993, the proper tax due (P821,401.17) was
added the unpaid tax due in year 1992 (P808,606.41), obtaining the sum of
In other words, the crucial point to be resolved is what the Court of Appeals meant
Pl,630,007.58 as total unpaid tax. To this amount of P1,630,007.58 was applied the
by "[i]n all cases, to pay a surcharge of 25% of the tax due and unpaid" in the
25% surcharge, giving the amount of P407,501.89. In 1994, the proper tax due
dispositive portion.
(P1,075,855.62) was added the unpaid taxes for 1992 and 1993 (P1,630,007.58),
yielding a total unpaid tax of P2,705,863.20. To this sum of P2,705,863.20 was
The trial court resolved the question, as follows:chanRoblesvirtualLawlibrary
applied the 25% surcharge, obtaining the amount of P676,465.80. The same
computation was made on the succeeding years up to the year 2002. The
[Petitioner] obtained the amount of P2,571,617.14 by getting the 25% of surcharges from 1992 to 2002 were added, giving the total amount of
PI0,256,468.57, the total unpaid tax due. Whereas, the [respondent], by further P13,744,096.69. Thus:chanRoblesvirtualLawlibrary
studying the data on record, obtained the 25% of the tax due yearly. The total
unpaid tax due for example in year 1992 (P808,606.41) would be added the tax due
Year Tax Due Unpaid Surcharge
for 1993 (P821.401.17), obtaining the sum of P1,630,007.58 as unpaid tax due.
1992 P 808,606.41 P 808,606.41 P 202,151.60
From this amount of P1,630,007.58 is to be taken the 25% surcharge, giving the
1993 821,401.17 1,630,007.58 407,501.89
amount of P407,501.89 to be added to the amount of P202.151.60, the 25% of the
1994 1,075,855.62 2,705,863.20 676,465.80
unpaid amount of P80.8,606.41. The same computation was made on the
1995 1,161,016.63 3,866,879.83 966,719.96
succeeding years up to the year 2002 giving the total amount of the
1996 449,599.84 4,316,479.67 1,079,119.92
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

1997 614,608.97 4,931,088.65 1,232,722.16 penalties embodied in a judgment. We must yield to the specific language of
1998 519,967.33 5,451,055.97 1,362,763.99 the fallo which is controlling and construe its meaning in the light of the applicable
1999 238,439.87 5,689,495.84 1,422,373.96 laws.
2000 1,030,108.81 6,719,604.65 1,679,901.16
2001 1,851,231.76 8,570,836.40 2,142,709.10 For clarity, we reiterate the pertinent portion of the
2002 1.715.632.16 10,286,468.57 2.571,617.14 dispositive:chanRoblesvirtualLawlibrary
Total 10,286,468.57 P13,744,096.6934
1. The sum of P808,606.41 representing business tax based on gross receipts for
In effect, respondent's computation resulted in the imposition of the 25%o the year 1992, and
surcharge for every year of default in the payment of a franchise tax. To illustrate,
the surcharge for the 1992 franchise tax is 25% of P808,606.41 [proper tax due] 2. The tax due every year thereafter based [o]n the gross receipts earned by NPC,
multiplied by 11 years [1992 to 2002]; for the 1993 franchise tax, 25% of
P821,401.17 [proper tax due] multiplied by 10 years [1993 to 2002]; for the 1994 3. In all cases, to pay a surcharge of 25% of the tax due and unpaid, and. .
franchise tax, 25% of P1,075,855.62 [proper tax due] multiplied by 9 years [1994 . 39(Emphasis supplied)
to 2002]; and so on, as detailed below:chanRoblesvirtualLawlibrary
The fallo says "tax due and unpaid," which simply means tax owing or owed or "tax
Year Tax Due + Surcharge due that was not paid." The "and" is "a conjunction used to denote a joinder or
union, 'binding together,' 'relating the one to the other.'"40 In the context of the
1992 P808,606.41 P2,223,668 (25% x 808,606.41 x decision rendered, there is no ambiguity.
11)
1993 821,401.17 2,053,503 (25% x 821,401.17x10) As understood from the common and usual meaning of the conjunction "and," the
1994 1,075,855.62 2,420,675 (25% x 1,075,855.62x9) words "tax due" and "unpaid" are inseparable. Hence, when the taxpayer does not
1995 1,161,016.63 2,322,033 (25% x 1,161,016.63x8) pay its tax due for a particular year, then a surcharge is applied on the full amount
1996 449,599.84 786,799 (25% x 449,599.84 x 7) of the tax due. However, when the taxpayer makes a partial payment of the tax
1997 614,608.97 921,913 (25% x 614,608.97x6) due, the surcharge is applied only on the balance or the part of the tax due that
1998 519,967.33 649,959 (25% x 519,967.33x5) remains unpaid. It is in this sense that the fallo of the Court of Appeals decision
1999 238,439.87 238,439 (25% x 238,439.87x4) should be read, i.e., a 25% surcharge is to be added to the proper franchise tax
2000 1,030,108.81 772,581 (25% x 1,030,108.81 x so due and unpaid for each year.
3)
2001 1,551,231.76 925,615 (25% x 1,851,231.76x2) The proper franchise tax due each year is computed, with paragraphs 1 and 2 of
2002 1,715,632.16 428,908 (25% x 1,715,632.16 x the fallo being applied, based on the gross receipts earned by
1) NAPOCOR:chanRoblesvirtualLawlibrary
Total P10,286,468.57 ~P13,744,093
Year Tax Due
There is nothing in the Court of Appeals' decision that would justify the 1992 P 808,606.41
interpretation that the statutory penalty of 25% surcharge should be charged yearly 1993 821,401.17
from due date until full payment. If that was the intention of the Court of Appeals, it 1994 1,075,855.62
should have so expressly stated in the dispositive portion of its decision. 1995 1,161,016.63
1996 449,599.84
Respondent contends that in its complaint before the trial court, it prayed that 1997 614,608.97
petitioner be ordered to pay the franchise tax due, plus 25% surcharge and 2% 1998 519,967.33
monthly interest in accordance with Section 168 of the Local Government 1999 238,439.87
Code.35 However, the appellate court allegedly did not award the 2% monthly 2000 1,030,108.81
interest, and the only probable reason why it did not do so notwithstanding the 2001 1,851,231.76
express provision of law was because of Article 122636 of the Civil Code stating that 2002 1,715,632.16
the "penalty [25% surcharge] shall substitute the indemnity for damages and the Total P10,286,468.5741
payment of interest in case of non-compliance."37 Hence, it contended that sans the
payment of monthly interest, the "one time [sic] imposition of the [surcharge] Since the franchise tax due was not paid on time, a surcharge of 25% is imposed as
regardless of the number of years of delay [would] be a great transgression of [its] an addition to the main tax required to be paid. This is the proper meaning of
right."38chanrobleslaw paragraph 3 o the fallo. Thus:chanRoblesvirtualLawlibrary

Respondent's theory is implausible.

Year Tax Due + Surcharge
1992 P 808,606.41 P 202,151.60 (25% x 808,606.41)
Article 1226 of the Civil Code refers to penalties prescribed in contracts, not to
1993 821,401.17 205,350.29 (25% x 821,401.17)
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

1994 1,075,855.62 268,963.91 (25% x clarification insofar as it failed to provide for the payment of the 2% monthly
1,075,855.62) interest. Instead, it erroneously presumed that the surcharge was to be applied
1995 1,161,016.63 290,254.16 (25% x yearly with the omission of the payment for monthly interest in the judgment.
1,161,016.63) Hence, respondent alone is to blame and should suffer the consequences of its
1996 449,599.84 112,399.96 (25% x 449,599.84) neglect. With the finality of the Court of Appeals' judgment, all the issues between
1997 614,608.97 153,652.24 (25% x 614,608.97) the parties are deemed resolved and laid to rest. Neither the trial court nor even
1998 519,967.33 129,991.83 (25% x 519,967.33) this court can amend or add to the dispositive portion of a decision that has attained
1999 238,439.87 59,609.97 (25% x 238,439.87) finality.
2000 1,030,108.81 257,527.20 (25% x
1,030,108.81) The judgment directing the
2001 1,851,231.76 462,807.94 (25% x payment of surcharge on
1,851,231.76) taxes due and unpaid should
2002 1.715,632.16 428.908.04 (25% x be read in consonance with
1.715.632.16) Section 168 of the Local
Total P 10,286,468.57 P 2,571,617.14 Government Code

It is a fundamental rule that the execution cannot be wider in scope or exceed the
judgment or decision on which it is based; otherwise, it has no validity.42 "It is the
final judgment that determines and stands as the source of the rights and
obligations of the parties."43 In Collector of Internal Revenue v. Gutierrez,44 this
court did not allow the collection of the 5% surcharge and 1% monthly interest
because the decision sought to be executed did not expressly provide for the
payment of the same.
It is the final judgment that determines and stands as the source of the rights and
obligations of the parties. The judgment in this case made no pronouncement as to
the payment of surcharge and interest, but specifically stated the amount for the
payment of which respondents were liable. The Collector by virtue of the writ of
execution, may not vary the terms of the judgment by including in his motion for
execution the payment of surcharge and interest.
"The writ of execution must conform to the judgment which is to be executed, as it
may not vary the terms of the judgment it seeks to enforce. Nor may it go beyond
the terms of the judgment sought to be executed. Where the execution is not in
harmony with the judgment which gives it life and exceeds it, it has pro tanto no
validity." (Moran, Comments on the Rules of Court, 1957 ed., Vol. I, p. 556, and
authorities cited therein.)45
In The Philippine American Accident Insurance Co., Inc. v. Hon. Flores,46 the trial
court's order directing the issuance of an alias writ of execution for the satisfaction
of the compound interest computed by private respondent was set aside by this
court, ruling that the judgment sought to be executed ordered only the payment of
a simple interest:chanRoblesvirtualLawlibrary
Section 168 of the Local Government Code categorically provides that the local
government unit may impose a surcharge not exceeding 25% of the amount of
taxes, fees, or charges not paid on time.
SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. The
sanggunian may impose a surcharge not exceeding twenty-five (25%) of the
amount of taxes, fees or charges not paid on time and an interest at the rate not
exceeding two percent (2%) per month of the unpaid taxes, fees or charges
including surcharges, until such amount is fully paid but in no case shall the total
interest on the unpaid amount or portion thereof exceed thirty-six (36) months.
(Emphasis supplied)
The surcharge is a civil penalty imposed once for late payment of a tax.48 Contrast
this with the succeeding provisions on interest, which was imposable at the rate not
exceeding 2% per month of the unpaid taxes until fully paid. The fact that the
interest charge is made proportionate to the period of delay, whereas the surcharge
is not, clearly reveals the legislative intent for the different modes in their
application.
Indeed, both the surcharge and interest are imposable upon failure of the taxpayer
to pay the tax on the date fixed in the law for its payment. The surcharge is
imposed to hasten tax payments and to punishfor evasion or neglect of duty,49 while
interest is imposed to compensate the State "for the delay in paying the tax and for
the concomitant use by the taxpayer of funds that rightfully should be in the
government's hands."50chanrobleslaw

The questioned Order cannot be sustained. The judgment which was sought to be A surcharge regardless of how it is computed is already a deterrent. While it is true
executed ordered the payment of simple "legal interest" only. It said nothing about that imposing a higher amount may be a more effective deterrent, it cannot be done
the payment of compound interest. Accordingly, when the respondent judge ordered in violation of law and in such a way as to make it confiscatory. We find this
the payment of compound interest he went beyond the confines of his own reasoning not compelling for us to deviate from the express provisions of Section
judgment which had been affirmed by the Court of Appeals and which had become 168 of the Local Government Code. When a law speaks unequivocally, it is not the
final. Fundamental is the rule that execution must conform to that ordained or province of this court to scan its wisdom or its policy.
decreed in the dispositive part of the decision. Likewise, a court can not [sic],
except for clerical errors or omissions, amend a judgment that has become This court has steadfastly adhered to the doctrine that its first and fundamental
final.47 (Citation omitted) duty is the application of the law according to its plain terms, interpretation being
called for only when such literal application is impossible. Neither the court nor the
Respondent should have filed an appeal from the judgment or at the least sought City has the power to modify the penalty.51chanrobleslaw
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

We conclude that the trial court committed grave abuse of discretion amounting to
If the legislative intent was to make the 25% surcharge proportionate to the period lack or excess of jurisdiction in issuing its order dated October 25, 2004, which
of delay, the law should have provided for the same in clear terms. adopted respondent's computation and effectively varied the terms of the judgment
sought to be executed insofar as it imposed a surcharge of P13,744,096.69 on the
Generally, tax statutes are construed strictly against the government and in favor of total tax due (P10,286,468.57) from 1992 to 2002 instead of only P2,571,617.14.
the taxpayer. 52 "[Statutes levying taxes or duties [are] not to extend their
provisions beyond the clear import of the language used";53 and "tax burdens are Taxes and its surcharges and penalties cannot be construed in such a way as to
not to be imposed, nor presumed to be imposed beyond what the statute[s] become oppressive and confiscatory. Taxes are implied burdens that ensure that
expressly and clearly [import]. . . ."54 Similarly, we cannot impose a penalty for individuals and businesses prosper in a conducive environment assured by good and
non-payment of a tax greater than what the law provides.55 To do so would amount effective government. A healthy balance should be maintained such that laws are
to a deprivation of property without due process of law. interpreted in a way that these burdens do not amount to a confiscatory outcome.
Taxes are not and should not be construed to drive businesses into insolvency. To a
Respondent's computation of the surcharge is oppressive and certain extent, a reasonable surcharge will provide incentive to pay; an
unconscionable unreasonable one delays payment and engages government in unnecessary
litigation and expense.
The yearly accrual of the 25% surcharge is unconscionable. Respondent's
computation of the total tax due plus surcharge is reproduced below for easy Since it is undisputed that petitioner had already paid the amount of f
reference. 12,868,085.7157 (including litigation expenses of P10,000.00) to the City Treasurer
of Cabanatuan City, the judgment has accordingly been fully satisfied.
Year Tax Due Unpaid Surcharge Total
(.25 x Unpaid) WHEREFORE, the petition is GRANTED and the Court of Appeals decision and
resolution dated January 15, 2007 and April 3, 2007 are REVERSED AND SET
1992 P 808,606.41 P 808,606.41 P 202,151.60 P 1,010,758.01
ASIDE. The order dated October 25, 2004 of the Regional Trial Court of
1993 821,401.17 1,630,007.58 407,501.89 1,228,903.06 Cabanatuan City, Branch 30, in Civil Case No. 1659 AF granting the writ of
1994 1,075,855.62 2,705,863.20 676,465.80 1,752,321.42 execution for the satisfaction of the amount of P11,172,479.55 is ANNULLED AND
1995 1,161,016.63 3,866,879.83 966,719.96 2,127,736.59 SET ASIDE.
1996 449,599.84 4,316,479.67 1,079,119.92 1,528,719.76
1997 614,608.97 4,931,088.65 1,232,722.16 1,847,381.13
1998 519,967.33 5,451,055.97 1,362,763.99 1,882,731.32
1999 238,439.87 5,689,495.84 1,422,373.96 1,660,813.83
2000 1,030,108.81 6,719,604.65 1,679,901.16 2,710,009.97
2001 1,851,231.76 8,570,836.40 2,142,709.10 3,993,940.86
2002 1,715,632.16 10,286,468.57 2,571,617.14 4,287,249.31
Total P P 54,976,386.76 P 13,744,096.69 P
10,286,468.57 24,030,565.2656

Respondent's yearly imposition of the 25% surcharge, which was sustained by the
trial court and the Court of Appeals, resulted in an aggregate penalty that is way
higher than petitioner's basic tax liabilities.

Furthermore, it effectively exceeded the prescribed 72% ceiling for interest under
Section 168 of the Local Government Code. The law allows the local government to
collect an interest at the rate not exceeding 2% per month of the unpaid taxes,
fees, or charges including surcharges, until such amount is fully paid. However, the
law provides that the total interest on the unpaid amount or portion thereof should
not exceed thirty-six (36) months or three (3) years. In other words, respondent
cannot collect a total interest on the unpaid tax including surcharge that is
effectively higher than 72%. Here, respondent applied the 25% cumulative
surcharge for more than three years. Its computation undoubtedly exceeded the
72% ceiling imposed under Section 168 of the Local Government Code. Hence,
respondent's computation of the surcharge is oppressive and unconscionable.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[200] G.R. No. 154092 July 14, 2005
MOBIL PHILIPPINES, INC., Petitioners,
vs.
THE CITY TREASURER OF MAKATI and the CHIEF OF THE LICENSE
DIVISION OF THE CITY OF MAKATI,Respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision1 dated
November 22, 2001 of the Regional Trial Court of Pasig City, Branch 268, in Civil
Case No. 67599, subsequently affirmed in an Order2 dated May 15, 2002.
Petitioner is a domestic corporation engaged in the manufacturing, importing,
exporting and wholesaling of petroleum products, while respondents are the local
government officials of the City of Makati charged with the implementation of the
Revenue Code of the City of Makati, as well as the collection and assessment of
business taxes, license fees and permit fees within said city.3
Prior to September 1998, petitioners principal office was at the National
Development Company Building, in 116 Tordesillas St., Salcedo Village, Makati City.
On August 20, 1998, petitioner filed an application with the City Treasurer of Makati
for the retirement of its business within the City of Makati as it moved its principal
place of business to Pasig City.4
On September 11, 1998, petitioner paid the assessed amount of 1,898,106.96
under protest. The City Treasurer issued therefor Official Receipt No.
9065025C8 and approved the petitioners application for retirement of business from
Makati to Pasig City.
On July 21, 1999, petitioner filed a claim for 1,331,638.84 refund.9 On August 11,
1999, petitioner received a letter10 denying the claim for refund on the ground that
petitioner was merely transferring and not retiring its business, and that the gross
sales realized while petitioner still maintained office in Makati from January 1 to
August 31, 1998 should be taxed in the City of Makati.11
Petitioner subsequently filed a petition with the Regional Trial Court of Pasig City,
Branch 268, seeking the refund of business taxes erroneously collected by the City
of Makati.
In its Decision, the trial court ruled as follows:
In summary, the pertinent law provides that a person or entity doing business in
the Municipality shall be subject to business tax. The tax shall be fixed by the
quarter. The initial tax for the quarter in which a business starts to operate shall be
two and one-half percent (2%) of one percent (1%) of its capital investment.
Thereafter, the tax shall be computed based on the gross sales or receipts of the
preceding quarter. In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross sales or receipts for the
preceding calendar year. That tax shall accrue on the first day of January of each
year and payment shall be made within the first 20 days of January or of each
subsequent quarter as the case may be.

