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EN BANC

[G.R. No. 91649. May 14, 1991.]


ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES
MARANAN AND LORENZO SANCHEZ, petitioners, vs. PHILIPPINE
AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent.
H .B . Basco & Associates for petitioners.
Valmonte Law Offices collaborating counsel for petitioners.
Aquirre, Laborte and Capule for respondent PAGCOR.
SYLLABUS
1. STATUTORY CONSTRUCTION; PRESUMPTION OF VALIDITY OF STATUTE; MUST
BE INDULGED IN FAVOR OF ITS CONSTITUTIONALITY. As We enter upon the task of
passing on the validity of an act of a co-equal and coordinate branch of the government We
need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence,
that a statute is presumed to be valid. Every presumption must be indulged in favor of its
constitutionality. This is not to say that We approach Our task with diffidence or timidity.
Where it is clear that the legislature or the executive for that matter, has over-stepped the
limits of its authority under the constitution, We should not hesitate to wield the axe and let
it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra). In
Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice
Zaldivar underscored the ". . . thoroughly established principle which must be followed in
all cases where questions of constitutionality as obtain in the instant cases are involved. All
presumptions are indulged in favor of constitutionality; one who attacks a statute alleging
unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work
hardship does not render it unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld and the challenger must negate all possible
basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a
statute and that a liberal interpretation of the constitution in favor of the constitutionality of
legislation should be adopted." (Danner v. Hass, 194 N.W. 2nd 534, 539, Spurbeck v.
Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA
734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of
Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer
Protection v. Energy Regulatory Board, 162 SCRA 521, 540).
cdasia

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2. ID.; IN NULLIFYING A LAW, IT MUST BE SHOWN THAT THERE IS A CLEAR AND


UNEQUIVOCAL BREACH OF THE CONSTITUTION. Every law has in its favor the
presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio,
48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287).
Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and
unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other
words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v.
Comelec, supra) Those who petition this Court to declare a law, or parts thereof,
unconstitutional must clearly establish the basis for such a declaration. Otherwise, their
petition must fail. Based on the grounds raised by petitioners to challenge the
constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the
presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D.
1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free
enterprise, privatization as well as the state principles on social justice, role of youth and
educational values" being raised, is up for Congress to determine.
3. POLITICAL LAW; JUDICIAL DEPARTMENT; TECHNICALITIES OF PROCEDURE MAY
BE BRUSHED ASIDE FOR THE PROPER EXERCISE OF ITS POWERS. Considering
however the importance to the public of the case at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine whether or not the other branches of
government have kept themselves within the limits of the Constitution and the laws and that
they have not abused the discretion given to them, the Court has brushed aside
technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371) "With particular
regard to the requirement of proper party as applied in the cases before us, We hold that
the same is satisfied by the petitioners and intervenors because each of them has
sustained or is in danger of sustaining an immediate injury as a result of the acts or
measures complained of and even if, strictly speaking they are not covered by the
definition, it is still within the wide discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving the serious constitutional questions
raised. "In the first Emergency Powers Cases, ordinary citizens and taxpayers were
allowed to question the constitutionality of several executive orders issued by President
Quirino although they were involving only an indirect and general interest shared in
common with the public. The Court dismissed the objection that they were not proper
parties and ruled that 'the transcendental importance to the public of these cases demands
that they be settled promptly and definitely, brushing aside, if we must technicalities of
procedure.' We have since then applied the exception in many other cases." (Association
of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).
4. ID.; ID.; NO POWER TO SETTLE POLICY ISSUES. Anent petitioners' claim that PD
1869 is contrary to the "avowed trend of the Cory Government away from monopolies and
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crony economy and toward free enterprise and privatization" suffice it to state that this is
not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the
government's policies then it is for the Executive Department to recommend to Congress
its repeal or amendment. "The judiciary does not settle policy issues. The Court can only
declare what the law is and not what the law should be. Under our system of government,
policy issues are within the domain of the political branches of government and of the
people themselves as the repository of all state power." (Valmonte v. Belmonte, Jr., 170
SCRA 256.)
LLphil

5. ID.; CONCEPT OF POLICE POWER; CONSTRUED. The concept of police power is


well-established in this jurisdiction. It has been defined as the "state authority to enact
legislation that may interfere with personal liberty or property in order to promote the
general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an
imposition or restraint upon liberty or property, (2) in order to foster the common good. It is
not capable of an exact definition but has been, purposely, veiled in general terms to
underscore its all-comprehensive embrace. (Philippine Association of Service Exporters,
Inc. v. Drilon, 163 SCRA 386). Its scope, ever-expanding to meet the exigencies of the
times, even to anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus assuming the greatest
benefits. (Edu v. Ericta, supra). It finds no specific Constitutional grant for the plain reason
that it does not owe its origin to the charter. Along with the taxing power and eminent
domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental
attribute of government that has enabled it to perform the most vital functions of
governance. Marshall, to whom the expression has been credited, refers to it succinctly as
the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law,
323, 1978). The police power of the State is a power co-extensive with self-protection. and
is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of
Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers."
(Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to
meet the exigencies of the winds of change.
6. PHILIPPINE AMUSEMENT AND GAMING CORPORATION (P.D. NO. 1869);
PURPOSE FOR ITS CREATION. P.D. 1869 was enacted pursuant to the policy of the
government to "regulate and centralize thru an appropriate institution all games of chance
authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As
was subsequently proved, regulating and centralizing gambling operations in one corporate
entity the PAGCOR, was beneficial not just to the Government but to society in general.
It is a reliable source of much needed revenue for the cash strapped Government. It
provided funds for social impact projects and subjected gambling to "close scrutiny,
regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869).
With the creation of PAGCOR and the direct intervention of the Government, the evil
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practices and corruptions that go with gambling will be minimized if not totally eradicated.
Public welfare, then, lies at the bottom of the enactment of PD 1896.
7. ID.; DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF LOCAL GOVERNMENT
TO IMPOSE TAXES AND LOCAL FEES; REASONS THEREFOR. Petitioners contend
that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and
legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local
autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts
PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or
Local." Their contention stated hereinabove is without merit for the following reasons: (a)
The City of Manila, being a mere Municipal corporation has no inherent right to impose
taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos
v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show
an intent to confer that power or the municipality cannot assume it" (Medina v. City of
Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act
which is superior having been passed upon by the state itself which has the "inherent
power to tax" (b) The Charter of the City of Manila is subject to control by Congress. It
should be stressed that "municipal corporations are mere creatures of Congress" (Unson v.
Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish
municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28
Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of
control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if
Congress can grant the City of Manila the power to tax certain matters, it can also provide
for exemptions or even take back the power. (c) The City of Manila's power to impose
license fees on gambling, has long been revoked. As early as 1975, the power of local
governments to regulate gambling thru the grant of "franchise, licenses or permits" was
withdrawn by P.D. No. 771 and was vested exclusively on the National Government.
Therefore, only the National Government has the power to issue "licenses or permits" for
the operation of gambling. Necessarily, the power to demand or collect license fees which
is a consequence of the issuance of "licenses or permits" is no longer vested in the City of
Manila. (d) Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the National Government. In
addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory
powers.
cda

8. ID.; EXEMPT FROM LOCAL TAXES; REASONS THEREOF. PAGCOR has a dual
role, to operate and to regulate gambling casinos. The latter role is governmental, which
places it in the category of an agency or instrumentality of the Government. Being an
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instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a
mere Local government. "The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of constitutional laws enacted by
Congress to carry into execution the powers vested in the federal government." (MC
Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579). This doctrine emanates from the
"supremacy" of the National Government over local governments. "Justice Holmes,
speaking for the Supreme Court, made reference to the entire absence of power on the
part of the States to touch, in that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140) Otherwise,
mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activates or enterprise using the power to tax as
"a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by
Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it.
9. ID.; NOT A VIOLATION OF THE LOCAL AUTONOMY CLAUSE IN
THE CONSTITUTION. The power of local government to "impose taxes and fees" is
always subject to "limitations" which Congress may provide by law. Since PD 1869remains
an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII,
1987 Constitution), its "exemption clause" remains as an exception to the exercise of the
power of local governments to impose taxes and fees. It cannot therefore be violative but
rather is consistent with the principle of local autonomy. Besides, the principle of local
autonomy under the 1987 Constitution simply means "decentralization" (III Records of the
1987 Constitutional Commission, pp. 436-436, as cited in Bernas, The Constitution of the
Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local
governments sovereign within the state or an "imperium in imperio." "Local Government
has been described as a political subdivision of a nation or state which is constituted by
law and has substantial control of local affairs. In a unitary system of government, such as
the government under the Philippine Constitution, local governments can only be an intra
sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local
government in such a system can only mean a measure of decentralization of the function
of government. As to what state powers should be "decentralized" and what may be
delegated to local government units remains a matter of policy, which concerns wisdom. It
is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy
Regulatory Board, 162 SCRA 539). What is settled is that the matter of regulating, taxing
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or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative
of the State to retain it or delegate it to local governments.
10. ID.; NOT A VIOLATION OF EQUAL PROTECTION CLAUSE. Petitioners next
contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it
legalized PAGCOR conducted gambling, while most gambling are outlawed together
with prostitution, drug trafficking and other vices" We, likewise, find no valid ground to
sustain this contention. The petitioners' posture ignores the well-accepted meaning of the
clause "equal protection of the laws." The clause does not preclude classification of
individuals who may be accorded different treatment under the law as long as the
classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law
does not have to operate in equal force on all persons or things to be conformable to
Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December
21, 1989). The "equal protection clause" does not prohibit the Legislature from establishing
classes of individuals or objects upon which different rules shall operate (Laurel v. Misa, 43
O.G. 2847). The Constitution does not require situations which are different in fact or
opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA
827). Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the
equal protection is not clearly explained in the petition. The mere fact that some gambling
activities like cockfighting (P.D. 449), horse racing (R.A. 306 as amended by RA 983),
sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under
certain conditions, while others are prohibited, does not render the applicable laws, P.D.
1869 for one, unconstitutional. "If the law presumably hits the evil where it is most felt, it is
not to be overthrown because there are other instances to which it might have been
applied." (Gomez v. Palomar, 25 SCRA 827) "The equal protection clause of the
14th Amendment does not mean that all occupations called by the same name must be
treated the same way; the state may do what it can to prevent which is deemed as evil and
stop short of those cases in which harm to the few concerned is not less than the harm to
the public that would insure if the rule laid down were made mathematically exact."
(Dominican Hotel v. Arizana, 249 US 2651)
11. ID.; PRESUMED VALID AND CONSTITUTIONAL. As this Court held in Citizens'
Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521
"Presidential Decree No. 1956, as amended by Executive Order No. 137has, in any case,
in its favor the presumption of validity and constitutionality which petitioners Valmonte and
the KMU have not overturned. Petitioners have not undertaken to identify the provisions in
the Constitution which they claim to have been violated by that statute. This Court,
however, is not compelled to speculate and to imagine how the assailed legislation may
possibly offend some provisions of the Constitution. The Court notes, further, in this
respect that petitioners have in the main put in question the wisdom, justice and
expediency of the establishment of the OPSF, issues which are not properly addressed to
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this Court and which this Court may not constitutionally pass upon. Those issues should be
addressed rather to the political departments of government: the President and the
Congress."
cda

PADILLA, J., concurring:


1. POLITICAL LAW; LEGISLATIVE AND EXECUTIVE DEPARTMENT; VESTED WITH
POWER TO DECIDE STATE POLICY. J. Padilla concur in the result of the learned
decision penned by my brother Mr. Justice Paras. This means that I agree with the decision
insofar as it holds that the prohibition, control, and regulation of the entire activity known as
gambling properly pertain to "state policy." It is, therefore, the political departments of
government, namely, the legislative and the executive that should decide on what
government should do in the entire area of gambling, and assume full responsibility to the
people for such policy. The courts, as the decision states, cannot inquire into the wisdom,
morality or expediency of policies adopted by the political departments of government in
areas which fall within their authority, except only when such policies pose a clear and
present danger to the life, liberty or property of the individual. This case does not involve
such a factual situation.
2. ID.; LEGISLATIVE DEPARTMENT; MUST OUTLAW ALL FORMS OF GAMBLING, AS A
FUNDAMENTAL STATE OF POLICY; REASON THEREFOR. J. Padilla hasten to make
of record that I do not subscribe to gambling in any form. It demeans the human
personality, destroys self-confidence and eviscerates one's self-respect, which in the long
run will corrode whatever is left of the Filipino moral character. Gambling has wrecked and
will continue to wreck families and homes; it is an antithesis to individual reliance and
reliability as well as personal industry which are the touchstones of real economic progress
and national development. Gambling is reprehensible whether maintained by government
or privatized. The revenues realized by the government out of "legalized" gambling will, in
the long run, be more than offset and negated by the irreparable damage to the people's
moral values. Also, the moral standing of the government in its repeated avowals against
"illegal gambling" is fatally flawed and becomes untenable when it itself engages in the
very activity it seeks to eradicate. One can go through the Court's decision today and
mentally replace the activity referred to therein as gambling, which is legal only because it
is authorized by law and run by the government, with the activity known as prostitution.
Would prostitution be any less reprehensible were it to be authorized by law, franchised,
and "regulated" by the government, in return for the substantial revenues it would yield the
government to carry out its laudable projects, such as infrastructure and social
amelioration? The question, I believe, answers itself. I submit that the sooner the legislative
department outlaws all forms of gambling, as a fundamental state policy, and the sooner
the executive implements such policy, the better it will be for the nation.
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DECISION
PARAS, J :
p

A TV ad proudly announces:
"The new PAGCOR responding through responsible gaming."

But the petitioners think otherwise, that is why, they filed the instant petition seeking to
annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869,
because it is allegedly contrary to morals, public policy and order, and because
"A. It constitutes a waiver of a right prejudicial to a third person with a right
recognized by law. It waived the Manila City government's right to impose taxes
and license fees, which is recognized by law;
"B. For the same reason stated in the immediately preceding paragraph, the law
has intruded into the local government's right to impose local taxes and license
fees. This, in contravention of the constitutionally enshrined principle of local
autonomy;
"C. It violates the equal protection clause of the constitution in that it legalizes
PAGCOR conducted gambling, while most other forms of gambling are
outlawed, together with prostitution, drug trafficking and other vices;
"D. It violates the avowed trend of the Cory government away from monopolistic
and crony economy, and toward free enterprise and privatization." (p. 2, Amended
Petition; p. 7, Rollo)

In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the
declared national policy of the "new restored democracy" and the people's will as
expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and
therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and
Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p.
21, Rollo).
cdasia

The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner
Basco being also the Chairman of the Committee on Laws of the City Council of Manila),
can question and seek the annulment of PD 1869 on the alleged grounds mentioned
above.
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of
P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also
dated January 1, 1977 "to establish, operate and maintain gambling casinos on land or
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water within the territorial jurisdiction of the Philippines." Its operation was originally
conducted in the well known floating casino "Philippine Tourist." The operation was
considered a success for it proved to be a potential source of revenue to fund infrastructure
and socioeconomic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to
fully attain this objective.
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the
Government to regulate and centralize all games of chance authorized by existing
franchise or permitted by law, under the following declared policy
"Section 1. Declaration of Policy. It is hereby declared to be the policy of the
State to centralize and integrate all games of chance not heretofore authorized by
existing franchises or permitted by law in order to attain the following objectives:
"(a) To centralize and integrate the right and authority to operate and conduct
games of chance into one corporate entity to be controlled, administered and
supervised by the Government.
"(b) To establish and operate clubs and casinos, for amusement and recreation,
including sports gaming pools, (basketball, football, lotteries, etc.) and such other
forms of amusement and recreation including games of chance, which may be
allowed by law within the territorial jurisdiction of the Philippines and which will: (1)
generate sources of additional revenue to fund infrastructure and socio-civic
projects, such as flood control programs, beautification, sewerage and sewage
projects, Tulungan ng Bayan Centers, Nutritional Programs Population Control and
such other essential public services; (2) create recreation and integrated facilities
which will expand and improve the country's existing tourist attractions; and (3)
minimize, if not totally eradicate, all the evils, malpractices and corruptions that are
normally prevalent on the conduct and operation of gambling clubs and casinos
without direct government involvement." (Section 1, P.D. 1869)

To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines.
Under its Charter's repealing clause, all laws, decrees, executive orders, rules and
regulations, inconsistent therewith, are accordingly repealed, amended or modified.
It is reported that PAGCOR is the third largest source of government revenue, next to the
Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned
P3.43 Billion, and directly remitted to the National Government a total of P2.5 Billion in form
of franchise tax, government's income share, the President's Social Fund and Host Cities'
share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on its
own or in cooperation with various governmental agencies, and other private associations
and organizations. In its 3 1/2 years of operation under the present administration,
PAGCOR remitted to the government a total of P6.2 Billion. As of December 31, 1989,

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PAGCOR was employing 4,494 employees in its nine (9) casinos nationwide, directly
supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families.
LLjur

But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same
is "null and void" for being "contrary to morals, public policy and public order," monopolistic
and tends toward "crony economy", and is violative of the equal protection clause and local
autonomy as well as for running counter to the state policies enunciated in Sections 11
(Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II,
Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of
the 1987 Constitution.
This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most
deliberate consideration by the Court, involving as it does the exercise of what has been
described as "the highest and most delicate function which belongs to the judicial
department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146
SCRA 323).
As We enter upon the task of passing on the validity of an act of a co-equal and coordinate
branch of the government We need not be reminded of the time-honored principle, deeply
ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption
must be indulged in favor of its constitutionality. This is not to say that We approach Our
task with diffidence or timidity. Where it is clear that the legislature or the executive for that
matter, has over-stepped the limits of its authority under the constitution, We should not
hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute
(Lozano v. Martinez, supra).
In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr.
Justice Zaldivar underscored the
". . . thoroughly established principle which must be followed in all cases where
questions of constitutionality as obtain in the instant cases are involved. All
presumptions are indulged in favor of constitutionality; one who attacks a statute
alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that
a law may work hardship does not render it unconstitutional; that if any reasonable
basis may be conceived which supports the statute, it will be upheld and the
challenger must negate all possible basis; that the courts are not concerned with
the wisdom, justice, policy or expediency of a statute and that a liberal
interpretation of the constitution in favor of the constitutionality of legislation should
be adopted." (Danner v. Hass, 194 N.W. 2nd 534, 539, Spurbeck v. Statton, 106
N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734,
739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs
of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for
Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540).
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Of course, there is first, the procedural issue. The respondents are questioning the legal
personality of petitioners to file the instant petition.
Considering however the importance to the public of the case at bar, and in keeping with
the Court's duty, under the 1987 Constitution, to determine whether or not the other
branches of government have kept themselves within the limits of the Constitution and the
laws and that they have not abused the discretion given to them, the Court has brushed
aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371)
dctai

"With particular regard to the requirement of proper party as applied in the cases
before us, We hold that the same is satisfied by the petitioners and intervenors
because each of them has sustained or is in danger of sustaining an immediate
injury as a result of the acts or measures complained of and even if, strictly
speaking they are not covered by the definition, it is still within the wide discretion of
the Court to waive the requirement and so remove the impediment to its addressing
and resolving the serious constitutional questions raised.
"In the first Emergency Powers Cases, ordinary citizens and taxpayers were
allowed to question the constitutionality of several executive orders issued by
President Quirino although they were involving only an indirect and general interest
shared in common with the public. The Court dismissed the objection that they
were not proper parties and ruled that 'the transcendental importance to the public
of these cases demands that they be settled promptly and definitely, brushing
aside, if we must, technicalities of procedure.' We have since then applied the
exception in many other cases." (Association of Small Landowners in the
Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343).

