chapter 10 tax cases

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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 ANTHONYACEVEDO, 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 Codereading as follows:

Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings .— The procedure for approval of local tax ordinancesand revenue measures shall be in accordance with the provisions of this Code:Provided, That public hearings shall be conducted for the purpose prior to theenactment thereof; Provided, further, That any question on the constitutionality orlegality 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 adecision 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 ofthe 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 lapseof the sixty-day period without the Secretary of Justice acting upon the appeal, theaggrieved 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 ataxpayer, declared Ordinance No. 7794, otherwise known as the Manila Revenue Code, null andvoid for non-compliance with the prescribed procedure in the enactment of tax ordinances and forcontaining 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 theSecretary's resolution and sustained the ordinance, holding inter alia that the proceduralrequirements had been observed. More importantly, it declared Section 187 of the LocalGovernment Code as unconstitutional because of its vesture in the Secretary of Justice of the powerof control over local governments in violation of the policy of local autonomy mandated in theConstitution and of the specific provision therein conferring on the President of the Philippines onlythe power of supervision over local governments. 2



The present petition would have us reverse that decision. The Secretary argues that the annulledSection 187 is constitutional and that the procedural requirements for the enactment of taxordinances 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 Circular1-88, 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 thedecision 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 ofSection 187, this authority being embraced in the general definition of the judicial power to determinewhat 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 thesubject of the litigation is incapable of pecuniary estimation, 4even as the accused in a criminal actionhas the right to question in his defense the constitutionality of a law he is charged with violating andof 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 anytreaty, 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, noless than on the doctrine of separation of powers. As the questioned act is usually the handiwork ofthe legislative or the executive departments, or both, it will be prudent for such courts, if only out of abecoming 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 theconcurrence 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 purposefulhesitation 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 inaccordance with the fundamental law before it was finally approved. To doubt is to sustain. Thepresumption of constitutionality can be overcome only by the clearest showing that there was indeedan infraction of the Constitution, and only when such a conclusion is reached by the requiredmajority may the Court pronounce, in the discharge of the duty it cannot escape, that the challengedact must be struck down.

In the case before us, Judge Rodolfo C. Palattao declared Section 187 of the Local GovernmentCode 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 firstbeing "the power of an officer to alter or modify or set aside what a subordinate officer had done inthe 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 officers perform their functions inaccordance with law." 6 His conclusion was that the challenged section gave to the Secretary thepower of control and not of supervision only as vested by the Constitution in the President of thePhilippines. This was, in his view, a violation not only of Article X, specifically Section 4 thereof, 7andof 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.



Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of thetax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters ormodifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the

judgment of the local government that enacted the measure. Secretary Drilon did set aside theManila Revenue Code, but he did not replace it with his own version of what the Code should be. Hedid not pronounce the ordinance unwise or unreasonable as a basis for its annulment. He did not

say that in his judgment it was a bad law. What he found only was that it was illegal. All he did inreviewing the said measure was determine if the petitioners were performing their functions inaccordance with law, that is, with the prescribed procedure for the enactment of tax ordinances andthe grant of powers to the city government under the Local Government Code. As we see it, that wasan act not of control but of mere supervision.

An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in hisdiscretion, order the act undone or re-done by his subordinate or he may even decide to do ithimself. Supervision does not cover such authority. The supervisor or superintendent merely sees toit that the rules are followed, but he himself does not lay down such rules, nor does he have thediscretion to modify or replace them. If the rules are not observed, he may order the work done or re-done but only to conform to the prescribed rules. He may not prescribe his own manner for the doingof the act. He has no judgment on this matter except to see to it that the rules are followed. In theopinion of the Court, Secretary Drilon did precisely this, and no more nor less than this, and soperformed an act not of control but of mere supervision.

The case of Taule v. Santos 9 cited in the decision has no application here because the jurisdictionclaimed by the Secretary of Local Governments over election contests in the Katipunan ng MgaBarangay was held to belong to the Commission on Elections by constitutional provision. Theconflict was over jurisdiction, not supervision or control.

Significantly, a rule similar to Section 187 appeared in the Local Autonomy Act, which provided in itsSection 2 as follows:

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the

ordinance shall provide otherwise: Provided, however, That the Secretary of Financeshall have authority to suspend the effectivity of any ordinance within one hundredand twenty days after receipt by him of a copy thereof, if, in his opinion, the tax or feetherein levied or imposed is unjust, excessive, oppressive, or confiscatory, or when itis contrary to declared national economy policy, and when the said Secretaryexercises this authority the effectivity of such ordinance shall be suspended, either inpart or as a whole, for a period of thirty days within which period the local legislativebody may either modify the tax ordinance to meet the objections thereto, or file anappeal with a court of competent jurisdiction; otherwise, the tax ordinance or the partor parts thereof declared suspended, shall be considered as revoked. Thereafter, thelocal legislative body may not reimpose the same tax or fee until such time as thegrounds for the suspension thereof shall have ceased to exist.

That section allowed the Secretary of Finance to suspend the effectivity of a tax ordinance if, in his opinion , the tax or fee levied was unjust , excessive, oppressive or confiscatory . Determination ofthese flaws would involve the exercise of judgment or discretion and not merely an examination ofwhether or not the requirements or limitations of the law had been observed; hence, it would smackof control rather than mere supervision. That power was never questioned before this Court but, atany rate, the Secretary of Justice is not given the same latitude under Section 187. All he ispermitted to do is ascertain the constitutionality or legality of the tax measure, without the right todeclare that, in his opinion, it is unjust, excessive, oppressive or confiscatory. He has no discretion



on this matter. In fact, Secretary Drilon set aside the Manila Revenue Code only on two grounds, towith, the inclusion therein of certain ultra vires provisions and non-compliance with the prescribedprocedure in its enactment. These grounds affected the legality , not the wisdom or reasonableness ,of the tax measure.

The issue of non-compliance with the prescribed procedure in the enactment of the Manila Revenue

Code is another matter.

In his resolution, Secretary Drilon declared that there were no written notices of public hearings onthe proposed Manila Revenue Code that were sent to interested parties as required by Art. 276(b) ofthe Implementing Rules of the Local Government Code nor were copies of the proposed ordinancepublished in three successive issues of a newspaper of general circulation pursuant to Art. 276(a).No minutes were submitted to show that the obligatory public hearings had been held. Neither werecopies 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 Manila Revenue Code was not translated intoPilipino or Tagalog and disseminated among the people for their information and guidance,conformably to Sec. 59(b) of the Code.

Judge Palattao found otherwise. He declared that all the procedural requirements had beenobserved in the enactment of the Manila Revenue Code and that the City of Manila had not beenable to prove such compliance before the Secretary only because he had given it only five dayswithin which to gather and present to him all the evidence (consisting of 25 exhibits) later submittedto the trial court.

To get to the bottom of this question, the Court acceded to the motion of the respondents and calledfor the elevation to it of the said exhibits. We have carefully examined every one of these exhibitsand agree with the trial court that the procedural requirements have indeed been observed. Noticesof the public hearings were sent to interested parties as evidenced by Exhibits G-1 to 17. Theminutes of the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and C show that theproposed 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 affectits validity, considering that its publication in three successive issues of a newspaper of generalcirculation will satisfy due process. It has also not been shown that the text of the ordinance hasbeen translated and disseminated, but this requirement applies to the approval of local developmentplans 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 hasnot 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 Codeunconstitutional but AFFIRMING its finding that the procedural requirements in the enactment of theManila Revenue Code have been observed. No pronouncement as to costs.