In its application, petitioner declared its gross sales/receipts as follows: Considering therefore that the business tax accrues only on the first day of January
as provided in Sec. 3A.07 and becomes payable within the first 20 days thereof or
Gross Sales Receipts for Calendar Year 1997 P 453,799,493.29 of each subsequent quarter, the payments made by Mobil in the year 1998 are
therefore payments for the business tax for 1997 which accrued in January of 1998
Gross Sales Receipts for Calendar Year 1998 267,952,766.675
and became payable within the first 20 days of January or of each subsequent
quarter. Thus, upon retirement in August 1998, the taxes for said year which should
January to August accrue in January 1999 [become] immediately payable before the application for
retirement can be approved (Ibid, (g), Sec. 3A.08). The assessment of the Chief of
the License Division of Makati is therefore with legal basis and does not constitute
Upon evaluation of petitioners application, then OIC of the License Division, Ms.
double taxation.
Jesusa E. Cuneta, issued to petitioner, a billing slip6 assessing the following taxes
against petitioner:
WHEREFORE, premises considered, the instant petition for refund is hereby DENIED
and the case is dismissed for lack of merit.
For the 4th Quarter of 1998 (based on 1997 gross sales)

SO ORDERED.12
As Manufacturer 14,439.54
As Wholesaler 550,778.58
Garbage Fee 1,250.00 Petitioner filed a Motion for Reconsideration13 which was denied in an Order dated
Sub-Total 566,468.12 May 15, 2002, hence this appeal.
For the Gross Sales made in 1998
As Manufacturer 40,008.33 Before us, petitioner alleges now that,
As Wholesaler 1,291,630.51
Sub-Total __1,331,638.84
TOTAL ASSESSED BUSINESS TAXES 1,898,106.967

THE TRIAL COURT ERRED IN HOLDING THAT PETITIONERS BUSINESS TAX
PAYMENTS MADE IN 1998 ARE ACTUALLY PAYMENTS FOR BUSINESS TAXES IN
1997. THIS CONCLUSION IS CONTROVERTED BY MAKATI CITYS REVENUE CODE,
AND, IN FACT, CONSTITUTES DOUBLE TAXATION.14
Simply stated, the issue is: Are the business taxes paid by petitioner in 1998,
business taxes for 1997 or 1998?
According to petitioner, the 1997 gross sales/revenue is merely the basis for the
amount of business taxes due for the privilege of carrying on a business in the year
when the tax was paid.
For their part, respondents argue that since local taxes, which include business
taxes, are paid either within the first twenty days of January of each year or of each
subsequent quarter, as the case may be, what the taxpayer actually pays during the
recorded calendar year is actually its business tax for the preceding year.
Prefatorily, it is necessary to distinguish between a business tax vis--vis an income
tax.
Business taxes imposed in the exercise of police power for regulatory purposes are
paid for the privilege of carrying on a business in the year the tax was paid. It is
paid at the beginning of the year as a fee to allow the business to operate for the
rest of the year. It is deemed a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising from property,
professions, trades or offices, or as a tax on a persons income, emoluments, profits
and the like. It is tax on income, whether net or gross realized in one taxable
year.15 It is due on or before the 15th day of the 4th month following the close of
the taxpayers taxable year and is generally regarded as an excise tax, levied upon
the right of a person or entity to receive income or profits.
The trial court erred when it said that the payments made by petitioner in 1998 are
payments for business tax incurred in 1997 which only accrued in January 1998.
Likewise, it erred when it ruled that petitioner was still liable for business taxes
based on its gross income/revenue for January to August 1998.
Section 3A.04 of the Makati City Revenue Code states:
Sec.3A.04. Computation of tax for newly-started business. In the case of newly-
started business under Sec. 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k),
(l), and (m) above, the tax shall be fixed by the quarter. The initial tax of the
quarter in which the business starts to operate shall be two and one half percent (2
%) of one percent (1%) of the capital investment.
In the succeeding quarter or quarters, in cases where the business opens before the
last quarter of the year, the tax shall be based on the gross sales or receipt for the
preceding quarter at one-half ( ) of the rates fixed therefor by the pertinent
schedule in Section 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and
(m).
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
In the succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross sales or receipts for the preceding
calendar year, or any fraction thereof as provided in the same pertinent schedules.16
Under the Makati Revenue Code, it appears that the business tax, like income tax, is
computed based on the previous years figures. This is the reason for the confusion.
A newly-started business is already liable for business taxes (i.e. license fees) at the
start of the quarter when it commences operations. In computing the amount of tax
due for the first quarter of operations, the business capital investment is used as
the basis. For the subsequent quarters of the first year, the tax is based on the
gross sales/receipts for the previous quarter. In the following year(s), the business
is then taxed based on the gross sales or receipts of the previous year. The
business taxes paid in the year 1998 is for the privilege of engaging in business for
the same year, and not for having engaged in business for 1997.
Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par. (g) which
states:
...
(g) Retirement of business.
...
For purposes thereof, termination shall mean that business operation are stopped
completely.
...
(2) If it is found that the retirement or termination of the business is legitimate,
[a]nd the tax due therefrom be less than the tax due for the current year based on
the gross sales or receipts, the difference in the amount of the tax shall be paid
before the business is considered officially retired or terminated.17
Based on this foregoing provision, on the year an establishment retires or
terminates its business within the municipality, it would be required to pay the
difference in the amount if the tax collected, based on the previous years gross
sales or receipts, is less than the actual tax due based on the current years gross
sales or receipts.
For the year 1998, petitioner paid a total of 2,262,122.48 to the City Treasurer of
Makati18 as business taxes for the year 1998. The amount of tax as computed based
on petitioners gross sales for 1998 is only 1,331,638.84. Since the amount paid is
more than the amount computed based on petitioners actual gross sales for 1998,
petitioner upon its retirement is not liable for additional taxes to the City of Makati.
Thus, we find that the respondent erroneously treated the assessment and
collection of business tax as if it were income tax, by rendering an additional
assessment of 1,331,638.84 for the revenue generated for the year 1998.
WHEREFORE, the assailed Decision is hereby REVERSED and respondents City
Treasurer and Chief of the License Division of Makati City are ordered to REFUND to
petitioner business taxes paid in the amount of 1,331,638.84. Costs against
respondents. SO ORDERED.

[201] G.R. No. 131359 May 5, 1999
MANILA ELECTRIC COMPANY, petitioner,
vs.
PROVINCE OF LAGUNA and BENITO R. BALAZO, in his capacity as Provincial
Treasurer of Laguna, respondents.
VITUG, J.:
On various dates, certain municipalities of the Province of Laguna, including, Bian,
Sta. Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws
then in effect, issued resolutions through their respective municipal councils
granting franchise in favor of petitioner Manila Electric Company ("MERALCO") for
the supply of electric light, heat and power within their concerned areas. On 19
January 1983, MERALCO was likewise granted a franchise by the National
Electrification Administration to operate an electric light and power service in the
Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local
Government Code of 1991," was enacted to take effect on 01 January 1992
enjoining local government units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the limitations expressed therein, consistent
with the basic policy of local autonomy. Pursuant to the provisions of the Code,
respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on
businesses enjoying a franchise, at a rate of fifty percent (50%) of
one percent (1%) of the gross annual receipts, which shall include
both cash sales and sales on account realized during the preceding
calendar year within this province, including the territorial limits
on any city located in the province.
On the basis of the above ordinance, respondent Provincial Treasurer sent a
demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO
paid the tax, which then amounted to P19,520.628.42, under protest. A formal
claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of
Laguna claiming that the franchise tax it had paid and continued to pay to the
National Government pursuant to P.D. 551 already included the franchise tax
imposed by the Provincial Tax Ordinance. MERALCO, contended that the imposition
of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92,
insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D.
551 which read:
Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of
franchises to generate, distribute and sell electric current for light,
heat and power shall be two per cent (2%) of their gross receipts
received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Such franchise tax shall be payable to the Commissioner of
Internal Revenue or his duly authorized representative on or
before the twentieth day of the month following the end of each
calendar quarter or month, as may be provided in the respective
franchise or pertinent municipal regulation and shall, any provision
of the Local Tax Code or any other law to the contrary
notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on
earnings, receipts, income and privilege of generation, distribution
and sale of electric current.
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed
by Governor Jose D. Lina relied on a more recent law, i.e. Republic Act No. 7160 or
the Local Government Code of 1991, than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta.
Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a writ of
preliminary injunction and/or temporary restraining order, against the Province of
Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of
Laguna. Aside from the amount of P19,520,628.42 for which petitioner MERALCO
had priorly made a formal request for refund, petitioner thereafter likewise made
additional payments under protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the
complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING
CONSIDERATIONS, JUDGMENT is hereby rendered in favor of the
defendants and against the plaintiff, by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid,
binding, reasonable and enforceable. 2
In the instant petition, MERALCO assails the above ruling and brings up the
following issues; viz:
1. Whether the imposition of a franchise tax under Section 2.09 of
Laguna Provincial Ordinance No. 01-92, insofar as petitioner is
concerned, is violative of the non-impairment clause of the
Constitution and Section 1 of Presidential Decree No. 551.
2. Whether Republic Act No. 7160, otherwise known Local
Government Code of 1991, has repealed, amended or modified
Presidential Decree No. 551.
3. Whether the doctrine of administrative remedies is applicable in
this case. 3

The petition lacks merit.
Prefatorily, it might be well to recall that local governments do not have the
inherent power to tax 4 except to the extent that such power might be delegated to
them either by the basic law or by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has been given in favor of local
government units. Thus:
Sec. 3. The Congress shall enact a local government code which
shall provide for a more responsive and accountable local
government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units
their powers, responsibilities, and resources, and provide for the
qualifications, election, appointment and removal, term, salaries,
powers and functions, and duties of local officials, and all other
matters relating to the organization and operation of the local
units.
xxx xxx xxx
Sec. 5. Each local government unit shall have the power to create
its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local
governments.
The 1987 Constitution has a counterpart provision in the 1973 Constitution
which did come out with a similar delegation of revenue making powers to
local governments. 5
Under regime of the 1935 Constitution no similar delegation of tax powers was
provided, and local government units instead derived their tax powers under a
limited statutory authority. Whereas, then, the delegation of tax powers granted at
that time by statute to local governments was confined and defined (outside of
which the power was deemed withheld), the present constitutional rule (starting
with the 1973 Constitution), however, would broadly confer such tax powers subject
only to specific exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units
are being strengthened and made more autonomous, 6 the legislature must still see
to it that (a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share of
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
available resources; (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and large,
the provisions of the now repealed Local Tax Code, which had been in effect since
01 July 1973, promulgated into law by Presidential Decree
No. 2317 pursuant to the then provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly authorizes provincial governments,
notwithstanding "any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise." Section 137 thereof provides:
Sec. 137. Franchise Tax Notwithstanding any exemption
granted by any law or other special law, the province may impose
a tax on businesses enjoying a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. In the case of
a newly started business, the tax shall not exceed one-twentieth
(1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started
to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided
herein. (Underscoring supplied for emphasis)
Indicative of the legislative intent to carry out the Constitutional mandate of vesting
broad tax powers to local government units, the Local Government Code has
effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states:
Sec. 193. Withdrawal of Tax Exemption Privileges Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing clause in its Section 534; thus:
Sec. 534. Repealing Clause. . . .
(f) All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations, or
part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly. (Underscoring supplied for emphasis) 8
To exemplify, in Mactan Cebu International Airport Authority vs. Marcos, 9 the Court
upheld the withdrawal of the real estate tax exemption previously enjoyed by
Mactan Cebu International Airport Authority. The Court ratiocinated:
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

. . . These policy considerations are consistent with the State amended by R.A. No. 39 (Carcar Electric & Ice Plant vs. Collector
policy to ensure autonomy to local governments and the objective of Internal Revenue, 53 O.G. [No. 4]. 1068). This Court pointed
of the LGC that they enjoy genuine and meaningful local out that such exemption is part of the inducement for the
autonomy to enable them to attain their fullest development as acceptance of the franchise and the rendition of public service by
self-reliant communities and make them effective partners in the the grantee. 2
attainment of national goals. The power to tax is the most
effective instrument to raise needed revenues to finance and
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
support myriad activities if local government units for the delivery
Bienvenido V. Reyes, et al., 13 the Court has held that the phrase in lieu of all taxes
of basic services essential to the promotion of the general welfare
"have to give way to the peremptory language of the Local Government Code
and the enhancement of peace, progress, and prosperity of the
specifically providing for the withdrawal of such exemptions, privileges," and that
people. It may also be relevant to recall that the original reasons
"upon the effectivity of the Local Government Code all exemptions except only as
for the withdrawal of tax exemption privileges granted to
provided therein can no longer be invoked by MERALCO to disclaim liability for the
government-owned and controlled corporations and all other units
local tax." In fine, the Court has viewed its previous rulings as laying stress more on
of government were that such privilege resulted in serious tax
the legislative intent of the amendatory law whether the tax exemption privilege
base erosion and distortions in the tax treatment of similarity
is to be withdrawn or not rather than on whether the law can withdraw, without
situated enterprises, and there was a need for these entities to
violating the Constitution, the tax exemption or not.
share in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them. 10
While the Court has, not too infrequently, referred to tax exemptions contained in
special franchises as being in the nature of contracts and a part of the inducement
Petitioner in its complaint before the Regional Trial Court cited the ruling of this
for carrying on the franchise, these exemptions, nevertheless, are far from being
Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light
strictly contractual in nature. Contractual tax exemptions, in the real sense of the
Company, Inc.; 11 thus:
term and where the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts, such as those
In an earlier case, the phrase "shall be in lieu of all taxes and at contained in government bonds or debentures, lawfully entered into by them under
any time levied, established by, or collected by any authority" enabling laws in which the government, acting in its private capacity, sheds its cloak
found in the franchise of the Visayan Electric Company was held to of authority and waives its governmental immunity. Truly, tax exemptions of this
exempt the company from payment of the 5% tax on corporate kind may not be revoked without impairing the obligations of contracts. 14 These
franchise provided in Section 259 of the Internal Revenue Code contractual tax exemptions, however, are not to be confused with tax exemptions
(Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385) granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution.15 Indeed,
Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the
Similarly, we ruled that the provision: "shall be in lieu of all taxes
1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a
of every name and nature" in the franchise of the Manila Railroad
public utility shall be granted except under the condition that such privilege shall be
(Subsection 12, Section 1, Act No. 1510) exempts the Manila
subject to amendment, alteration or repeal by Congress as and when the common
Railroad from payment of internal revenue tax for its importations
good so requires.
of coal and oil under Act No. 2432 and the Amendatory Acts of the
Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
WHEREFORE, the instant petition is hereby DISMISSED. No costs.1wphi1.nt
The same phrase found in the franchise of the Philippine Railway
Co. (Sec. 13, Act No. 1497) justified the exemption of the SO ORDERED.
Philippine Railway Company from payment of the tax on its
corporate franchise under Section 259 of the Internal Revenue
Code, as amended by R.A. No. 39 (Philippine Railway Co vs.
Collector of Internal Revenue, 91 Phil. 35).