Having disposed of the procedural issue, We will now discuss the substantive issues
raised.
Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition
of gambling does not mean that the Government cannot regulate it in the exercise of its
police power.
The concept of police power is well-established in this jurisdiction. It has been defined as
the "state authority to enact legislation that may interfere with personal liberty or property in
order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it
consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the
common good. It is not capable of an exact definition but has been, purposely, veiled in
general terms to underscore its all-comprehensive embrace. (Philippine Association of
Service Exporters, Inc. v. Drilon, 163 SCRA 386).
11
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future
where it could be done, provides enough room for an efficient and flexible response to
conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra).
It finds no specific Constitutional grant for the plain reason that it does not owe its origin to
the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of
statehood and sovereignty. It is a fundamental attribute of government that has enabled it
to perform the most vital functions of governance. Marshall, to whom the expression has
been credited, refers to it succinctly as the plenary power of the state "to govern its
citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is
a power co-extensive with self-protection. and is most aptly termed the "law of
overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the
most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil.
136) It is a dynamic force that enables the state to meet the exigencies of the winds of
change.
What was the reason behind the enactment of P.D. 1869?
P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize
thru an appropriate institution all games of chance authorized by existing franchise or
permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating
and centralizing gambling operations in one corporate entity the PAGCOR, was
beneficial not just to the Government but to society in general. It is a reliable source of
much needed revenue for the cash strapped Government. It provided funds for social
impact projects and subjected gambling to "close scrutiny, regulation, supervision and
control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR
and the direct intervention of the Government, the evil practices and corruptions that go
with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the
bottom of the enactment of PD 1896.
llcd

Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to
impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the
principle of local autonomy. They must be referring to Section 13 par. (2) of P.D.
1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or
form, income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local."
"(2) Income and other taxes. (a) Franchise Holder: No tax of any kind or form,
income or otherwise as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this franchise from the
Corporation; nor shall any form of tax or charge attach in any way to the earnings
of the Corporation, except a franchise tax of five (5%) percent of the gross
revenues or earnings derived by the Corporation from its operations under this
12
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

franchise. Such tax shall be due and payable quarterly to the National Government
and shall be in lien of all kinds of taxes, levies, fees or assessments of any kind,
nature or description, levied, established or collected by any municipal, provincial or
national government authority" (Section 13 [2]).

Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose
taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos
v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show
an intent to confer that power or the municipality cannot assume it" (Medina v. City of
Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act
which is superior having been passed upon by the state itself which has the "inherent
power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445).
(b) The Charter of the City of Manila is subject to control by Congress. It should be
stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson,
G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal
corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67;
Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over
Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can
grant the City of Manila the power to tax certain matters, it can also provide for exemptions
or even take back the power.
(c) The City of Manila's power to impose license fees on gambling, has long been revoked.
As early as 1975, the power of local governments to regulate gambling thru the grant of
"franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively
on the National Government, thus:
"Section 1. Any provision of law to the contrary notwithstanding, the authority of
chartered cities and other local governments to issue license, permit or other form
of franchise to operate, maintain and establish horse and dog race tracks, jai-alai
and other forms of gambling is hereby revoked.
"Section 2. Hereafter, all permits or franchises to operate, maintain and establish,
horse and dog race tracks, jai-alai and other forms of gambling shall be issued by
the national government upon proper application and verification of the qualification
of the applicant. . . ."

Therefore, only the National Government has the power to issue "licenses or permits" for
the operation of gambling. Necessarily, the power to demand or collect license fees which
is a consequence of the issuance of "licenses or permits" is no longer vested in the City of
Manila.

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

(d) Local governments have no power to tax instrumentalities of the National Government.
PAGCOR is a government owned or controlled corporation with an original charter, PD
1869. All of its shares of stocks are owned by the National Government. In addition to its
corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers, thus:
"Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the
affiliated entities, and shall exercise all the powers, authority and the
responsibilities vested in the Securities and Exchange Commission over such
affiliating entities mentioned under the preceding section, including, but not limited
to amendments of Articles of Incorporation and By-Laws, changes in corporate
term, structure, capitalization and other matters concerning the operation of the
affiliated entities, the provisions of the Corporation Code of the Philippines to the
contrary notwithstanding, except only with respect to original incorporation."
cdtai

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually
is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by a mere Local government.
"The states have no power by taxation or otherwise, to retard impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to
carry into execution the powers vested in the federal government." (MC Culloch v.
Marland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the accomplishment of them."
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of
the very entity which has the inherent power to wield it.

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be
violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on
Local Autonomy) provides:
"Sec. 5. Each local government unit shall have the power to create its own source
of revenue and to levy taxes, fees, and other charges subject to such guidelines
and limitation as the congress may provide, consistent with the basic policy on local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
government." (emphasis supplied).

The power of local government to "impose taxes and fees" is always subject to "limitations"
which Congress may provide by law. Since PD 1869 remains an "operative" law until
"amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987Constitution), its "exemption
clause" remains as an exception to the exercise of the power of local governments to
impose taxes and fees. It cannot therefore be violative but rather is consistent with the
principle of local autonomy.
cdll

Besides, the principle of local autonomy under the 1987 Constitution simply means
"decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as
cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988,
p. 374). It does not make local governments sovereign within the state or an "imperium in
imperio."
"Local Government has been described as a political subdivision of a nation or
state which is constituted by law and has substantial control of local affairs. In a
unitary system of government, such as the government under the
PhilippineConstitution, local governments can only be an intra sovereign
subdivision of one sovereign nation, it cannot be an imperium in imperio. Local
government in such a system can only mean a measure of decentralization of the
function of government. (emphasis supplied)

As to what state powers should be "decentralized" and what may be delegated to local
government units remains a matter of policy, which concerns wisdom. It is therefore a
political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board,
162 SCRA 539).
What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is
a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to
local governments.
"As gambling is usually an offense against the State, legislative grant or express
charter power is generally necessary to empower the local corporation to deal with
the subject. . . . In the absence of express grant of power to enact, ordinance
provisions on this subject which are inconsistent with the state laws are void."
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

(Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC
757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA
480, as cited in Mc Quinllan Vol. 3 ibid, p. 548, emphasis supplied).

Petitioners next contend that P.D. 1869 violates the equal protection clause of
the Constitution, because "it legalized PAGCOR conducted gambling, while most
gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82,
Rollo).
We, likewise, find no valid ground to sustain this contention. The petitioners' posture
ignores the well-accepted meaning of the clause "equal protection of the laws." The clause
does not preclude classification of individuals who may be accorded different treatment
under the law as long as the classification is not unreasonable or arbitrary (Itchong v.
Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons
or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego,
G.R. No. 89572, December 21, 1989).
The "equal protection clause" does not prohibit the Legislature from establishing classes of
individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G.
2847). The Constitution does not require situations which are different in fact or opinion to
be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal
protection is not clearly explained in the petition. The mere fact that some gambling
activities like cockfighting (P.D. 449) horse racing (R.A. 306 as amended by RA 983),
sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under
certain conditions, while others are prohibited, does not render the applicable laws, P.D.
1869 for one, unconstitutional.
"If the law presumably hits the evil where it is most felt, it is not to be overthrown
because there are other instances to which it might have been applied." (Gomez v.
Palomar, 25 SCRA 827)
"The equal protection clause of the 14th Amendment does not mean that all
occupations called by the same name must be treated the same way; the state may
do what it can to prevent which is deemed as evil and stop short of those cases in
which harm to the few concerned is not less than the harm to the public that would
insure if the rule laid down were made mathematically exact." (Dominican Hotel v.
Arizana, 249 US 2651)

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory
Government away from monopolies and crony economy and toward free enterprise and
privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If,
indeed, PD 1869 runs counter to the government's policies then it is for the Executive
Department to recommend to Congress its repeal or amendment.
LLpr

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

"The judiciary does not settle policy issues. The Court can only declare what the
law is and not what the law should be. Under our system of government, policy
issues are within the domain of the political branches of government and of the
people themselves as the repository of all state power." (Valmonte v. Belmonte, Jr.,
170 SCRA 256.)

On the issue of "monopoly," however, the Constitution provides that:


"Sec. 19. The State shall regulate or prohibit monopolies when public interest so
requires. No combinations in restraint of trade or unfair competition shall be
allowed." (Art. XII, National Economy and Patrimony)

It should be noted that, as the provision is worded, monopolies are not necessarily
prohibited by the Constitution. The state must still decide whether public interest demands
that monopolies be regulated or prohibited. Again, this is a matter of policy for the
Legislature to decide.
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12
(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and
Section 2 (Educational Values) of Article XIV of the 1987Constitution, suffice it to state also
that these are merely statements of principles and policies. As such, they are basically not
self-executing, meaning a law should be passed by Congress to clearly define and
effectuate such principles.
cdrep

"In general, therefore, the 1935 provisions were not intended to be self-executing
principles ready for enforcement through the Courts. They were rather directives
addressed to the executive and the legislature. If the executive and the legislature
failed to heed the directives of the articles the available remedy was not judicial or
political. The electorate could express their displeasure with the failure of the
executive and the legislature through the language of the ballot." (Bernas, Vol. II, p.
2)

Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47
Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v.
Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that
there is a clear and unequivocal breach of the Constitution, not merely a doubtful and
equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable
doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts
thereof, unconstitutional must clearly establish the basis for such a declaration. Otherwise,
their petition must fail. Based on the grounds raised by petitioners to challenge the
constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the
presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D.
1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

enterprise, privatization as well as the state principles on social justice, role of youth and
educational values" being raised, is up for Congress to determine.
LLjur

As this Court held in Citizens' Alliance for Consumer Protection v. Energy regulatory Board,
162 SCRA 521
"Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in
any case, in its favor the presumption of validity and constitutionality which
petitioners Valmonte and the KMU have not overturned. Petitioners have not
undertaken to identity the provisions in the Constitution which they claim to have
been violated by that statute. This Court, however, is not compelled to speculate
and to imagine how the assailed legislation may possibly offend some provision of
the Constitution. The Court notes, further, in this respect that petitioners have in the
main put in question the wisdom, justice and expediency of the establishment of
the OPSF, issues which are not properly addressed to this Court and which this
Court may not constitutionally pass upon. Those issues should be addressed
rather to the political departments of government: the President and the Congress."

Parenthetically, We wish to state that gambling is generally immoral, and this is precisely
so when the gambling resorted to is excessive. This excessiveness necessarily depends
not only on the financial resources of the gambler and his family but also on his mental,
social, and spiritual outlook-on life. However, the mere fact that some persons may have
lost their material fortunes, mental control, physical health, or even their lives does not
necessarily mean that the same are directly attributable to gambling. Gambling may have
been the antecedent, but certainly not necessarily the cause. For the same consequences
could have been preceded by an overdose of food, drink, exercise, work, and even sex.
prcd

WHEREFORE, the petition is DISMISSED for lack of merit.


SO ORDERED.
Fernan, C .J ., Narvasa, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, GrioAquino, Medialdea, Regalado and Davide, Jr., JJ ., concur.

Melencio-Herrera, J ., concurring in the result with Justice Padilla.

Separate Opinions
PADILLA, J ., concurring:
I concur in the result of the learned decision penned by my brother Mr. Justice Paras. This
means that I agree with the decision insofar as it holds that the prohibition, control, and
regulation of the entire activity known as gambling properly pertain to "state policy." It is,
18
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

therefore, the political departments of government, namely, the legislative and the
executive that should decide on what government should do in the entire area of gambling,
and assume full responsibility to the people for such policy.
cdll

The courts, as the decision states, cannot inquire into the wisdom, morality or expediency
of policies adopted by the political departments of government in areas which fall within
their authority, except only when such policies pose a clear and present danger to the life,
liberty or property of the individual. This case does not involve such a factual situation.
However, I hasten to make of record that I do not subscribe to gambling in any form. It
demeans the human personality, destroys self-confidence and eviscerates one's selfrespect, which in the long run will corrode whatever is left of the Filipino moral character.
Gambling has wrecked and will continue to wreck families and homes; it is an antithesis to
individual reliance and reliability as well as personal industry which are the touchstones of
real economic progress and national development.
Gambling is reprehensible whether maintained by government or privatized. The revenues
realized by the government out of "legalized" gambling will, in the long run, be more than
offset and negated by the irreparable damage to the people's moral values.
Also, the moral standing of the government in its repeated avowals against "illegal
gambling" is fatally flawed and becomes untenable when it itself engages in the very
activity it seeks to eradicate.
LibLex

One can go through the Court's decision today and mentally replace the activity referred to
therein as gambling, which is legal only because it is authorized by law and run by the
government, with the activity known as prostitution. Would prostitution be any less
reprehensible were it to be authorized by law, franchised, and "regulated" by the
government, in return for the substantial revenues it would yield the government to carry
out its laudable projects, such as infrastructure and social amelioration? The question, I
believe, answers itself. I submit that the sooner the legislative department outlaws all forms
of gambling, as a fundamental state policy, and the sooner the executive implements such
policy, the better it will be for the nation.

(Basco v. Philippine Amusements and Gaming Corp., G.R. No. 91649, [May 14, 1991],
274 PHIL 323-346)
|||

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

SECOND DIVISION
[G.R. No. 152675. April 28, 2004.]
BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS CITY
and NATIONAL POWER CORPORATION, respondents.
[G.R. No. 152771. April 28, 2004.]
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

NATIONAL POWER CORPORATION, petitioner, vs. HON. RICARDO R.


ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City;
BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his
capacity as Chief Legal Officer, Batangas City; and BENJAMIN
PARGAS, in his capacity as City Treasurer, Batangas City, respondents.
DECISION
PUNO, J :
p

Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of Civil
Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its
February 27, 2002 Decision in Civil Case No. 00-205.
The facts show that in the early 1990's, the country suffered from a crippling power crisis.
Power outages lasted 8-12 hours daily and power generation was badly needed.
Addressing the problem, the government, through the National Power Corporation (NPC),
sought to attract investors in power plant operations by providing them with incentives, one
of which was through the NPC's assumption of payment of their taxes in the Build Operate
and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC
entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC and
transfer its plant to the latter after ten (10) years of operation. Section 11.02 of the BOT
Agreement provided that NPC shall be responsible for the payment of all taxes that may be
imposed on the power station, except income taxes and permit fees. Subsequently, Enron
assigned its obligation under the BOT Agreement to petitioner Batangas Power
Corporation (BPC).
On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as a
pioneer enterprise. On September 23, 1992, the BOI issued a certificate of registration 1 to
BPC as a pioneer enterprise entitled to a tax holiday for a period of six (6) years. The
construction of the power station in respondent Batangas City was then completed. BPC
operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer Teodulfo A.
Deguito, sent a letter to BPC demanding payment of business taxes and penalties,
commencing from the year 1994 as provided under Ordinance XI or the 1992 Batangas
City Tax Code. 2 BPC refused to pay, citing its tax-exempt status as a pioneer enterprise for
six (6) years under Section 133 (g) of the Local Government Code (LGC). 3
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

On April 15, 1999, city treasurer Benjamin S. Pargas modified the city's tax claim 4 and
demanded payment of business taxes from BPC only for the years 1998-1999. He
acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry but its tax
exemption period expired on September 22, 1998, six (6) years after its registration with
the BOI on September 23, 1992. The city treasurer held that thereafter BPC became liable
to pay its business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from the
date of its commercial operation on July 16, 1993, not from the date of its BOI registration
in September 1992. 5 It furnished the city with a BOI letter 6 wherein BOI designated July
16, 1993 as the start of BPC's income tax holiday as BPC was not able to immediately
operate due to force majeure. BPC claimed that the local tax holiday is concurrent with the
income tax holiday. In the alternative, BPC asserted that the city should collect the tax from
the NPC as the latter assumed responsibility for its payment under their BOT Agreement.
The matter was not put to rest. The city legal officer insisted 7 that BPC's tax holiday has
already expired, while the city argued that it directed its tax claim to BPC as it is the entity
doing business in the city and hence liable to pay the taxes. The city alleged that it was not
privy to NPC's assumption of BPC's tax payment under their BOT Agreement as the only
parties thereto were NPC and BPC.
BPC adamantly refused to pay the tax claims and reiterated its position. 8 The city was
likewise unyielding on its stand. 9 On August 26, 1999, the NPC intervened. 10 While
admitting assumption of BPC's tax obligations under their BOT Agreement, NPC refused to
pay BPC's business tax as it allegedly constituted an indirect tax on NPC which is a taxexempt corporation under its Charter. 11
In view of the deadlock, BPC filed a petition for declaratory relief 12 with the Makati
Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling that it was
not bound to pay the business taxes imposed on it by the city. It alleged that under the BOT
Agreement, NPC is responsible for the payment of such taxes but as NPC is exempt from
taxes, both the BPC and NPC are not liable for its payment. NPC and Batangas City filed
their respective answers.
On February 23, 2000, while the case was still pending, the city refused to issue a permit
to BPC for the operation of its business unless it paid the assessed business taxes
amounting to close to P29M.
In view of this supervening event, BPC, whose principal office is in Makati City, filed a
supplemental petition 13 with the Makati RTC to convert its original petition into an action for
injunction to enjoin the city from withholding the issuance of its business permit and closing
its power plant. The city opposed on the grounds of lack of jurisdiction and lack of cause of
action. 14 The Supplemental Petition was nonetheless admitted by the Makati RTC.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held that: (1)
BPC is liable to pay business taxes to the city; (2) NPC's tax exemption was withdrawn with
the passage of R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax
holiday granted to pioneer business enterprises starts on the date of registration with the
BOI as provided in Section 133 (g) of R.A. No. 7160, and not on the date of its actual
business operations. 15
BPC and NPC filed with this Court a petition for review on certiorari 16 assailing the Makati
RTC decision. The petitions were consolidated as they impugn the same decision, involve
the same parties and raise related issues. 17
In G.R. No. 152771, the NPC contends:
I
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY
AND CAPRICIOUSLY RULED THAT PETITIONER NPC HAS LOST ITS TAX
EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A. 7160 (LOCAL
GOVERNMENT CODE) HAS WITHDRAWN SUCH PRIVILEGE DESPITE THE
SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A LEGISLATION,
WHICH IS A GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND THAT
SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY MENTIONED
IN THE REPEALING CLAUSE IN SECTION 534 OF R.A. 7160, AMONG
OTHERS.
II
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY
AND CAPRICIOUSLY OMITTED THE CLEAR PROVISION OF SECTION 133,
PARAGRAPH (O) OF R.A. 7160WHICH EXEMPTS "NATIONAL GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES" FROM THE IMPOSITION OF
"TAXES, FEES OR CHARGES OF ANY KIND."
III
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
ERRONEOUSLY AND CAPRICIOUSLY ADMITTED BPC's SUPPLEMENTAL
PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO
JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS)
SOUGHT TO BE ENJOINED.