SO ORDERED.



G.R. No. 126232 November 27, 1998

THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE CHAVES, andMANUEL DJ SIAYNGCO in their capacity as PROVINCIAL GOVERNOR, PROVINCIALTREASURER, PROVINCIAL LEGAL ADVISER, respectively, petitioners,vs.

THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), REPUBLICCEMENT CORPORATION, respondents.

ROMERO, J.:

Before us is a petition for certiorari seeking the reversal of the decision of the Court of Appeals datedSeptember 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, 1996resolution 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 takeeffect on July 1, 1992. Section 21 of the ordinance provides as follows:

Sec. 21 Imposition of Tax . There is hereby levied and collected a tax of 10% of thefair market value in the locality per cubic meter of ordinary stones, sand, gravel, earthand 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(Emphasis 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 theprovince during the third quarter of 1992 until the second quarter of 1993. Believing that theprovince, on the basis of above-said ordinance, had no authority to impose taxes on quarryresources extracted from private lands, Republic Cement formally contested the same on December23, 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 ofBulacan 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 wasimproper, 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 toreverse 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. Theappellate 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, allegedlybecause of its unpaid tax liabilities. Negotiations between Republic Cement and petitioners resultedin an agreement and modus vivendi on December 12, 1994, whereby Republic Cement agreed topay 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 forresolution by the Court of Appeals to the question as to whether or not the provincial governmentcould impose and/or assess taxes on quarry resources extracted by Republic Cement from privatelands pursuant to Section 21 of Provincial Ordinance No. 3. This agreement and modus vivendi wereembodied in a joint manifestation and motion signed by Governor Roberto Pagdanganan, on behalfof the Province of Bulacan, by Provincial Treasurer Florence Chavez, and by Provincial Legal Officer

Manuel Siayngco, as petitioners' 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 theissue to be resolved to the question of whether or not the provincial government could impose taxeson 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 Bulacanunder its Provincial Ordinance No. 3 entitled "An Ordinance Enacting The RevenueCode of Bulacan Province" to be without legal authority to impose and assess taxeson quarry resources extracted by RCC from private lands, hence the interpretation ofRespondent Treasurer of Chapter II, Article D, Section 21 of the Ordinance, and theassessment made by the Province of Bulacan against RCC is null and void.

Petitioners' motion for reconsideration, as well as their supplemental motion for reconsideration, wasdenied by the appellate court on August 26, 1996, hence this appeal.

Petitioners claim that the Court of Appeals erred in:

1. NOT HAVING OUTRIGHTLY DISMISSED THE SUBJECTPETITION ON THE GROUND THAT THE SAME IS NOT THEAPPROPRIATE REMEDY FROM THE TRIAL COURT'S GRANT OFTHE PRIVATE RESPONDENTS' (HEREIN PETITIONER) MOTIONTO DISMISS;

2. NOT DISMISSING THE SUBJECT PETITION FOR BEINGVIOLATIVE OF CIRCULAR 2-90 ISSUED BY THE SUPREMECOURT;

3. NOT DISMISSING THE PETITION FOR REVIEW ON THEGROUND THAT THE TRIAL COURT'S ORDER OF MAY 13, 1994HAD LONG BECOME FINAL AND EXECUTORY;

4. GOING BEYOND THE PARAMETERS OF ITS APPELLATEJURISDICTION IN RENDERING THE SEPTEMBER 27, 1995DECISION;

5. HOLDING THAT PRIVATE RESPONDENT (HEREINPETITIONER) ARE ESTOPPED FROM RAISING THEPROCEDURAL ISSUE IN THE MOTION FOR RECONSIDERATION;

6. THE INTERPRETATION OF SECTION 134 OF THE LOCALGOVERNMENT CODE AS STATED IN THE SECOND TO THELAST PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER 27, 1995DECISION;



7. SUSTAINING THE ALLEGATIONS OF HEREIN RESPONDENTWHICH UNJUSTLY DEPRIVED PETITIONER THE POWER TOCREATE ITS OWN SOURCES OF REVENUE;

8. DECLARING THAT THE ASSESSMENT MADE BY THEPROVINCE OF BULACAN AGAINST RCC AS NULL AND VOID

WHICH IN EFFECT IS A COLLATERAL ATTACK ON PROVINCIALORDINANCE NO. 3; AND

9. FAILING TO CONSIDER THE REGALIAN DOCTRINE IN FAVOROF THE LOCAL GOVERNMENT.

The issues raised by petitioners are devoid of merit. The number and diversity of errors raised byappellants 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 withthe Supreme Court, Republic Cement should have appealed from the order of the trial courtdismissing their petition. CitingMartinez 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 questionssought to be raised on appeal, whether of fact or of law, whether involving jurisdiction or graveabuse 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. Asstated in Martinez , the party aggrieved does not have the option to substitute the special civil actionof certiorari under Rule 65 for the remedy of appeal. The existence and availability of the right ofappeal are antithetical to the availment of the special civil action of certiorari .

Republic Cement did not, however, file a petition for certiorari under Rule 65, but an appealby certiorari under Rule 45. Even law students know that certiorari under Rule 45 is a mode ofappeal, 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) bycertiorari (limited only to issues of law), with anappeal by certiorari being brought to the Supreme Court, there being no provision of law for takingappeals by certiorari to the Court of Appeals. 2 It is thus clearly apparent that Republic Cementcorrectly 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 reviewon certiorari under Rule 45 is available to a party aggrieved by an order granting a motion todismiss. 3 They claim, however, that Republic Cement could not avail of the same allegedly becausethe latter raised issues of fact, which is prohibited, Rule 45 providing that "(t)he petition shall raiseonly questions of law which must be distinctly set forth." 4 In this respect, petitioners claim thatRepublic Cement's petition should have been dismissed by the appellate court, Circular 2-90providing:

4. Erroneous Appeals .—

An appeal taken to either the Supreme Court or the Courtof Appeals by the wrong or inappropriate mode shall be dismissed.

xxx xxx xxx

d) No transfer of appeals erroneously taken. — No transfers of appeals erroneouslytaken to the Supreme Court or to the Court of Appeals to whichever of theseTribunals has appropriate appellate jurisdiction will be allowed; continued ignoranceor 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. Petitionersconveniently 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 offact 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 theexercise of its sound discretion and considering the attendant circumstances, eitheritself to take cognizance of and decide such issues or to refer them to the Court ofAppeals for determination.

As can be clearly adduced from the foregoing, when an appeal by certiorari under Rule 45erroneously raises factual issues, the Court has the option to refer the petition to the Court ofAppeals. 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, 1994order never became final and executory, rendering petitioner's third assignment of error moot andacademic.

Petitioners' fourth and fifth assignment of errors are likewise without merit. Petitioners assert that theCourt of Appeals could only rule on the propriety of the trial court's dismissal of Republic Cement'spetition for declaratory relief, allegedly because that was the sole relief sought by the latter in itspetition for certiorari . Petitioners claim that the appellate court overstepped its jurisdiction when itdeclared 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 enteredinto an agreement and modus vivendi whereby they limited the issue for resolution to the questionas 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. Thisagreement and modus vivendi were approved by the appellate court on December 29, 1994. Allthroughout 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 whenan adverse decision was rendered by the Court of Appeals did petitioners question the jurisdiction ofthe former.