Those magic words, "shall be in lieu of all taxes" also excused the
Cotabato Light and Ice Plant Company from the payment of the
tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato
Light and Power Co. vs. City of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and

Ice Plant Company when it was required to pay the corporate
franchise tax under Section 259 of the Internal Revenue Code, as
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

[202] G.R. No. 149110 April 9, 2003 (b) From all income taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent. (c) From all import duties, compensating taxes and advanced sales tax,
and wharfage fees on import of foreign goods required for its operations
and projects; and
PUNO, J.:

(d) From all taxes, duties, fees, imposts, and all other charges imposed by
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of
the Republic of the Philippines, its provinces, cities, municipalities and
Appeals dated March 12, 2001 and July 10, 2001, respectively, finding petitioner
other government agencies and instrumentalities, on all petroleum
National Power Corporation (NPC) liable to pay franchise tax to respondent City of
products used by the Corporation in the generation, transmission,
Cabanatuan.
utilization, and sale of electric power."12

Petitioner is a government-owned and controlled corporation created under

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City,
Commonwealth Act No. 120, as amended.4 It is tasked to undertake the
demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to
"development of hydroelectric generations of power and the production of electricity
25% of the amount of tax, and 2% monthly interest.13Respondent alleged that
from nuclear, geothermal and other sources, as well as, the transmission of electric
petitioner's exemption from local taxes has been repealed by section 193 of Rep.
power on a nationwide basis."5 Concomitant to its mandated duty, petitioner has,
Act No. 7160,14 which reads as follows:
among others, the power to construct, operate and maintain power plants, auxiliary
plants, power stations and substations for the purpose of developing hydraulic
power and supplying such power to the inhabitants.6 "Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
For many years now, petitioner sells electric power to the residents of Cabanatuan
government owned or controlled corporations, except local water districts,
City, posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
Ordinance No. 165-92,8 the respondent assessed the petitioner a franchise tax
hospitals and educational institutions, are hereby withdrawn upon the
amounting to P808,606.41, representing 75% of 1% of the latter's gross receipts
effectivity of this Code."
for the preceding year.9

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
that the tax exemption privileges granted to petitioner subsist despite the passage
Government,10 refused to pay the tax assessment. It argued that the respondent
of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular
has no authority to impose tax on government entities. Petitioner also contended
law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2)
that as a non-profit organization, it is exempted from the payment of all forms of
section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not
taxes, charges, duties or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as
favored; and (3) local governments have no power to tax instrumentalities of the
amended, viz:
national government. Pertinent portion of the Order reads:

"Sec.13. Non-profit Character of the Corporation; Exemption from all

Taxes, Duties, Fees, Imposts and Other Charges by Government and
Governmental Instrumentalities.- The Corporation shall be non-profit and
shall devote all its return from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the Corporation to
pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, the
Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs
and service fees in any court or administrative proceedings in which it may
be a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities;
"The question of whether a particular law has been repealed or not by a
subsequent law is a matter of legislative intent. The lawmakers may
expressly repeal a law by incorporating therein repealing provisions which
expressly and specifically cite(s) the particular law or laws, and portions
thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified
by its number or title is repealed is an express repeal; all others are
implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause
because it fails to identify the act or acts that are intended to be repealed.
It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and
repugnancy for the legislative is presumed to know the existing laws on the
subject and not to have enacted inconsistent or conflicting statutes. It is
also a well-settled rule that, generally, general law does not repeal a
special law unless it clearly appears that the legislative has intended by the
latter general act to modify or repeal the earlier special law. Thus, despite

the passage of R.A. No. 7160 from which the questioned Ordinance No.
165-92 was based, the tax exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the
Supreme Court in the case of Basco vs. Philippine Amusement and Gaming
Corporation, 197 SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or
controlled corporation with an original charter, PD 1869. All of its
shares of stocks are owned by the National Government. xxx
Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation
might be burdened, impeded or subjected to control by mere local
government.'
Like PAGCOR, NPC, being a government owned and controlled corporation
with an original charter and its shares of stocks owned by the National
Government, is beyond the taxing power of the Local Government.
Corollary to this, it should be noted here that in the NPC Charter's
declaration of Policy, Congress declared that: 'xxx (2) the total
electrification of the Philippines through the development of power from all
services to meet the needs of industrial development and dispersal and
needs of rural electrification are primary objectives of the nations which
shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to its tax-
ordinance would be to impede the avowed goal of this government
instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation.
Its taxing power is limited to that which is provided for in its charter or
other statute. Any grant of taxing power is to be construed strictly, with
doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very
clear that the plaintiff could not impose the subject tax on the
defendant."16
On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.18 It ordered the petitioner to pay the
respondent city government the following: (a) the sum of P808,606.41 representing
the franchise tax due based on gross receipts for the year 1992, (b) the tax due
every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to
pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00
as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of
Appeal's Decision. This was denied by the appellate court, viz:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
"The Court finds no merit in NPC's motion for reconsideration. Its
arguments reiterated therein that the taxing power of the province under
Art. 137 (sic) of the Local Government Code refers merely to private
persons or corporations in which category it (NPC) does not belong, and
that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special lawfinds the answer in Section 193 of the
LGC to the effect that 'tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except local water districts
xxx are hereby withdrawn.' The repeal is direct and unequivocal, not
implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX
AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY TO
PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A
LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT
AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD
PREVAIL OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a
franchise," pursuant to section 151 in relation to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses
enjoying a franchise, at a rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-
twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein." (emphasis
supplied)

x x x Otherwise, its operation might be burdened, impeded or subjected to
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this
Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent
component cities shall accrue to them and distributed in accordance with
the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates
allowed for the province or municipality by not more than fifty percent
(50%) except the rates of professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to
the respondent city government. It contends that sections 137 and 151 of the LGC
in relation to section 131, limit the taxing power of the respondent city government
to private entities that are engaged in trade or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected
with public interest which is conferred upon private persons or corporations, under
such terms and conditions as the government and its political subdivisions may
impose in the interest of the public welfare, security and safety." From the
phraseology of this provision, the petitioner claims that the word "private" modifies
the terms "persons" and "corporations." Hence, when the LGC uses the term
"franchise," petitioner submits that it should refer specifically to franchises granted
to private natural persons and to private corporations.23 Ergo, its charter should not
be considered a "franchise" for the purpose of imposing the franchise tax in
question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or
commercial activity regularly engaged in as means of livelihood or with a view to
profit." Petitioner claims that it is not engaged in an activity for profit, in as much as
its charter specifically provides that it is a "non-profit organization." In any case,
petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and
improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National
Government,25 and as such, may not be taxed by the respondent city government.
It cites the doctrine in Basco vs. Philippine Amusement and Gaming
Corporation26where this Court held that local governments have no power to tax
instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National
Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The
latter role is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
control by a mere local government.
'The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government
over local governments.
'Justice Holmes, speaking for the Supreme Court, made reference
to the entire absence of power on the part of the States to touch,
in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed
that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional Law,
Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as ' a tool regulation' (U.S. v.
Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to
destroy' (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled corporations, is in the nature of an
implied repeal. A special law, its charter cannot be amended or modified impliedly
by the local government code which is a general law. Consequently, petitioner
claims that its exemption from all taxes, fees or charges under its charter subsists
despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored and as much as possible, effect must be given
to all enactments of the legislature. Moreover, it has to be conceded that
the charter of the NPC constitutes a special law. Republic Act No. 7160, is a
general law. It is a basic rule in statutory construction that the enactment
of a later legislation which is a general law cannot be construed to have
repealed a special law. Where there is a conflict between a general law and
a special statute, the special statute should prevail since it evinces the
legislative intent more clearly than the general statute."28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of
police power, should prevail over the LGC. It alleges that the power of the local

government to impose franchise tax is subordinate to petitioner's exemption from
taxation; "police power being the most pervasive, the least limitable and most
demanding of all powers, including the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty,31 the exercise of taxing
power derives its source from the very existence of the state whose social contract
with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity;32 without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-
being of the people.
In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the protection of local
industries as well as public welfare and similar objectives.33 Taxation assumes even
greater significance with the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other charges34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance. For a long time, the country's highly centralized government structure
has bred a culture of dependence among local government leaders upon the
national leadership. It has also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the part of local
government leaders."35 The only way to shatter this culture of dependence is to give
the LGUs a wider role in the delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose. To achieve this goal, section
3 of Article X of the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of local autonomy, set
the guidelines and limitations to this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall
provide for a more responsive and accountable local government structure
instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local
government units their powers, responsibilities, and resources, and provide
for the qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other matters
relating to the organization and operation of the local units."
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote
local autonomy. These include the Barrio Charter of 1959,37 the Local Autonomy Act
of 1959,38 the Decentralization Act of 196739 and the Local Government Code of
1983.40 Despite these initiatives, however, the shackles of dependence on the
national government remained. Local government units were faced with the same
problems that hamper their capabilities to participate effectively in the national
development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal
control over external sources of income, (c) limited authority to prioritize and
approve development projects, (d) heavy dependence on external sources of
income, and (e) limited supervisory control over personnel of national line
agencies.41
Considered as the most revolutionary piece of legislation on local autonomy,42 the
LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws such as the
imposition of taxes on forest products, forest concessionaires, mineral products,
mining operations, and the like. The LGC likewise provides enough flexibility to
impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum
tax rates and leaves the determination of the actual rates to the
respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. Although as a general rule, LGUs cannot impose taxes,
fees or charges of any kind on the National Government, its agencies and
instrumentalities, this rule now admits an exception, i.e., when specific provisions of
the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the Local
Government Units.- Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
x x x
(o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units." (emphasis
supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation44 relied upon by the petitioner to support its
claim no longer applies. To emphasize, the Basco case was decided prior to the
effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court
ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or
agencies of the government performing governmental functions may be subject to
tax.46 In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

the specific provisions of the LGC, this Court held that MCIAA, although an serves as the petitioner's charter, defining its composition, capitalization, the
instrumentality of the national government, was subject to real property tax, viz: appointment and the specific duties of its corporate officers, and its corporate life
span.57 As its secondary franchise, Commonwealth Act No. 120, as amended, vests
the petitioner the following powers which are not available to ordinary
"Thus, reading together sections 133, 232, and 234 of the LGC, we
corporations, viz:
conclude that as a general rule, as laid down in section 133, the taxing
power of local governments cannot extend to the levy of inter alia, 'taxes,
fees and charges of any kind on the national government, its agencies and "x x x
instrumentalities, and local government units'; however, pursuant to
section 232, provinces, cities and municipalities in the Metropolitan Manila
(e) To conduct investigations and surveys for the development of water
Area may impose the real property tax except on, inter alia, 'real property
power in any part of the Philippines;
owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for consideration
or otherwise, to a taxable person as provided in the item (a) of the first (f) To take water from any public stream, river, creek, lake, spring or
paragraph of section 12.'"47 waterfall in the Philippines, for the purposes specified in this Act; to
intercept and divert the flow of waters from lands of riparian owners and
from persons owning or interested in waters which are or may be
In the case at bar, section 151 in relation to section 137 of the LGC clearly
necessary for said purposes, upon payment of just compensation therefor;
authorizes the respondent city government to impose on the petitioner the franchise
to alter, straighten, obstruct or increase the flow of water in streams or
tax in question.
water channels intersecting or connecting therewith or contiguous to its
works or any part thereof: Provided, That just compensation shall be paid
In its general signification, a franchise is a privilege conferred by government to any person or persons whose property is, directly or indirectly, adversely
authority, which does not belong to citizens of the country generally as a matter of affected or damaged thereby;
common right.48 In its specific sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The former relates to the right to
(g) To construct, operate and maintain power plants, auxiliary plants,
exist as a corporation, by virtue of duly approved articles of incorporation, or a
dams, reservoirs, pipes, mains, transmission lines, power stations and
charter pursuant to a special law creating the corporation.49 The right under a
substations, and other works for the purpose of developing hydraulic power
primary or general franchise is vested in the individuals who compose the
from any river, creek, lake, spring and waterfall in the Philippines and
corporation and not in the corporation itself.50 On the other hand, the latter refers to
supplying such power to the inhabitants thereof; to acquire, construct,
the right or privileges conferred upon an existing corporation such as the right to
install, maintain, operate, and improve gas, oil, or steam engines, and/or
use the streets of a municipality to lay pipes of tracks, erect poles or string
other prime movers, generators and machinery in plants and/or auxiliary
wires.51 The rights under a secondary or special franchise are vested in the
plants for the production of electric power; to establish, develop, operate,
corporation and may ordinarily be conveyed or mortgaged under a general power
maintain and administer power and lighting systems for the transmission
granted to a corporation to dispose of its property, except such special or secondary
and utilization of its power generation; to sell electric power in bulk to (1)
franchises as are charged with a public use.52
industrial enterprises, (2) city, municipal or provincial systems and other
government institutions, (3) electric cooperatives, (4) franchise holders,
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the and (5) real estate subdivisions x x x;
sense of a secondary or special franchise. This is to avoid any confusion when the
word franchise is used in the context of taxation. As commonly used, a franchise
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,
tax is "a tax on the privilege of transacting business in the state and exercising
encumber and otherwise dispose of property incident to, or necessary,
corporate franchises granted by the state."53 It is not levied on the corporation
convenient or proper to carry out the purposes for which the Corporation
simply for existing as a corporation, upon its property54 or its income,55 but on its
was created: Provided, That in case a right of way is necessary for its
exercise of the rights or privileges granted to it by the government. Hence, a
transmission lines, easement of right of way shall only be sought:
corporation need not pay franchise tax from the time it ceased to do business and
Provided, however, That in case the property itself shall be acquired by
exercise its franchise.56 It is within this context that the phrase "tax on businesses
purchase, the cost thereof shall be the fair market value at the time of the
enjoying a franchise" in section 137 of the LGC should be interpreted and
taking of such property;
understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a
"franchise" in the sense of a secondary or special franchise; and (2) that it is (i) To construct works across, or otherwise, any stream, watercourse,
exercising its rights or privileges under this franchise within the territory of the canal, ditch, flume, street, avenue, highway or railway of private and public
respondent city government. ownership, as the location of said works may require xxx;

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by
Rep. Act No. 7395, constitutes petitioner's primary and secondary franchises. It

(j) To exercise the right of eminent domain for the purpose of this Act in
the manner provided by law for instituting condemnation proceedings by
the national, provincial and municipal governments;
x x x
(m) To cooperate with, and to coordinate its operations with those of the
National Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds
surrounding the reservoirs of plants and/or projects constructed or
proposed to be constructed by the Corporation. Upon determination by the
Corporation of the areas required for watersheds for a specific project, the
Bureau of Forestry, the Reforestation Administration and the Bureau of
Lands shall, upon written advice by the Corporation, forthwith surrender
jurisdiction to the Corporation of all areas embraced within the watersheds,
subject to existing private rights, the needs of waterworks systems, and
the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation
shall adopt measures to prevent environmental pollution and promote the
conservation, development and maximum utilization of natural resources
xxx "58
With these powers, petitioner eventually had the monopoly in the generation and
distribution of electricity. This monopoly was strengthened with the issuance of
Pres. Decree No. 40,59 nationalizing the electric power industry. Although Exec.
Order No. 21560 thereafter allowed private sector participation in the generation of
electricity, the transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city
government's territorial jurisdiction pursuant to the powers granted to it by
Commonwealth Act No. 120, as amended. From its operations in the City of
Cabanatuan, petitioner realized a gross income of P107,814,187.96 in 1992.
Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax
in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax
simply because its stocks are wholly owned by the National Government, and its
charter characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and distinct entity from
the National Government. It can sue and be sued under its own name,61 and can
exercise all the powers of a corporation under the Corporation Code.62
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
To be sure, the ownership by the National Government of its entire capital stock
does not necessarily imply that petitioner is not engaged in business. Section 2 of
Pres. Decree No. 202963 classifies government-owned or controlled corporations
(GOCCs) into those performing governmental functions and those performing
proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock
corporation, whether performing governmental or proprietary
functions, which is directly chartered by special law or if organized under
the general corporation law is owned or controlled by the government
directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting
capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government,
and as such, are treated as absolute obligation on the part of the state to perform
while proprietary functions are those that are undertaken only by way of advancing
the general interest of society, and are merely optional on the
government.64 Included in the class of GOCCs performing proprietary functions are
"business-like" entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the
Government Service Insurance System (GSIS), and the National Water Sewerage
Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric generation of
power and the production of electricity from nuclear, geothermal and other sources,
as well as the transmission of electric power on a nationwide basis."66 Pursuant to
this mandate, petitioner generates power and sells electricity in bulk. Certainly,
these activities do not partake of the sovereign functions of the government. They
are purely private and commercial undertakings, albeit imbued with public interest.
The public interest involved in its activities, however, does not distract from the true
nature of the petitioner as a commercial enterprise, in the same league with similar
public utilities like telephone and telegraph companies, railroad companies, water
supply and irrigation companies, gas, coal or light companies, power plants, ice
plant among others; all of which are declared by this Court as ministrant or
proprietary functions of government aimed at advancing the general interest of
society.67
A closer reading of its charter reveals that even the legislature treats the character
of the petitioner's enterprise as a "business," although it limits petitioner's profits to
twelve percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or
necessary for the proper transaction of its business or to carry out the
purposes for which it was organized, to contract indebtedness and issue
bonds subject to approval of the President upon recommendation of the
Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably
necessary to carry out the business and purposes for which it was
organized, or which, from time to time, may be declared by the Board to

be necessary, useful, incidental or auxiliary to accomplish the said purpose
xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty
percent (60%) of its electricity requirement from the petitioner are likewise imposed
the cap of twelve percent (12%) on profits.69 The main difference is that the
petitioner is mandated to devote "all its returns from its capital investment, as well
as excess revenues from its operation, for expansion"70 while other franchise
holders have the option to distribute their profits to its stockholders by declaring
dividends. We do not see why this fact can be a source of difference in tax
treatment. In both instances, the taxable entity is the corporation, which exercises
the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions
under its charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal
provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act
No. 6395 exempting from, among others, "all income taxes, franchise taxes and
realty taxes to be paid to the National Government, its provinces, cities,
municipalities and other government agencies and instrumentalities." However,
section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express, albeit general, repeal
of all statutes granting tax exemptions from local taxes.72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius.73 Not being a local water district, a
cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital
or educational institution, petitioner clearly does not belong to the exception. It is
therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that
the LGUs can impose franchise tax "notwithstanding any exemption granted by any
law or other special law." This particular provision of the LGC does not admit any
exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCO's
exemption from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both
instances, we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
"It is our view that petitioners correctly rely on provisions of Sections 137
and 193 of the LGC to support their position that MERALCO's tax
exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax 'notwithstanding any
exemption granted by any law or other special law' is all-encompassing and
clear. The franchise tax is imposable despite any exemption enjoyed under
special laws.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code, tax
exemptions or incentives granted to or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled
corporations except (1) local water districts, (2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and
educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities.
It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in
the familiar maxim expressio unius est exclusio alterius. In the absence of
any provision of the Code to the contrary, and we find no other provision in
point, any existing tax exemption or incentive enjoyed by MERALCO under
existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under
the LGC the local government unit may now impose a local tax at a rate
not exceeding 50% of 1% of the gross annual receipts for the preceding
calendar based on the incoming receipts realized within its territorial
jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on
(sic) Sections 137 and 193 categorically withdrawing such exemption
subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions or privileges. No
more unequivocal language could have been used."76(emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs.77 But in
enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or other special law," the
respondent city government clearly did not intend to exempt the petitioner from the
coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of the local government units for
the delivery of basic services essential to the promotion of the general welfare and
the enhancement of peace, progress, and prosperity of the people. As this Court
observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and
all other units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated enterprises." 78 With
the added burden of devolution, it is even more imperative for government entities
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

to share in the requirements of development, fiscal or otherwise, by paying taxes or

other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001,
respectively, are hereby AFFIRMED.