In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it liable for
payment of business taxes even if it is undisputed that NPC has already assumed payment
23
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

thereof; and, 2) in ruling that BPC's 6-year tax holiday commenced on the date of its
registration with the BOI as a pioneer enterprise.
The issues for resolution are:
1. whether BPC's 6-year tax holiday commenced on the date of its BOI
registration as a pioneer enterprise or on the date of its actual commercial
operation as certified by the BOI;
2. whether the trial court had jurisdiction over the petition for injunction
against Batangas City; and,
3. whether NPC's tax exemption privileges under its Charter were withdrawn
by Section 193 of the Local Government Code (LGC).
We find no merit in the petition.
On the first issue, petitioners BPC and NPC contend that contrary to the impugned
decision, BPC's 6-year tax holiday should commence on the date of its actual commercial
operations as certified to by the BOI, not on the date of its BOI registration.
We disagree. Sec. 133(g) of the LGC, which proscribes local government units (LGUs)
from levying taxes on BOI-certified pioneer enterprises for a period of six years from the
date of registration, applies specifically to taxes imposed by the local government, like the
business tax imposed by Batangas City on BPC in the case at bar. Reliance of BPC on the
provision of Executive Order No. 226, 18 specifically Section 1, Article 39, Title III, is clearly
misplaced as the six-year tax holiday provided therein which commences from the date of
commercial operation refers to income taxes imposed by the national government on BOIregistered pioneer firms. Clearly, it is the provision of the Local Government Codethat
should apply to the tax claim of Batangas City against the BPC. The 6-year tax exemption
of BPC should thus commence from the date of BPC's registration with the BOI on July 16,
1993 and end on July 15, 1999.
Anent the second issue, the records disclose that petitioner NPC did not oppose BPC's
conversion of the petition for declaratory relief to a petition for injunction or raise the issue
of the alleged lack of jurisdiction of the Makati RTC over the petition for injunction before
said court. Hence, NPC is estopped from raising said issue before us. The fundamental
rule is that a party cannot be allowed to participate in a judicial proceeding, submit the
case for decision, accept the judgment only if it is favorable to him but attack the
jurisdiction of the court when it is adverse. 19

Finally, on the third issue, petitioners insist that NPC's exemption from all taxes under its
Charter had not been repealed by the LGC. They argue that NPC's Charter is a special law
which cannot be impliedly repealed by a general and later legislation like the LGC. They
24
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

likewise anchor their claim of tax-exemption on Section 133 (o) of the LGC which exempts
government instrumentalities, such as the NPC, from taxes imposed by local government
units (LGUs), citing in support thereof the case of Basco v. PAGCOR. 20
We find no merit in these contentions. The effect of the LGC on the tax exemption
privileges of the NPC has already been extensively discussed and settled in the recent
case of National Power Corporation v. City of Cabanatuan. 21 In said case, this Court
recognized the removal of the blanket exclusion of government instrumentalities from local
taxation as one of the most significant provisions of the 1991 LGC. Specifically, we
stressed that Section 193 of the LGC, 22 an express and general repeal of all statutes
granting exemptions from local taxes, withdrew the sweeping tax privileges previously
enjoyed by the NPC under its Charter. We explained the rationale for this provision,
thus:
CTIDcA

In recent years, the increasing social challenges of the times expanded the scope
of state activity, and taxation has become a tool to realize social justice and the
equitable distribution of wealth, economic progress and the protection of local
industries as well as public welfare. and similar objectives. Taxation assumes even
greater significance with the ratification of the 1987 Constitution. Thenceforth, the
power to tax is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges pursuant to
Article X, section 5 of the 1987 Constitution, viz:
Section 5. Each Local Government unit shall have the power to create its
own sources of revenue, to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments.
This paradigm shift results from the realization that genuine development can be
achieved only by strengthening local autonomy and promoting decentralization of
governance. For a long time, the country's highly centralized government structure
has bred a culture of dependence among local government leaders upon the
national leadership. It has also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the part of local
government leaders. The only way to shatter this culture of dependence is to give
the LGUs a wider role in the delivery of basic services, and confer them sufficient
powers to generate their own sources for the purpose. To achieve this goal, . . . the
1987 Constitution mandates Congress to enact a local government code that will,
consistent with the basic policy of local autonomy, set the guidelines and limitations
to this grant of taxing powers . . . ."
To recall, prior to the enactment of the . . . Local Government Code . . . , various
measures have been enacted to promote local autonomy. . . . Despite these
initiatives, however, the shackles of dependence on the national government
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

remained. Local government units were faced with the same problems that hamper
their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external
sources of income, (c) limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of income, and (e) limited
supervisory control over personnel of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy,
the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the
tax base of LGUs to include taxes which were prohibited by previous laws . . . .

Neither can the NPC successfully rely on the Basco case 23 as this was decided prior to
the effectivity of the LGC, when there was still no law empowering local government units
to tax instrumentalities of the national government.
Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT
Agreement, the LGC which removed NPC's tax exemption privileges had already been in
effect for six (6) months. Thus, while BPC remains to be the entity doing business in said
city, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the
1992 BOT Agreement and the 1991 Local Government Code.
IN VIEW WHEREOF, the petitions are DISMISSED. No costs.

TcEaAS

SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr. and Tinga, JJ ., concur.
|||

(Batangas Power Corp. v. Batangas City, G.R. No. 152675, 152771, [April 28, 2004])

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27
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THIRD DIVISION
[G.R. No. 126232. November 27, 1998.]
THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN,
FLORENCE CHAVES, and MANUEL DJ SIAYNGCO in their capacity as
PROVINCIAL GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL
LEGAL ADVISER, respectively, petitioners, vs. THE HONORABLE
COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), REPUBLIC
CEMENT CORPORATION, respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL BY CERTIORARI UNDER RULE 45;
CONSIDERED PROPERLY FILED IN CASE AT BAR; EXISTENCE AND AVAILABILITY
OF THE RIGHT OF APPEAL ARE ANTITHETICAL TO AVAILMENT OF PETITION
FOR CERTIORARI UNDER RULE 65. Petitioners' argument is misleading. While it is
true that the remedy against a final order is an appeal, and not a petition for certiorari, the
petition referred to is a petition for certiorari under Rule 65. As stated in Martinez, the party
aggrieved does not have the option to substitute the special civil action of certiorari under
Rule 65 for the remedy of appeal. The existence and availability of the right of appeal are
antithetical to the availment of the special civil action of certiorari. Republic Cement did not,
however, file a petition for certiorari under Rule 65, but an appeal by certiorari under Rule
45. Even law students know that certiorari under Rule 45 is a mode of appeal, an appeal
from the Regional Trial Court being taken in either of two ways (a) by writ of error (involving
questions of fact and law) and (b) by certiorari (limited only to issues of law), with an appeal
by certiorari being brought to the Supreme Court, there being no provision of law for taking
appeals by certiorari to the Court of Appeals. It is thus clearly apparent that Republic
Cement correctly contested the trial court's order of dismissal by filing an appeal
by certiorariunder Rule 45.
cdasia

2. ID.; ID.; ID.; SUPREME COURT HAS THE OPTION TO REFER PETITION TO THE
COURT OF APPEALS WHEN FACTUAL ISSUES ARE ERRONEOUSLY RAISED.
Petitioners fault the Court for referring Republic Cement's petition to the Court of Appeals,
claiming that the same should have been dismissed pursuant to Circular 2-90. Petitioners
conveniently overlook the other provisions of Circular 2-90, specifically 4b) thereof, which
provides: b) Raising factual issues in appeal by certiorari. Although submission of issues of
fact in an appeal by certiorari taken to the Supreme Court from the regional trial court is
ordinarily proscribed, the Supreme Court nonetheless retains the option, in the exercise of
its sound discretion and considering the attendant circumstances, either itself to take
28
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

cognizance of and decide such issues or to refer them to the Court of Appeals for
determination. As can be clearly adduced from the foregoing, when an appeal
by certiorari under Rule 45 erroneously raises factual issues, the Court has the option to
refer the petition to the Court of Appeals. The exercise by the Court of this option may not
now be questioned by petitioners.
3. ID.; ID.; ID.; TRIAL COURT'S ORDER IN CASE AT BAR NEVER BECAME FINAL AND
EXECUTORY WHEN PETITION WAS FILED BY PRIVATE RESPONDENT. As the trial
court's order was properly appealed by Republic Cement, the trial court's May 13, 1994
order never became final and executory, rendering petitioner's third assignment of error
moot and academic.
4. ID.; COURTS; JURISDICTION; PARTY WHO INVOKES THE JURISDICTION OF THE
COURT IS ESTOPPED FROM ASSAILING THE SAME AFTER FAILING TO OBTAIN
AFFIRMATIVE RELIEF. Petitioners are barred by the doctrine of estoppel from
contesting the authority of the Court of Appeals to decide the instant case, as this Court
has consistently held that "(a) party cannot invoke the jurisdiction of a court to secure
affirmative relief against his opponent and after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction." The Supreme Court frowns upon the
undesirable practice of a party submitting his case for decision and then accepting the
judgment, only if favorable, and attacking it for lack of jurisdiction when adverse.
5. LEGAL ETHICS; ATTORNEYS; NO SPECIAL AUTHORITY REQUIRED TO BIND
CLIENT ON MATTERS OF ORDINARY JUDICIAL PROCEDURE. It is a well-settled
rule that all proceedings in court to enforce a remedy, to bring a claim, demand, cause of
action or subject matter of a suit to hearing, trial, determination, judgment and execution
are within the exclusive control of the attorney. With respect to such matters of ordinary
judicial procedure, the attorney needs no special authority to bind his client. Such
questions as what action or pleading to file, where and when to file it, what are its formal
requirements, what should be the theory of the case, what defenses to raise, how may the
claim or defense be proved, when to rest the case, as well as those affecting the
competency of a witness, the sufficiency, relevancy, materiality or immateriality of certain
evidence and the burden of proof are within the authority of the attorney to decide.
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.
TIDcEH

6. POLITICAL LAW; PUBLIC CORPORATIONS; LOCAL GOVERNMENT; AGREEMENT


AND MODUS VIVENDI LIMITING THE ISSUES FOR RESOLUTION OF THE COURT
SIGNED BY COUNSEL OF THE PROVINCE IS BINDING EVEN IF THE SANGGUNIAN
HAD NOT AUTHORIZED THE SAME. While it is true that the Provincial Governor can
enter into contract and obligate the province only upon authority of the sangguniang
panlalawigan, the same is inapplicable to the case at bar. The agreement and modus
29
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

vivendi may have been signed by petitioner Roberto Pagdanganan, as Governor of the
Province of Bulacan, without authorization from the sangguniang panlalawigan, but it was
also signed by Manuel Siayngco, the Provincial Legal Officer, in his capacity as such, and
as counsel of petitioners. The agreement and modus vivendi signed by petitioners' counsel
is binding upon petitioners, even if the Sanggunian had not authorized the same, limitation
of issues being a procedural question falling within the exclusive authority of the attorney to
decide.
7. TAXATION; LOCAL TAXATION; PROVINCE NOT AUTHORIZED TO LEVY EXCISE TAX
ON ARTICLES ALREADY TAXED BY THE NIRC. The Court of Appeals erred in ruling
that a province can impose only the taxes specifically mentioned under the Local
Government Code. As correctly pointed out by petitioners, Section 186 allows a province to
levy taxes other than those specifically enumerated under the Code, subject to the
conditions specified therein. This finding, nevertheless, affords cold comfort to petitioners
as they are still prohibited from imposing taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands. The tax imposed by the Province of Bulacan
is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity.
The Local Government Code provides: Section 133. Common Limitations on the Taxing
Powers of Local Government Units. Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following: . . . (h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; . .
. A province may not, levy excise taxes on articles already taxed by the National Internal
Revenue Code.
8. ID.; ID.; PROVINCE NOT AUTHORIZED TO IMPOSE TAX ON STONES, SAND,
GRAVEL, EARTH AND OTHER QUARRY RESOURCES EXTRACTED FROM PRIVATE
LAND; ASSESSMENT OF TAX IN CASE AT BAR, CONSIDERED ULTRA VIRES.
Section 151 of the National Internal Revenue Code levies a tax on all quarry resources,
regardless of origin, whether extracted from public or private land. Thus, a province may
not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as
the same are already taxed under the National Internal Revenue Code. The province can,
however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted
from public land because it is expressly empowered to do so under the Local Government
Code. As to stones, sand, gravel, earth and other quarry resources extracted from private
land, however, it may not do so, because of the limitation provided by Section 133 of the
Code in relation to Section 151 of the National Internal Revenue Code. Given the above
disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the
power to create their sources of revenue, their assessment of taxes against Republic
Cement being ultra vires traversing as it does the limitations set by the Local Government
Code.
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9. ID.; ID.; PROVINCIAL ORDINANCE NO. 3 OF BULACAN PROVINCE; COURT


QUESTIONING THE ASSESSMENT OF TAX ON THE BASIS OF SAID ORDINANCE,
NOT A COLLATERAL ATTACK ON THE ORDINANCE ITSELF. Contrary to petitioners'
claim, the legality of the ordinance was never questioned by the Court of Appeals. Rather,
what the appellate court questioned was petitioners' assessment of taxes on Republic
Cement on the basis of Provincial Ordinance No. 3, not the ordinance itself.
10. ID.; ID.; ID.; REGALIAN DOCTRINE MAY NOT BE INVOKED BY THE PROVINCE TO
EXTEND
COVERAGE
THEREOF;
TAX
STATUTES
MUST
BE
CONSTRUED STRICTISSIMI JURIS AGAINST THE GOVERNMENT. Section 21 of
Provincial Ordinance No. 3 is practically only a reproduction of Section 138 of the Local
Government Code. A cursory reading of both would show that both refer to ordinary sand,
stones, gravel, earth and other quarry resources extracted frompublic lands. Even if we
disregard the limitation set by Section 133 of the Local Government Code, petitioners may
not impose taxes on stones, sand, gravel, earth and other quarry resources extracted from
private lands on the basis of Section 21 of Provincial Ordinance No. 3 as the latter clearly
applies only to quarry resources extracted from public lands. Petitioners may not invoke the
Regalian doctrine to extend the coverage of their ordinance to quarry resources extracted
from private lands, for taxes, being burdens, are not to be presumed beyond what the
applicable statute expressly and clearly declares, tax statutes being construed strictissimi
juris against the government.
SDAaTC

DECISION
ROMERO, J :
p

Before us is a petition for certiorari seeking the reversal of the decision of the Court of
Appeals dated September 27, 1995 declaring petitioner without authority to levy taxes on
stones, sand, gravel, earth and other quarry resources extracted from private lands, as well
as the August 26, 1996 resolution of the appellate court denying its motion for
reconsideration.
The facts are as follows:

cdll

On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance
No. 3, known as "An Ordinance Enacting the Revenue Code of the Bulacan Province,"
which was to take effect on July 1, 1992. Section 21 of the ordinance provides as follows:
Section 21. Imposition of Tax. There is hereby levied and collected a tax of 10%
of the fair market value in the locality per cubic meter of ordinary stones, sand,
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gravel, earth and other quarry resources, such, but not limited to marble, granite,
volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or
from beds of seas, lakes, rivers, streams, creeks and other public waters within its
territorial jurisdiction. (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 the province during the third quarter of 1992 until the second quarter of 1993.
Believing that the province, on the basis of above-said ordinance, had no authority to
impose taxes on quarry resources extracted from private lands, Republic Cement formally
contested the same on December 23, 1993. The same was, however, denied by the
Provincial Treasurer on January 17, 1994. Republic Cement, consequently filed a petition
for declaratory relief with the Regional Trial Court of Bulacan on February 14, 1994. The
province filed a motion to dismiss Republic Cement's petition, which was granted by the
trial court on May 13, 1993, which ruled that declaratory relief was improper, allegedly
because a breach of the ordinance had been committed by Republic Cement.
On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court
seeking to reverse the trial court's dismissal of their petition. The Court, in a resolution
dated July 27, 1994, referred the same to the Court of Appeals, where it was docketed as
CA G.R. SP No. 34915. The appellate court required petitioners to file a comment, which
they did on September 7, 1994.
In the interim, the Province of Bulacan issued a warrant of levy against Republic Cement,
allegedly because of its unpaid tax liabilities. Negotiations between Republic Cement and
petitioners resulted in an agreement and modus vivendion December 12, 1994, whereby
Republic Cement agreed to pay under protest P1,262,346.00, 50% of the tax assessed by
petitioner, in exchange for the lifting of the warrant of levy. Furthermore, Republic Cement
and petitioners agreed to limit the issue for resolution by the Court of Appeals to the
question as to whether or not the provincial government could impose and/or assess taxes
on quarry resources extracted by Republic Cement from private lands pursuant to Section
21 of Provincial Ordinance No. 3. This agreement and modus vivendi were embodied in a
joint manifestation and motion signed by Governor Roberto Pagdanganan, on behalf of the
Province of Bulacan, by Provincial Treasurer Florence Chavez, and by Provincial Legal
Officer Manuel Siayngco, as 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 the issue to be resolved to the question of whether or not
the provincial government could impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands.

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

After due trial, the Court of Appeals, on September 27, 1995, rendered the following
judgment:
WHEREFORE, judgment is hereby rendered declaring the Province of Bulacan
under its Provincial Ordinance No. 3 entitled "An Ordinance Enacting The Revenue
Code of Bulacan Province" to be without legal authority to impose and assess
taxes on quarry resources extracted by RCC from private lands, hence the
interpretation of Respondent Treasurer of Chapter II, Article D, Section 21 of the
Ordinance, and the assessment made by the Province of Bulacan against RCC is
null and void.

