ILOILO BOTTLERS, INC V.

CITY OF ILOILO
GR No. L-52019, August 19, 1988
Cortes

FACTS:
 Plaintiff Iloilo Bottlers, Inc. is engaged in business of bottling softdrinks and selling the same to its
customers with a bottling plant in Pavia, Iloilo, which is outside the jurisdiction of the defendant.
 Defendant enacted Ordinance No. 5, S’ 1960 imposing license tax on distributors, manufacturers
and bottlers of softdrinks within Iloilo City.
 When company’s plant was still in Muelle Loney St., Iloilo City, it religiously paid the municipal
license tax. It stopped from paying the same when said plant was trasferred.
 Defendant demanded from the plaintiff but the latter explained that it could not be liable anymore to
pay the municipal license fee since its bottling plant is not anymore located inside Iloilo City.
 Plaintiff paid under protest when defendant threatened it to cancel its operation.
 A complaint was subsequently filed by Iloilo Bottlers for the recovery of the amount it paid where
RTC ruled in its favor.

ISSUE: WON plaintiff which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is
liable under Iloilo City tax Ordinance No. 5 imposing a municipal license tax on distributors of softdrinks.

RULING: YES, Iloilo Bottlers is liable under the tax ordinance.

The right to manufacture implies the right to sell/distribute the manufactured products. Hence, for tax
purposes, a manufacture does not necessarily become engaged in the separate business of selling
simply because it sells the products it manufactures. However, there are cases that a manufacturer may
be considered as engaged in the separate business of selling its products. To determine whether an
entity engaged in the principal business of manufacturing, is likewise engaged in the separate business
of selling, its marketing system or sales operations must be looked into.

The Court distinguished two marketing systems: First, the manufacturer enters into sales transactions
and invoices the sales at its main office where purchase orders are received and approved before
delivery orders are sent to the company’s warehouses. No warehouse sales are made as it only serves
as storage site and delivery point. Under the second system, sales transactions are entered into and
perfected at stores or warehouses. Any one who desires to purchase the product may go to the store or
warehouse as it serves as selling center. Under the first system entities are NOT engaged in the
separate business while under the second system they are considered engaged in the separate
business of selling.

Here, plaintiff distributed its softdrinks by means of a fleet of delivery trucks which went directly to
customers. Sales transactions were entered into and sales were perfected and consummated by route
salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks
were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as
selling units and are called “rolling stores”. The delivery trucks were therefore much the same as the
stores and warehouses under the second marketing system. The tax imposed under Ordinance No. 5 is
an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. It can be
levied by the taxing authority only when the acts, privileges or businesses are done or performed within
the jurisdiction of said authority. Specifically, the situs of the act of distributing, bottling or manufacturing
softdrinks must be within city limits. Since sales were made by the plaintiff in Iloilo, it is then liable under
the tax ordinance.

DISPOSITIVE: Appealed decision is REVERSED.