SO ORDERED.

[203] G.R. No. 152675 April 28, 2004
BATANGAS POWER CORPORATION, petitioner,
vs.
BATANGAS CITY and NATIONAL POWER CORPORATION, respondents.
x--------------------x
G.R. No. 152771 April 28, 2004
NATIONAL POWER CORPORATION, petitioner,
vs.
HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66,
Makati City; BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in
his capacity as Chief Legal Officer, Batangas City; and BENJAMIN PARGAS,
in his capacity as City Treasurer, Batangas City, respondents.
DECISION
PUNO, J.:
Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of
Civil Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati
in its February 27, 2002 Decision in Civil Case No. 00-205.
The facts show that in the early 1990s, the country suffered from a crippling power
crisis. Power outages lasted 8-12 hours daily and power generation was badly
needed. Addressing the problem, the government, through the National Power
Corporation (NPC), sought to attract investors in power plant operations by
providing them with incentives, one of which was through the NPCs assumption of
payment of their taxes in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner
NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station
to NPC and transfer its plant to the latter after ten (10) years of operation. Section
11.02 of the BOT Agreement provided that NPC shall be responsible for the payment
of all taxes that may be imposed on the power station, except income taxes and
permit fees. Subsequently, Enron assigned its obligation under the BOT Agreement
to petitioner Batangas Power Corporation (BPC).
On September 13, 1992, BPC registered itself with the Board of Investments (BOI)
as a pioneer enterprise. On September 23, 1992, the BOI issued a certificate of
registration1 to BPC as a pioneer enterprise entitled to a tax holiday for a period of
six (6) years. The construction of the power station in respondent Batangas City
was then completed. BPC operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer
Teodulfo A. Deguito, sent a letter to BPC demanding payment of business taxes and
penalties, commencing from the year 1994 as provided under Ordinance XI or the
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
1992 Batangas City Tax Code.2 BPC refused to pay, citing its tax-exempt status as a
pioneer enterprise for six (6) years under Section 133 (g) of the Local Government
Code (LGC).3
On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax
claim4 and demanded payment of business taxes from BPC only for the years 1998-
1999. He acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry
but its tax exemption period expired on September 22, 1998, six (6) years after its
registration with the BOI on September 23, 1992. The city treasurer held that
thereafter BPC became liable to pay its business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced
from the date of its commercial operation on July 16, 1993, not from the date of its
BOI registration in September 1992.5 It furnished the city with a BOI letter6 wherein
BOI designated July 16, 1993 as the start of BPCs income tax holiday as BPC was
not able to immediately operate due to force majeure. BPC claimed that the local
tax holiday is concurrent with the income tax holiday. In the alternative, BPC
asserted that the city should collect the tax from the NPC as the latter assumed
responsibility for its payment under their BOT Agreement.
The matter was not put to rest. The city legal officer insisted7 that BPCs tax holiday
has already expired, while the city argued that it directed its tax claim to BPC as it
is the entity doing business in the city and hence liable to pay the taxes. The city
alleged that it was not privy to NPCs assumption of BPCs tax payment under their
BOT Agreement as the only parties thereto were NPC and BPC.
BPC adamantly refused to pay the tax claims and reiterated its position.8 The city
was likewise unyielding on its stand.9 On August 26, 1999, the NPC
intervened.10 While admitting assumption of BPCs tax obligations under their BOT
Agreement, NPC refused to pay BPCs business tax as it allegedly constituted an
indirect tax on NPC which is a tax-exempt corporation under its Charter.11
In view of the deadlock, BPC filed a petition for declaratory relief12 with the Makati
Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling that
it was not bound to pay the business taxes imposed on it by the city. It alleged that
under the BOT Agreement, NPC is responsible for the payment of such taxes but as
NPC is exempt from taxes, both the BPC and NPC are not liable for its payment. NPC
and Batangas City filed their respective answers.
On February 23, 2000, while the case was still pending, the city refused to issue a
permit to BPC for the operation of its business unless it paid the assessed business
taxes amounting to close to 29M.
In view of this supervening event, BPC, whose principal office is in Makati City, filed
a supplemental petition13 with the Makati RTC to convert its original petition into an
action for injunction to enjoin the city from withholding the issuance of its business
permit and closing its power plant. The city opposed on the grounds of lack of
jurisdiction and lack of cause of action.14 The Supplemental Petition was nonetheless
admitted by the Makati RTC.

On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held
that: (1) BPC is liable to pay business taxes to the city; (2) NPCs tax exemption
was withdrawn with the passage of R.A. No. 7160 (The Local Government Code);
and, (3) the 6-year tax holiday granted to pioneer business enterprises starts on
the date of registration with the BOI as provided in Section 133 (g) of R.A. No.
7160, and not on the date of its actual business operations.15
BPC and NPC filed with this Court a petition for review on certiorari16 assailing the
Makati RTC decision. The petitions were consolidated as they impugn the same
decision, involve the same parties and raise related issues.17
In G.R. No. 152771, the NPC contends:
I
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY
RULED THAT PETITIONER NPC HAS LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE
SECTION 193 OF R.A. 7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH
PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A
LEGISLATION, WHICH IS A GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND
THAT SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY MENTIONED
IN THE REPEALING CLAUSE IN SECTION 534 OF R.A. 7160, AMONG OTHERS.
II
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY
OMITTED THE CLEAR PROVISION OF SECTION 133, PARAGRAPH (O) OF R.A. 7160
WHICH EXEMPTS "NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES" FROM THE IMPOSITION OF "TAXES, FEES OR CHARGES OF
ANY KIND."
III
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY
ADMITTED BPCs SUPPLEMENTAL PETITION FOR INJUNCTION NOTWITHSTANDING
THAT IT HAD NO JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF
BATANGAS) SOUGHT TO BE ENJOINED.
In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it
liable for payment of business taxes even if it is undisputed that NPC has already
assumed payment thereof; and, 2) in ruling that BPCs 6-year tax holiday
commenced on the date of its registration with the BOI as a pioneer enterprise.
The issues for resolution are:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
1. whether BPCs 6-year tax holiday commenced on the date of its BOI
registration as a pioneer enterprise or on the date of its actual commercial
operation as certified by the BOI;
2. whether the trial court had jurisdiction over the petition for injunction
against Batangas City; and,
3. whether NPCs tax exemption privileges under its Charter were
withdrawn by Section 193 of the Local Government Code (LGC).
We find no merit in the petition.
On the first issue, petitioners BPC and NPC contend that contrary to the impugned
decision, BPCs 6-year tax holiday should commence on the date of its actual
commercial operations as certified to by the BOI, not on the date of its BOI
registration.
We disagree. Sec. 133 (g) of the LGC, which proscribes local government units
(LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six
years from the date of registration, applies specifically to taxes imposed by
the local government, like the business tax imposed by Batangas City on
BPC in the case at bar. Reliance of BPC on the provision of Executive Order No.
226,18 specifically Section 1, Article 39, Title III, is clearly misplaced as the six-
year tax holiday provided therein which commences from the date of
commercial operation refers to income taxes imposed by the national
government on BOI-registered pioneer firms. Clearly, it is the provision of the
Local Government Code that should apply to the tax claim of Batangas City against
the BPC. The 6-year tax exemption of BPC should thus commence from the date of
BPCs registration with the BOI on July 16, 1993 and end on July 15, 1999.
Anent the second issue, the records disclose that petitioner NPC did not oppose
BPCs conversion of the petition for declaratory relief to a petition for injunction or
raise the issue of the alleged lack of jurisdiction of the Makati RTC over the petition
for injunction before said court. Hence, NPC is estopped from raising said issue
before us. The fundamental rule is that a party cannot be allowed to participate in a
judicial proceeding, submit the case for decision, accept the judgment only if it is
favorable to him but attack the jurisdiction of the court when it is adverse.19
Finally, on the third issue, petitioners insist that NPCs exemption from all taxes
under its Charter had not been repealed by the LGC. They argue that NPCs Charter
is a special law which cannot be impliedly repealed by a general and later legislation
like the LGC. They likewise anchor their claim of tax-exemption on Section 133 (o)
of the LGC which exempts government instrumentalities, such as the NPC, from
taxes imposed by local government units (LGUs), citing in support thereof the case
of Basco v. PAGCOR.20
We find no merit in these contentions. The effect of the LGC on the tax exemption
privileges of the NPC has already been extensively discussed and settled in the
recent case of National Power Corporation v. City of Cabanatuan.21 In said
case, this Court recognized the removal of the blanket exclusion of
government instrumentalities from local taxation as one of the most
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

significant provisions of the 1991 LGC. Specifically, we stressed that Section
193 of the LGC,22 an express and general repeal of all statutes granting
exemptions from local taxes, withdrew the sweeping tax privileges previously
enjoyed by the NPC under its Charter. We explained the rationale for this
provision, thus:
In recent years, the increasing social challenges of the times expanded the
scope of state activity, and taxation has become a tool to realize social
justice and the equitable distribution of wealth, economic progress and the
protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the ratification
of the 1987 Constitution. Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct
authority to levy taxes, fees and other charges pursuant to Article X,
section 5 of the 1987 Constitution, viz:
Neither can the NPC successfully rely on the Basco case23 as this was decided prior
to the effectivity of the LGC, when there was still no law empowering local
government units to tax instrumentalities of the national government.
Consequently, when NPC assumed the tax liabilities of the BPC under their 1992
BOT Agreement, the LGC which removed NPCs tax exemption privileges had
already been in effect for six (6) months. Thus, while BPC remains to be the entity
doing business in said city, it is the NPC that is ultimately liable to pay said taxes
under the provisions of both the 1992 BOT Agreement and the 1991 Local
Government Code.
IN VIEW WHEREOF, the petitions are DISMISSED. No costs.
SO ORDERED.

Section 5.- Each Local Government unit shall have the power to
create its own sources of revenue, to levy taxes, fees and charges
subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the Local
Governments.

This paradigm shift results from the realization that genuine development
can be achieved only by strengthening local autonomy and promoting
decentralization of governance. For a long time, the countrys highly
centralized government structure has bred a culture of dependence among
local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in
matters of local development on the part of local government leaders. The
only way to shatter this culture of dependence is to give the LGUs a wider
role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal, x x x the
1987 Constitution mandates Congress to enact a local government code
that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers x x x."

To recall, prior to the enactment of the x x x Local Government Code x x x, various

measures have been enacted to promote local autonomy. x x x Despite these
initiatives, however, the shackles of dependence on the national government
remained. Local government units were faced with the same problems that hamper
their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external
sources of income, (c) limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the

LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax
base of LGUs to include taxes which were prohibited by previous laws x x x.

[204] G.R. No. 118900 February 27, 2003
JARDINE DAVIES INSURANCE BROKERS, INC., petitioner,
vs.
HON. ERNA ALIPOSA, in her capacity as Presiding Judge of Branch 150 of
the Makati Regional Trial Court, CITY (previously Municipality) OF MAKATI
and ROLANDO M. CARLOS, in his capacity as Acting Treasurer of
Makati, respondents.
DECISION
CALLEJO, SR., J.:
Pursuant to Republic Act No. 7160, otherwise known as the Local Government Code
of 1991, the then Sangguniang Bayan of Makati enacted Municipal Ordinance No.
92-072, otherwise known as the Makati Revenue Code, which provides, inter
alia, for the schedule of real estate, business and franchise taxes in the Municipality
of Makati at rates higher than those in the Metro Manila Revenue Code.
On May 10, 1993, the Philippine Racing Club, Inc. ("PRCI" for brevity), a taxpayer of
Makati, appealed to the Department of Justice ("DOJ" for brevity) for the
nullification of said ordinance, alleging that it was approved without previous public
hearings, in violation of the Local Government Code and Article 276 of its
Implementing Rules, and that some of the ordinances provisions were
unconstitutional:
(2) "The in-lieu-of-all-taxes clause of the franchise of the Philippine Racing
Club, Inc. exempts it from payment of the real property tax, annual
business tax and other new taxes imposed by the ordinance here in
question. To withdraw the exemption would impair the obligation of
contract in violation of its constitutional right as franchise holder.
(3) "The imposition of the franchise tax is not within the scope of the
taxing powers of the Municipality of Makati (Sections 134, 137 and 142 of
Republic Act No. 7160 and Articles 223, 226 and 231 of Rule XXX of the
Implementing Rules and Regulations of the Local Government Code of
1991). and
(4) "The Municipality of Makati already shares 5 of the 25% franchise tax
provided for in Section 8 of the franchise of the Philippine Racing Club, Inc.
To allow the said municipality to impose another franchise tax and to base
the tax on the gross annual receipts, as it does in the ordinance, would
certainly be unjust, excessive, oppressive or confiscatory (Section 130 of
Republic Act No. 7160 and Article 219 of Rule XXX of the Implementing
Rules and Regulations).1
Although required by the DOJ to comment on the appeal, respondent Makati failed
to do so.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
On July 5, 1993, the DOJ came out with a resolution2 declaring "null and void and
without legal effect" the said ordinance for having been enacted in contravention of
Section 187 of the Local Government Code of 1991 and its implementing rules and
regulations.3
On August 19, 1993, respondent Makati sought a reconsideration of the ruling of the
DOJ. Pending resolution of its motion, said respondent filed a petition ad
cautelam4 with the Regional Trial Court (RTC) of Makati, entitled Hon. Jejomar C.
Binay and the Municipality of Makati, Petitioners, v. Hon. Franklin M. Drilon,
Department of Justice and Philippine Racing Club, Inc., Respondents, and docketed
as Case No. 93-2844. The case was raffled to Branch 148 of the Makati RTC.
Respondent Makati alleged, inter alia, that public hearings were conducted before
the approval of the ordinance and hence the ordinance was valid. It prayed that
after due proceedings judgment be rendered in its favor, thus:
WHEREFORE, petitioners respectfully pray that this Honorable Court promulgate
judgment:
(a) declaring null and void the DOJ Decision dated July 5, 1993; and
(b) allowing the full implementation of Makati Municipal Ordinance No. 92-
072.
Petitioners pray for such further or other reliefs as this Honorable Court may deem
just and equitable.5
In the meantime, respondent Makati continued to implement the ordinance.
Petitioner Jardine Davies Insurance Brokers, Inc., a duly-organized corporation with
principal place of business at No. 222 Sen. Gil J. Puyat Avenue, Makati, Metro
Manila, was assessed and billed by Makati the amount of P63,822.47 for taxes, fees
and charges under the ordinance for the second quarter of 1993. It was again billed
by respondent Makati the same amount for the third quarter of 1993 and the same
amount for the fourth quarter of 1993. Petitioner did not protest the assessment for
its quarterly business taxes for the second, third and fourth quarters of 1993 based
on said ordinance effective April 1, 1993. Petitioner, in fact, paid the said amounts
on April 26, 1993 (for the second quarter), July 12, 1993 (for the third quarter) and
October 19, 1993 (for the fourth quarter), respectively, without any protest.
Respondent Makati issued the corresponding receipts in favor of petitioner.6
On January 30, 1994, petitioner wrote the municipal treasurer of Makati requesting
that respondent Makati compute its business tax liabilities in accordance with the
Metro Manila Revenue Code and not under the ordinance considering that said
ordinance was already declared by the DOJ null and void. Petitioner likewise
requested that respondent Makati credit the overpayment in the total amount of
P27,854.91 for the second to fourth quarters of 1993 against its 1994 liabilities for
1994, or in the alternative, for Makati to refund the said amount to petitioner.
In a Letter7 dated February 4, 1994, respondent Makati, through Maximo L. Paulino
Jr., Acting Chief of its Municipal License Division, denied the request of petitioner for
tax credit/refund. Respondent Makati insisted that the questioned ordinance code
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

was valid and enforceable pending the final outcome of its petition ad cautelam with
the Regional Trial Court of Makati.
In the meantime, on October 26, 1993, the RTC rendered judgment in Case No. 93-
2844 granting the petition of Makati and declaring the ordinance valid. On
November 9, 1993, the DOJ issued a memorandum to the Chief State Counsel
directing the latter to refrain from accepting any appeal or to act on pending
appeals on the validity/constitutionality of the ordinance until the same shall have
been finally resolved by courts of competent jurisdiction.
On August 29, 1994, the RTC issued an order granting the motion to dismiss of
respondent and ordering the dismissal of the complaint. The trial court ruled that
plaintiffs cause of action, if any, had prescribed. Citing Sections 187 and 195 of the
Local Government Code of 1991, the trial court ratiocinated that petitioner failed to
file an opposition or protest to the written notice of assessment of Makati for taxes,
fees and charges at rates provided for in the ordinance within 60 days from the
notice of said assessment as required by Section 195 of the Local Government
Code. Hence, petitioner was barred from demanding a refund of its payment or that
it be credited for said amounts.