Petitioners' motion for reconsideration, as well as their supplemental motion for


reconsideration, was denied 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 SUBJECT PETITION ON
THE GROUND THAT THE SAME IS NOT THE APPROPRIATE
REMEDY FROM THE TRIAL COURT'S GRANT OF THE PRIVATE
RESPONDENTS' (HEREIN PETITIONER) MOTION TO DISMISS;
2. NOT DISMISSING THE SUBJECT PETITION FOR BEING VIOLATIVE
OF CIRCULAR 2-90 ISSUED BY THE SUPREME COURT;
3. NOT DISMISSING THE PETITION FOR REVIEW ON THE GROUND
THAT THE TRIAL COURT'S ORDER OF MAY 13, 1994 HAD LONG
BECOME FINAL AND EXECUTORY;
4. GOING BEYOND THE PARAMETERS OF ITS APPELLATE
JURISDICTION IN RENDERING THE SEPTEMBER 27, 1995
DECISION;
5. HOLDING THAT PRIVATE RESPONDENT (HEREIN PETITIONER) ARE
ESTOPPED FROM RAISING THE PROCEDURAL ISSUE IN THE
MOTION FOR RECONSIDERATION;
6. THE INTERPRETATION OF SECTION 134 OF THE LOCAL
GOVERNMENT CODE AS STATED IN THE SECOND TO THE LAST
PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER 27, 1995 DECISION;
7. SUSTAINING THE ALLEGATIONS OF HEREIN RESPONDENT WHICH
UNJUSTLY DEPRIVED PETITIONER THE POWER TO CREATE ITS
OWN SOURCES OF REVENUE;
8. DECLARING THAT THE ASSESSMENT MADE BY THE PROVINCE OF
BULACAN AGAINST RCC AS NULL AND VOID WHICH IN EFFECT
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IS A COLLATERAL ATTACK ON PROVINCIAL ORDINANCE NO. 3;


AND
9. FAILING TO CONSIDER THE REGALIAN DOCTRINE IN FAVOR OF THE
LOCAL GOVERNMENT.
The issues raised by petitioners are devoid of merit. The number and diversity of errors
raised by appellants impel us, however, to discuss the points raised seriatim.
In their first assignment of error, petitioners contend that instead of filing a petition for
certiorari with the Supreme Court, Republic Cement should have appealed from the order
of the trial court dismissing their petition. Citing Martinez vs. CA, 1 they allege that a motion
to dismiss is a final order, the remedy against which is not a petition for certiorari, but an
appeal, regardless of the questions sought to be raised on appeal, whether of fact or of
law, whether involving jurisdiction or grave abuse of discretion of the trial court.
Petitioners' argument is misleading. While it is true that the remedy against a final order is
an appeal, and not a petition for certiorari, the petition referred to is a petition
for certiorari under Rule 65. As stated in Martinez, the party aggrieved does not have the
option to substitute the special civil action of certiorari under Rule 65 for the remedy of
appeal. The existence and availability of the right of appeal are antithetical to the availment
of the special civil action ofcertiorari.
Republic Cement did not, however, file a petition for certiorari under Rule 65, but an appeal
by certiorari under Rule 45. Even law students know that certiorari under Rule 45 is a
mode of appeal, an appeal from the Regional Trial Court being taken in either of two ways
(a) by writ of error (involving questions of fact and law) and (b) by certiorari (limited only to
issues of law), with an appeal by certiorari being brought to the Supreme Court, there
being no provision of law for taking appeals by certiorari to the Court of Appeals. 2 It is thus
clearly apparent that Republic Cement correctly contested the trial court's order of
dismissal by filing an appeal by certiorari under Rule 45. In fact, petitioners, in their second
assignment of error, admit that a petition for review on certiorari under Rule 45 is available
to a party aggrieved by an order granting a motion to dismiss. 3 They claim, however, that
Republic Cement could not avail of the same allegedly because the latter raised issues of
fact, which is prohibited, Rule 45 providing that "(t)he petition shall raise only questions of
law which must be distinctly set forth." 4 In this respect, petitioners claim that Republic
Cement's petition should have been dismissed by the appellate court, Circular 2-90
providing:
4. Erroneous Appeals. An appeal taken to either the Supreme Court or the Court
of Appeals by the wrong or inappropriate mode shall be dismissed.
cdrep

xxx xxx xxx


34
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d) No transfer of appeals erroneously taken. No transfers of appeals erroneously


taken to the Supreme Court or to the Court of Appeals to whichever of these
Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance
or wilful disregard of the law on appeals will not be tolerated.

Petitioners even fault the Court for referring Republic Cement's petition to the Court of
Appeals, claiming that the same should have been dismissed pursuant to Circular 2-90.
Petitioners conveniently overlook the other provisions of Circular 2-90, specifically 4b)
thereof, which provides:
b) Raising factual issues in appeal by certiorari. Although submission of issues
of fact in an appeal by certiorari taken to the Supreme Court from the regional trial
court is ordinarily proscribed, the Supreme Court nonetheless retains option, in
exercise of its sound discretion and considering the attendant circumstances, either
itself to take cognizance of and decide such issues or to refer them to the Court of
Appeals for determination.

As can be clearly adduced from the foregoing, when an appeal by certiorari under Rule 45
erroneously raises factual issues, the Court has the option to refer the petition to the Court
of Appeals. The exercise by the Court of this option may not now be questioned by
petitioners.

As the trial court's order was properly appealed by Republic Cement, the trial court's May
13, 1994 order never became final and executory, rendering petitioner's third assignment of
error moot and academic.
Petitioners' fourth and fifth assignment of errors are likewise without merit. Petitioners
assert that the Court of Appeals could only rule on the propriety of the trial court's
dismissal of Republic Cement's petition for declaratory relief, allegedly because that was
the sole relief sought by the latter in its petition for certiorari. Petitioners claim that the
appellate court overstepped its jurisdiction when it declared null and void the assessment
made by the Province of Bulacan against Republic Cement.
Petitioners gloss over the fact that, during the proceedings before the Court of Appeals,
they entered into an agreement and modus vivendi whereby they limited the issue for
resolution to the question as to whether or not the provincial government could impose
and/or assess taxes on stones, sand, gravel, earth and other quarry resources extracted by
Republic Cement from private lands. This agreement and modus vivendi were approved by
the appellate court on December 29, 1994. All throughout the proceedings, petitioners
never questioned the authority of the Court of Appeals to decide this issue, an issue which
it brought itself within the purview of the appellate court. Only when an adverse decision
was rendered by the Court of Appeals did petitioners question the jurisdiction of the former.
35
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Petitioners are barred by the doctrine of estoppel from contesting the authority of the Court
of Appeals to decide the instant case, as this Court has consistently held that "(a) party
cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent
and after obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction." 5 The Supreme Court frowns upon the undesirable practice of a party
submitting his case for decision and then accepting the judgment, only if favorable, and
attacking it for lack of jurisdiction when adverse. 6
In a desperate attempt to ward off defeat, petitioners now repudiate the above-mentioned
agreement and modus vivendi, claiming that the same was not binding on the Province of
Bulacan, not having been authorized by theSangguniang Panlalawigan of Bulacan. While it
is true that the Provincial Governor can enter into contract and obligate the province only
upon authority of the sangguniang panlalawigan, 7 the same is inapplicable to the case at
bar. The agreement and modus vivendi may have been signed by petitioner Roberto
Pagdanganan, as Governor of the Province of Bulacan, without authorization from
the sangguniang panlalawigan, but it was also signed by Manuel Siayngco, the Provincial
Legal Officer, in his capacity as such, and as counsel of petitioners.
It is a well-settled rule that all proceedings in court to enforce a remedy, to bring a claim,
demand, cause of action or subject matter of a suit to hearing, trial, determination,
judgment and execution are within the exclusive control of the attorney. 8 With respect to
such matters of ordinary judicial procedure, the attorney needs no special authority to bind
his client. 9 Such questions as what action or pleading to file, where and when to file it,
what are its formal requirements, what should be the theory of the case, what defenses to
raise, how may the claim or defense be proved, when to rest the case, as well as those
affecting the competency of a witness, the sufficiency, relevancy, materiality or
immateriality of certain evidence and the burden of proof are within the authority of the
attorney to decide. 10 Whatever decision an attorney makes on any of these procedural
questions, even if it adversely affects a client's case, will generally bind a client. The
agreement and modus vivendi signed by petitioners' counsel is binding upon petitioners,
even if the Sanggunian had not authorized the same, limitation of issues being a
procedural question falling within the exclusive authority of the attorney to decide.
In any case, the remaining issues raised by petitioner are likewise devoid of merit, a
province having no authority to impose taxes on stones, sand, gravel, earth and other
quarry resources extracted from private lands. The pertinent provisions of the Local
Government Code are as follows:
Sec. 134. Scope of Taxing Powers. Except as otherwise provided in this Code,
the province may levy only the taxes, fees, and charges as provided in this Article.
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. The province may
levy and collect not more than ten percent (10%) of fair market value in the locality
36
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources,
as defined under the National Internal Revenue Code, as amended, extracted
from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction.
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 to tax being limited by said provision only to those taxes, fees and charges
provided in Article One, Chapter 2, Title One of Book II of the Local Government
Code. 11 On the other hand, petitioners claim that Sections 129 12 and 186 13 of the Local
Government Code authorizes the province to impose taxes other than those specifically
enumerated under the Local Government Code.
The Court of Appeals erred in ruling that a province can impose only the taxes specifically
mentioned under the Local Government Code. As correctly pointed out by petitioners,
Section 186 allows a province to levy taxes other than those specifically enumerated under
the Code, subject to the conditions specified therein.
This finding, nevertheless, affords cold comfort to petitioners as they are still prohibited
from imposing taxes on stones, sand, gravel, earth and other quarry resources extracted
from private lands. The tax imposed by the Province of Bulacan is an excise tax, being a
tax upon the performance, carrying on, or exercise of an activity. 14 The Local Government
Code provides:
Section 133. Common Limitations on the Taxing Powers of Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
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:
Section 151. Mineral Products.
(A) Rates of Tax. There shall be levied, assessed and collected on minerals,
mineral products and quarry resources, excise tax as follows:
xxx xxx xxx
37
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

(2) On all nonmetallic minerals and quarry resources, a tax of two percent
(2%) based on the actual market value of the gross output thereof at the
time of removal, in case of those locally extracted or produced; or the values
used by the Bureau of Customs in determining tariff and customs duties, net
of excise tax and value-added tax, in the case of importation.
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 other common mineral
substances as the Director of the Bureau of Mines and Geo-Sciences may declare
to be quarry resources such as, but not restricted to, marl, marble, granite, volcanic
cinders, basalt, tuff and rock phosphate; Provided, That they contain no metal or
metals or other valuable minerals in economically workable quantities.
cdll

It is clearly apparent from the above provision that the National Internal Revenue Code
levies a tax on all quarry resources, regardless of origin, whether extracted from public or
private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel,
earth and other quarry resources, as the same are already taxed under the National
Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel,
earth and other quarry resources extracted from public land because it is expressly
empowered to do so under the Local Government Code. As to stones, sand, gravel, earth
and other quarry resources extracted from private land, however, it may not do so, because
of the limitation provided by Section 133 of the Code in relation to Section 151 of the
National Internal Revenue Code.
Given the above disquisition, petitioners cannot claim that the appellate court unjustly
deprived them of the power to create their sources of revenue, their assessment of taxes
against Republic Cement being ultra vires, traversing as it does the limitations set by the
Local Government Code.
Petitioners likewise aver that the appellate court's declaration of nullity of its assessment
against Republic Cement is a collateral attack on Provincial Ordinance No. 3, which is
prohibited by public policy. 15 Contrary to petitioners' claim, the legality of the ordinance
was never questioned by the Court of Appeals. Rather, what the appellate court questioned
was petitioners' assessment of taxes on Republic Cement on the basis of Provincial
Ordinance No. 3, not the ordinance itself.
Furthermore, Section 21 of Provincial Ordinance No. 3 is practically only a reproduction of
Section 138 of the Local Government Code. A cursory reading of both would show that
both refer to ordinary sand, stone, gravel, earth and other quarry resources extracted
from public lands. Even if we disregard the limitation set by Section 133 of the Local
38
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Government Code, petitioners may not impose taxes on stones, sand, gravel, earth and
other quarry resources extracted from private lands on the basis of Section 21 of Provincial
Ordinance No. 3 as the latter clearly applies only to quarry resources extracted from public
lands. Petitioners may not invoke the Regalian doctrine to extend the coverage of their
ordinance to quarry resources extracted from private lands, for taxes, being burdens, are
not to be presumed beyond what the applicable statute expressly and clearly declares, tax
statutes being construed strictissimi juris against the government. 16

WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit
and the decision of the Court of Appeals is hereby AFFIRMED in toto. Costs against
petitioner.
SO ORDERED.
Narvasa, C .J ., Kapunan, Purisima and Pardo, JJ ., concur.
(Province of Bulacan v. Court of Appeals, G.R. No. 126232, [November 27, 1998], 359
PHIL 779-796)
|||

39
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

THIRD DIVISION
[G.R. No. 181845. August 4, 2009.]
THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE
TREASURER OF MANILA and JOSEPH SANTIAGO, in his capacity as
the
CHIEF
OF
THE
LICENSE
DIVISION
OF
CITY
OF
MANILA, petitioners, vs.
COCA-COLA
BOTTLERS
PHILIPPINES,
INC., respondent.
DECISION
CHICO-NAZARIO, J :
p

This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Civil
Procedure seeking to review and reverse the Decision 1 dated 18 January 2008 and
Resolution 2 dated 18 February 2008 of the Court of Tax Appealsen banc (CTA en banc) in
C.T.A. EB No. 307. In its assailed Decision, the CTA en banc dismissed the Petition for
Review of herein petitioners City of Manila, Liberty M. Toledo (Toledo), and Joseph
Santiago (Santiago); and affirmed the Resolutions dated 24 May 2007, 3 8 June
2007, 4 and 26 July 2007, 5 of the CTA First Division in C.T.A. AC No. 31, which, in turn,
dismissed the Petition for Review of petitioners in said case for being filed out of time. In its
questioned Resolution, the CTA en banc denied the Motion for Reconsideration of
petitioners.
Petitioner City of Manila is a public corporation empowered to collect and assess business
taxes, revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago,
40
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

in their capacities as City Treasurer and Chief of the Licensing Division, respectively. On
the other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in
the business of manufacturing and selling beverages, and which maintains a sales office in
the City of Manila.
The case stemmed from the following facts:
Prior to 25 February 2000, respondent had been paying the City of Manila local business
tax only under Section 14 of Tax Ordinance No. 7794, 6 being expressly exempted from the
business tax under Section 21 of the same tax ordinance. Pertinent provisions of Tax
Ordinance No. 7794 provide:
Section 14.Tax on Manufacturers, Assemblers and Other Processors. There is
hereby imposed a graduated tax on manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and compounders of liquors, distilled
spirits, and wines or manufacturers of any article of commerce of whatever kind or
nature, in accordance with any of the following schedule:
xxx xxx xxx
over
P6,500,000.00
up
toP36,000.00
P25,000,000.00in excess of P6,500,000.00

plus

50%

of

1%

xxx xxx xxx


Section 21.Tax on Businesses Subject to the Excise, Value-Added or Percentage
Taxes under the NIRC. On any of the following businesses and articles of
commerce subject to excise, value-added or percentage taxes under the National
Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of
FIFTY PERCENT (50%) of ONE PERCENT (1%) per annum on the gross sales or
receipts of the preceding calendar year is hereby imposed:
(A)On persons who sell goods and services in the course of trade or business; and
those who import goods whether for business or otherwise; as provided for in
Sections 100 to 103 of the NIRC as administered and determined by the Bureau of
Internal Revenue pursuant to the pertinent provisions of the said Code.
aDHCcE

xxx xxx xxx


(D)Excisable goods subject to VAT
(1)Distilled spirits
(2)Wines
xxx xxx xxx
(8)Coal and coke
(9)Fermented liquor, brewers' wholesale price, excluding the ad valorem tax
41
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

xxx xxx xxx


PROVIDED, that all registered businesses in the City of Manila that are already
paying the aforementioned tax shall be exempted from payment thereof.

Petitioner City of Manila subsequently approved on 25 February 2000, Tax Ordinance No.
7988, 7 amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14,
by increasing the tax rates applicable to certain establishments operating within the
territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found
therein, which stated "that all registered businesses in the City of Manila that are already
paying the aforementioned tax shall be exempted from payment thereof". Petitioner City of
Manila approved only after a year, on 22 February 2001, another tax ordinance, Tax
Ordinance No. 8011, amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void
in Coca-Cola Bottlers Philippines, Inc. v. City of Manila 8 (Coca-Cola case) for the following
reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of the provisions of the
Local Government Code (LGC) of 1991 and its implementing rules and regulations; and (2)
Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did
not legally exist.
However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No.
8011 null and void, petitioner City of Manila assessed respondent on the basis of Section
21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances, for
deficiency local business taxes, penalties, and interest, in the total amount of
P18,583,932.04, for the third and fourth quarters of the year 2000. Respondent filed a
protest with petitioner Toledo on the ground that the said assessment amounted to double
taxation, as respondent was taxed twice, i.e., under Sections 14 and 21 of Tax Ordinance
No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011. Petitioner Toledo did
not respond to the protest of respondent.
Consequently, respondent filed with the Regional Trial Court (RTC) of Manila, Branch 47,
an action for the cancellation of the assessment against respondent for business taxes,
which was docketed as Civil Case No. 03-107088.
On 14 July 2006, the RTC rendered a Decision 9 dismissing Civil Case No. 03-107088. The
RTC ruled that the business taxes imposed upon the respondent under Sections 14 and 21
of Tax Ordinance No. 7988, as amended, were not of the same kind or character;
therefore, there was no double taxation. The RTC, though, in an Order 10 dated 16
November 2006, granted the Motion for Reconsideration of respondent, decreed the
cancellation and withdrawal of the assessment against the latter, and barred petitioners
from further imposing/assessing local business taxes against respondent under Section 21
of Tax Ordinance No. 7794, as amended by Tax Ordinance No. 7988 and Tax Ordinance
42
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

No. 8011. The 16 November 2006 Decision of the RTC was in conformity with the ruling of
this Court in the Coca-Cola case, in which Tax Ordinance No. 7988 and Tax Ordinance No.
8011 were declared null and void. The Motion for Reconsideration of petitioners was
denied by the RTC in an Order 11 dated 4 April 2007. Petitioners received a copy of the 4
April 2007 Order of the RTC, denying their Motion for Reconsideration of the 16 November
2006 Order of the same court, on 20 April 2007.
On 4 May 2007, petitioners filed with the CTA a Motion for Extension of Time to File
Petition for Review, praying for a 15-day extension or until 20 May 2007 within which to file
their Petition. The Motion for Extension of petitioners was docketed as C.T.A. AC No. 31,
raffled to the CTA First Division.
Again, on 18 May 2007, petitioners filed, through registered mail, a Second Motion for
Extension of Time to File a Petition for Review, praying for another 10-day extension, or
until 30 May 2007, within which to file their Petition.
cHEATI

On 24 May 2007, however, the CTA First Division already issued a Resolution dismissing
C.T.A. AC No. 31 for failure of petitioners to timely file their Petition for Review on 20 May
2007.
Unaware of the 24 May 2007 Resolution of the CTA First Division, petitioners filed their
Petition for Review therewith on 30 May 2007 via registered mail. On 8 June 2007, the CTA
First Division issued another Resolution, reiterating the dismissal of the Petition for Review
of petitioners.
Petitioners moved for the reconsideration of the foregoing Resolutions dated 24 May 2007
and 8 June 2007, but their motion was denied by the CTA First Division in a Resolution
dated 26 July 2007. The CTA First Division reasoned that the Petition for Review of
petitioners was not only filed out of time it also failed to comply with the provisions of
Section 4, Rule 5; and Sections 2 and 3, Rule 6, of the Revised Rules of the CTA.
Petitioners thereafter filed a Petition for Review before the CTA en banc, docketed as
C.T.A. EB No. 307, arguing that the CTA First Division erred in dismissing their Petition for
Review in C.T.A. AC No. 31 for being filed out of time, without considering the merits of
their Petition.
The CTA en banc rendered its Decision on 18 January 2008, dismissing the Petition for
Review of petitioners and affirming the Resolutions dated 24 May 2007, 8 June 2007, and
26 July 2007 of the CTA First Division. The CTA en bancsimilarly denied the Motion for
Reconsideration of petitioners in a Resolution dated 18 February 2008.
Hence, the present Petition, where petitioners raise the following issues:

43
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

I.WHETHER OR NOT PETITIONERS SUBSTANTIALLY COMPLIED WITH THE


REGLEMENTARY PERIOD TO TIMELY APPEAL THE CASE FOR REVIEW
BEFORE THE [CTA DIVISION].
II.WHETHER OR NOT THE RULING OF THIS COURT IN THE EARLIER [COCACOLA CASE] IS DOCTRINAL AND CONTROLLING IN THE INSTANT
CASE.
III.WHETHER OR NOT PETITIONER CITY OF MANILA CAN STILL ASSESS
TAXES UNDER [SECTIONS] 14 AND 21 OF [TAX ORDINANCE NO. 7794,
AS AMENDED].
IV.WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX
ORDINANCE NO. 7794, AS AMENDED] CONSTITUTES DOUBLE
TAXATION.