Petitioners are barred by the doctrine of estoppel from contesting the authority of the Court ofAppeals to decide the instant case, as this Court has consistently held that "(a) party cannot invokethe jurisdiction of a court to secure affirmative relief against his opponent and after obtaining orfailing to obtain such relief, repudiate or question that same jurisdiction." 5 The Supreme Courtfrowns upon the undesirable practice of a party submitting his case for decision and then acceptingthe 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 on the Province of Bulacan, not havingbeen authorized by theSangguniang Panlalawigan of Bulacan. While it is true that the ProvincialGovernor 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 mayhave 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 ManuelSiayngco, 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 executionare within the exclusive control of the attorney. 8 With respect to such matters of ordinary judicialprocedure, the attorney needs no special authority to bind his client. 9 Such questions as what actionor pleading to file, where and when to file it, what are its formal requirements, what should be thetheory 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 theattorney 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 petitioners' counsel is binding upon petitioners, even if the Sanggunian had notauthorized the same, limitation of issues being a procedural question falling within the exclusiveauthority of the attorney to decide.

In any case, the remaining issues raised by petitioner are likewise devoid of merit, a province havingno authority to impose taxes on stones, sand, gravel, earth and other quarry resources extractedfrom 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. 158. Tax on Sand, Gravel and Other Quarry Resources .— The province maylevy and collect not more than ten percent (10%) of fair market value in the localityper cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources,as defined under the National Internal Revenue Code, as amended, extractedfrom public lands or from the beds of seas, lakes, rivers, streams, creeks, and otherpublic waters within its territorial jurisdiction.

xxx xxx xxx (Emphasis 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 totax 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, petitionersclaim that Sections 129 12 and 186 13 of the Local Government Code authorizes the province toimpose 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 specificallymentioned under the Local Government Code. As correctly pointed out by petitioners, Section 186allows a province to levy taxes other than those specifically enumerated under the Code, subject tothe 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 theperformance, carrying on, or exercise of an activity. 14The Local Government Code provides:

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 xxx xxx



(h) Excise taxes on articles enumerated under the National Internal Revenue Code,as amended, and taxes, fees or charges on petroleum products;

xxx xxx xxx

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:

Sec. 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:

xxx xxx xxx

(2) On all nonmetallic minerals and quarry resources, a tax of twopercent (2%) based on the actual market value of the gross outputthereof at the time of removal, in case of those locally extracted or

produced; or the values used by the Bureau of Customs indetermining tariff and customs duties, net of excise tax and value-added tax, in the case of importation.

xxx xxx xxx

(B) [Definition of Terms ].— for purposes of this Section, the term-

xxx xxx xxx

(4) Quarry resources shall mean any common stone or othercommon mineral substances as the Director of the Bureau of Mines

and Geo-Sciences may declare to be quarry resources such as, butnot restricted to, marl, marble, granite, volcanic cinders, basalt, tuffand rock phosphate; Provided , That they contain no metal or metalsor other valuable minerals in economically workable quantities.

It is clearly apparent from the above provision that the National Internal Revenue Code levies a taxon all quarry resources, regardless of origin, whether extracted from public or private land. Thus, aprovince 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 frompublic land because it is expressly empowered to do so under the Local Government Code. As tostones, 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 ofthe National Internal Revenue Code.

Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived themof the power to create their sources of revenue, their assessment of taxes against Republic Cementbeing 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 againstRepublic 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 theCourt of Appeals. Rather, what the appellate court questioned was petitioners' assessment of taxeson 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 Section138 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 wedisregard 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 landson the basis of Section 21 of Provincial Ordinance No. 3 as the latter clearly applies only to quarryresources extracted from public lands. Petitioners may not invoke the Regalian doctrine to extendthe coverage of their ordinance to quarry resources extracted from private lands, for taxes, beingburdens, 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 thedecision of the Court of Appeals is hereby AFFIRMED in toto . Costs against petitioner.

SO ORDERED.



G.R. No. 125948 December 29, 1998

FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,vs.COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY andADORACION 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 datedNovember 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional TrialCourt 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 in1967 1 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 theMayor of Batangas City. However, before the mayor's permit could be issued, the respondentCity Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscalyear 1993 pursuant to the Local Government Code 3. The respondent City Treasurer assesseda business tax on the petitioner amounting to P956,076.04 payable in four installments basedon the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amountedto P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protestin 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 CityTreasurer, the pertinent portion of which reads:

Please note that our Company (FPIC) is a pipeline operator with a governmentconcession granted under the Petroleum Act. It is engaged in the business oftransporting petroleum products from the Batangas refineries, via pipeline, toSucat and JTF Pandacan Terminals. As such, our Company is exempt frompaying tax on gross receipts under Section 133 of the Local Government Codeof 1991 . . . .

Moreover, Transportation contractors are not included in the enumeration ofcontractors 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 Codedoes not include the power to levy on transportation contractors.

The imposition and assessment cannot be categorized as a mere fee authorizedunder Section 147 of the Local Government Code. The said section limits theimposition of fees and charges on business to such amounts as may becommensurate to the cost of regulation, inspection, and licensing. Hence,assuming arguendo that FPIC is liable for the license fee, the imposition thereofbased 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 ofregulation, 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 thatpetitioner 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 acomplaint 6 for tax refund with prayer for writ of preliminary injunction against respondentsCity 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 itsgross receipts violates Section 133 of the Local Government Code; (2) the authority of citiesto impose and collect a tax on the gross receipts of "contractors and independentcontractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxeson transportation contractors for, as defined under Sec. 131 (h), the term "contractors"excludes transportation contractors; and, (3) the City Treasurer illegally and erroneouslyimposed 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 fromtaxes 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 commoncarriers by air, land and water." Respondents assert that pipelines are not included in theterm "common carrier" which refers solely to ordinary carriers such as trucks, trains, shipsand the like. Respondents further posit that the term "common carrier" under the said codepertains 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 inthis wise:

. . . Plaintiff is either a contractor or other independent contractor.

. . . the exemption to tax claimed by the plaintiff has become unclear. It is a rulethat tax exemptions are to be strictly construed against the taxpayer, taxesbeing the lifeblood of the government. Exemption may therefore be grantedonly by clear and unequivocal provisions of law.

Plaintiff claims that it is a grantee of a pipeline concession under Republic Act387. (Exhibit A) whose concession was lately renewed by the EnergyRegulatory Board (Exhibit B). Yet neither said law nor the deed of concessiongrant 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 otherconsiderations may be of help:

1. That the exemption granted under Sec. 133 (j)encompasses onlycommon carriers so as not tooverburden the riding public or commuters withtaxes. Plaintiff is not a common carrier, but aspecial 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 enactedto give more and effective local autonomy to localgovernments than the previous enactments, to make

them economically and financially viable to servethe people and discharge their functions with aconcomitant obligation to accept certain devolutionof powers, . . . So, consistent with this policy evenfranchise grantees are taxed (Sec. 137) andcontractors are also taxed under Sec. 143 (e) and151 of the Code. 9

Petitioner assailed the aforesaid decision before this Court via a petition for review. OnFebruary 27, 1995, we referred the case to the respondent Court of Appeals for considerationand adjudication. 10On November 29, 1995, the respondent court rendered adecision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motionfor reconsideration was denied on July 18, 1996. 12

Hence, this petition. At first, the petition was denied due course in a Resolution datedNovember 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this Courtin a Resolution 14 of January 22, 1997. Thus, the petition was reinstated.

Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioneris not a common carrier or a transportation contractor, and (2) the exemption sought for bypetitioner 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, forcompensation, offering his services to the public generally.

Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm orassociation engaged in the business of carrying or transporting passengers or goods orboth, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carryinggoods for others as a public employment, andmust hold himself out as ready to engage in the

transportation of goods for person generally as abusiness and not as a casual occupation;

2. He must undertake to carry goods of the kind towhich his business is confined;

3. He must undertake to carry by the method bywhich his business is conducted and over hisestablished roads; and



4. The transportation must be for hire. 15

Based on the above definitions and requirements, there is no doubt that petitioner is acommon 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 personsindifferently, 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 notexclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals 16 weruled that:

The above article (Art. 1732, Civil Code) makes no distinctionbetween one whose principal business activity is the carrying ofpersons or goods or both, and one who does such carrying onlyas an ancillary activity (in local idiom, as a "sideline"). Article1732 . . . avoids making any distinction between a person orenterprise offering transportation service ona regular or scheduled basis and one offering such service onan occasional, episodic or unscheduled basis . Neither doesArticle 1732 distinguish between a carrier offering its services tothe "general public," i .e ., the general community or population,and one who offers services or solicits business only from anarrow segment of the general population. We think that Article1877 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article1732 may be seen to coincide neatly with the notion of "publicservice," under the Public Service Act (Commonwealth Act No.1416, as amended) which at least partially supplements the lawon common carriers set forth in the Civil Code. Under Section13, paragraph (b) of the Public Service Act, "public service"includes:

every person that now or hereafter may own,operate. manage, or control in the Philippines, forhire or compensation, with general or limitedclientele, whether permanent, occasional oraccidental, and done for general businesspurposes, any common carrier, railroad, streetrailway, traction railway, subway motor vehicle,either for freight or passenger, or both, with orwithout fixed route and whatever may be itsclassification, freight or carrier service of anyclass, express service, steamboat, or steamshipline, pontines, ferries and water craft, engaged in the transportation of passengers or freight orboth, shipyard, marine repair shop, wharf or dock,ice plant, ice-refrigeration plant, canal, irrigationsystem gas, electric light heat and power, watersupply and power petroleum, sewerage system,wire or wireless communications systems, wire orwireless broadcasting stations and other similarpublic services. (Emphasis Supplied)



Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of theLocal Government Code refers only to common carriers transporting goods and passengersthrough moving vehicles or vessels either by land, sea or water, is erroneous.

As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Codemakes no distinction as to the means of transporting, as long as it is by land, water or air. It

does not provide that the transportation of the passengers or goods should be by motorvehicle. In fact, in the United States, oil pipe line operators are considered commoncarriers. 17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a"common carrier." Thus, Article 86 thereof provides that:

Art. 86. Pipe line concessionaire as common carrier.— A pipeline shall have the preferential right to utilize installations for thetransportation of petroleum owned by him, but is obligated toutilize the remaining transportation capacity pro rata for thetransportation of such other petroleum as may be offered by

others for transport, and to charge without discrimination suchrates as may have been approved by the Secretary ofAgriculture and Natural Resources.

Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion ofArticle 7 thereof provides:

that everything relating to the exploration for and exploitation ofpetroleum . . . and everything relating to the manufacture,refining, storage, or transportation by special methods of petroleum , is hereby declared to be a public utility . (EmphasisSupplied)

The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIRRuling No. 069-83, it declared:

. . . since [petitioner] is a pipeline concessionaire that isengaged only in transporting petroleum products, it isconsidered a common carrier under Republic Act No. 387 . . . .Such being the case, it is not subject to withholding taxprescribed by Revenue Regulations No. 13-78, as amended.

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 LocalGovernment Code, to wit:

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units .— Unless otherwise provided herein, theexercise of the taxing powers of provinces, cities, municipalities,and barangays shall not extend to the levy of the following:

xxx xxx xxx



(j) Taxes on the gross receipts oftransportation contractors andpersons engaged in thetransportation of passengers orfreight by hire and common carriersby air, land or water, except as

provided in this Code.

The deliberations conducted in the House of Representatives on the Local Government Codeof 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 onthe Taxing Powers of Local Government Units." . . .

MR. AQUINO (A.). Thank you Mr. Speaker.

Still on page 95, subparagraph 5, on taxes on the business oftransportation. This appears to be one of those being deemed tobe exempted from the taxing powers of the local governmentunits. May we know the reason why the transportation businessis being excluded from the taxing powers of the localgovernment units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained inSection 121 (now Sec. 131), line 16, paragraph 5. It states thatlocal 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 98of Book II, one can see there that provinces have the power toimpose a tax on business enjoying a franchise at the rate of notmore than one-half of 1 percent of the gross annual receipts. So,transportation contractors who are enjoying a franchise wouldbe subject to tax by the province. That is the exception, Mr.Speaker.

What we want to guard against here, Mr. Speaker, is theimposition of taxes by local government units on the carrierbusiness. Local government units may impose taxes on top of

what is already being imposed by the National Internal RevenueCode which is the so-called "common carriers tax." We do notwant a duplication of this tax, so we just provided for anexception under Section 125 [now Sec. 137] that a province mayimpose this tax at a specific rate.

MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . . 18



It is clear that the legislative intent in excluding from the taxing power of the localgovernment unit the imposition of business tax against common carriers is to prevent aduplication of the so-called "common carrier's tax."

Petitioner is already paying three (3%) percent common carrier's tax on its grosssales/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 purpose of theLocal Government Code.

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

SO ORDERED.



G.R. No. 127708 March 25, 1999

CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF SAN PABLO, LAGUNAand THE SANGGUNIANG PANGLUNSOD OF SAN PABLO, LAGUNA, petitioners,vs.HONORABLE BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional Trial

Court, Branch 29, San Pablo City and the MANILA ELECTRIC COMPANY, respondents.

GONZAGA-REYES, J.:

This is a petition under Rule 45 of the Rules of Court to review on a pure question of law thedecision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in Civil Case No. SP-4359(96), entitled "Manila Electric Company vs. City of San Pablo, Laguna, City Treasurer of SanPablo Laguna, and the Sangguniang Panglunsod of San Pablo City, Laguna." The RTC declared theimposition of a franchise tax under Section 2.09 Article D of Ordinance No. 56 otherwise known asthe Revenue Code of the City of San Pablo as ineffective and void insofar as the respondent

MERALCO is concerned for being violative of Act No. 3648, Republic Act No. 2340 and PD 551. TheRTC also granted MERALCO'S claim for refund of franchise taxes paid under protest.

The following antecedent facts are undisputed:

Act No. 3648 granted the Escudero Electric Service Company a legislative franchise to maintain andoperate an electric light and power system in the City of San Pablo and nearby municipalities.Section 10 of Act No. 3648 provides:

. . . In consideration of the franchise and rights hereby granted, the grantee shall payunto the municipal treasury of each municipality in which it is supplying electriccurrent to the public under this franchise, a tax equal to two percentum of the gross

earnings from electric current sold or supplied under this franchise in each saidmunicipality. Said tax shall be due and payable quarterly and shall be in lieu of anyand all taxes of any kind nature or description levied, established or collected by anyauthority whatsoever, municipal, provincial or insular, now or in the future, on itspoles, wires, insulator, switches, transformers, and structures, installations,conductors, and accessories placed in and over and under all public property,including public streets and highways, provincial roads, bridges and public squares,and on its franchise, rights. privileges, receipts, revenues and profits from whichtaxes the grantee is hereby expressly exempted.