Petitioner received a copy of said order on October 7, 1994. On October 13, 1994,
When informed of the denial by respondent Makati of its letter-request, petitioner
petitioner filed with the trial court a motion for reconsideration10 of the order of
filed a complaint on March 7, 1994 with the RTC of Makati against respondents
dismissal, arguing that the trial court erred in applying Section 195 of the Local
Makati and its Acting Municipal Treasurer. The case was raffled to Branch 150 of
Government Code of 1991 as its complaint did not involve an assessment for
said court. Petitioner alleged in its complaint that in view of the resolution of the
deficiency taxes but one for refund/tax credit. Petitioner further claimed that it was
DOJ declaring the Makati Revenue Code "null and void and without legal effect," the
never served with any notice of assessment from respondents and hence there was
provisions of the Metro Manila Revenue Code continued to remain in full force and
no need for petitioner to protest. Petitioner argued that what was applicable was
effect; however, petitioner was assessed and billed by respondent Makati for taxes,
Section 196 of the Local Government Code in conjunction with Article 286 of its
fees and charges for second, third and fourth quarters for 1993 beginning on April
Implementing Rules and Regulations, both of which simply require the filing of a
4, 1993 up to October 14, 1994 at rates fixed in the ordinance despite the nullity
written claim for refund or tax credit within two years from the date of payment.
thereof. Petitioner prayed that after due proceedings judgment be rendered as
follows:
On December 28, 1994, the trial court issued an order11 denying the motion for
reconsideration of petitioner, a copy of which was served on petitioner on February
1. Declaring as NULL AND VOID Municipal Ordinance No. 92-072, (Makati
13, 1995. The trial court declared that Section 195 of the Local Government Code
Revenue Code) of the Municipality of Makati and ordering Defendants to
covers all kinds of assessments and not merely deficiency assessments for taxes,
refund or issue as tax credit in favor of Plaintiff the sum of P27,854.91 plus
fees or charges. The trial court further ruled that the issue of the validity and
interest.
constitutionality of the ordinance was still pending resolution by Branch 148 of the
RTC in Civil Case No. 93-2844 and until declared null and void, otherwise by final
2. Assuming without admitting that the Municipal Ordinance No. 92-072 judgment, the ordinance remained valid.
(Makati Revenue Code) is valid, declaring that the rates imposed by said
ordinance accrue only on July 1, 1993 and ordering Defendants to refund
Petitioner filed on February 20, 1995 a petition for review on certiorari under Rule
or issue as tax credit in favor of Plaintiff the sum of P9,284.97.8
45 of the Rules of Court, contending that:

On May 18, 1994, respondents Makati and its Acting Municipal Treasurer filed a
RESPONDENT JUDGE ERRED IN HOLDING THAT THE INSTANT CASE IS NOT A
motion to dismiss9 the complaint on the ground of prematurity. They argued that
CLAIM FOR REFUND UNDER SECTION 196 OF THE LGC IN RELATION TO ARTICLE
petitioners cause of action was predicated on the appealed resolution of the DOJ,
286 OF ITS IMPLEMENTING RULES, BUT A DEFICIENCY ASSESSMENT THAT HAS TO
and unless and until nullified by final judgment of a competent court, the ordinance
BE PROTESTED UNDER SECTION 195 OF THE SAME CODE.
remained in full force and effect.

RESPONDENT JUDGE ERRED IN DISMISSING THE CASE ON THE GROUND OF

On May 26, 1994, petitioner opposed the motion to dismiss of respondents,
contending that its complaint was not predicated solely on the invalidity and
unconstitutionality of the ordinance but also on its claim that the ordinance took
effect only in July 1, 1993 but Makati applied the ordinance effective April 1, 1993.
Petitioner further averred that under Section 166 of the Local Government Code,
new taxes, fees or charges or charges provided for in the ordinance shall accrue on
the first day of the quarter following the effectivity of the new ordinance. Hence,
assuming that the tax ordinance was valid, the same should have been enforced
only from the "first (1st) day of the quarter following next the effectivity of the
ordinance imposing such new levies or rates" as provided for in Section 166 of the
Local Government Code.
PENDENCY OF ANOTHER ACTION CONTESTING THE LEGALITY OR
CONSTITUTIONALITY OF THE MAKATI REVENUE CODE IS STILL BEING
DETERMINED IN BRANCH 148 OF THE REGIONAL TRIAL COURT OF MAKATI.12
Anent the first assignment of errors, petitioner avers that its action in the RTC was
one for a refund of its overpayments governed by Article 196 of the Local
Government Code implemented by Article 286 of the Implementing Rules and
Regulations of the Code and not one involving an assessment for deficiency taxes
governed by Section 195 of the said Code. Petitioner contends that it was not
mandated to first file a protest with respondents before instituting its action for a
refund of its overpayments or for it to be credited for said overpayments. For its
part, respondent Makati avers that petitioner was proscribed from filing its
complaint with the RTC and for a refund of its alleged overpayment, petitioner
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

having paid without any protest the taxes due to respondent Makati under the
ordinance. It is further asserted by respondent Makati that until declared null and
void by a competent court, the ordinance was valid and should be enforced.
The petition has no merit.
relief in court. These three separate periods are clearly given for compliance as a
prerequisite before seeking redress in a competent court. Such statutory periods are
set to prevent delays as well as enhance the orderly and speedy discharge of
judicial functions. For this reason the courts construe these provisions of statutes as
mandatory.

The Court agrees with petitioner that as a general precept, a taxpayer may file a
complaint assailing the validity of the ordinance and praying for a refund of its
perceived overpayments without first filing a protest to the payment of taxes due
under the ordinance. This was our ruling in Ty v. Judge Trampe:13
. . . Hence, if a taxpayer disputes the reasonableness of an increase in a real estate
tax assessment, he is required to "first pay the tax" under protest. Otherwise, the
city or municipal treasurer will not act on his protest. In the case at bench,
however, the petitioners are questioning the very authority and power of the
assessor, acting solely and independently, to impose the assessment and of the
treasurer to collect the tax. These are not questions merely of amounts of the
increase in the tax but attacks on the very validity of any increase.
In this case, petitioner, relying on the resolution of the Secretary of Justice in The
Philippine Racing Club, Inc. v. Municipality of Makati case, posited in its complaint
that the ordinance which was the basis of respondent Makati for the collection of
taxes from petitioner was null and void. However, the Court agrees with the
contention of respondents that petitioner was proscribed from filing its complaint
with the RTC of Makati for the reason that petitioner failed to appeal to the
Secretary of Justice within 30 days from the effectivity date of the ordinance as
mandated by Section 187 of the Local Government Code which reads:
A municipal tax ordinance empowers a local government unit to impose taxes. The
power to tax is the most effective instrument to raise needed revenues to finance
and support the myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and enhancement of
peace, progress, and prosperity of the people. Consequently, any delay in
implementing tax measures would be to the detriment of the public. It is for this
reason that protests over tax ordinances are required to be done within certain time
frames. In the instant case, it is our view that the failure of petitioners to appeal to
the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal
to their cause.
Moreover, petitioner even paid without any protest the amounts of taxes assessed
by respondents Makati and Acting Treasurer as provided for in the ordinance.
Evidently, the complaint of petitioner with the Regional Trial Court was merely an
afterthought.
In view of our foregoing disquisitions, the Court no longer deems it necessary to
resolve other issues posed by petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The order of the
Regional Trial Court dismissing the complaint of petitioner is AFFIRMED.

Sec. 187-Procedure for Approval and Effectivity of Tax Ordinances and Revenue SO ORDERED.
Measures; Mandatory Public Hearings.- The procedure for approval of local tax
ordinances and revenue measures shall be in accordance with the provisions of this
Code: Provided, That public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal within
thirty (30) days from the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of receipt of the
appeal: Provided, however, That such appeal shall not have the effect of suspending
the effectivity of the ordinance and the accrual and payment of the tax, fee, or
charge levied therein: Provided, finally, That within thirty (30) days after receipt of
the decision or the lapse of the sixty-day period without the Secretary of Justice
acting upon the appeal, the aggrieved party may file appropriate proceedings with a
court of competent jurisdiction.

In Reyes v. Court of Appeals,14 we ruled that failure of a taxpayer to interpose the

requisite appeal to the Secretary of Justice is fatal to its complaint for a refund:

Clearly, the law requires that the dissatisfied taxpayer who questions the validity or
legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30
days from effectivity thereof. In case the Secretary decides the appeal, a period also
of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does
not act thereon, after the lapse of 60 days, a party could already proceed to seek

[205] G.R. No. 112497 August 4, 1994
HON. FRANKLIN M. DRILON, in his capacity as SECRETARY OF
JUSTICE, petitioner,
vs.
MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE L. ATIENZA, CITY TREASURER
ANTHONY ACEVEDO, SANGGUNIANG PANGLUNSOD AND THE CITY OF
MANILA, respondents.
The City Legal Officer for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for Caltex (Phils.).
Joseph Lopez for Sangguniang Panglunsod of Manila.
L.A. Maglaya for Petron Corporation.
CRUZ, J.:
The principal issue in this case is the constitutionality of Section 187 of the Local
Government Code reading as follows:
Procedure For Approval And Effectivity Of Tax Ordinances And
Revenue Measures; Mandatory Public Hearings. The procedure
for approval of local tax ordinances and revenue measures shall
be in accordance with the provisions of this Code: Provided, That
public hearings shall be conducted for the purpose prior to the
enactment thereof; Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures
may be raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice who shall render a
decision within sixty (60) days from the date of receipt of the
appeal: Provided, however, That such appeal shall not have the
effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the Secretary
of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.
Pursuant thereto, the Secretary of Justice had, on appeal to him of four oil
companies and a taxpayer, declared Ordinance No. 7794, otherwise known as the
Manila Revenue Code, null and void for non-compliance with the prescribed
procedure in the enactment of tax ordinances and for containing certain provisions
contrary to law and public policy.1
In a petition for certiorari filed by the City of Manila, the Regional Trial Court of
Manila revoked the Secretary's resolution and sustained the ordinance, holding inter
alia that the procedural requirements had been observed. More importantly, it
declared Section 187 of the Local Government Code as unconstitutional because of
its vesture in the Secretary of Justice of the power of control over local
governments in violation of the policy of local autonomy mandated in the
Constitution and of the specific provision therein conferring on the President of the
Philippines only the power of supervision over local governments.2
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
The present petition would have us reverse that decision. The Secretary argues that
the annulled Section 187 is constitutional and that the procedural requirements for
the enactment of tax ordinances as specified in the Local Government Code had
indeed not been observed.
Parenthetically, this petition was originally dismissed by the Court for non-
compliance with Circular 1-88, the Solicitor General having failed to submit a
certified true copy of the challenged decision.3 However, on motion for
reconsideration with the required certified true copy of the decision attached, the
petition was reinstated in view of the importance of the issues raised therein.
We stress at the outset that the lower court had jurisdiction to consider the
constitutionality of Section 187, this authority being embraced in the general
definition of the judicial power to determine what are the valid and binding laws by
the criterion of their conformity to the fundamental law. Specifically, BP 129 vests in
the regional trial courts jurisdiction over all civil cases in which the subject of the
litigation is incapable of pecuniary estimation,4 even as the accused in a criminal
action has the right to question in his defense the constitutionality of a law he is
charged with violating and of the proceedings taken against him, particularly as
they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the
Constitution vests in the Supreme Court appellate jurisdiction over final judgments
and orders of lower courts in all cases in which the constitutionality or validity of
any treaty, international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.
In the exercise of this jurisdiction, lower courts are advised to act with the utmost
circumspection, bearing in mind the consequences of a declaration of
unconstitutionality upon the stability of laws, no less than on the doctrine of
separation of powers. As the questioned act is usually the handiwork of the
legislative or the executive departments, or both, it will be prudent for such courts,
if only out of a becoming modesty, to defer to the higher judgment of this Court in
the consideration of its validity, which is better determined after a thorough
deliberation by a collegiate body and with the concurrence of the majority of those
who participated in its discussion.5
It is also emphasized that every court, including this Court, is charged with the duty
of a purposeful hesitation before declaring a law unconstitutional, on the theory that
the measure was first carefully studied by the executive and the legislative
departments and determined by them to be in accordance with the fundamental law
before it was finally approved. To doubt is to sustain. The presumption of
constitutionality can be overcome only by the clearest showing that there was
indeed an infraction of the Constitution, and only when such a conclusion is reached
by the required majority may the Court pronounce, in the discharge of the duty it
cannot escape, that the challenged act must be struck down.
In the case before us, Judge Rodolfo C. Palattao declared Section 187 of the Local
Government Code unconstitutional insofar as it empowered the Secretary of Justice
to review tax ordinances and, inferentially, to annul them. He cited the familiar
distinction between control and supervision, the first being "the power of an officer
to alter or modify or set aside what a subordinate officer had done in the
performance of his duties and to substitute the judgment of the former for the
latter," while the second is "the power of a superior officer to see to it that lower
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

officers perform their functions in accordance with law."6 His conclusion was that the
challenged section gave to the Secretary the power of control and not of supervision
only as vested by the Constitution in the President of the Philippines. This was, in
his view, a violation not only of Article X, specifically Section 4 thereof, 7 and of
Section 5 on the taxing powers of local governments,8 and the policy of local
autonomy in general.
We do not share that view. The lower court was rather hasty in invalidating the
provision.
declared national economy policy, and when the said Secretary
exercises this authority the effectivity of such ordinance shall be
suspended, either in part or as a whole, for a period of thirty days
within which period the local legislative body may either modify
the tax ordinance to meet the objections thereto, or file an appeal
with a court of competent jurisdiction; otherwise, the tax
ordinance or the part or parts thereof declared suspended, shall
be considered as revoked. Thereafter, the local legislative body
may not reimpose the same tax or fee until such time as the
grounds for the suspension thereof shall have ceased to exist.