Petitioners assert that Section 1, Rule 7 12 of the Revised Rules of the CTA refers to certain
provisions of the Rules of Court, such as Rule 42 of the latter, and makes them applicable
to the tax court. Petitioners then cannot be faulted in relying on the provisions of Section 1,
Rule 42 13 of the Rules of Court as regards the period for filing a Petition for Review with
the CTA in division. Section 1, Rule 42 of the Rules of Court provides for a 15-day period,
reckoned from receipt of the adverse decision of the trial court, within which to file a
Petition for Review with the Court of Appeals. The same rule allows an additional 15-day
period within which to file such a Petition; and, only for the most compelling reasons,
another extension period not to exceed 15 days. Petitioners received on 20 April 2007 a
copy of the 4 April 2007 Order of the RTC, denying their Motion for Reconsideration of the
16 November 2006 Order of the same court. On 4 May 2007, believing that they only had
15 days to file a Petition for Review with the CTA in division, petitioners moved for a 15-day
extension, or until 20 May 2007, within which to file said Petition. Prior to the lapse of their
first extension period, or on 18 May 2007, petitioners again moved for a 10-day extension,
or until 30 May 2007, within which to file their Petition for Review. Thus, when petitioners
filed their Petition for Review with the CTA First Division on 30 May 2007, the same was
filed well within the reglementary period for doing so.

Petitioners argue in the alternative that even assuming that Section 3 (a), Rule 8 14 of the
Revised Rules of the CTA governs the period for filing a Petition for Review with the CTA in
division, still, their Petition for Review was filed within the reglementary period. Petitioners
call attention to the fact that prior to the lapse of the 30-day period for filing a Petition for
Review under Section 3 (a), Rule 8 of the Revised Rules of the CTA, they had already
moved for a 10-day extension, or until 30 May 2007, within which to file their Petition.
Petitioners claim that there was sufficient justification in equity for the grant of the 10-day
extension they requested, as the primordial consideration should be the substantive, and
44
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

not the procedural, aspect of the case. Moreover, Section 3 (a), Rule 8 of the Revised
Rules of the CTA, is silent as to whether the 30-day period for filing a Petition for Review
with the CTA in division may be extended or not.
Petitioners also contend that the Coca-Cola case is not determinative of the issues in the
present case because the issue of nullity of Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 is not the lis mota herein. The Coca-Cola case is not doctrinal and cannot be
considered as the law of the case.
HDaACI

Petitioners further insist that notwithstanding the declaration of nullity of Tax Ordinance No.
7988 and Tax Ordinance No. 8011, Tax Ordinance No. 7794 remains a valid piece of local
legislation. The nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011 does not
effectively bar petitioners from imposing local business taxes upon respondent under
Sections 14 and 21 of Tax Ordinance No. 7794, as they were read prior to their being
amended by the foregoing null and void tax ordinances.
Petitioners finally maintain that imposing upon respondent local business taxes under both
Sections 14 and 21 of Tax Ordinance No. 7794 does not constitute direct double taxation.
Section 143 of the LGC gives municipal, as well as city governments, the power to impose
business taxes, to wit:
SECTION 143.Tax on Business. The municipality may impose taxes on the
following businesses:
(a)On manufacturers, assemblers, repackers, processors, brewers, distillers,
rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers
of any article of commerce of whatever kind or nature, in accordance with the
following schedule:
xxx xxx xxx
(b)On wholesalers, distributors, or dealers in any article of commerce of whatever
kind or nature in accordance with the following schedule:
xxx xxx xxx
(c)On exporters, and on manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities enumerated hereunder at
a rate not exceeding one-half (1/2) of the rates prescribed under subsections (a),
(b) and (d) of this Section:
xxx xxx xxx
Provided, however, That barangays shall have the exclusive power to levy taxes, as
provided under Section 152 hereof, on gross sales or receipts of the preceding
calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities,
and Thirty thousand pesos (P30,000) or less, in the case of municipalities.
45
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

(e)On contractors and other independent contractors, in accordance with the


following schedule:
xxx xxx xxx
(f)On banks and other financial institutions, at a rate not exceeding fifty percent
(50%) of one percent (1%) on the gross receipts of the preceding calendar year
derived from interest, commissions and discounts from lending activities, income
from financial leasing, dividends, rentals on property and profit from exchange or
sale of property, insurance premium.
(g)On peddlers engaged in the sale of any merchandise or article of commerce, at
a rate not exceeding Fifty pesos (P50.00) per peddler annually.
(h)On any business, not otherwise specified in the preceding paragraphs, which
the sanggunian concerned may deem proper to tax: Provided, That on any
business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent
(2%) of gross sales or receipts of the preceding calendar year.

Section 14 of Tax Ordinance No. 7794 imposes local business tax on


manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143 (a) of the LGC. On the other hand, the local business tax under
Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and
services in the course of trade or business, and those importing goods for business or
otherwise, who, pursuant to Section 143 (h) of the LGC, are subject to excise tax, valueadded tax (VAT), or percentage tax under the National Internal Revenue Code (NIRC).
Thus, there can be no double taxation when respondent is being taxed under both
Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being taxed as a
manufacturer; while under the second, it is being taxed as a person selling goods in the
course of trade or business subject to excise, VAT, or percentage tax.
The Court first addresses the issue raised by petitioners concerning the period within
which to file with the CTA a Petition for Review from an adverse decision or ruling of the
RTC.
The period to appeal the decision or ruling of the RTC to the CTA via a Petition for Review
is specifically governed by Section 11 of Republic Act No. 9282, 15 and Section 3 (a), Rule
8 of the Revised Rules of the CTA.
Section 11 of Republic Act No. 9282 provides:

cTIESa

SEC. 11.Who May Appeal; Mode of Appeal; Effect of Appeal. Any party
adversely affected by a decision, ruling or inaction of the Commissioner of Internal
Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central Board of
46
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Assessment Appeals or the Regional Trial Courts may file an Appeal with the
CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2)
herein.
Appeal shall be made by filing a petition for review under a procedure
analogous to that provided for under Rule 42 of the 1997 Rules of Civil
Procedure with the CTA within thirty (30) days from the receipt of the decision or
ruling or in the case of inaction as herein provided, from the expiration of the period
fixed by law to act thereon. . . . . (Emphasis supplied.)

Section 3 (a), Rule 8 of the Revised Rules of the CTA states:


SEC. 3.Who may appeal; period to file petition. (a) A party adversely affected by
a decision, ruling or the inaction of the Commissioner of Internal Revenue on
disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial
Court in the exercise of its original jurisdiction may appeal to the Court bypetition
for review filed within thirty days after receipt of a copy of such decision or ruling,
or expiration of the period fixed by law for the Commissioner of Internal Revenue to
act on the disputed assessments. . . . . (Emphasis supplied.)

It is crystal clear from the afore-quoted provisions that to appeal an adverse decision or
ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with the
CTA within 30 days from receipt of said adverse decision or ruling of the RTC.
It is also true that the same provisions are silent as to whether such 30-day period can be
extended or not. However, Section 11 of Republic Act No. 9282 does state that the Petition
for Review shall be filed with the CTA following the procedure analogous to Rule 42 of
the Revised Rules of Civil Procedure. Section 1, Rule 42 16 of the Revised Rules of Civil
Procedure provides that the Petition for Review of an adverse judgment or final order of the
RTC must be filed with the Court of Appeals within: (1) the original 15-day period from
receipt of the judgment or final order to be appealed; (2) an extended period of 15 days
from the lapse of the original period; and (3) only for the most compelling
reasons, another extended period not to exceed 15 days from the lapse of the first
extended period.
Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30day original period for filing a Petition for Review with the CTA under Section 11
of Republic Act No. 9282, as implemented by Section 3 (a), Rule 8 of the Revised Rules of
the CTA, may be extended for a period of 15 days. No further extension shall be allowed
thereafter, except only for the most compelling reasons, in which case the extended period
shall not exceed 15 days.
47
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Even the CTA en banc, in its Decision dated 18 January 2008, recognizes that the 30-day
period within which to file the Petition for Review with the CTA may, indeed, be extended,
thus:
Being suppletory to R.A. 9282, the 1997 Rules of Civil Procedure allow an
additional period of fifteen (15) days for the movant to file a Petition for Review,
upon Motion, and payment of the full amount of the docket fees. A further extension
of fifteen (15) days may be granted on compelling reasons in accordance with the
provision of Section 1, Rule 42 of the 1997 Rules of Civil Procedure . . . . 17

In this case, the CTA First Division did indeed err in finding that petitioners failed to file their
Petition for Review in C.T.A. AC No. 31 within the reglementary period.
From 20 April 2007, the date petitioners received a copy of the 4 April 2007 Order of the
RTC, denying their Motion for Reconsideration of the 16 November 2006 Order, petitioners
had 30 days, or until 20 May 2007, within which to file their Petition for Review with the
CTA. Hence, the Motion for Extension filed by petitioners on 4 May 2007 grounded on
their belief that the reglementary period for filing their Petition for Review with the CTA was
to expire on 5 May 2007, thus, compelling them to seek an extension of 15 days, or until 20
May 2007, to file said Petition was unnecessary and superfluous. Even without said
Motion for Extension, petitioners could file their Petition for Review until 20 May 2007, as it
was still within the 30-day reglementary period provided for under Section 11 of Republic
Act No. 9282; and implemented by Section 3 (a), Rule 8 of the Revised Rules of the CTA.

The Motion for Extension filed by the petitioners on 18 May 2007, prior to the lapse of the
30-day reglementary period on 20 May 2007, in which they prayed for another extended
period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only
the first Motion for Extension of petitioners. The CTA First Division should have granted the
same, as it was sanctioned by the rules of procedure. In fact, petitioners were only praying
for a 10-day extension, five days less than the 15-day extended period allowed by the
rules. Thus, when petitioners filed via registered mail their Petition for Review in C.T.A. AC
No. 31 on 30 May 2007, they were able to comply with the reglementary period for filing
such a petition.
cHAaCE

Nevertheless, there were other reasons for which the CTA First Division dismissed the
Petition for Review of petitioners in C.T.A. AC No. 31; i.e., petitioners failed to conform to
Section 4 of Rule 5, and Section 2 of Rule 6 of the Revised Rules of the CTA. The Court
sustains the CTA First Division in this regard.
Section 4, Rule 5 of the Revised Rules of the CTA requires that:
SEC. 4.Number of copies. The parties shall file eleven signed copies of every
paper for cases before the Court en banc and six signed copies for cases before
48
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

a Division of the Court in addition to the signed original copy, except as


otherwise directed by the Court. Papers to be filed in more than one case shall
include one additional copy for each additional case. (Emphasis supplied.)

Section 2, Rule 6 of the Revised Rules of the CTA further necessitates that:
SEC. 2.Petition for review; contents. The petition for review shall contain
allegations showing the jurisdiction of the Court, a concise statement of the
complete facts and a summary statement of the issues involved in the case, as well
as the reasons relied upon for the review of the challenged decision. The petition
shall be verified and must contain a certification against forum shopping as
provided in Section 3, Rule 46 of the Rules of Court. A clearly legible duplicate
original or certified true copy of the decision appealed from shall be attached
to the petition. (Emphasis supplied.)

The aforesaid provisions should be read in conjunction with Section 1, Rule 7 of the
Revised Rules of the CTA, which provides:
SECTION 1.Applicability of the Rules of Court on procedure in the Court of
Appeals, exception. The procedure in the Court en banc or in Divisions in
original or in appealed cases shall be the same as those in petitions for review and
appeals before the Court of Appeals pursuant to the applicable provisions of Rules
42, 43, 44, and 46 of the Rules of Court, except as otherwise provided for in
these Rules. (Emphasis supplied.)

As found by the CTA First Division and affirmed by the CTA en banc, the Petition for
Review filed by petitioners via registered mail on 30 May 2007 consisted only of one copy
and all the attachments thereto, including the Decision dated 14 July 2006; and that the
assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil Case No.
03-107088 were mere machine copies. Evidently, petitioners did not comply at all with the
requirements set forth under Section 4, Rule 5; or with Section 2, Rule 6 of the Revised
Rules of the CTA. Although the Revised Rules of the CTA do not provide for the
consequence of such non-compliance, Section 3, Rule 42 of the Rules of Court may be
applied suppletorily, as allowed by Section 1, Rule 7 of the Revised Rules of the CTA.
Section 3, Rule 42 of the Rules of Court reads:
SEC. 3.Effect of failure to comply with requirements. The failure of the petitioner
to comply with any of the foregoing requirements regarding the payment of the
docket and other lawful fees, the deposit for costs, proof of service of the petition,
and the contents of and the documents which should accompany the petition shall
be sufficient ground for the dismissal thereof. (Emphasis supplied.)

True, petitioners subsequently submitted certified copies of the Decision dated 14 July
2006 and assailed Orders dated 16 November 2006 and 4 April 2007 of the RTC in Civil
Case No. 03-107088, but a closer examination of the stamp on said documents reveals
49
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

that they were prepared and certified only on 14 August 2007, about two months and a half
after the filing of the Petition for Review by petitioners.
Petitioners never offered an explanation for their non-compliance with Section 4 of Rule 5,
and Section 2 of Rule 6 of the Revised Rules of the CTA. Hence, although the Court had,
in previous instances, relaxed the application of rules of procedure, it cannot do so in this
case for lack of any justification.
Even assuming arguendo that the Petition for Review of petitioners in C.T.A. AC No. 31
should have been given due course by the CTA First Division, it is still dismissible for lack
of merit.
Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the
instant case. The pivotal issue raised therein was whether Tax Ordinance No. 7988 and
Tax Ordinance No. 8011 were null and void, which this Court resolved in the affirmative.
Tax Ordinance No. 7988 was declared by the Secretary of the Department of Justice (DOJ)
as null and void and without legal effect due to the failure of herein petitioner City of Manila
to satisfy the requirement under the law that said ordinance be published for three
consecutive days. Petitioner City of Manila never appealed said declaration of the DOJ
Secretary; thus, it attained finality after the lapse of the period for appeal of the same. The
passage of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988, did not cure the
defects of the latter, which, in any way, did not legally exist.
EcSCAD

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011 are
null and void and without any legal effect. Therefore, respondent cannot be taxed and
assessed under the amendatory laws Tax Ordinance No. 7988 and Tax Ordinance No.
8011.
Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and
Tax Ordinance No. 8011, respondent could still be made liable for local business taxes
under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read,
without the amendment by the null and void tax ordinances.
Emphasis must be given to the fact that prior to the passage of Tax Ordinance No. 7988
and Tax Ordinance No. 8011 by petitioner City of Manila, petitioners subjected and
assessed respondent only for the local business tax under Section 14 of Tax Ordinance
No. 7794, but never under Section 21 of the same. This was due to the clear and
unambiguous proviso in Section 21 of Tax Ordinance No. 7794, which stated that "all
registered business in the City of Manila that are already paying the aforementioned tax
shall be exempted from payment thereof". The "aforementioned tax" referred to in
said proviso refers to local business tax. Stated differently, Section 21 of Tax Ordinance
No. 7794 exempts from the payment of the local business tax imposed by said section,
businesses that are already paying such tax under other sections of the same tax
50
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

ordinance. The said proviso, however, was deleted from Section 21 of Tax Ordinance No.
7794 by Tax Ordinances No. 7988 and No. 8011. Following this deletion, petitioners began
assessing respondent for the local business tax under Section 21 of Tax Ordinance No.
7794, as amended.
The Court easily infers from the foregoing circumstances that petitioners themselves
believed that prior to Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent
was exempt from the local business tax under Section 21 of Tax Ordinance No. 7794.
Hence, petitioners had to wait for the deletion of the exempting proviso in Section 21 of Tax
Ordinance No. 7794 by Tax Ordinance No. 7988 and Tax Ordinance No. 8011 before they
assessed respondent for the local business tax under said section. Yet, with the
pronouncement by this Court in the Coca-Cola case that Tax Ordinance No. 7988 and Tax
Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax
Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back
in effect. Accordingly, respondent should not have been subjected to the local business tax
under Section 21 of Tax Ordinance No. 7794 for the third and fourth quarters of 2000,
given its exemption therefrom since it was already paying the local business tax under
Section 14 of the same ordinance.
Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No.
7794, to their own detriment. Said exempting proviso was precisely included in said section
so as to avoid double taxation.
Double taxation means taxing the same property twice when it should be taxed only once;
that is, "taxing the same person twice by the same jurisdiction for the same thing". It is
obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise
described as "direct duplicate taxation", the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes must be of the same kind or
character. 18
Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No.
7794, since these are being imposed: (1) on the same subject matter the privilege of
doing business in the City of Manila; (2) for the same purpose to make persons
conducting business within the City of Manila contribute to city revenues; (3) by the same
taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within
the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per
calendar year; and (6) of the same kind or character a local business tax imposed on
gross sales or receipts of the business.