Escudero's franchise was transferred to the plaintiff (herein respondent) MERALCO under RepublicAct No. 2340.

Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof provides thefollowing:

Sec. 1. Any provision of law or local ordinance to the contrary notwithstanding, thefranchise tax payable by all grantees of franchise to generate, distribute and sellelectric current for light, heat and power shall be two percent (2%) of their grossreceipts received from the sale of electric current and from transactions incident tothe generation, distribution and sale of electric current.



Such franchise tax shall be payable to the Commissioner of Internal Revenue of hisduly authorized representative on or before the twentieth day of the month followingthe end of each calendar quarter or month as may be provided in the respectivefranchise or pertinent municipal regulation and shall, any provision of the Local TaxCode or any other law to the contrary notwithstanding, be in lieu of all taxes andassessments of whatever nature imposed by any national or local authority on

earnings, receipts, income and privilege of generation, distribution and sale ofelectric current.

Republic Act No. 7160, otherwise known as the "Local Government Code of 1991" (hereinafterreferred to as LGC) took effect on January 1, 1992. The said Code authorizes the province/city toimpose a tax on business enjoying a franchise at a rate not exceeding fifty percent (50%) of onepercent (1%) of the gross annual receipts for the preceding calendar year realized within its

jurisdiction.

On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted Ordinance No. 56,otherwise known as the Revenue Code of the City of San Pablo. The said Ordinance took effect onOctober 30, 1992. 1

Sec. 2.09, Article D of said Ordinance provides:

Sec. 2.09. Franchise Tax— There is hereby imposed a tax on business enjoying afranchise, at a rate of fifty percent (50%) of one percent (1%) of the cross annualreceipts, which shall include both cash sales and sales on account realized duringthe preceding calendar year within the city.

Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to private respondenta letter demanding payment of the aforesaid franchise tax. From 1994 to 1996, private respondentpaid "under protest" a total amount of P1,857,711.67. 2

The private respondent subsequently filed this action before the Regional Trial Court to declareOrdinance No. 56 null and void insofar as it imposes the franchise tax upon private respondentMERALCO 3 and to claim for a refund of the taxes paid.

The Court ruled in favor of MERALCO and upheld its argument that the LGC did not expressly orimpliedly repeal the tax exemption/incentive enjoyed by it under its charter The dispositive portion ofthe decision reads:

WHEREFORE, the imposition of a franchise tax under Sec. 2.09, Article D of OrdinanceNo. 56 otherwise known as the Revenue Code of the City of San Pablo, is declaredineffective and null and void insofar as the plaintiff MERALCO is concerned for being ofRepublic Act. No. 2340, PD 551, and Republic Act No. 7160 and defendants are orderedto refund to the plaintiff the amount of ONE MILLION EIGHT HUNDRED FIFTY SEVEN

THOUSAND SEVEN HUNDRED ELEVEN & 67/100 (P1,857,711.67) and such otheramounts as may have been paid by the plaintiff under said Revenue Ordinance No. 56after the filling of the complaint. 4

SO ORDERED.

Its motion for records for reconsideration having been denied by the trial court. 5 the petitioners filedthe instant petition with this Court raising pure question of law based on the following grounds:



I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THATACT NO. 3648, REPUBLIC ACT NO 2340 AND PRESIDENTIALDECREE NO. 551, AS AMENDED, INSOFAR AS THEY GRANTTAX INCENTIVES, PRIVILEGES AND IMMUNITIES TO PRIVATERESPONDENT, HAVE NOT BEEN REPEALED BY REPUBLIC ACTNO. 7160.

II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THATSECTION 193 OF REPUBLIC ACT NO. 7160 HAS NOTWITHDRAWN THE TAX INCENTIVES, PRIVILEGES ANDIMMUNITIES BEING ENJOYED BY THE PRIVATE RESPONDENTUNDER ACT NO. 3648 REPUBLIC ACT NO. 2340 ANDPRESIDENTIAL DECREE NO. 551 AS AMENDED.

III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THATTHE FRANCHISE TAX IN QUESTION CONSTITUTES ANIMPAIRMENT OF THE CONTRACT BETWEEN THEGOVERNMENT AND PRIVATE RESPONDENT.

Petitioners' position is that RA 7160 (LGC) expressly repealed Act No. 3648, Republic Act No. 2340and Presidential Decree 551 and that pursuant to the provisions of Sections 137 and 193 of theLGC, the province or city now has the power to impose a franchise tax on a business enjoying afranchise. Petitioners rely on the ruling in the case of Mactan Cebu International Airport Authority vs . Marcos 6 where the Supreme Court held that the exemption from real property tax granted toMactan Cebu International Airport Authority under its charter has been withdrawn upon the effectivityof the LGC.

In addition, the petitioners cite in their Memorandum dated December 8, 1993 an administrativeinterpretation made by the Bureau of Local Government Finance of the Department of Finance in its3rd indorsement dated February 15, 1994 to the effect that the earlier ruling of the Department ofFinance that holders of franchise which contain the phrase "in lieu of all taxes" proviso are exempt

from the payment of any kind of tax is no longer applicable upon the effectivity of the LGC in view ofthe withdrawal of tax exemption privileges as provided in Sections 193 and 234 thereof.

We resolve to reverse the court a quo .

The pivotal issue is whether the City of San Pablo may impose a local franchise tax pursuant to theLGC upon the Manila Electric Company which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local authority onsavings or income.

It is necessary to reproduce the pertinent provisions of the LGC.

Sec. 137—

Franchise Tax —

Notwithstanding any exemption granted by any law orother special law, the province may impose a tax on business enjoying a franchise,at a rate not exceeding fifty percent 50% of one percent 1% of the gross annualreceipts for the preceding calendar year based on the incoming receipts, or realized,within its territorial jurisdiction. . . .

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 municipalitymay impose: Provided , however , That the taxes, fees and charges levied and



collected by highly urbanized and independent component cities shall accrue to themand distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed forthe province or municipality by not more than fifty percent (50%) except the rates ofprofessional and amusement taxes.

Sec. 193— Withdrawal of Tax Exemption Privileges — Unless otherwise provided inthis Code, tax exemptions or incentives granted to, or presently enjoyed by allpersons, whether natural or juridical, including government-owned or controlledcorporations, except local water districts, cooperatives duly registered under R.A.6938, non- stock and non-profit hospitals and educational institutions, are herebywithdrawn upon the effectivity of this Code.

Sec. 534 (f)— Repealing Clause— All general and special law, acts, city charters,decrees, executive orders, proclamation and administrative regulations, or part orparts thereof which are inconsistent with any of the provisions of this code are herebyrepealed or modified accordingly.

Sec. 534 (f), the repealing clause of the LGC, provides that all general and special laws, act, citycharters, decrees, executive orders, proclamations and administrative regulations or parts thereofwhich are inconsistent with any of the provisions of the Code are hereby repealed or modifiedaccordingly.