Section 187 authorizes the Secretary of Justice to review only the constitutionality
That section allowed the Secretary of Finance to suspend the effectivity of a tax
or legality of the tax ordinance and, if warranted, to revoke it on either or both of
ordinance if, in his opinion, the tax or fee levied was unjust, excessive, oppressive
these grounds. When he alters or modifies or sets aside a tax ordinance, he is not
or confiscatory. Determination of these flaws would involve the exercise
also permitted to substitute his own judgment for the judgment of the local
of judgment or discretion and not merely an examination of whether or not the
government that enacted the measure. Secretary Drilon did set aside the Manila
requirements or limitations of the law had been observed; hence, it would smack of
Revenue Code, but he did not replace it with his own version of what the Code
control rather than mere supervision. That power was never questioned before this
should be. He did not pronounce the ordinance unwise or unreasonable as a basis
Court but, at any rate, the Secretary of Justice is not given the same latitude under
for its annulment. He did not say that in his judgment it was a bad law. What he
Section 187. All he is permitted to do is ascertain the constitutionality or legality of
found only was that it was illegal. All he did in reviewing the said measure was
the tax measure, without the right to declare that, in his opinion, it is unjust,
determine if the petitioners were performing their functions in accordance with law,
excessive, oppressive or confiscatory. He has no discretion on this matter. In fact,
that is, with the prescribed procedure for the enactment of tax ordinances and the
Secretary Drilon set aside the Manila Revenue Code only on two grounds, to with,
grant of powers to the city government under the Local Government Code. As we
the inclusion therein of certain ultra vires provisions and non-compliance with the
see it, that was an act not of control but of mere supervision.
prescribed procedure in its enactment. These grounds affected the legality, not
the wisdom or reasonableness, of the tax measure.
An officer in control lays down the rules in the doing of an act. If they are not
followed, he may, in his discretion, order the act undone or re-done by his
The issue of non-compliance with the prescribed procedure in the enactment of the
subordinate or he may even decide to do it himself. Supervision does not cover such
Manila Revenue Code is another matter.
authority. The supervisor or superintendent merely sees to it that the rules are
followed, but he himself does not lay down such rules, nor does he have the
discretion to modify or replace them. If the rules are not observed, he may order In his resolution, Secretary Drilon declared that there were no written notices of
the work done or re-done but only to conform to the prescribed rules. He may not public hearings on the proposed Manila Revenue Code that were sent to interested
prescribe his own manner for the doing of the act. He has no judgment on this parties as required by Art. 276(b) of the Implementing Rules of the Local
matter except to see to it that the rules are followed. In the opinion of the Court, Government Code nor were copies of the proposed ordinance published in three
Secretary Drilon did precisely this, and no more nor less than this, and so successive issues of a newspaper of general circulation pursuant to Art. 276(a). No
performed an act not of control but of mere supervision. minutes were submitted to show that the obligatory public hearings had been held.
Neither were copies of the measure as approved posted in prominent places in the
city in accordance with Sec. 511(a) of the Local Government Code. Finally, the
The case of Taule v. Santos 9 cited in the decision has no application here because
Manila Revenue Code was not translated into Pilipino or Tagalog and disseminated
the jurisdiction claimed by the Secretary of Local Governments over election
among the people for their information and guidance, conformably to Sec. 59(b) of
contests in the Katipunan ng Mga Barangay was held to belong to the Commission
the Code.
on Elections by constitutional provision. The conflict was over jurisdiction, not
supervision or control.
Judge Palattao found otherwise. He declared that all the procedural requirements
had been observed in the enactment of the Manila Revenue Code and that the City
Significantly, a rule similar to Section 187 appeared in the Local Autonomy Act,
of Manila had not been able to prove such compliance before the Secretary only
which provided in its Section 2 as follows:
because he had given it only five days within which to gather and present to him all
the evidence (consisting of 25 exhibits) later submitted to the trial court.
A tax ordinance shall go into effect on the fifteenth day after its
passage, unless the ordinance shall provide otherwise: Provided,
To get to the bottom of this question, the Court acceded to the motion of the
however, That the Secretary of Finance shall have authority to
respondents and called for the elevation to it of the said exhibits. We have carefully
suspend the effectivity of any ordinance within one hundred and
examined every one of these exhibits and agree with the trial court that the
twenty days after receipt by him of a copy thereof, if, in his
procedural requirements have indeed been observed. Notices of the public hearings
opinion, the tax or fee therein levied or imposed is unjust,
were sent to interested parties as evidenced by Exhibits G-1 to 17. The minutes of
excessive, oppressive, or confiscatory, or when it is contrary to
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and C show that
the proposed ordinances were published in the Balita and the Manila Standard on
April 21 and 25, 1993, respectively, and the approved ordinance was published in
the July 3, 4, 5, 1993 issues of the Manila Standard and in the July 6, 1993 issue
of Balita, as shown by Exhibits Q, Q-1, Q-2, and Q-3.

The only exceptions are the posting of the ordinance as approved but this omission
does not affect its validity, considering that its publication in three successive issues
of a newspaper of general circulation will satisfy due process. It has also not been
shown that the text of the ordinance has been translated and disseminated, but this
requirement applies to the approval of local development plans and public
investment programs of the local government unit and not to tax ordinances.

We make no ruling on the substantive provisions of the Manila Revenue Code as

their validity has not been raised in issue in the present petition.

WHEREFORE, the judgment is hereby rendered REVERSING the challenged decision

of the Regional Trial Court insofar as it declared Section 187 of the Local
Government Code unconstitutional but AFFIRMING its finding that the procedural
requirements in the enactment of the Manila Revenue Code have been observed. No
pronouncement as to costs.

SO ORDERED.

[206] G.R. No. 156252 June 27, 2006
COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner,
vs.
CITY OF MANILA, LIBERTY M. TOLEDO City Treasurer and JOSEPH
SANTIAGO Chief, Licensing Division, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, assailing the Order1 of the Regional Trial Court (RTC) of Manila,
Branch 21, dated 8 May 2002, dismissing petitioners Petition for Injunction, and the
Order2 dated 5 December 2002, denying petitioners Motion for Reconsideration.
Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the
business of manufacturing and selling beverages and maintains a sales office
located in the City of Manila.
On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988,
otherwise known as "Revised Revenue Code of the City of Manila" repealing Tax
Ordinance No. 7794 entitled, "Revenue Code of the City of Manila." Tax Ordinance
No. 7988 amended certain sections of Tax Ordinance No. 7794 by increasing the tax
rates applicable to certain establishments operating within the territorial jurisdiction
of the City of Manila, including herein petitioner.
Aggrieved by said tax ordinance, petitioner filed a Petition3 before the Department
of Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod,
invoking Section 1874 of the Local Government Code of 1991 (Republic Act No.
7160). Said Petition questions the constitutionality or legality of Section 21 of Tax
Ordinance No. 7988. According to petitioner:
Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as
amended) was reproduced verbatim as Section 21 under the new Ordinance except
for the last paragraph thereof which reads: "PROVIDED, that all registered
businesses in the City of Manila that are already paying the aforementioned tax
shall be exempted from payment thereof", which was deleted; that said deletion
would, in effect, impose additional business tax on businesses, including herein
petitioner, that are already subject to business tax under the other sections,
specifically Sec. 14, of the New Revenue Code of the City of Manila, which
imposition, petitioner claims, "is beyond or exceeds the limitation on the taxing
power of the City of Manila under Sec. 143 (h) of the LGC of 1991; and that deletion
is a palpable and manifest violation of the Local Government Code of 1991, and the
clear mandate of Article X, Sec. 5 of the 1987 Constitution, hence Section 21 is
"illegal and unconstitutional."
On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution
declaring Tax Ordinance No. 7988 null and void and without legal effect, the
pertinent portions of which read:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
After a judicious scrutiny of the records of this case, in the light of the pertinent
provisions of the Local Government Code of 1991, this Department finds for the
petitioner.
The Local Government Code of 1991 provides:
"Section 188. Publication of Tax Ordinances and Revenue Measures. Within ten
(10) days after their approval, certified true copies of all provincial, city and
municipal tax ordinances or revenue measures shall be published in full for three (3)
consecutive days in a newspaper of local circulation; Provided, however, that in
provinces, cities, and municipalities where there are no newspapers or local
circulations the same may be posted in at least two (2) conspicuous and publicly
accessible places." (R.A. No. 7160) (stress supplied)
Upon the other hand, the Rules and Regulations Implementing the Local
Government Code of 1991, insofar as pertinent, mandates:
"Art. 277. Publication of Tax Ordinances and Revenue Measures. (a) within ten
(10) days after their approval, certified true copies of all provincial, city and
municipal tax ordinances or revenue measures shall be published in full for three (3)
consecutive days in a newspaper of local circulation provided that in provinces,
cities and municipalities where there are no newspapers of local circulation, the
same may be posted in at least two (2) conspicuous and publicly accessible places.
If the tax ordinances or revenue measure contains penal provisions as authorized
under Art. 279 of this Rule, the gist of such tax ordinance or revenue measure shall
be published in a newspaper of general circulation within the province, posting of
such ordinance or measure shall be made in accessible and conspicuous public
places in all municipalities and cities of the province to which the sanggunian
enacting the ordinance or revenue measure belongs.
xxx xxx xxx."
(emphasis ours)
It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing
rules that the requirement of publication is MANDATORY and leaves no choice. The
use of the word "shall" in both provisions is imperative, operating to impose a duty
that may be enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp.
v. Faver 173 SE 2d 497, 499).
Its essence is simply to inform the people and the entities who may likely be
affected, of the existence of the tax measure. It bears emphasis, that, strict
observance of the said procedural requirement is the only safeguard against any
unjust and unreasonable exercise of the taxing powers by ensuring that the
taxpayers are notified through publication of the existence of the measure, and are
therefore able to voice out their views or objections to the said measure. For, after
all, taxes are obligatory exactions or enforced contributions corollary to taking of
property.

xxxx
In the case at bar, respondents, by its failure to file their comments and present
documentary evidence to show that the mandatory requirement of law on
publication, among other things, has been met, may be deemed to have waived its
right to controvert or dispute the documentary evidence submitted by petitioner
which indubitably show that subject tax ordinance was published only once, i.e., on
the May 22, 2000 issue of the Philippine Post. Clearly, therefore, herein respondents
failed to satisfy the requirement that said ordinance shall be published for three (3)
consecutive days as required by law.
xxxx
In view of the foregoing, we find it unnecessary to pass upon the other issues raised
by the petitioner.
WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is
hereby declared NULL and VOID and WITHOUT LEGAL EFFECT for having been
enacted in contravention of the provisions of the Local Government Code of 1991
and its implementing rules and regulations.5
The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of
said Resolution, thus, said Resolution of the DOJ Secretary declaring Tax Ordinance
No. 7988 null and void has lapsed into finality.
On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local
Government Finance (BLGF) requesting in behalf of his client, Singer Sewing
Machine Company, an opinion on whether the Office of the City Treasurer of Manila
has the right to enforce Tax Ordinance No. 7988 despite the Resolution, dated 17
August 2000, of the DOJ Secretary. Acting on said letter, the BLGF Executive
Director issued an Indorsement on 20 November 2000 ordering the City Treasurer
of Manila to "cease and desist" from enforcing Tax Ordinance No. 7988. According
to the BLGF:
In the attached Resolution dated August 17, 2000 of the Department of Justice, it is
stated that "x x x Ordinance No. 7988 of the City of Manila is hereby declared NULL
AND VOID AND WITHOUT LEGAL EFFECT for having been enacted in contravention
of the provisions of the Local Government Code of 1991 and its implementing rules
and regulations."
xxxx
In view thereof, that Office is hereby instructed to cease and desist from
implementing the aforementioned Manila Tax Ordinance No. 7988, inviting attention
to Section 190 of the Local Government Code (LGC) of 1991, quoted hereunder:
"Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and Revenue
Measures.- The enforcement of any tax ordinance or revenue measures after due
notice of the disapproval or suspension thereof shall be sufficient ground to
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
administrative disciplinary action against the local officials and employees
responsible therefore."
Be guided accordingly.6
Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void
and the directive of the BLGF that respondents cease and desist from enforcing said
tax ordinance, respondents continued to assess petitioner business tax for the year
2001 based on the tax rates prescribed under Tax Ordinance No. 7988. Thus,
petitioner filed a Complaint with the RTC of Manila, Branch 21, on 17 January 2001,
praying that respondents be enjoined from implementing the aforementioned tax
ordinance.
On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor
of petitioner, the decretal portion of which states:
The defendants did not follow the procedure in the enactment of Tax Ordinance No.
7988. The Court agrees with plaintiffs contention that the ordinance should first be
published for three (3) consecutive days in a newspaper of local circulation aside
from the posting of the same in at least four (4) conspicuous public places.
xxxx
WHEREFORE, premises considered, judgment is hereby rendered declaring the
injunction permanent. Defendants are enjoined from implementing Tax Ordinance
No. 7988. The bond posted by the plaintiff is hereby CANCELLED.7
During the pendency of the said case, the City Mayor of Manila approved on 22
February 2001 Tax Ordinance No. 8011 entitled, "An Ordinance Amending Certain
Sections of Ordinance No. 7988." Said tax ordinance was again challenged by
petitioner before the DOJ through a Petition questioning the legality of the
aforementioned tax ordinance on the grounds that (1) said tax ordinance amends a
tax ordinance previously declared null and void and without legal effect by the DOJ;
and (2) said tax ordinance was likewise not published upon its approval in
accordance with Section 188 of the Local Government Code of 1991.
On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring
Tax Ordinance No. 8011 null and void and legally not existing. According to the DOJ
Secretary:
After a careful examination/evaluation of the records of this case and applying the
pertinent provisions of the Local Government Code of 1991, this Department finds
the instant petition of Coca-Cola Bottlers, Philippines, Inc. meritorious.
It bears stress, at the outset, that the subject ordinance was passed and approved
by the respondents principally to amend Ordinance No. 7988 which was earlier
nullified by this Department in its Resolution Dated August 17, 2000, also at the
instance of the herein petitioner. x x x

xxxx
x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject
herein, is also null and void, it being a mere amendatory ordinance of Ordinance No.
7988 which, as earlier stated, had been nullified by this Department. An invalid or
unconstitutional law or ordinance does not, in legal contemplation, exist (Manila
Motors Co., Inc. vs. Flores, 99 Phil. 738). Where a statute which has been amended
is invalid, nothing, in effect, has been amended. As held in People vs. Lim, 108 Phil.
1091:
"If an order or law sought to be amended is invalid, then it does not legally exist.
There would be no occasion or need to amend it; x x x" (at p. 1097)
Instead of amending Ordinance No. 7988, herein respondent should have enacted
another tax measure which strictly complies with the requirements of law, both
procedural and substantive. The passage of the assailed ordinance did not have the
effect of curing the defects of Ordinance No. 7988 which, any way, does not legally
exist.
xxxx
WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared
NULL and VOID and LEGALLY NOT EXISTING.8
Respondents Motion for Reconsideration of the Resolution of the DOJ was
subsequently denied in a Resolution,9dated 12 March 2002.
The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its
Motion for Reconsideration of the Resolution nullifying Tax Ordinance No. 8011
before the RTC of Manila, Branch 17, but the same was dismissed for lack of
jurisdiction in an Order, dated 2 December 2002. According to the trial court:
From whatever angle the recourse of herein petitioners was viewed, either from the
standpoint of Section 1, Rule 43, or Section 1 and the last sentence of the second
paragraph of Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the conclusion
was inevitable that petitioners remedial measure from dispositions of the Secretary
of Justice should have been ventilated before the next judicial plane. x x x
Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for
"Certiorari" is DISMISSED.
Consequently, respondents appealed the foregoing Order, dated 2 December 2002,
via a Petition for Review on Certiorari to the Supreme Court docketed as G.R. No.
157490. However, said appeal was dismissed in our Resolution, dated 23 June
2003, the dispositive of which reads:
Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil
Procedure as amended governing appeals by certiorari to the Supreme Court, only
petitions which are accompanied by or which comply strictly with the requirements
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
specified therein shall be entertained. On the basis thereof, the Court resolves to
DENY the instant petition for review on certiorari of the orders of the Regional Trial
Court, Manila, Branch 17 dated December 2, 2002 and March 7, 2003 for the late
filing as the petition was filed beyond the reglementary period of fifteen (15) days
fixed in Sec. 2, Rule 45 in relation to Sec. 5(a), Rule 56.
The omnibus motion of petitioners for reconsideration of the resolution of April 23,
2003 which denied the motion for an extension of time to file a petition is DENIED
for lack of merit.
Respondents Motion for Reconsideration was subsequently denied in a Resolution,
dated 11 August 2003, in which the Court resolved as follows:
Acting on the motion of petitioners for reconsideration of the resolution of June 23,
2003 which denied the petition for review on certiorari and considering that there is
no compelling reason to warrant a modification of this Courts resolution, the Court
resolves to DENY reconsideration with FINALITY.
Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of
Manila filed a Motion for Reconsideration with the RTC of Manila, Branch 21, of its
Decision, dated 28 November 2001, which the court a quo granted in the herein
assailed Order dated 8 May 2002, the full text of which reads:
Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila)
has already been amended by Ordinance No. 8011 entitled "An Ordinance Amending
Certain Sections of Ordinance No. 7988" approved by the City Mayor of Manila on
February 22, 2001, let the above-entitled case be as it is hereby DISMISSED.
Without pronouncement as to costs."10
Petitioners Motion for Reconsideration of the abovequoted Order was denied by the
trial court in the second challenged Order, dated 5 December 2002; hence the
instant Petition.
The case at bar revolves around the sole pivotal issue of whether or not Tax
Ordinance No. 7988 is null and void and of no legal effect. However, respondents, in
their Comment and Memorandum, raise the procedural issue of whether or not the
instant Petition has complied with the requirements of the 1997 Rules on Civil
Procedure; thus, the Court resolves to first pass upon this issue before tackling the
substantial matters involved in this case.
Respondents insist that the instant Petition raises questions of fact that are
proscribed under Rule 45 of the 1997 Rules of Civil Procedure which states that
Petitions for Certiorari before the Supreme Court shall raise only questions of law.
We do not agree. There is a question of fact when doubt or controversy arises as to
the truth or falsity of the alleged facts, when there is no dispute as to fact, the
question of whether or not the conclusion drawn therefrom is correct is a question
of law.11 A thorough reading of the Petition will reveal that petitioner does not
present an issue in which we are called to rule on the truth or falsity of any fact
alleged in the case. Furthermore, the resolution of whether or not the court a quo
erred in dismissing petitioners case in light of the enactment of Tax Ordinance No.
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