51
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of
Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the very
source of the power of municipalities and cities to impose a local business tax, and to
which any local business tax imposed by petitioner City of Manila must conform. It is
apparent from a perusal thereof that when a municipality or city has already imposed a
business tax on manufacturers, etc.of liquors, distilled spirits, wines, and any other article
of commerce, pursuant to Section 143 (a) of the LGC, said municipality or city may no
longer subject the same manufacturers, etc. to a business tax under Section 143 (h) of the
same Code. Section 143 (h) may be imposed only on businesses that are subject to excise
tax, VAT, or percentage tax under the NIRC, and that are "not otherwise specified in
preceding paragraphs". In the same way, businesses such as respondent's, already
subject to a local business tax under Section 14 of Tax Ordinance No. 7794 [which is
based on Section 143 (a) of the LGC], can no longer be made liable for local business tax
under Section 21 of the same Tax Ordinance [which is based on Section 143 (h) of the
LGC].
TSCIEa

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is


hereby DENIED. No costs.
SO ORDERED.
Ynares-Santiago, Velasco, Jr., Nachura and Peralta, JJ., concur.
(City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No. 181845, [August 4, 2009],
612 PHIL 609-633)
|||

SECOND DIVISION
[G.R. No. 178030. December 15, 2010.]
PHILIPPINE
FISHERIES
DEVELOPMENT
AUTHORITY
(PFDA), petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS,
LOCAL BOARD OF ASSESSMENT APPEALS OF LUCENA CITY, CITY
OF LUCENA, LUCENA CITY ASSESSOR AND LUCENA CITY
TREASURER, respondents.
DECISION
52
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

CARPIO, J :
p

The Case
This petition for review 1 assails the 9 May 2007 Decision 2 of the Court of Tax Appeals in
C.T.A. EB No. 193, affirming the 5 October 2005 Decision of the Central Board of
Assessment Appeals (CBAA) in CBAA Case No. L-33. The CBAA dismissed the appeal of
petitioner Philippine Fisheries Development Authority (PFDA) from the Decision of the
Local Board of Assessment Appeals (LBAA) of Lucena City, ordering PFDA to pay the real
property taxes imposed by the City Government of Lucena on the Lucena Fishing Port
Complex.
The Facts
The facts as found by the CBAA are as follows:
The records show that the Lucena Fishing Port Complex (LFPC) is one of the
fishery infrastructure projects undertaken by the National Government under the
Nationwide Fish Port-Package. Located at Barangay Dalahican, Lucena City, the
fish port was constructed on a reclaimed land with an area of 8.7 hectares more or
less, at a total cost of PHP296,764,618.77 financed through a loan (L/A PH-25 and
51) from the Overseas Economic Cooperation Fund (OECF) of Japan, dated
November 9, 1978 and May 31, 1978, respectively.
The Philippine Fisheries Development Authority (PFDA) was created by virtue
of P.D. 977 as amended by E.O. 772, with functions and powers to (m)anage,
operate, and develop the Navotas Fishing Port Complex and such other fishing port
complexes that may be established by the Authority. Pursuant thereto, PetitionerAppellant PFDA took over the management and operation of LFPC in February
1992.
On October 26, 1999, in a letter addressed to PFDA, the City Government of
Lucena demanded payment of realty taxes on the LFPC property for the period
from 1993 to 1999 in the total amount of P39,397,880.00. This was received by
PFDA on November 24, 1999.
On October 17, 2000 another demand letter was sent by the Government of
Lucena City on the same LFPC property, this time in the amount of P45,660,080.00
covering the period from 1993 to 2000.
On December 18, 2000 Petitioner-Appellant filed its Appeal before the Local Board
of Assessment Appeals of Lucena City, which was dismissed for lack of merit. On
November 6, 2001 Petitioner-Appellant filed its motion for reconsideration; this was
denied by the Appellee Local Board on December 10, 2001. 3
acSECT

PFDA appealed to the CBAA. In its Decision dated 5 October 2005, the CBAA dismissed
the appeal for lack of merit. The CBAA ruled:
53
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Ownership of LFPC however has, before hand, been handed over to the PFDA, as
provided for under Sec. 11 of P.D. No. 977, as amended, and declared under the
MCIAA case [Mactan Cebu International Airport Authority v. Marcos, G.R. No.
120082, 11 September 1996, 261 SCRA 667]. The allegations therefore that PFDA
is not the beneficial user of LFPC and not a taxable person are rendered moot and
academic by such ownership of PFDA over LFPC.
xxx xxx xxx
PFDA's Charter, P.D. 977, provided for exemption from income tax under Par. 2,
Sec. 10 thereof: "(t)he Authority shall be exempted from the payment of income
tax". Nothing was said however about PFDA's exemption from payment of real
property tax: PFDA therefore was not to lay claim for realty tax exemption on its
Fishing Port Complexes. Reading Sec. 40 of P.D. 464 and Sec. 234 of R.A.
7160 however, provided such ground: LFPC is owned by the Republic of the
Philippines, PFDA is only tasked to manage, operate, and develop the same.
Hence, LFPC is exempted from payment of realty tax.
xxx xxx xxx
The ownership of LFPC as passed on by the Republic of the Philippines to PFDA is
bourne by Direct evidence: P.D. 977, as amended (supra). Therefore, PetitionerAppellant's claim for realty tax exemption on LFPC is untenable.
WHEREFORE, for all of the foregoing, the herein Appeal is hereby dismissed for
lack of merit.
SO ORDERED. 4

PFDA moved for reconsideration, which the CBAA denied in its Resolution dated 7 June
2006. 5 On appeal, the Court of Tax Appeals denied PFDA's petition for review and
affirmed the 5 October 2005 Decision of the CBAA.
Hence, this petition for review.
The Ruling of the Court of Tax Appeals
The Court of Tax Appeals held that PFDA is a government-owned or controlled
corporation, and is therefore subject to the real property tax imposed by local government
units pursuant to Section 232 in relation to Sections 193 and 234 of the Local Government
Code. Furthermore, the Court of Tax Appeals ruled that PFDA failed to prove that it is
exempt from real property tax pursuant to Section 234 of the Local Government Code or
any of its provisions.
The Issue
The sole issue raised in this petition is whether PFDA is liable for the real property tax
assessed on the Lucena Fishing Port Complex.
54
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

The Ruling of the Court


The petition is meritorious.

IaCHTS

In ruling that PFDA is not exempt from paying real property tax, the Court of Tax Appeals
cited Sections 193, 232, and 234 of the Local Government Code which read:
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.
Section 232.Power to Levy Real Property Tax. A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad valorem tax
on real property such as land, building, machinery, and other improvement not
hereinafter specifically exempted.
Section 234.Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:
(a)Real property owned by the Republic of the Philippines or any of its political
subdivision except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
(b)Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
(c)All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or -controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power;
(d)All real property owned by duly registered cooperatives as provided for
under R.A. No. 6938; and
(e)Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or -controlled corporations are hereby
withdrawn upon the effectivity of this Code.

The Court of Tax Appeals held that as a government-owned or controlled corporation,


PFDA is subject to real property tax imposed by local government units having jurisdiction
55
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

over its real properties pursuant to Section 232 of the Local Government Code. According
to the Court of Tax Appeals, Section 193 of the Local Government Code withdrew all tax
exemptions granted to government-owned or controlled corporations. Furthermore, Section
234 of the Local Government Code explicitly provides that any exemption from payment of
real property tax granted to government-owned or controlled corporations have already
been withdrawn upon the effectivity of the Local Government Code.
aSTAHD

The ruling of the Court of Tax Appeals is anchored on the wrong premise that the PFDA is
a government-owned or controlled corporation. On the contrary, this Court has already
ruled that the PFDA is a government instrumentality and not a government-owned or
controlled corporation.
In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals, 6 the
Court resolved the issue of whether the PFDA is a government-owned or controlled
corporation or an instrumentality of the national government. In that case, the City of Iloilo
assessed real property taxes on the Iloilo Fishing Port Complex (IFPC), which was
managed and operated by PFDA. The Court held that PFDA is an instrumentality of the
government and is thus exempt from the payment of real property tax, thus:
The Court rules that the Authority [PFDA] is not a GOCC but an
instrumentality of the national government which is generally exempt from
payment of real property tax. However, said exemption does not apply to the
portions of the IFPC which the Authority leased to private entities. With
respect to these properties, the Authority is liable to pay property tax. Nonetheless,
the IFPC, being a property of public dominion cannot be sold at public auction to
satisfy the tax delinquency.
xxx xxx xxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. Also, it has
no stockholders or voting shares. Hence it is not a stock corporation. Neither is it a
non-stock corporation because it has no members.
The Authority is actually a national government instrumentality which is defined as
an agency of the national government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or nonstock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. 7 (Emphasis supplied)

56
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas
Fishing Port Complex, which is also managed and operated by the PFDA. In consonance
with the previous ruling, the Court held in the subsequent PFDA case that the PFDA is a
government instrumentality not subject to real property tax except those portions of the
Navotas Fishing Port Complex that were leased to taxable or private persons and entities
for their beneficial use. 8
Similarly, we hold that as a government instrumentality, the PFDA is exempt from real
property tax imposed on the Lucena Fishing Port Complex, except those portions which
are leased to private persons or entities.
aADSIc

The exercise of the taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code. 9 Under Section 133 (o) 10 of
the Local Government Code, local government units have no power to tax instrumentalities
of the national government like the PFDA. Thus, PFDA is not liable to pay real property tax
assessed by the Office of the City Treasurer of Lucena City on the Lucena Fishing Port
Complex, except those portions which are leased to private persons or entities.
Besides, the Lucena Fishing Port Complex is a property of public dominion intended for
public use, and is therefore exempt from real property tax under Section 234 (a) 11 of
the Local Government Code. Properties of public dominion are owned by the State or the
Republic of the Philippines. 12 Thus, Article 420 of the Civil Code provides:
Art. 420.The following things are property of public dominion:
(1)Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character;
(2)Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth.
(Emphasis supplied)

The Lucena Fishing Port Complex, which is one of the major infrastructure projects
undertaken by the National Government under the Nationwide Fishing Ports Package, is
devoted for public use and falls within the term "ports." The Lucena Fishing Port Complex
"serves as PFDA's commitment to continuously provide post-harvest infrastructure support
to the fishing industry, especially in areas where productivity among the various players in
the fishing industry need to be enhanced." 13 As property of public dominion, the Lucena
Fishing Port Complex is owned by the Republic of the Philippines and thus exempt from
real estate tax.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 9 May 2007 of
the Court of Tax Appeals in C.T.A. EB No. 193. We DECLARE the Lucena Fishing Port
Complex EXEMPT from real property tax imposed by the City of Lucena. We
57
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

declare VOID all the real property tax assessments issued by the City of Lucena on the
Lucena Fishing Port Complex managed by Philippine Fisheries Development
Authority, EXCEPT for the portions that the Philippine Fisheries Development Authority has
leased to private parties.
SO ORDERED.
Nachura, Peralta, Abad and Mendoza, JJ., concur.
(Philippine Fisheries Development Authority v. Central Board of Assessment Appeals,
G.R. No. 178030, [December 15, 2010])
|||

58
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

SECOND DIVISION
[G.R. No. 178030. December 15, 2010.]

59
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

PHILIPPINE
FISHERIES
DEVELOPMENT
AUTHORITY
(PFDA), petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS,
LOCAL BOARD OF ASSESSMENT APPEALS OF LUCENA CITY, CITY
OF LUCENA, LUCENA CITY ASSESSOR AND LUCENA CITY
TREASURER, respondents.
DECISION
CARPIO, J :
p

The Case
This petition for review 1 assails the 9 May 2007 Decision 2 of the Court of Tax Appeals in
C.T.A. EB No. 193, affirming the 5 October 2005 Decision of the Central Board of
Assessment Appeals (CBAA) in CBAA Case No. L-33. The CBAA dismissed the appeal of
petitioner Philippine Fisheries Development Authority (PFDA) from the Decision of the
Local Board of Assessment Appeals (LBAA) of Lucena City, ordering PFDA to pay the real
property taxes imposed by the City Government of Lucena on the Lucena Fishing Port
Complex.
The Facts
The facts as found by the CBAA are as follows:
The records show that the Lucena Fishing Port Complex (LFPC) is one of the
fishery infrastructure projects undertaken by the National Government under the
Nationwide Fish Port-Package. Located at Barangay Dalahican, Lucena City, the
fish port was constructed on a reclaimed land with an area of 8.7 hectares more or
less, at a total cost of PHP296,764,618.77 financed through a loan (L/A PH-25 and
51) from the Overseas Economic Cooperation Fund (OECF) of Japan, dated
November 9, 1978 and May 31, 1978, respectively.
The Philippine Fisheries Development Authority (PFDA) was created by virtue
of P.D. 977 as amended by E.O. 772, with functions and powers to (m)anage,
operate, and develop the Navotas Fishing Port Complex and such other fishing port
complexes that may be established by the Authority. Pursuant thereto, PetitionerAppellant PFDA took over the management and operation of LFPC in February
1992.
On October 26, 1999, in a letter addressed to PFDA, the City Government of
Lucena demanded payment of realty taxes on the LFPC property for the period
from 1993 to 1999 in the total amount of P39,397,880.00. This was received by
PFDA on November 24, 1999.
60
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

On October 17, 2000 another demand letter was sent by the Government of
Lucena City on the same LFPC property, this time in the amount of P45,660,080.00
covering the period from 1993 to 2000.
On December 18, 2000 Petitioner-Appellant filed its Appeal before the Local Board
of Assessment Appeals of Lucena City, which was dismissed for lack of merit. On
November 6, 2001 Petitioner-Appellant filed its motion for reconsideration; this was
denied by the Appellee Local Board on December 10, 2001. 3
acSECT

PFDA appealed to the CBAA. In its Decision dated 5 October 2005, the CBAA dismissed
the appeal for lack of merit. The CBAA ruled:
Ownership of LFPC however has, before hand, been handed over to the PFDA, as
provided for under Sec. 11 of P.D. No. 977, as amended, and declared under the
MCIAA case [Mactan Cebu International Airport Authority v. Marcos, G.R. No.
120082, 11 September 1996, 261 SCRA 667]. The allegations therefore that PFDA
is not the beneficial user of LFPC and not a taxable person are rendered moot and
academic by such ownership of PFDA over LFPC.
xxx xxx xxx
PFDA's Charter, P.D. 977, provided for exemption from income tax under Par. 2,
Sec. 10 thereof: "(t)he Authority shall be exempted from the payment of income
tax". Nothing was said however about PFDA's exemption from payment of real
property tax: PFDA therefore was not to lay claim for realty tax exemption on its
Fishing Port Complexes. Reading Sec. 40 of P.D. 464 and Sec. 234 of R.A.
7160 however, provided such ground: LFPC is owned by the Republic of the
Philippines, PFDA is only tasked to manage, operate, and develop the same.
Hence, LFPC is exempted from payment of realty tax.
xxx xxx xxx
The ownership of LFPC as passed on by the Republic of the Philippines to PFDA is
bourne by Direct evidence: P.D. 977, as amended (supra). Therefore, PetitionerAppellant's claim for realty tax exemption on LFPC is untenable.
WHEREFORE, for all of the foregoing, the herein Appeal is hereby dismissed for
lack of merit.
SO ORDERED. 4

PFDA moved for reconsideration, which the CBAA denied in its Resolution dated 7 June
2006. 5 On appeal, the Court of Tax Appeals denied PFDA's petition for review and
affirmed the 5 October 2005 Decision of the CBAA.
Hence, this petition for review.
The Ruling of the Court of Tax Appeals
61
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

The Court of Tax Appeals held that PFDA is a government-owned or controlled


corporation, and is therefore subject to the real property tax imposed by local government
units pursuant to Section 232 in relation to Sections 193 and 234 of the Local Government
Code. Furthermore, the Court of Tax Appeals ruled that PFDA failed to prove that it is
exempt from real property tax pursuant to Section 234 of the Local Government Code or
any of its provisions.
The Issue
The sole issue raised in this petition is whether PFDA is liable for the real property tax
assessed on the Lucena Fishing Port Complex.
The Ruling of the Court
The petition is meritorious.

IaCHTS

In ruling that PFDA is not exempt from paying real property tax, the Court of Tax Appeals
cited Sections 193, 232, and 234 of the Local Government Code which read:
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.
Section 232.Power to Levy Real Property Tax. A province or city or a
municipality within the Metropolitan Manila Area may levy an annual ad valorem tax
on real property such as land, building, machinery, and other improvement not
hereinafter specifically exempted.
Section 234.Exemptions from Real Property Tax. The following are exempted
from payment of the real property tax:
(a)Real property owned by the Republic of the Philippines or any of its political
subdivision except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
(b)Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;
(c)All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or -controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power;
62
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

(d)All real property owned by duly registered cooperatives as provided for


under R.A. No. 6938; and
(e)Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or
juridical, including all government-owned or -controlled corporations are hereby
withdrawn upon the effectivity of this Code.

The Court of Tax Appeals held that as a government-owned or controlled corporation,


PFDA is subject to real property tax imposed by local government units having jurisdiction
over its real properties pursuant to Section 232 of the Local Government Code. According
to the Court of Tax Appeals, Section 193 of the Local Government Code withdrew all tax
exemptions granted to government-owned or controlled corporations. Furthermore, Section
234 of the Local Government Code explicitly provides that any exemption from payment of
real property tax granted to government-owned or controlled corporations have already
been withdrawn upon the effectivity of the Local Government Code.
aSTAHD

The ruling of the Court of Tax Appeals is anchored on the wrong premise that the PFDA is
a government-owned or controlled corporation. On the contrary, this Court has already
ruled that the PFDA is a government instrumentality and not a government-owned or
controlled corporation.
In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals, 6 the
Court resolved the issue of whether the PFDA is a government-owned or controlled
corporation or an instrumentality of the national government. In that case, the City of Iloilo
assessed real property taxes on the Iloilo Fishing Port Complex (IFPC), which was
managed and operated by PFDA. The Court held that PFDA is an instrumentality of the
government and is thus exempt from the payment of real property tax, thus:
The Court rules that the Authority [PFDA] is not a GOCC but an
instrumentality of the national government which is generally exempt from
payment of real property tax. However, said exemption does not apply to the
portions of the IFPC which the Authority leased to private entities. With
respect to these properties, the Authority is liable to pay property tax. Nonetheless,
the IFPC, being a property of public dominion cannot be sold at public auction to
satisfy the tax delinquency.
xxx xxx xxx
Indeed, the Authority is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. Also, it has
no stockholders or voting shares. Hence it is not a stock corporation. Neither is it a
non-stock corporation because it has no members.
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The Authority is actually a national government instrumentality which is defined as


an agency of the national government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or nonstock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers. 7 (Emphasis supplied)

This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas
Fishing Port Complex, which is also managed and operated by the PFDA. In consonance
with the previous ruling, the Court held in the subsequent PFDA case that the PFDA is a
government instrumentality not subject to real property tax except those portions of the
Navotas Fishing Port Complex that were leased to taxable or private persons and entities
for their beneficial use. 8
Similarly, we hold that as a government instrumentality, the PFDA is exempt from real
property tax imposed on the Lucena Fishing Port Complex, except those portions which
are leased to private persons or entities.
aADSIc

The exercise of the taxing power of local government units is subject to the limitations
enumerated in Section 133 of the Local Government Code. 9 Under Section 133 (o) 10 of
the Local Government Code, local government units have no power to tax instrumentalities
of the national government like the PFDA. Thus, PFDA is not liable to pay real property tax
assessed by the Office of the City Treasurer of Lucena City on the Lucena Fishing Port
Complex, except those portions which are leased to private persons or entities.
Besides, the Lucena Fishing Port Complex is a property of public dominion intended for
public use, and is therefore exempt from real property tax under Section 234 (a) 11 of
the Local Government Code. Properties of public dominion are owned by the State or the
Republic of the Philippines. 12 Thus, Article 420 of the Civil Code provides:
Art. 420.The following things are property of public dominion:
(1)Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character;
(2)Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth.
(Emphasis supplied)