This clause partakes of the nature of a general repealing clause. 7 It is certainly not an expressrepealing clause because it fails to designate the specific act or acts identified by number or title,that are intended to be repealed.8

Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar as thelatter imposes a 2% tax "in lieu of all taxes and assessments of whatever nature"?

We rule affirmatively.

We are mindful of the established rule that repeals by implication are not favored as laws arepresumed to be passed with deliberation and full knowledge of all laws existing on the subject. Ageneral law cannot be construed to have repealed a special law by mere implication unless theintent to repeal or alter is manifest 9 and it must be convincingly demonstrated that the two laws areso clearly repugnant and patently inconsistent that they cannot co-exist. 10

It is our view that petitions correctly rely on the provisions of Sections 137 and 193 of the LGC tosupport their position that MERALCO`s tax exemption has been withdrawn. The explicit language ofSection 137 which authorizes the province to impose franchise tax "notwithstanding any exemptiongranted by any law or other special law" is all-encompassing and clear. The franchise tax is

imposable despite any exemption enjoyed under special laws.

Sec. 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unlessotherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by allpersons whether natural or juridical, including government-owned or controlled corporations except1) local water districts, 2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profithospitals and educational institutions, are withdrawn upon the effectivity of this code, the obviousimport is to limit the exemptions to the three enumerated entities. It is a basic precept of statutoryconstruction that the express mention of one person, thing, act, or consequence excludes all others



as expressed in the familiar maxim expressio untus est exclusio alterius . 11 In the absence of anyprovision of the Code to the contrary, and we find no other provision in point, any existing taxexemption or incentive enjoyed by MERALCO under existing law was clearly intended to bewithdrawn.

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 annualreceipts for the preceding calendar year based on the incoming receipts realized within its territorial

jurisdiction. The legislative purpose to withdraw tax privileges enjoy under existing law or charter isclearly manifested by the language used in Sections 137 end 193 categorically withdrawing suchexemption subject only to the exceptions enumerated. Since it would be not only tedious andimpractical to attempt to enumerate all the existing statutes providing for special tax exemptions orprivileges, the LGC provided for an express, albeit general, withdrawal of such exemptions orprivileges. No more unequivocal language could have been used.

It is true that the phrase "in lieu of all taxes" found in special franchises has been held in severalcases to exempt the franchise holder from payment of tax on its corporate franchise imposed of theInternal Revenue Code, as the charter is in the nature of a private contract and the exemption is partof the inducement for the acceptance of the franchise, and that the imposition of another franchisetax by the local authority would constitute an impairment of contract between the government andthe corporation. 12 But these "magic words" contained in the phrase "shall be in lieu of alltaxes'' 13 have to give way to the peremptory language of the LGC specifically providing for thewithdrawal of such exemption privileges.

Accordingly in Mactan Cebu International Airport Authority vs .Marcos . 14 this Court held that Section 193 of the LGC prescribes the general rule, viz ., the taxexemption or incentives, granted to or presently enjoyed by natural or juridical persons arewithdrawn upon the effectivity of the LGC except with respect to those entities expresslyenumerated. In the same vein, We must hold that the express withdrawal upon effectivity of the LGCof all exemptions except only as provided therein, can no longer be invoked by Meralco to disclaimliability for the local tax.

Private respondents further argue that the "in lieu of" provision contained in PD 551, Act. No. 3648and RA 2340 does not partake of the nature of an exemption, but is a "commutative tax". Thiscontention was raised but was not upheld in Cagayan Electric Power and Light Co . Inc . vs . Commissioner of Internal Revenue 15 wherein the Supreme Court stated:

. . . Congress could impair petitioner's legislative franchise by making it liable forincome tax from which heretofore it was exempted by virtue of the exemptionprovided for in section 3 of its franchise . . .

. . . Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting toincome tax all corporate tax payers not expressly exempted therein and in section 27

of the Code, had the effect of withdrawing petitioner's exemption from income tax . . .

Private respondent's invocation of the non-impairment clause of the Constitution is accordinglyunavailing. The LGC was enacted in pursuance of the constitutional policy to ensure autonomy tolocal governments 16 and to enable them to attain fullest development as self-reliantcommunities. 17 Thus in Mactan Cebu International Airport Authority vs . Marcos , supra , this Courtpointed out, in upholding the withdrawal of the real estate tax exemption previously enjoyed by theMactan Cebu International Airport Authority, as follows:



Note that as reproduced in Section 234 (a) the phrase ''and any government-owned orcontrolled corporation so exempt by its charter" was excluded. The justification for thisrestricted exemption in Section 234(a) seems obvious: to limit further tax exemptionprivileges, especially in light of the general provision on withdrawal of tax exemptionprivileges in Section 193 and the special provision on withdrawal of exemption frompayment of real property taxes in the last paragraph of Section 234. These policyconsiderations are consistent with the State policy to ensure autonomy to localgovernments and the objective of the LGC that they enjoy genuine and meaningful localautonomy to enable them to attain their fullest development as self-reliant communitiesand make them effective partners in the attainment of national goals. The power to tax isthe most effective instrument to raise needed revenues to finance and support myriadactivities of local government units for the delivery of basic services essential to thepromotion of the general welfare and the enhancement of peace, progress, andprosperity of the people. It may also be relevant to recall that the original reasons for thewithdrawal of tax exemption privileges granted to government-owned or controlledcorporations and all other units of government were that such privilege resulted in serioustax base erosion and distortions in the tax treatment of similarly situated enterprises, andthere was a need for these entities to share in the requirements of development, fiscal orotherwise, by paying the taxes and other charges due from them. 18

The Court therein concluded that:

nothing can prevent Congress from decreeing that even instrumentalities or agencies ofthe Government performing governmental functions may be subject to tax. Where it isdone precisely to fulfill a constitutional mandate and national policy, no one can doubt itswisdom. 19

The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised bylocal legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant todirect authority conferred by Section 5, Article X of the Constitution. 20 Thus Article X, Section 5 ofthe Constitution reads:

Sec. 5—

Each Local Government unit shall have the power to create its ownsources of revenue and to levy taxes, fees and charges subject to such guidelinesand limitations as the Congress may provide, consistent with the basic policy of localautonomy. Such taxes, fees and charges shall accrue exclusively to the LocalGovernments.

The important legal effect of Section 5 is that henceforth, in interpreting statutory provisionon municipal fiscal powers, doubts will have to resolved in favor of municipal corporations. 21

There is further basis for tire conclusion that the non-impairment of contract clause cannot beinvoked to uphold Meralco's exemption from the local tax. Escudero Electric Co. was originally giventhe legislative franchise under Act. 3648 to operate an electric light and power system in the City of

San Pablo and nearby municipalities. The term of the franchise under Act. No. 3648 is a period offifty years from the Act's approval in 1929. The said law provided that the franchise is granted uponthe condition that it shall be subject to amendment, or repeal by the Congress of the UnitedStates. 22 Under the 1935. 23 the 1973 24 and the 1987 25 Constitutions, no franchise or right shall begranted except under the condition that it shall be subject to amendment, alteration or repeal by theNational Assembly when the public interest so requires. With or without the reservation clause,franchises are subject to alterations through a reasonable exercise of the police power; they are alsosubject to alteration by the power to tax, which like police power cannot be contracted away. 26



Finally, while the matter is not of controlling significance, the Court notes that whereas the originalEscudero franchise exempted the franchise holder from all taxes levied or collected "now or in thefuture" 27 this phrase is noticeably omitted in the counterpart provision of P.D. 551; that said omissionis intended not to foreclose future taxes may reasonably be deduced by statutory construction.

WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial Court of San

Pablo City, appealed from is hereby reversed and set aside and the complaint of MERALCO ishereby DISMISSED.

No pronouncement as to costs.

SO ORDERED.



MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA

and BENITO R. BALAZO, in his capacity as Provincial Treasurer of

Laguna, respondents.

D E C I S I O N

VITUG, J .:

On various dates, certain municipalities of the Province of Laguna including,

Biñan, 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 19January 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”[1]

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. Aformal 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

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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 grossreceipts 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 electriccurrent.”

On 28 August 1995, the claim for refund of petitioner was denied in a letter

signed by Governor Jose D. Lina. In denying the claim, respondents 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 priority 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 DecreeNo. 551.

“2. Whether Republic Act. No. 7160, otherwise known as the Local

Government Code of 1991, has repealed, amended or modified Presidential Decree

No. 551.

“3. Whether the doctrine of exhaustion 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, andreferendum, 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.

“x x x x x x x x x

“Sec. 5. Each local government shall have the power to create its own sources of

revenues and to levy taxes, fees, and charges subject to such guidelines andlimitations 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 the 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 tospecific 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 taxpayerwill not be over-burdened or saddled with multiple and unreasonable impositions; (b)

each local government unit will have its fair share of 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. 231[7] pursuant to the then

provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code

explicitly authorizes provincial governments, notwithstanding “any exemption grantedby any law or other special law, x x x (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 taxshall 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:










“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. 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:

“Section 534. Repealing Clause. – x x x.

“(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:

“x x x These policy considerations are consistent with the State policy to ensure

autonomy to local governments and the objective of the LGC that they enjoy genuine

and meaningful local autonomy to enable them to attain their fullest development as

self-reliant communities and make them effective partners in the attainment of

national goals. The power to tax is the most effective instrument to raise neededrevenues to finance and support myriad activities of local government units for the

delivery of basic service essential to the promotion of the general welfare and the

enhancement of peace, progress, and prosperity of the people. It may also be relevant

to recall that the original reasons for the withdrawal of tax exemption privileges

granted to government-owned and 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, and there was a need

for these entities to share in the requirements of development, fiscal or otherwise, by

paying the taxes and other charges due from them.”[10]

Petitioner in its complaint before the Regional Trial Court cited the ruling of this

Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light

Company, Inc.;[11] thus:

“In an earlier case, the phrase „shall be in lieu of all taxes and at any time levied,

established by, or collected by any authority‟ found in the franchise of the Visayan


















Electric Company was held to exempt the company from payment of the 5% tax on

corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan

Electric Co. vs. David, 49 O.G. [No. 4] 1385)

“Similarly, we ruled that the provision: „shall be in lieu of all taxes of every name and

nature‟ in the franchise of the Manila Railr oad (Subsection 12, Section 1, Act No.1510) exempts the Manila Railroad from payment of internal revenue tax for its

importations of coal and oil under Act No. 2432 and the Amendatory Acts of the

Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).

“The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act

No. 1497) justified the exemption of the 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 amended by R.A. No. 39 (Carcar Electric & Ice Plant vs.

Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that

such exemption is part of the inducement for the acceptance of the franchise and therendition of public service by the grantee.”[12]

In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.

Bienvenido V. Reyes, et al.,[13] the Court has held that the phrase in lieu of all

taxes “have to give way to the peremptory language of the Local Government Code

specifically providing for the withdrawal of such exemptions, privileges,” and that

“upon the effectivity of the Local Government Code all exemptions except only as

provided therein can no longer be invoked by MERALCO to disclaim liability for thelocal tax.” In fine, the Court has viewed its previous rulings as laying stress more

on the legislative intent of the amendatory law –

whether the tax exemption

privilege is to be withdrawn or not – rather than on whether the law can

withdraw, without violating the Constitution, the tax exemption or not.

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 for

carrying on the franchise, these exemptions, nevertheless, are far from being strictly










contractual in nature. Contractual tax exemptions, in the real sense of the 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 contained

in government bonds or debentures, lawfully entered into by them under

enabling laws in which the government, acting in its private capacity, sheds its

cloak of authority and waives its governmental immunity. Truly, tax exemptionsof this kind may not be revoked without impairing the obligations of

contracts.[14] These contractual tax exemptions, however, are not to be confused with

tax exemptions 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 1935 and the 1973 Constitutions, is explicit that no

franchise for the operation of a public utility shall be granted except under the

condition that such privilege shall be subject to amendment, alteration or repeal by

Congress as and when the common good so requires.

WHEREFORE, the instant petition is hereby DISMISSED. No costs.

SO ORDERED.











G.R. No. 119122 August 8, 2000

PHILIPPINE BASKETBALL ASSOCIATION, petitioner,vs.COURT OF APPEALS, COURT OF TAX APPEALS, AND COMMISSIONER OF INTERNALREVENUE,respondents.

PURISIMA, J .:

At bar is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a review ofthe decision1 of the Court of Appeals in CA-G.R. SP No. 34095 which affirmed the decision of theCourt of Tax Appeals in C.T.A. Case No. 4419.

The facts that matter are as follows:

On June 21, 1989, the petitioner received an assessment letter from the Commissioner of InternalRevenue (respondent Commissioner) for the payment of deficiency amusement tax computed thus:

Deficiency Amusement Ta x

Total gross receipts 1987 P19,970,928.00

===========

15% tax due thereon 2,995,639.20

Less: Tax paid 602,063.35

Deficiency amusement tax P2,393,575.85

Add: 75% surcharge 1,795,181.89

20% interest (2 years) 1,675,503.10

P5,864,260.84

Total Amount Due &Collectible

===========

On July 18, 1989, petitioner contested the assessment by filing a protest with respondentCommissioner who denied the same on November 6, 1989.

On January 8, 1990, petitioner filed a petition for review2 with the Court of Tax Appeals (respondentCTA) questioning the denial by respondent Commissioner of its tax protest.

On December 24, 1993, respondent CTA dismissed petitioner's petition, holding:

"WHEREFORE, in all the foregoing, herein petition for review is hereby DISMISSED for lackof merit and the Petitioner is hereby ORDERED to PAY to the Respondent the amount ofP5,864,260.84 as deficiency amusement tax for the year 1987 plus 20% annual delinquency

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interest from July 22, 1989 which is the due date appearing on the notice and demand of theCommissioner (i.e. 30 days from receipt of the assessment) until fully paid pursuant to theprovisions of Sections 248 and 249 (c) (3) of the Tax Code, as amended."3

Petitioner presented a motion for reconsideration4 of the said decision but the same was denied byrespondent CTA in a resolution5 ALF dated April 8, 1994. Thereafter and within the reglementary period

for interposing appeals, petitioner appealed the CTA decision to the Court of Appeals.

On November 21, 1994, the Court of Appeals rendered its questioned Decision,6 affirming thedecision of the CTA and dismissing petitioner's appeal. Petitioner filed a Motion for Reconsiderationof said decision but to no avail. The same was denied by the Court of Appeals in a Resolution7 datedJanuary 31, 1995. Hence, this petition.1âwphi1.nêt

Undaunted, petitioner found its way to this Court via the present petition, contending that:

"1. Respondent Court of Appeals erred in holding that the jurisdiction to collect amusementtaxes of PBA games is vested in the national government to the exclusion of the localgovernments.