8011, allegedly amending Tax Ordinance No. 7988, does not necessitate an Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November
incursion into the facts attending the case. 2001, reiterated the findings of the DOJ Secretary that respondents failed to follow
the procedure in the enactment of tax measures as mandated by Section 188 of the
Local Government Code of 1991, in that they failed to publish Tax Ordinance No.
Contrarily, it is respondents who actually raise questions of fact before us. While
7988 for three consecutive days in a newspaper of local circulation. From the
accusing petitioner of raising questions of fact, respondents, in the same breath,
foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said
proceeded to allege that the RTC of Manila, Branch 21, in its Decision, dated 28
ordinance was published only for one day in the 22 May 2000 issue of the Philippine
November 2001, failed to take into account the evidence presented by respondents
Post in contravention of the unmistakable directive of the Local Government Code of
allegedly proving that Tax Ordinance No. 7988 was published for four times in a
1991.
newspaper of general circulation in accordance with the requirements of law. A
determination of whether or not the trial court erred in concluding that Tax
Ordinance No. 7988 was indeed published for four times in a newspaper of general Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed
circulation would clearly involve a calibration of the probative value of the evidence Order, dated 8 May 2002, went on to dismiss petitioners case on the force of the
presented by respondents to prove such allegation. Therefore, said issue is a enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988.
question of fact which this Court, not being a trier of facts, will decline to pass upon. Significantly, said amending ordinance was likewise declared null and void by the
DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[I]nstead of
amending Ordinance No. 7988, [herein] respondent should have enacted another
Respondents also point out that the Petition was not properly verified and certified
tax measure which strictly complies with the requirements of law, both procedural
because Nelson Empalmado, the Vice President for Tax and Financial Services of
and substantive. The passage of the assailed ordinance did not have the effect of
Coca-Cola Bottlers Philippines, Inc. who verified the subject Petition was not duly
curing the defects of Ordinance No. 7988 which, any way, does not legally exist."
authorized to file said Petition. Respondents assert that nowhere in the attached
Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the
Secretarys Certificate can it be found the authority of Nelson Empalmado to
dismissal with finality by this Court of respondents Petition for Review on Certiorari
institute the instant Petition. Thus, there being a lack of proper verification,
in G.R. No. 157490 assailing the dismissal by the RTC of Manila, Branch 17, of its
respondents contend that the Petition must be treated as a mere scrap of paper,
appeal due to lack of jurisdiction in its Order, dated 11 August 2003.
which has no legal effect as declared in Section 4, Rule 7 of the 1997 Rules of Civil
Procedure.
Based on the foregoing, this Court must reverse the Order of the RTC of Manila,
Branch 21, dismissing petitioners case as there is no basis in law for such dismissal.
An inspection of the Secretarys Certificate attached to the petition will show that
The amending law, having been declared as null and void, in legal contemplation,
Nelson Empalmado is not among those designated as representative to prosecute
therefore, does not exist. Furthermore, even if Tax Ordinance No. 8011 was not
claims in behalf of Coca-Cola Bottlers Philippines, Inc. However, it would seem that
declared null and void, the trial court should not have dismissed the case on the
the authority of Mr. Empalmado to file the instant Petition emanated from a Special
reason that said tax ordinance had already amended Tax Ordinance No. 7988. As
Power of Attorney signed by Ramon V. Lapez, Jr., Associate Legal Counsel/Assistant
held by this Court in the case of People v. Lim,12 if an order or law sought to be
Corporate Secretary of Coca-Cola Bottlers Philippines, Inc. and one of those named
amended is invalid, then it does not legally exist, there should be no occasion or
in the Secretarys Certificate as authorized to file a Petition in behalf of the
need to amend it.13
corporation. A careful perusal of said Secretarys Certificate will further reveal that
the persons authorized therein to represent petitioner corporation in any suit are
also empowered to designate and appoint any individual as attorney-in-fact of the WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
corporation for the prosecution of any suit. Accordingly, by virtue of the Special Orders of the RTC of Manila, Branch 21, dated 8 May 2002 and 5 December 2002,
Power of Attorney executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado respectively, are hereby REVERSED and SET ASIDE.
to file a Petition before the Supreme Court, the instant Petition has been properly
verified, in accordance with the 1997 Rules of Civil Procedure.
SO ORDERED.

Having disposed of the procedural issues raised by respondents, We now come to

the pivotal issue in this petition.

It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already
been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and
void and without legal effect due to respondents failure to satisfy the requirement
that said ordinance be published for three consecutive days as required by law.
Neither is there quibbling on the fact that the said Order of the DOJ was never
appealed by the City of Manila, thus, it had attained finality after the lapse of the
period to appeal.

[207] G.R. No. 166134 June 29, 2010
ANGELES CITY, Petitioner,
vs.
ANGELES CITY ELECTRIC CORPORATION and REGIONAL TRIAL COURT
BRANCH 57, ANGELES CITY,Respondents.
DECISION
DEL CASTILLO, J.:
The prohibition on the issuance of a writ of injunction to enjoin the collection of
taxes applies only to national internal revenue taxes, and not to local taxes.
This Petition1 for Certiorari under Rule 65 of the Rules of Court seeks to set aside
the Writ of Preliminary Injunction issued by the Regional Trial Court (RTC) of
Angeles City, Branch 57, in Civil Case No. 11401, enjoining Angeles City and its City
Treasurer from levying, seizing, disposing and selling at public auction the
properties owned by Angeles Electric Corporation (AEC).
Factual Antecedents
On June 18, 1964, AEC was granted a legislative franchise under Republic Act No.
(RA) 40792 to construct, maintain and operate an electric light, heat, and power
system for the purpose of generating and distributing electric light, heat and power
for sale in Angeles City, Pampanga. Pursuant to Section 3-A thereof,3 AECs
payment of franchise tax for gross earnings from electric current sold was in lieu of
all taxes, fees and assessments.
On September 11, 1974, Presidential Decree No. (PD) 551 reduced the franchise tax
of electric franchise holders. Section 1 of PD 551 provided that:
SECTION 1. Any provision of law or local ordinance to the contrary notwithstanding,
the franchise tax payable by all grantees of franchises to generate, distribute and
sell electric current for light, heat and power shall be two percent (2%) of their
gross receipts received from the sale of electric current and from transactions
incident to the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his
duly authorized representative on or before the twentieth day of the month
following the end of each calendar quarter or month as may be provided in the
respective franchise or pertinent municipal regulation and shall, any provision of the
Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all
taxes and assessments of whatever nature imposed by any national or local
authority on earnings, receipts, income and privilege of generation, distribution and
sale of electric current.
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was
passed into law, conferring upon provinces and cities the power, among others, to
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
impose tax on businesses enjoying franchise.4 In accordance with the LGC,
the Sangguniang Panlungsod of Angeles City enacted on December 23, 1993 Tax
Ordinance No. 33, S-93, otherwise known as the Revised Revenue Code of Angeles
City (RRCAC).
On February 7, 1994, a petition seeking the reduction of the tax rates and a review
of the provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro
Angeles Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a
member. There being no action taken by the Sangguniang Panlungsod on the
matter, MACCI elevated the petition5 to the Department of Finance, which referred
the same to the Bureau of Local Government Finance (BLGF). In the petition, MACCI
alleged that the RRCAC is oppressive, excessive, unjust and confiscatory; that it
was published only once, simultaneously on January 22, 1994; and that no public
hearings were conducted prior to its enactment. Acting on the petition, the BLGF
issued a First Indorsement6 to the City Treasurer of Angeles City, instructing the
latter to make representations with the Sangguniang Panlungsod for the appropriate
amendment of the RRCAC in order to ensure compliance with the provisions of the
LGC, and to make a report on the action taken within five days.
Thereafter, starting July 1995, AEC has been paying the local franchise tax to the
Office of the City Treasurer on a quarterly basis, in addition to the national franchise
tax it pays every quarter to the Bureau of Internal Revenue (BIR).
Proceedings before the City Treasurer
On January 22, 2004, the City Treasurer issued a Notice of Assessment7 to AEC for
payment of business tax, license fee and other charges for the period 1993 to 2004
in the total amount of 94,861,194.10. Within the period prescribed by law, AEC
protested the assessment claiming that:
(a) pursuant to RA 4079, it is exempt from paying local business tax;
(b) since it is already paying franchise tax on business, the payment of
business tax would result in double taxation;
(c) the period to assess had prescribed because under the LGC, taxes and
fees can only be assessed and collected within five (5) years from the date
they become due; and
(d) the assessment and collection of taxes under the RRCAC cannot be
made retroactive to 1993 or prior to its effectivity.8
On February 17, 2004, the City Treasurer denied the protest for lack of merit and
requested AEC to settle its tax liabilities.9
Proceedings before the RTC
Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a
Petition for Declaratory Relief,10docketed as Civil Case No. 11401.

On April 5, 2004, the City Treasurer levied on the real properties of AEC.11 A Notice
of Auction Sale12 was published and posted announcing that a public auction of the
levied properties of AEC would be held on May 7, 2004.
This prompted AEC to file with the RTC, where the petition for declaratory relief was
pending, an Urgent Motion for Issuance of Temporary Restraining Order and/or Writ
of Preliminary Injunction13 to enjoin Angeles City and its City Treasurer from
levying, annotating the levy, seizing, confiscating, garnishing, selling and disposing
at public auction the properties of AEC.
Meanwhile, in response to the petition for declaratory relief filed by AEC, Angeles
City and its City Treasurer filed an Answer with Counterclaim14 to which AEC filed a
Reply.15
After due notice and hearing, the RTC issued a Temporary Restraining Order
(TRO)16 on May 4, 2004, followed by an Order17 dated May 24, 2004 granting the
issuance of a Writ of Preliminary Injunction, conditioned upon the filing of a bond in
the amount of 10,000,000.00. Upon AECs posting of the required bond, the RTC
issued a Writ of Preliminary Injunction on May 28, 2004,18 which was amended on
May 31, 2004 due to some clerical errors.19
On August 5, 2004, Angeles City and its City Treasurer filed a "Motion for
Dissolution of Preliminary Injunction and Motion for Reconsideration of the Order
dated May 24, 2004,"20 which was opposed by AEC.21
Finding no compelling reason to disturb and reconsider its previous findings, the
RTC denied the joint motion on October 14, 2004.22
Issue
Being a special civil action for certiorari, the issue in the instant case is limited to
the determination of whether the RTC gravely abused its discretion in issuing the
writ of preliminary injunction enjoining Angeles City and its City Treasurer from
levying, selling, and disposing the properties of AEC. All other matters pertaining to
the validity of the tax assessment and AECs tax exemption must therefore be left
for the determination of the RTC where the main case is pending decision.
Petitioners Arguments
Petitioners main argument is that the collection of taxes cannot be enjoined by the
RTC, citing Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch
II,23 wherein the lower courts denial of a motion for the issuance of a writ of
preliminary injunction to enjoin the collection of a local tax was upheld. Petitioner
further reasons that since the levy and auction of the properties of a delinquent
taxpayer are proper and lawful acts specifically allowed by the LGC, these cannot be
the subject of an injunctive writ. Petitioner likewise insists that AEC must first pay
the tax before it can protest the assessment. Finally, petitioner contends that the
tax exemption claimed by AEC has no legal basis because RA 4079 has been
expressly repealed by the LGC.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Private respondents Arguments
Private respondent AEC on the other hand asserts that there was no grave abuse of
discretion on the part of the RTC in issuing the writ of preliminary injunction
because it was issued after due notice and hearing, and was necessary to prevent
the petition from becoming moot. In addition, AEC claims that the issuance of the
writ of injunction was proper since the tax assessment issued by the City Treasurer
is not yet final, having been seasonably appealed pursuant to Section 19524 of the
LGC. AEC likewise points out that following the case of Pantoja v.
David,25 proceedings to invalidate a warrant of distraint and levy to restrain the
collection of taxes do not violate the prohibition against injunction to restrain the
collection of taxes because the proceedings are directed at the right of the City
Treasurer to collect the tax by distraint or levy. As to its tax liability, AEC maintains
that it is exempt from paying local business tax. In any case, AEC counters that the
issue of whether it is liable to pay the assessed local business tax is a factual issue
that should be determined by the RTC and not by the Supreme Court via a petition
for certiorari under Rule 65 of the Rules of Court.
Our Ruling
We find the petition bereft of merit.
The LGC does not specifically prohibit an injunction enjoining the collection of taxes
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of
the government should be collected promptly,26 without unnecessary hindrance27 or
delay.28 In line with this principle, the National Internal Revenue Code of 1997
(NIRC) expressly provides that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by the code.29 An exception to this rule obtains only when in the
opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the
interest of the government and/or the taxpayer.30
The situation, however, is different in the case of the collection of local taxes as
there is no express provision in the LGC prohibiting courts from issuing an injunction
to restrain local governments from collecting taxes. Thus, in the case of Valley
Trading Co., Inc. v. Court of First Instance of Isabela, Branch II, cited by the
petitioner, we ruled that:
Unlike the National Internal Revenue Code, the Local Tax Code31 does not contain
any specific provision prohibiting courts from enjoining the collection of local taxes.
Such statutory lapse or intent, however it may be viewed, may have allowed
preliminary injunction where local taxes are involved but cannot negate the
procedural rules and requirements under Rule 58.32
In light of the foregoing, petitioners reliance on the above-cited case to support its
view that the collection of taxes cannot be enjoined is misplaced. The lower courts
denial of the motion for the issuance of a writ of preliminary injunction to enjoin the
collection of the local tax was upheld in that case, not because courts are prohibited
from granting such injunction, but because the circumstances required for the
issuance of writ of injunction were not present.

Nevertheless, it must be emphasized that although there is no express prohibition in
the LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts
therefore should exercise extreme caution in issuing such injunctions.
No grave abuse of discretion was committed by the RTC
Section 3, Rule 58, of the Rules of Court lays down the requirements for the
issuance of a writ of preliminary injunction, viz:
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of
the acts complained of, or in the performance of an act or acts, either for a
limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or
acts complained of during the litigation would probably work injustice to
the applicant; or
(c) That a party, court, or agency or a person is doing, threatening, or
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of
the action or proceeding, and tending to render the judgment ineffectual.
Two requisites must exist to warrant the issuance of a writ of preliminary injunction,
namely: (1) the existence of a clear and unmistakable right that must be protected;
and (2) an urgent and paramount necessity for the writ to prevent serious
damage.33
In issuing the injunction, the RTC ratiocinated that:
It is very evident on record that petitioner34 resorted and filed an urgent motion for
issuance of a temporary restraining order and preliminary injunction to stop the
scheduled auction sale only when a warrant of levy was issued and published in the
newspaper setting the auction sale of petitioners property by the City Treasurer,
merely few weeks after the petition for declaratory relief has been filed, because if
the respondent will not be restrained, it will render this petition moot and academic.
To the mind of the Court, since there is no other plain, speedy and adequate
remedy available to the petitioner in the ordinary course of law except this
application for a temporary restraining order and/or writ of preliminary injunction to
stop the auction sale and/or to enjoin and/or restrain respondents from levying,
annotating the levy, seizing, confiscating, garnishing, selling and disposing at public
auction the properties of petitioner, or otherwise exercising other administrative
remedies against the petitioner and its properties, this alone justifies the move of
the petitioner in seeking the injunctive reliefs sought for.
Petitioner in its petition is questioning the assessment or the ruling of the City
Treasurer on the business tax and fees, and not the local ordinance concerned. This
being the case, the Court opines that notice is not required to the Solicitor General
since what is involved is just a violation of a private right involving the right of
ownership and possession of petitioners properties. Petitioner, therefore, need not
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
comply with Section 4, Rule 63 requiring such notice to the Office of the Solicitor
General.
The Court is fully aware of the Supreme Court pronouncement that injunction is not
proper to restrain the collection of taxes. The issue here as of the moment is the
restraining of the respondent from pursuing its auction sale of the petitioners
properties. The right of ownership and possession of the petitioner over the
properties subject of the auction sale is at stake.
Respondents assert that not one of the witnesses presented by the petitioner have
proven what kind of right has been violated by the respondent, but merely
mentioned of an injury which is only a scenario based on speculation because of
petitioners claim that electric power may be disrupted.
Engr. Abordos testimony reveals and even his Affidavit Exhibit "S" showed that if
the auction sale will push thru, petitioner will not only lose control and operation of
its facility, but its employees will also be denied access to equipments vital to
petitioners operations, and since only the petitioner has the capability to operate
Petersville sub station, there will be a massive power failure or blackout which will
adversely affect business and economy, if not lives and properties in Angeles City
and surrounding communities.
Petitioner, thru its witnesses, in the hearing of the temporary restraining order,
presented sufficient and convincing evidence proving irreparable damages and
injury which were already elaborated in the temporary restraining order although
the same may be realized only if the auction sale will proceed. And unless
prevented, restrained, and enjoined, grave and irreparable damage will be suffered
not only by the petitioner but all its electric consumers in Angeles, Clark, Dau and
Bacolor, Pampanga.
The purpose of injunction is to prevent injury and damage from being incurred,
otherwise, it will render any judgment in this case ineffectual.
"As an extraordinary remedy, injunction is calculated to preserve or maintain the
status quo of things and is generally availed of to prevent actual or threatened acts,
until the merits of the case can be heard" (Cagayan de Oro City Landless Res. Assn.
Inc. vs. CA, 254 SCRA 220)
It appearing that the two essential requisites of an injunction have been satisfied,
as there exists a right on the part of the petitioner to be protected, its right[s] of
ownership and possession of the properties subject of the auction sale, and that the
acts (conducting an auction sale) against which the injunction is to be directed, are
violative of the said rights of the petitioner, the Court has no other recourse but to
grant the prayer for the issuance of a writ of preliminary injunction considering that
if the respondent will not be restrained from doing the acts complained of, it will
preempt the Court from properly adjudicating on the merits the various issues
between the parties, and will render moot and academic the proceedings before this
court.35
As a rule, the issuance of a preliminary injunction rests entirely within the discretion
of the court taking cognizance of the case and will not be interfered with, except
 Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga

where there is grave abuse of discretion committed by the court.36For grave abuse
of discretion to prosper as a ground for certiorari, it must be demonstrated that the
lower court or tribunal has exercised its power in an arbitrary and despotic manner,
by reason of passion or personal hostility, and it must be patent and gross as would
amount to an evasion or to a unilateral refusal to perform the duty enjoined or to
act in contemplation of law.37 In other words, mere abuse of discretion is not
enough.381avvph!1

Guided by the foregoing, we find no grave abuse of discretion on the part of the
RTC in issuing the writ of injunction. Petitioner, who has the burden to prove grave
abuse of discretion,39 failed to show that the RTC acted arbitrarily and capriciously
in granting the injunction. Neither was petitioner able to prove that the injunction
was issued without any factual or legal justification. In assailing the injunction,
petitioner primarily relied on the prohibition on the issuance of a writ of injunction
to restrain the collection of taxes. But as we have already said, there is no such
prohibition in the case of local taxes. Records also show that before issuing the
injunction, the RTC conducted a hearing where both parties were given the
opportunity to present their arguments. During the hearing, AEC was able to show
that it had a clear and unmistakable legal right over the properties to be levied and
that it would sustain serious damage if these properties, which are vital to its
operations, would be sold at public auction. As we see it then, the writ of injunction
was properly issued.