The Lucena Fishing Port Complex, which is one of the major infrastructure projects
undertaken by the National Government under the Nationwide Fishing Ports Package, is
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

devoted for public use and falls within the term "ports." The Lucena Fishing Port Complex
"serves as PFDA's commitment to continuously provide post-harvest infrastructure support
to the fishing industry, especially in areas where productivity among the various players in
the fishing industry need to be enhanced." 13 As property of public dominion, the Lucena
Fishing Port Complex is owned by the Republic of the Philippines and thus exempt from
real estate tax.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 9 May 2007 of
the Court of Tax Appeals in C.T.A. EB No. 193. We DECLARE the Lucena Fishing Port
Complex EXEMPT from real property tax imposed by the City of Lucena. We
declare VOID all the real property tax assessments issued by the City of Lucena on the
Lucena Fishing Port Complex managed by Philippine Fisheries Development
Authority, EXCEPT for the portions that the Philippine Fisheries Development Authority has
leased to private parties.
SO ORDERED.
Nachura, Peralta, Abad and Mendoza, JJ., concur.
(Philippine Fisheries Development Authority v. Central Board of Assessment Appeals,
G.R. No. 178030, [December 15, 2010])
|||

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

THIRD DIVISION
[G.R. No. 127708. March 25, 1999.]
CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF
SAN PABLO, LAGUNA, and THE SANGUNIANG 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.
Eleno M. Mendoza, Jr. for petitioners.
Quiason Makalintal Barot Torres & Ibarra for private respondent.
SYNOPSIS
This is a petition for review under Rule 45 of the Revised Rules of Court assailing the
decision of the Regional Trial Court of San Pablo City declaring the imposition of franchise
tax under Section 2.09 Article D of Ordinance No. 56, otherwise known as the Revenue
Code of the City of San Pablo as ineffective and void insofar as private respondent is
concerned for being violative of Act No. 3648, Republic Act No. 2340 and PD 551. The
RTC also granted private respondent's claim for refund of franchise taxes paid under
protest.
Petitioners' position was that RA 7160, The Local Government Code of 1991 (LGC),
expressly repealed Act No. 3648; RA No. 2340 and PD 551, and that pursuant to the
provisions of Sections 137 and 193 of the Local Government Code, the province or city
now has the power to impose a franchise tax on a business enjoying a franchise. On the
other hand, private respondent invoked the non-impairment clause of the Constitution to
justify its exemption from local tax.
The Supreme Court reversed and set aside the decision of the trial court. Petitioners
correctly relied on the provisions of Sections 137 and 193 of the LGC to support their
position that private respondent's exemption has been withdrawn. The explicit language of
Section 137 which authorizes the province to impose franchise tax "notwithstanding any
exemption granted by any law or other special law" is all encompassing and clear. The
franchise tax is imposable despite any exemption enjoyed under special laws. Moreover,
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Section 193 buttresses the withdrawal of extant tax exemption privileges. Thus, in the
absence of any provision of the Code to the contrary, and which the Court found no other
provision in point, private respondent's tax exemption privileges under existing law was
clearly intended to be withdrawn. Reading together Sections 137 and 193 of the LGC, the
Court concluded that under the LGC, the local government unit may now impose a local tax
at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
year based on the incoming receipts realized within its territorial jurisdiction.
Private respondent's invocation of the non-impairment clause of the Constitution was
unavailing. Under the 1935, the 1973 and the 1987 Constitutions, no franchise or right shall
be granted except under the condition that it shall be subject to amendment, alteration or
repeal by the National 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 also subject to alteration by the power to tax, which like police
power cannot be contracted away.
SYLLABUS
1. POLITICAL LAW; LOCAL GOVERNMENT; LOCAL GOVERNMENT CODE; SECTION
534(f) THEREOF; PARTAKES OF THE NATURE OF GENERAL REPEALING CLAUSE.
Section 534(f), the repealing clause of the LGC, provides that all general and special laws,
acts, city charters, decrees, executive orders, proclamations and administrative regulations
or parts thereof which are inconsistent with any of the provisions of the Code are hereby
repealed or modified accordingly. This clause partakes of the nature of a general repealing
clause. It is certainly not an express repealing clause because it fails to designate the
specific act or acts identified by number or title, that are intended to be repealed.
TDESCa

2. ID.; ID.; ID.; SECTIONS 137 AND 193 THEREOF; TAX EXEMPTION PRIVILEGES
CONSIDERED WITHDRAWN UPON EFFECTIVITY THEREOF; EXCEPTIONS; TAX
EXEMPTIONS ENJOYED BY MERALCO CONSIDERED WITHDRAWN; CASE AT BAR.
It is our view that petitioners correctly rely on the provisions of Sections 137 and 193 of
the LGC to support their position that MERALCO's tax exemption has been withdrawn. The
explicit language of Section 137 which authorizes the province to impose franchise tax
"notwithstanding any exemption granted by any law or other special law" is wellencompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws. Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons whether natural or juridical,
including government-owned or controlled corporations except 1) local water districts, 2)
cooperatives duly registered under R.A. 6938, 3) non-stock and non-profit hospitals and
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

educational institutions, are withdrawn upon the effectivity of this code, the obvious import
is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing, act or consequence excludes
all others as expressed in the familiar maxim expressio unius est exclusio alterius. In the
absence of any provision of the Code to the contrary, and we find no other provision in
point, any existing tax exemption or incentive enjoyed by MERALCO under existing law
was clearly intended to be withdrawn.
3. ID.; ID.; ID.; ID.; LOCAL GOVERNMENT UNIT ALLOWED TO IMPOSE A LOCAL TAX
AT A RATE NOT EXCEEDING 50% OF 1% OF THE GROSS ANNUAL RECEIPTS.
Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar year based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the language used in
Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges,
the LGC provided for an express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been used.
4. ID.; ID.; ID.; ID.; PHRASE "SHALL BE IN LIEU OF ALL TAXES" FOUND IN SPECIAL
FRANCHISES HAVE TO GIVE WAY TO THE PEREMPTORY LANGUAGE THEREOF
WITHDRAWING TAX EXEMPTION PRIVILEGES. It is true that the phrase "in lieu of all
taxes" found in special franchises has been held in several cases to exempt the franchise
holder from payment of tax on its corporate franchise imposed by the Internal Revenue
Code, as the charter is in the nature of a private contract and the exemption is part of the
inducement for the acceptance of the franchise, and that the imposition of another
franchise tax by the local authority would constitute an impairment of contract between the
government and the corporation. But these "magic words" contained in the phrase "shall be
in lieu of all taxes" have to give way to the peremptory language of the LGC specifically
providing for the withdrawal of such exemption privileges. Accordingly inMactan Cebu
International Airport Authority vs. Marcos, this Court held that Section 193 of
the LGC prescribes the general rule, viz., the tax exemptions or incentives granted to or
presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of
the LGC except with respect to those entities expressly enumerated. In the same vein, We
must hold that the express withdrawal upon effectivity of the LGC of all exemptions only as
provided therein, can no longer be invoked by Meralco to disclaim liability for the local tax.
5. CONSTITUTIONAL LAW; BILL OF RIGHTS; NON-IMPAIRMENT CLAUSE; CANNOT
BE INVOKED TO UPHOLD MERALCO'S EXEMPTION FROM LOCAL TAX; FRANCHISES
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

SUBJECT TO ALTERATION THROUGH REASONABLE EXERCISE OF THE POLICE


POWER AND THE POWER TO TAX. Private respondent's invocation of the nonimpairment clause of the Constitution is accordingly unavailing. The LGC was enacted in
pursuance of the constitutional policy to ensure autonomy to local governments and to
enable them to attain fullest development as self-reliant communities. There is further basis
for the conclusion that the non-impairment of contract clause cannot be invoked to uphold
Meralco's exemption from the local tax. Escudero Electric Co. was originally given the
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 of fifty years from the Act's approval in 1929. The said law provided that
the franchise is granted upon the condition that it shall be subject to amendment, or repeal
by the Congress of the United States. Under the 1935, the 1973 and the 1987
Constitutions, no franchise or right shall be granted except under the condition that it shall
be subject to amendment, alteration or repeal by the National 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 also subject to
alteration by the power to tax, which like police power cannot be contracted away.
TaDAIS

6. STATUTORY CONSTRUCTION; IN INTERPRETING STATUTORY PROVISIONS ON


MUNICIPAL FISCAL POWERS, DOUBTS SHOULD BE RESOLVED IN FAVOR OF
MUNICIPAL CORPORATIONS. The power to tax is primarily vested in Congress.
However, in our jurisdiction, it may be exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution. The important legal effect of Section 5 is that
henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will have
to be resolved in favor of municipal corporations.

7. ID.; GENERAL LAW; CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL


LAW BY MERE IMPLICATION UNLESS INTENT TO REPEAL IS MANIFEST. We are
mindful of the established rule that repeals by implication are not favored as laws are
presumed to be passed with deliberation and full knowledge of all laws existing on the
subject. A general law cannot be construed to have repealed a special law by mere
implication unless the intent to repeal or alter is manifest and it must be convincingly
demonstrated that the two laws are so clearly repugnant and patently inconsistent that they
cannot co-exist.
ITADaE

DECISION

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

GONZAGA-REYES, J :
p

This is a petition under Rule 45 of the Rules of Court to review on a pure question of law
the decision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in Civil Case
No. SP-4459(96), entitled "Manila Electric Company vs. City of San Pablo, Laguna, City
Treasurer of San Pablo Laguna, and the Sanguniang Panglunsod of San Pablo City,
Laguna." The RTC declared the imposition of a franchise tax under Section 2.09, Article D
of Ordinance No. 56 otherwise known as the 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. The RTC 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 and operate 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
pay unto the municipal treasury of each municipality in which it is supplying electric
current 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 said
municipality. Said tax shall be due and payable quarterly and shall be in lieu of any
and all taxes of any kind, nature or description levied, established or collected by
any authority whatsoever, municipal, provincial or insular, now or in the future, on
its poles, wires, insulators, 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 which
taxes the grantee is hereby expressly exempted."

Escudero's franchise was transferred to the plaintiff (herein respondent) MERALCO


under Republic Act No. 2340.
Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof
provides the following:
"SECTION 1. Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of franchise to generate,
distribute and sell electric current for light, heat and power shall be two percent
(2%) of their gross receipts received from the sale of electric current and from
transactions incident to the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his
duly authorized representative on or before the twentieth day of the month following
the end of each calendar quarter or month as may be provided in the respective
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

franchise or pertinent municipal regulation and shall, any provision of the Local Tax
Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or local authority on
earnings, receipts, income and privilege of generation, distribution and sale of
electric current."

Republic Act No. 7160, otherwise known as the "Local Government Code of 1991"
(hereinafter referred to as LGC) took effect on January 1, 1992. The said Code authorizes
the province/city to impose a tax on business 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 realized within its jurisdiction.
On October 5, 1992, the Sanguniang 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 on October 30, 1992. 1
Section 2.09, Article D of said Ordinance provides:
"SECTION 2.09. Franchise Tax. There is hereby imposed a tax on business
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 the city."

Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to private
respondent a letter demanding payment of the aforesaid franchise tax. From 1994 to 1996,
private respondent paid "under protest" a total amount of P1,857,711.67. 2
The private respondent subsequently filed this action before the Regional Trial Court to
declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon private
respondent MERALCO 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 or impliedly repeal the tax exemption/incentive enjoyed by it under its charter.
The dispositive portion of the decision reads:
"WHEREFORE, the imposition of a franchise tax under Sec. 2.09, Article D of
Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo,
is declared ineffective and null and void insofar as the plaintiff MERALCO is
concerned for being violative of Republic Act No. 2340, PD 551, and Republic Act
No. 7160 and the defendants are ordered to 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 other amounts as may have been
paid by the plaintiff under said Revenue Ordinance No. 56 after the filing of the
complaint. 4
SO ORDERED."
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Its motion for reconsideration having been denied by the trial court, 5 the petitioners filed
the instant petition with this Court raising pure questions of law based on the following
grounds:
I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO.
3648, REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO.
551, AS AMENDED, INSOFAR AS THEY GRANT TAX INCENTIVES,
PRIVILEGES AND IMMUNITIES TO PRIVATE RESPONDENT, HAVE
NOT BEEN REPEALED BY REPUBLIC ACT NO. 7160.
II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION
193 OF REPUBLIC ACT NO. 7160 HAS NOT WITHDRAWN THE TAX
INCENTIVES, PRIVILEGES AND IMMUNITIES BEING ENJOYED BY
THE PRIVATE RESPONDENT UNDER ACT NO. 3648. REPUBLIC
ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551, AS
AMENDED.
III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE
FRANCHISE TAX IN QUESTION CONSTITUTES AN IMPAIRMENT
OF THE CONTRACT BETWEEN THE GOVERNMENT AND THE
PRIVATE RESPONDENT.
Petitioners' position is that RA 7160 (LGC) expressly repealed Act No. 3648, Republic Act
No. 2340 and Presidential Decree 551 and that pursuant to the provisions of Sections 137
and 193 of the LGC, the province or city now has the power to impose a franchise tax on a
business enjoying a franchise. 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 to Mactan Cebu International Airport Authority
under its charter has been withdrawn upon the effectivity of the LGC.
In addition, the petitioners cite in their Memorandum dated December 8, 1997 an
administrative interpretation made by the Bureau of Local Government Finance of the
Department of Finance in its 3rd indorsement dated February 15, 1994 to the effect that
the earlier ruling of the Department of Finance 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 of the 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 the LGC 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 on savings or income.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

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


SECTION 137. Franchise Tax. Notwithstanding any exemption granted by any
law or other 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
annual receipts for the preceding calendar year based on the incoming receipts, or
realized, within its territorial jurisdiction. . . ."
SECTION 151. Scope of Taxing Powers. Except as otherwise provided in this
Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall
accrue to them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed
for the province or municipality by not more than fifty percent (50%) except the
rates of professional and amusement taxes.
SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently enjoyed
by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered
under R.A. 6938, non-stock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.

SECTION 534(f). Repealing Clause. 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.

Section 534(f), the repealing clause of the LGC, provides that all general and special laws,
acts, city charters, decrees, executive orders, proclamations and administrative regulations
or parts thereof which are inconsistent with any of the provisions of the Code are hereby
repealed or modified accordingly.
This clause partakes of the nature of a general repealing clause 7 . It is certainly not an
express repealing 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 the latter 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
are presumed to be passed with deliberation and full knowledge of all laws existing on the
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

subject. A general law cannot be construed to have repealed a special law by mere
implication unless the intent to repeal or alter is manifest 9 and it must be convincingly
demonstrated that the two laws are so clearly repugnant and patently inconsistent that they
cannot co-exist. 10
It is our view that petitioners correctly rely on the provisions of Sections 137 and 193 of
the LGC to support their position that MERALCO's tax exemption has been withdrawn. The
explicit language of Section 137 which authorizes the province to impose franchise tax
"notwithstanding any exemption granted by any law or other special law" is allencompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or
presently enjoyed by all persons whether natural or juridical, including government-owned
or controlled corporations except 1) local water districts, 2) cooperatives duly registered
under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are
withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to
the three enumerated entities. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius. 11 In the absence of
any provision of the Code to the contrary, and we find no other provision in point, any
existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly
intended to be withdrawn.
Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar year based on the incoming receipts
realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges
enjoyed under existing law or charter is clearly manifested by the language used in
Sections 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges,
the LGC provided for an express, albeit general, withdrawal of such exemptions or
privileges. No more unequivocal language could have been used.
It is true that the phrase "in lieu of all taxes" found in special franchises has been held in
several cases to exempt the franchise holder from payment of tax on its corporate
franchise imposed by the Internal Revenue Code, as the charter is in the nature of a
private contract and the exemption is part of the inducement for the acceptance of the
franchise, and that the imposition of another franchise tax by the local authority would
constitute an impairment of contract between the government and the corporation. 12 But
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

these "magic words" contained in the phrase "shall be in lieu of all taxes" 13 have to give
way to the peremptory language of the LGC specifically providing for the withdrawal 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 tax exemptions or
incentives granted to or presently enjoyed by natural or juridical persons are withdrawn
upon the effectivity of the LGC except with respect to those entities expressly enumerated.
In the same vein, We must hold that the express withdrawal upon effectivity of the LGC of
all exemptions except only as provided therein, can no longer be invoked by Meralco to
disclaim liability for the local tax.
Private respondents further argue that the "in lieu of" provision contained in PD 551, Act
No. 3648 and RA 2340 does not partake of the nature of an exemption, but is a
"commutative tax". This contention was raised but was not upheld inCagayan 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 for
income tax from which heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise . . .
. . . Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting
to income tax all corporate taxpayers 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


accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to
ensure autonomy to local governments 16 and to enable them to attain fullest development
as self-reliant communities. 17 Thus in Mactan Cebu International Airport Authority
vs. Marcos, supra, this Court pointed out, in upholding the withdrawal of the real estate tax
exemption previously enjoyed by the Mactan Cebu International Airport Authority, as
follows:
"Note that as reproduced in Section 234(a) the phrase "and any government-owned
or controlled corporation so exempt by its charter" was excluded. The justification
for this restricted exemption in Section 234(a) seems obvious: to limit further tax
exemption privileges, especially in light of the general provision on withdrawal of
tax exemption privileges in Section 193 and the special provision on withdrawal of
exemption from payment of real property taxes in the last paragraph of Section
234. 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
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

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 needed revenues to finance and support myriad activities of local government
units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. It
may also be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and
all other units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarly situated enterprises, 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." 18

The Court therein concluded that:


"nothing can prevent Congress from decreeing that even instrumentalities or
agencies of the Government performing governmental functions may be subject to
tax. Where it is done precisely to fulfill a constitutional mandate and national policy,
no one can doubt its wisdom" 19

The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. 20 Thus Article X, Section 5 of the Constitution reads:
"SECTION 5. Each Local Government unit shall have the power to create its own
sources of revenue and to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments."