"2. Respondent Court of Appeals erred in holding that Section 13 of the Local Tax Code of1973 limits local government units to theaters, cinematographs, concert halls, circuses andother places of amusement in the collection of the amusement tax.

"3. Respondent Court of Appeals erred in holding that Revenue Regulations No. 8-88 datedFebruary 19, 1988 is an erroneous interpretation of law.

"4. Respondent Court of Appeals erred in giving retroactive effect to the revocation ofRevenue Regulations 8-88.

"5. Respondent Court of Appeals erred when it failed to consider the provisions of P.D. 851

the franchise of Petitioner, Section 8 of which provides that amusement tax on admissionreceipts of Petitioner is 5%.

"6. Respondent Court of Appeals erred in holding that the cession of advertising andstreamer 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 andstreamer spaces inside the venue is embraced within the term 'gross receipts' as defined inSection 123 (6) of the Tax Code.

"8. Respondent Court of Appeals erred in holding that the amusement tax liability ofPetitioner is subject to a 75% surcharge."

The issues for resolution in this case may be simplified as follows:

1. Is the amusement tax on admission tickets to PBA games a national or local tax? Otherwise put,who between the national government and local government should petitioner pay amusementtaxes?

2. Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. (VEI) subject to thepayment of amusement tax?






















3. If ever petitioner is liable for the payment of deficiency amusement tax, is it liable to pay aseventy-five percent (75%) surcharge on the deficiency amount due?

Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973, transferred thepower and authority to levy and collect amusement taxes from the sale of admission tickets to placesof amusement from the national government to the local governments. Petitioner cited BIR

Memorandum Circular No. 49-73 providing that the power to levy and collect amusement tax onadmission tickets was transferred to the local governments by virtue of the Local Tax Code; and BIRRuling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross receipts fromadmission tickets to places of amusement was transferred to local governments under P.D. No. 231,as amended."8 Further, petitioner opined that even assuming arguendo that respondentCommissioner revoked BIR Ruling No. 231-86, the reversal, modification or revocation cannot begiven retroactive effect since even as late as 1988 (BIR Memorandum Circular No. 8-88),respondent Commissioner still recognized the jurisdiction of local governments to collect amusementtaxes.

The Court is not persuaded by petitioner's asseverations.

The laws on the matter are succinct and clear and need no elaborate disquisition. Section 13 of theLocal Tax Code provides:

"SECTION 13. Amusement tax on admission .— The province shall impose a tax onadmission to be collected from the proprietors, lessees, or operators of theaters,cinematographs, concert halls, circuses and other places of amusement . . ."

The foregoing provision of law in point indicates that the province can only impose a tax onadmission 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 nottherein 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 asfollows:

'Sec. 268. Amusement taxes .— There shall be collected from the proprietor, lesseeor 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. Eighteen per centum in the case of cockpits;

'2. Eighteen per centum in the case of cabarets, night or day clubs;

'3. Fifteen per centum in the case of boxing exhibitions;

'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 percentage taxes of whatever nature and description ;

'5. Thirty per centum in the case of Jai-Alai and race tracks; and

'6. Fifteen per centum in the case of bowling alleys 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 ofthe proprietor, lessee or operator of the amusement place. Said gross receipts alsoinclude income from television, radio and motion picture rights, if any. (A person orentity or association conducting any activity subject to the tax herein imposed shallbe similarly liable for said tax with respect to such portion of the receipts derived byhim or it.)

'The taxes imposed herein shall be payable at the end of each quarter and it shall bethe duty of the proprietor, lessee, or operator concerned, as well as any party liable,within twenty days after the end of each quarter, to make a true and complete returnof the amount of the gross receipts derived during the preceding quarter and pay thetax due thereon. If the tax is not paid within the time prescribed above, the amount ofthe tax shall be increased by twenty-five per centum , the increment to be part of thetax.

'In case of willful neglect to file the return within the period prescribed herein, or incase a false or fraudulent return is willfully made, there shall be added to the tax or tothe deficiency tax, in case any payment has been made on the basis of the returnbefore the discovery of the falsity or fraud, a surcharge of fifty per centum of itsamount. The amount so added to any tax shall be collected at the same time and inthe same manner and as part of the tax unless the tax has been paid before thediscovery of the falsity or fraud, in which case, the amount so assessed shall becollected in the same manner as the tax." (emphasis ours)

From the foregoing it is clear that the "proprietor, lessee or operator of . . . professional basketballgames" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their grossreceipts to the Bureau of Internal Revenue, which payment is a national tax. The said payment ofamusement 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", professionalbasketball 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 specificmeaning, such general words are not to be construed in their widest extent, but are to be held asapplying 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 priorenumeration of theaters, cinematographs, concert halls and circuses with artistic expression as theircommon characteristic. Professional basketball games do not fall under the same category astheaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms ofentertainment while the former caters to sports and gaming.

A historical analysis of pertinent laws does reveal the legislative intent to place professionalbasketball games within the ambit of a national tax. The Local Tax Code, which became effective onJune 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 . OnJanuary 6, 1976, the operation of petitioner was placed under the supervision and regulation of theGames and Amusement Board by virtue of PD 871, with the proviso (Section 8) that ". . . allprofessional basketball games conducted by the Philippine Basketball Association shall only besubject 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 basketballgames as envisioned in Presidential Decree No. 871 . . ." Later in 1984, PD 1959 increased the rateof 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 theamusement tax on professional basketball games is a national, and not a local, tax. Even up to thepresent, the category of amusement taxes on professional basketball games as a national taxremains the same. This is so provided under Section 12510 of the 1997 National Internal RevenueCode. 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 professionalbasketball games.

Likewise erroneous is the stance of petitioner that respondent Commissioner's issuance of BIRRuling No. 231-8612 and BIR Revenue Memorandum Circular No. 8-8813 — both upholding theauthority 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 involvingtaxes. It is a well-known rule that erroneous application and enforcement of the law by public officersdo not preclude subsequent correct application of the statute, and that the Government is neverestopped 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 VEIis not subject to amusement tax. The questioned proviso may be found in Section 1 of PD 1456which states:

"SECTION 1. Section 268 of the National Internal Revenue Code of 1977, as amended, ishereby further amended to read as follows:

'Sec. 268. Amusement taxes .— There shall be collected from the proprietor, lesseeor operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professionalbasketball 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 foradmission. 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 includeincome from television, radio and motion picture rights, if any. (A person, or entity or associationconducting any activity subject to the tax herein imposed shall be similarly liable for said tax withrespect 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 andstreamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of theamusement 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 andinterest on the deficiency amount due. Petitioner contends that it is not liable, as it acted in goodfaith, having relied upon the issuances of the respondent Commissioner. This issue must necessarilyfail as the same has never been posed as an issue before the respondent court. Issues not raised inthe 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 tothe national government, and not to the local government, in accordance with the rates prescribedby PD 1959.











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WHEREFORE, the Petition is DENIED, and the Decisions of the Court of Appeals and Court of TaxAppeals dated November 21, 1994 and December 24, 1993, respectively AFFIRMED. Nopronouncement as to costs. 1âwphi1.nêt

SO ORDERED.

chapter 10 tax cases

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