A final note. While we are mindful that the damage to a taxpayers property rights
generally takes a back seat to the paramount need of the State for funds to sustain
governmental functions,40 this rule finds no application in the instant case where the
disputed tax assessment is not yet due and demandable. Considering that AEC was
able to appeal the denial of its protest within the period prescribed under Section
195 of the LGC, the collection of business taxes41 through levy at this time is, to our
mind, hasty, if not premature.42 The issues of tax exemption, double taxation,
prescription and the alleged retroactive application of the RRCAC, raised in the
protest of AEC now pending with the RTC, must first be resolved before the
properties of AEC can be levied. In the meantime, AECs rights of ownership and
possession must be respected.

WHEREFORE, the petition is hereby DISMISSED.

SO ORDERED.

[208] G.R. No. 197561 April 7, 2014
COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner,
vs.
CITY OF MANILA; LIBERTY M. TOLEDO, in her capacity as Officer-in-Charge
(OIC), Treasurer of the City of Manila; JOSEPH SANTIAGO, in his capacity
as OIC, Chief License Division of the City of Manila; REYNALDO MONTALBO,
in his capacity as City Auditor of the City of Manila, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court seeking to reverse and set aside the Orders1 dated December 22, 2010 and
June 21, 2011, respectively, of the Regional Trial Court of Manila (RTC-Manila) in
Civil Case No. 00-97081.
The factual and procedural antecedents follow:
This case springs from the Decision2 rendered by the RTC-Manila, dated September
28, 2001, in the case entitled Coca-Cola Bottlers Philippines, Inc. v. City of Manila,
et al., docketed as Civil Case No. 00-97081, granting petitioners request for tax
refund or credit assessed under Section 213 of the Revenue Code of Manila upon
finding that there was double taxation in the imposition of local business taxes. The
dispositive portion of said Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendants to either refund or credit the tax assessed under Section 21 of the
Revenue Code of Manila and paid for by plaintiff on the first quarter of year 2000 in
the amount of 3,036,887.33.
The defendants City of Manila, etc. are enjoined from collecting the tax from plaintiff
Coca-Cola Bottlers Phils., Inc. under Section 21 of the Revenue Code of Manila. The
counterclaims [sic] of respondents is hereby DENIED for lack of merit.
Accordingly, the Injunction bond posted by petitioner is hereby CANCELLED.
SO ORDERED.4
Aggrieved by the foregoing, respondents herein appealed to the Court of Appeals
via an ordinary appeal.5 On April 9, 2003, the Court of Appeals issued a Resolution
dismissing respondents appeal on the ground that the same was improperly
brought to the said Court pursuant to Section 2, Rule 50 of the Revised Rules of
Court. Despite respondents motion for reconsideration, the Court of Appeals
affirmed its decision in its Resolution dated February 28, 2005.6
On February 10, 2010, this Court promulgated a Resolution denying the Petition for
Review filed by the respondents, the dispositive portion of which reads:
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 09 April 2003
and 28 February 2005 Resolutions of the Court of Appeals in CA-G.R. CV No. 74517.
SO ORDERED.7
On May 12, 2010, the Clerk of Court of this Court issued an Entry of
Judgment8 relative to the aforesaid Resolution and declared the same final and
executory on March 10, 2010.
On June 3, 2010, petitioner filed with the RTC-Manila a Motion for Execution for the
enforcement of the Decision dated September 28, 2001 and the issuance of the
corresponding writ of execution.9 Finding merit therein, on June 11, 2010, the RTC-
Manila issued an Order10 granting petitioners Motion for Execution and directed the
Branch Clerk of Court to issue the corresponding writ of execution to satisfy the
judgment.
On June 15, 2010, the Branch Clerk of Court, Branch 21 of the RTC Manila issued a
Writ of Execution directing the Sheriff to cause the execution of the Decision dated
September 28, 2001, disposing as follows:
NOW THEREFORE, you are hereby commanded to cause the execution of the
aforesaid judgment, including payment in full of your lawful fees for the service of
this writ.11
Aggrieved, respondents filed a Motion to Quash Writ of Execution. In response,
petitioner filed its Opposition thereto on December 12, 2010.12
On December 22, 2010, the RTC-Manila issued an Order13 granting the Motion to
Quash Writ of Execution, ruling:
Finding the motion to be prejudicial to the defendants, if implemented, and
considering that the projects of the City will be hampered, the same is hereby
GRANTED.
WHEREFORE, premises considered, the Motion to Quash the Writ of Execution is
hereby GRANTED.
SO ORDERED.14
Herein petitioner filed a Motion for Reconsideration, but the same was denied by the
RTC-Manila in its Order dated June 21, 2011, reasoning that both tax refund and tax
credit involve public funds. Thus, pursuant to SC Administrative Circular No. 10-
2000,15 the enforcement or satisfaction of the assailed decision may still be pursued
in accordance with the rules and procedures laid down in Presidential Decree (P.D.)
No. 1445, otherwise known as the Government Auditing Code of the Philippines.16
Hence, the present Petition for Review on Certiorari raising the following assignment
of errors:

1. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE WRIT OF EXECUTION (FOR SPECIAL JUDGMENT)
ISSUED BY THE BRANCH CLERK OF COURT DOES NOT INVOLVE THE LEVY
OR GARNISHMENT OF FUNDS AND PROPERTY USED OR BEING USED FOR
PUBLIC PURPOSE,ADMINISTRATIVE CIRCULAR NO. 10-2000 HAS
THEREFORE NO RELEVANCE IN THIS CASE.
2. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE JUDGMENT IN THIS CASE REQUIRES EITHER TAX
REFUND (PAYMENT OF SUM OF MONEY) OR TAX CREDIT (ISSUANCE OF
TAX CREDIT CERTIFICATE).
3. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE DEFENDANTS HAVE BEEN ISSUING TAX CREDIT
CERTIFICATES TO OTHER TAXPAYERS FOR ILLEGALLY COLLECTED TAXES
EVEN WITHOUT ANY APPROPRIATE MEASURE.
4. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT THE REASON CITED IN THE ORDER IN QUASHING THE
WRIT OF EXECUTION IS NOT ONE OF THE GROUNDS LAID DOWN BY LAW.
(GUTIERREZ VS. VALIENTE, 557 SCRA 211)
5. THE HONORABLE COURT A QUOSERIOUSLY ERRED WHEN IT FAILED TO
CONSIDER THAT ITS ASSAILED ORDER HAS IN EFFECT REVERSED THE
JUDGMENT IN THIS CASE, THUS, DEPRIVING PETITIONER THE FRUITS OF
ITS LABOR BEFORE THE COURTS.17
At the onset, it bears stressing that while petitioner lays down various grounds for
the allowance of the petition, the controversy boils down to the propriety of the
issuance of the writ of execution of the judgment ordering respondents either to
refund or credit the tax assessed under Section 2118 of the Revenue Code of Manila
in the amount of Php3,036,887.33.
After careful consideration of the facts and laws obtaining in this case, we find that
the issuance of the Writ of Execution was superfluous, given the clear directive of
the RTC-Manila in its Decision dated September 28, 2001. We do not, however,
agree with respondents view that Administrative Circular No. 10-2000 is applicable
to the instant case for reasons discussed hereinbelow.
In its first assigned error, petitioner argues that the writ of execution issued by the
Branch Clerk of Court does not involve the levy or garnishment of funds and
property used or being used for public purpose given that the writ was issued "For:
Special Judgment." Thus, Administrative Circular No. 10-2000 has no relevance in
the instant case.
In its Decision dated September 28,2001, the RTC-Manila directs respondents to
either refund or credit the tax under Section 21 of the Revenue Code of Manila,
which was improperly assessed but nevertheless paid for by petitioner on the first
quarter of year 2000 in the amount of 3,036,887.33. The judgment does not
actually involve a monetary award or a settlement of claim against the government.
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
Under the first option, any tax on income that is paid in excess of the amount due
the government may be refunded, provided that a taxpayer properly applies for the
refund.19 On the other hand, the second option works by applying the refundable
amount against the tax liabilities of the petitioner in the succeeding taxable years.20
Hence, instead of moving for the issuance of a writ of execution relative to the
aforesaid Decision, petitioner should have merely requested for the approval of the
City of Manila in implementing the tax refund or tax credit, whichever is
appropriate. In other words, no writ was necessary to cause the execution thereof,
since the implementation of the tax refund will effectively be a return of funds by
the City of Manila in favor of petitioner while a tax credit will merely serve as a
deduction of petitioners tax liabilities in the future.
In fact, Section 252 (c) of the Local Government Code of the Philippines is very
clear that "[i]n the event that the protest is finally decided in favor of the taxpayer,
the amount or portion of the tax protested shall be refunded to the protestant, or
applied as tax credit against his existing or future tax liability." It was not necessary
for petitioner to move for the issuance of the writ of execution because the remedy
has already been provided by law.
Thus, under Administrative Order No. 270 prescribing rules and regulations
implementing the Local Government Code, particularly Article 286 thereof, the tax
credit granted a taxpayer shall be applied to future tax obligations of the same
taxpayer for the same business, to wit:
ARTICLE 286. Claim for Refund or Tax Credit. All taxpayers entitled to a refund or
tax credit provided in this Rule shall file with the local treasurer a claim in writing
duly supported by evidence of payment (e.g., official receipts, tax clearance, and
such other proof evidencing overpayment)within two (2) years from payment of the
tax, fee, or charge. No case or proceeding shall be entertained in any court without
this claim in writing, and after the expiration of two (2) years from the date of
payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a
refund or tax credit.
The tax credit granted a taxpayer shall not be refundable in cash but shall only be
applied to future tax obligations of the same taxpayer for the same business. If a
taxpayer has paid in full the tax due for the entire year and he shall have no other
tax obligation payable to the LGU concerned during the year, his tax credits, if any,
shall be applied in full during the first quarter of the next calendar year on the tax
due from him for the same business of said calendar year.
Any unapplied balance of the tax credit shall be refunded in cash in the event that
he terminates operation of the business involved within the locality.21
Accordingly, while we find merit in petitioners contention that there are two (2)
ways by which respondents may satisfy the judgment of the RTC-Manila: (1) to pay
the petitioner the amount of Php3,036,887.33 as tax refund; or (2) to issue a tax
credit certificate in the same amount which may be credited by petitioner from its
future tax liabilities due to the respondent City of Manila,22 the issuance of the Writ
of Execution relative thereto was superfluous, because the judgment of the RTC-
Manila can neither be considered a judgment for a specific sum of money

susceptible of execution by levy or garnishment under Section 9,23 Rule 39 of the
Rules of Court nor a special judgment under Section 11,24 Rule 39 thereof.
Moreover, given that Presidential Decree No. 1445 and Administrative Circular No.
10-2000 involve a settlement of a claim against a local government unit, the same
finds no application in the instant case wherein no monetary award is actually
awarded to petitioner but a mere return or restoration of petitioners money, arising
from an excessive payment of tax erroneously or illegally imposed and received.
It could not have been the intention of the law to burden the taxpayer with going
through the process of execution under the Rules of Civil Procedure before it may be
allowed to avail its tax credit as affirmed by a court judgment. If at all, the City of
Manila Local Treasury may be allowed to verify documents and information relative
to the grant of the tax refund or tax credit (i.e., determine the correctness of the
petitioner's returns, and the tax amount to be credited), in consonance with the
ruling in San Carlos Milling Co., Inc. v. Commissioner of Internal Revenue,25 which
may be applied by analogy to the case at bar, to wit:
It is difficult to see by what process of ratiocination petitioner insists on the literal
interpretation of the word "automatic." Such literal interpretation has been
discussed and precluded by the respondent court in its decision of 23
December1991 where, as aforestated, it ruled that "once a taxpayer opts for either
a refund or the automatic tax credit scheme, and signified his option in accordance
with the regulation, this does not ipso facto confer on him the right to avail of the
same immediately. An investigation, as a matter of procedure, is necessary to
enable the Commissioner to determine the correctness of the petitioner's returns,
and the tax amount to be credited.
Prior approval by the Commissioner of Internal Revenue of the tax credit under then
section 86 (now section 69) of the Tax Code would appear to be the most
reasonable interpretation to be given to said section. An opportunity must be given
the internal revenue branch of the government to investigate and confirm the
veracity of the claims of the taxpayer. The absolute freedom that petitioner seeks to
automatically credit tax payments against tax liabilities for a succeeding taxable
year, can easily give rise to confusion and abuse, depriving the government of
authority and control over the manner by which the taxpayers credit and offset their
tax liabilities, not to mention the resultant loss of revenue to the government under
such a scheme.26
In its third assignment of error, petitioner postulates that the RTC Manila seriously
erred when it failed to consider that the respondents have been issuing tax credit
certificates to other taxpayers for illegally collected taxes even without any
appropriate measure.1wphi1
On the other hand, respondents argue that the same raises a question of fact which
would entail an examination of probative value of documentary evidence which, in
fact, were not introduced in the course of the trial but only as a mere attachment to
the Motion for Reconsideration of petitioner.27
Petitioners sweeping statement cannot hold water as the factual and legal milieu of
the tax refund cases submitted to the City of Manila, as well as the circumstances
Taxation Law II Local Taxation Cases
Atty. Rommel Geocaniga
availing in each of those cases, vary, requiring a different action from the City of
Manila. As such, the case of Asian Terminals Inc. as well as the case of Tupperware
Brands Phils., Inc. and Smart Communications, Inc., as cited by petitioner,28 should
not be compared to the instant case because it has not been proven that the factual
and procedural circumstances availing therein are similar to the instant case.
For its fourth assigned error, petitioner argues that the reason cited in the Order
quashing the Writ of Execution is not one of the grounds laid down by law.
Respondents aver, on the other hand, that in granting the Motion to Quash, the
RTC-Manila plainly conceded that the Writ of Execution was improvidently issued as
it was prejudicial to the respondents. Respondents also argue that the rule that
government funds are generally exempt from execution is based on obvious
considerations of public policy; thus, the primary functions and devolved public
welfare services rendered by the respondent City of Manila cannot be interrupted or
abandoned by the withdrawal of its meager resources from their lawful and
particular purpose based on the appropriation ordinance.29
Finding that the issuance of the Writ of Execution was superfluous in the first place,
this Court finds the foregoing issue inapt for discussion. Nevertheless, this Court
disagrees with petitioners fifth contention that the assailed decision of the RTC-
Manila granting the Motion to Quash the Writ of Execution has, in effect, reversed
the judgment in the instant case.
What is at issue in the instant petition is merely the propriety of the enforcement of
the writ of execution issued by the RTC-Manila. Clearly, this Court has already ruled
upon the validity of the tax refund or the tax credit due to the petitioner and has
rendered the same final and executory.
The lower court, therefore, has not effectively reversed the judgment in favor of
petitioner. The court a quos reason for quashing the Writ of Execution was to allow
the parties to enforce the judgment by complying first with the rules and procedures
of P.D. No. 1445 and Administrative Circular No. 10-2000.30
WHEREFORE, premises considered, the petition is GRANTED. Accordingly, petitioner
Coca-Cola Bottlers, Inc. is entitled to a tax refund or tax credit without need for a
writ of execution, provided that petitioner complies with the requirements set by law
for a tax refund or tax credit, whichever is applicable.
SO ORDERED.