The important legal effect of Section 5 is that henceforth, in interpreting statutory


provisions on municipal fiscal powers, doubts will have to resolved in favor of municipal
corporations. 21
cdasia

There is further basis for the conclusion that the non-impairment of contract clause cannot
be invoked to uphold Meralco's exemption from the local tax. Escudero Electric Co. was
originally given the 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 of fifty years from the Act's approval in 1929. The said law
provided that the franchise is granted upon the condition that it shall be subject to
amendment, or repeal by the Congress of the United States. 22 Under the 1935, 23 the
1973 24 and the 1987 25 Constitutions, no franchise or right shall be granted except under
the condition that it shall be subject to amendment, alteration or repeal by the National
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;
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

they are also subject 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
original Escudero franchise exempted the franchise holder from all taxes levied or collected
"now or in the future" 27 this phrase is noticeably omitted in the counterpart provision
of P.D. 551; that said omission is 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 is hereby DISMISSED.
No pronouncement as to costs.

cdt

SO ORDERED.
Romero, Vitug, Panganiban and Purisima, JJ., concur.
(City of Government of San Pablo, Laguna v. Reyes, G.R. No. 127708, [March 25, 1999],
364 PHIL 842-858)
|||

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

THIRD DIVISION
[G.R. No. 151899. August 16, 2005.]
PHILIPPINE
LONG
DISTANCE
TELEPHONE
COMPANY,
INC., petitioner, vs. PROVINCE OF LAGUNA and MANUEL E. LEYCANO,
JR., in his capacity as the Provincial Treasurer of the Province of
Laguna, respondents.
Estelito P. Mendoza for petitioner.
Antonio P. Relova for respondents.
SYLLABUS

1.POLITICAL LAW; LOCAL GOVERNMENTS; LOCAL TAXES; FRANCHISE


TAX; REPUBLIC ACT NO. 7925, SECTION 23 THEREOF; CONSTRUED; CASE AT BAR.
In PLDT vs. City of Davao, and again in PLDT vs. City of Bacolod, et al., this Court has
interpreted Section 23 of Rep. Act No. 7925. There, we ruled that Section 23 does not
operate to exempt PLDT from the payment of franchise tax. We quote what we have said in
Davao and reiterated in Bacolod. In sum, it does not appear that, in approving 23 of R.A.
No. 7925, Congress intended it to operate as a blanket tax exemption to all
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

telecommunications entities. Applying the rule of strict construction of laws granting tax
exemptions and the rule that doubts should be resolved in favor of municipal corporations
in interpreting statutory provisions on municipal taxing powers, we hold that 23 of R.A.
No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it
to exemption from the imposition of local franchise taxes. Consequently, we hold that
petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the
period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of
taxes paid by it for the period covering the first to the third quarter of 1998.
2.ID.; ID.; ID.; ID.; ID.; TAX EXEMPTION GRANTED TO GLOBE AND SMART DOES NOT
APPLY TO ALL TELECOMMUNICATION ENTITIES. As before, PLDT argues that
because Smart Communications, Inc. (SMART) and Globe Telecom (GLOBE) under
whose respective franchises granted after the effectivity of the Local Government Code,
are exempt from franchise tax, it follows that petitioner is likewise exempt from the
franchise tax sought to be collected by the Province of Laguna, on the reasoning that the
grant of tax exemption to SMART and GLOBE ipso facto applies to PLDT, consistent with
the "most-favored-treatment" clause found in Section 23 of the Public Telecommunications
Policy Act of the Philippines (Rep. Act No. 7925). Again, there is nothing novel in
petitioner's contention. For sure, in Davao, this Court even adverted to PLDT's similar
argument therein, thus: Finally, if [PLDT] argues that because Smart and Globe are exempt
from the franchise tax, it follows that it must likewise be exempt from the tax being collected
by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto
extended the same exemption to it, which argument this Court rejected in said case in the
following wise: The acceptance of petitioner's theory would result in absurd consequences.
To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and onehalf percentum (1/2% [sic]) of all gross receipts from its transactions while Smart is
required to pay a tax of three percent (3%) on all gross receipts from business transacted.
Petitioner's theory would require that, to level the playing field, any "advantage, favor,
privilege, exemption, or immunity" granted to Globe must be extended to all
telecommunications companies, including Smart. If, later, Congress again grants a
franchise to another telecommunications company imposing, say, one percent (1%)
franchise tax, then all other telecommunications franchises will have to be adjusted to
"level the playing field" so to speak. This could not have been the intent of Congress in
enacting Section 23 of Rep. Act 7925. Petitioner's theory will leave the Government with
the burden of having to keep track of all granted telecommunications franchises, lest some
companies be treated unequally. It is different if Congress enacts a law specifically granting
uniform advantages, favor, privilege, exemption or immunity to all telecommunications
entities.
3.ID.; ID.; ID.; ID.; DOES NOT REFER TO TAX EXEMPTION BUT ONLY TO EXEMPTION
FROM CERTAIN REGULATIONS AND REQUIREMENTS IMPOSED BY THE NATIONAL
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

TELECOMMUNICATIONS COMMISSION. On PLDT's motion for reconsideration in


Davao, the Court added in its en banc Resolution of March 25, 2003, that even as it is a
state policy to promote a level playing field in the communications industry, Section 23
of Rep. Act No. 7925 does not refer to tax exemption but only to exemption from certain
regulations and requirements imposed by the National Telecommunications
Commission: . . . . The records of Congress are bereft of any discussion or even mention
of tax exemption. To the contrary, what the Chairman of the Committee on Transportation,
Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which
became R.A. No. 7925, were 'equal access clauses' in interconnection agreements, not tax
exemptions. He said: There is also a need to promote a level playing field in the
telecommunications industry. New entities must be granted protection against dominant
carriers through the encouragement of equitable access charges and equal access
clauses in interconnection agreements and the strict policing of predatory pricing by
dominant carriers. Equal access should be granted to all operators connecting into the
interexchange network. There should be no discrimination against any carrier in terms of
priorities and/or quality of services. Nor does the term 'exemption' in 23 of R.A. No.
7925 mean tax exemption. The term refers to exemption from certain regulations and
requirements imposed by the National Telecommunications Commission (NTC). For
instance, R.A. No. 7925, 17 provides: 'The Commission shall exempt any specific
telecommunications service from its rate or tariff regulations if the service has sufficient
competition to ensure fair and reasonable rates or tariffs.' Another exemption granted by
the law in line with its policy of deregulation is the exemption from the requirement of
securing permits from the NTC every time a telecommunications company imports
equipment.
4.ID.; ID.; ID.; ID.; ID.; RULE THAT TAX EXEMPTION SHOULD BE APPLIED IN
STRICTISSIMI JURIS AGAINST THE TAXPAYER AND LIBERALLY IN FAVOR OF THE
GOVERNMENT APPLIES EQUALLY TO TAX EXCLUSIONS. PLDT's third assigned
error has likewise been squarely addressed in the same en banc Resolution, when the
Court rejected PLDT's contention that the "in-lieu-of-all-taxes" clause does not refer to "tax
exemption" but to "tax exclusion" and hence, the strictissimi juris rule does not apply. The
en banc explains that these two terms actually mean the same thing, such that the rule that
tax exemption should be applied in strictissimi juris against the taxpayer and liberally in
favor of the government applies equally to tax exclusions: Indeed, both in their nature and
in their effect there is no difference between tax exemption and tax exclusion. Exemption is
an immunity or privilege; it is freedom from a charge or burden to which others are
subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the
reach of taxation, e.g., exclusions from gross income and allowable deductions. Exclusion
is thus also an immunity or privilege which frees a taxpayer from a charge to which others
are subjected. Consequently, the rule that tax exemption should be applied in strictissimi
81
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

juris against the taxpayer and liberally in favor of the government applies equally to tax
exclusions. To construe otherwise the 'in lieu of all taxes' provision invoked is to be
inconsistent with the theory that R.A. No. 7925, 23 grants tax exemption because of a
similar grant to Globe and Smart.
5.ID.; ID.; ID.; ID.; INTERPRETATION THEREOF IS A LEGAL QUESTION NOT WITHIN
THE EXPERTISE OF THE BUREAU OF LOCAL GOVERNMENT FINANCE TO
DETERMINE. As in Davao, PLDT presently faults the trial court for not giving weight to
the ruling of the BLGF which, to petitioner's mind, is an administrative agency with
technical expertise and mastery over the specialized matters assigned to it. Again, to quote
from our ruling in Davao: To be sure, the BLGF is not an administrative agency whose
findings on questions of fact are given weight and deference in the courts. The authorities
cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which
performs judicial functions as it was created for the review of tax cases. In contrast, the
BLGF was created merely to provide consultative services and technical assistance to local
governments and the general public on local taxation, real property assessment, and other
related matters, among others. The question raised by petitioner is a legal question, to wit,
the interpretation of 23 of R.A. No. 7925. There is, therefore, no basis for claiming
expertise for the BLGF that administrative agencies are said to possess in their respective
fields.

DECISION
GARCIA, J :
p

Twice, this Court has denied the earlier plea of petitioner Philippine Long Distance
Company, Inc. (PLDT) to be adjudged exempt from the payment of franchise tax assessed
against it by local government units. The first was in the 2001 case of PLDT vs. City of
Davao 1 and the second, in the very recent case of PLDT vs. City of Bacolod, et al. 2 .
Indeed, no less than the Court en banc, in its Resolution of March 25, 2003 3 , denied
PLDT's motion for reconsideration in Davao. In both cases, the Court in effect ruled that the
desired relief is not legally feasible.
No less than PLDT's third, albeit this time involving the Province of Laguna, the instant
similar petition for review on certiorari under Rule 45 of the Rules of Court seeks the
reversal of the decision dated 28 November 2001 4 of the Regional Trial Court at Laguna,
dismissing PLDT's petition in its Civil Case No. SC-3953, an action for refund of franchise
tax.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Except for inconsequential factual details which understandably vary from the first two (2)
PLDT cases, the legal landscape is practically the same:
PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local
and international telecommunications services. On August 24, 1991, the terms and
conditions of its franchise were consolidated under Republic Act No. 7082, 5 Section 12 of
which embodies the so-called "in-lieu-of-all taxes" clause, whereunder PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax
shall be "in lieu of all taxes". More specifically, the provision pertinently reads:
SEC. 12.. . . In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the telephone
or other telecommunications businesses transacted under this franchise by the
grantee, its successors or assigns, and the said percentage shall be in lieu of all
taxes on this franchise or earnings thereof: . . . (Italics ours).

Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local
Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof,
grants provinces and other local government units the power to impose local franchise tax
on businesses enjoying a franchise, thus:
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.

By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons,
whether natural or juridical, save those expressly mentioned therein, were withdrawn,
necessarily including those taxes from which PLDT is exempted under the "in-lieu-of-all
taxes" clause in its charter. We quote Section 193:
IDCcEa

SEC. 193.Withdrawal of Tax Exemption Privileges. Unless otherwise provided in


this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

Invoking its authority under Section 137, supra, of the Local Government Code, the
Province of Laguna, through its local legislative assembly, enacted Provincial Ordinance
No. 01-92, made effective January 1, 1993, imposing a franchise tax upon all businesses
enjoying a franchise, PLDT included.

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

On January 28, 1998, PLDT, in compliance with the aforementioned Ordinance, paid the
Province of Laguna its local franchise tax liability for the year 1998 in the amount of One
Million Eighty-One Thousand Two Hundred Twelve and 10/100 Pesos (P1,081,212.10).
Prior thereto, Congress, aiming to level the playing field among telecommunication
companies, enacted Republic Act No. 7925, otherwise known as the Public
Telecommunications Policy Act of the Philippines, which took effect on March 16, 1995. To
achieve the legislative intent, Section 23 thereof, also known as the "most-favored
treatment" clause, provides for an equality of treatment in the telecommunications industry,
to wit:
SEC. 23.Equality of Treatment in the Telecommunications Industry Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of the service authorized by the franchise.

Then, on June 2, 1998, the Department of Finance, thru its Bureau of Local Government
Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date
of the Public Telecommunications Policy Act of the Philippines, 6 PLDT, among other
telecommunication companies, became exempt from local franchise tax. Pertinently, the
BLGF ruling reads:
It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a
franchise to install, operate and maintain a telephone system throughout the
Philippine Islands was approved on August 3, 1991. Section 12 of said franchise,
likewise contains the 'in lieu of all taxes' proviso.
In this connection, Section 23 of RA 7929, quoted hereunder, which was approved
on March 1, 1995 provides for the equality of treatment in the telecommunications
industry:
xxx xxx xxx
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a
telecommunications franchise holder becomes automatically covered by the tax
exemption provisions of RA 7925, which took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business
taxes imposable by LGUs under Sections 137 and 143, respectively of
the LGC [Local Government Code], upon the effectivity of RA 7925 on March 16,
1995. However, PLDT shall be liable to pay the franchise and business taxes on its
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

gross receipts realized from January 1, 1992 up to March 15, 1995, during which
period PLDT was not enjoying the 'most favored clause' provision of RA 7025 [sic].

On the basis of the aforequoted ruling, PLDT refused to pay the Province of Laguna its
local franchise tax liability for 1999. And, on December 22, 1999, it even filed with the
Office of the Provincial Treasurer a written claim for refund of the amount it paid as local
franchise tax for 1998.
With no refund having been made, PLDT instituted with the Regional Trial Court at Laguna
a petition therefor against the Province and its Provincial Treasurer, which petition was
thereat docketed as Civil Case No. SC-3953.
In its decision of November 28, 2001, the trial court denied PLDT's petition, thus:
WHEREFORE, the petition is denied. Petitioner PLDT is not exempt from paying
local franchise and business taxes to the Respondent Province. Refund is denied.
For failure to substantiate the claim for exemplary damages and attorneys fees, the
same is likewise denied.
SO ORDERED.

Hence, this recourse by PLDT, faulting the trial court, as follows:


5.01.a.THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONER'S FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED AND
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, TAKING INTO
ACCOUNT THE FRANCHISES OF GLOBE TELECOM INC., (GLOBE) (REPUBLIC
ACT NO. 7229) AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC
ACT NO. 7294), WHICH ARE SPECIAL PROVISIONS AND WERE ENACTED
SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE TAXES
MAY BE IMPOSED ON PETITIONER BY RESPONDENT PROVINCE.
5.01.b.THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF
THE LOCAL GOVERNMENT CODE, WHICH ALLOWS RESPONDENT
PROVINCE TO IMPOSE THE FRANCHISE TAX, AND SECTION 193 THEREOF,
WHICH PROVIDES FOR WITHDRAWAL OF TAX EXEMPTION PRIVILEGES,
ARE NOT APPLICABLE IN THIS CASE.
5.01.c.THE LOWER COURT ERRED IN APPLYING PRINCIPLES OF STATUTORY
CONSTRUCTION THAT TAX EXEMPTIONS ARE DISFAVORED AND IN
HOLDING THAT SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC
TELECOMMUNICATIONS POLICY ACT) DOES NOT SUPPORT PETITIONER'S
POSITION IN THIS CASE.
5.01.d.THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING
OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

PAYMENT OF FRANCHISE AND BUSINESS TAXES IMPOSABLE BY LOCAL


GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.
5.01.e.THE LOWER COURT ERRED IN NOT GRANTING PETITIONER'S CLAIM
FOR TAX REFUND.
5.01.f.THE LOWER COURT ERRED IN DENYING THE PETITION BELOW.

We note, quite interestingly, that except for the particular local government units involved in
the earlier case of PLDT vs. City of Davao 7 and the very recent case of PLDT vs. City of
Bacolod, et al., 8 the arguments presently advanced by petitioner on the issues raised
herein are but a mere reiteration if not repetition of the very same arguments it has already
raised in the two (2) earlier PLDT cases. For sure, the errors presently assigned are
substantially the same as those in Davao and in Bacolod, all of which have been
adequately addressed and passed upon by this Court in its decisions therein as well as in
its en banc Resolution in Davao.

In PLDT vs. City of Davao, and again in PLDT vs. City of Bacolod, et al., this Court has
interpreted Section 23 of Rep. Act No. 7925. There, we ruled that Section 23 does not
operate to exempt PLDT from the payment of franchise tax. We quote what we have said
in Davao and reiterated in Bacolod.
In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress
intended it to operate as a blanket tax exemption to all telecommunications entities.
Applying the rule of strict construction of laws granting tax exemptions and the rule
that doubts should be resolved in favor of municipal corporations in interpreting
statutory provisions on municipal taxing powers, we hold that 23 of R.A. No.
7925 cannot be considered as having amended petitioner's franchise so as to
entitle it to exemption from the imposition of local franchise taxes. Consequently,
we hold that petitioner is liable to pay local franchise taxes in the amount of
P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that
it is not entitled to a refund of taxes paid by it for the period covering the first to the
third quarter of 1998. 9

The Court explains further:


To begin with, tax exemptions are highly disfavored. The reason for this was
explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may
almost be said to be odious to the law. He who claims an exemption must be able
to point to some positive provision of law creating the right. . . As was said by the
Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550),
'The right of taxation is inherent in the State. It is a prerogative essential to the
perpetuity of the government; and he who claims an exemption from the common
86
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

burden must justify his claim by the clearest grant of organic or statute law.' Other
utterances equally or more emphatic come readily to hand from the highest
authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by
Chief Justice Taney, that the right of taxation will not be held to have been
surrendered, 'unless the intention to surrender is manifested by words too plain to
be mistaken.' In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the
Supreme Court of the United States said that the surrender, when claimed, must be
shown by clear, unambiguous language, which will admit of no reasonable
construction consistent with the reservation of the power. If a doubt arises as to the
intent of the legislature, that doubt must be solved in favor of the State. In Erie
Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr.
Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of
the most essential power of taxation by doubtful words. 'It cannot, by ambiguous
language, be deprived of this highest attribute of sovereignty.' In Tennessee vs.
Whitworth (117 U.S., 129, 136), it was said: 'In all cases of this kind the question is
as to the intent of the legislature, the presumption always being against any
surrender of the taxing power.' In Farrington vs. Tennessee and County of
Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: '. . . When exemption is
claimed, it must be shown indubitably to exist. At the outset, every presumption is
against it. A well-founded doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction that the
proposition can be supported.'
The tax exemption must be expressed in the statute in clear language that leaves
no doubt of the intention of the legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority.
xxx xxx xxx
The fact is that the term 'exemption' in 23 is too general. A cardinal rule in
statutory construction is that legislative intent must be ascertained from a
consideration of the statute as a whole and not merely of a particular provision. For,
taken in the abstract, a word or phrase might easily convey a meaning which is
different from the one actually intended. A general provision may actually have a
limited application if read together with other provisions. Hence, a consideration of
the law itself in its entirety and the proceedings of both Houses of Congress is in
order.
xxx xxx xxx
R.A. No. 7925 is thus a legislative enactment designed to set the national policy on
telecommunications and provide the structures to implement it to keep up with the
technological advances in the industry and the needs of the public. The thrust of
the law is to promote gradually the deregulation of the entry, pricing, and operations
of all public telecommunications entities and thus promote a level playing field in
87
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

the telecommunications industry. There is nothing in the language of 23 nor in the


proceedings of both the House of Representatives and the Senate in enacting R.A.
No. 7925 which shows that it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.
What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to
this case: 'When exemption is claimed, it must be shown indubitably to exist. At the
outset, every presumption is against it. A well-founded doubt is fatal to the claim. It
is only when the terms of the concession are too explicit to admit fairly of any other
construction that the proposition can be supported.' In this case, the word
'exemption' in 23 of R.A. No. 7925 could contemplate exemption from certain
regulatory or reporting requirements, bearing in mind the policy of the law. It is
noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did
not base its opinion on 23 but on the fact that the franchises granted to them after
the effectivity of the LGC exempted them from the payment of local franchise and
business taxes.

As before, PLDT argues that because Smart Communications, Inc. (SMART) and Globe
Telecom (GLOBE) under whose respective franchises granted after the effectivity of
the Local Government Code, are exempt from franchise tax, it follows that petitioner is
likewise exempt from the franchise tax sought to be collected by the Province of Laguna,
on the reasoning that the grant of tax exemption to SMART and GLOBE ipso facto applies
to PLDT, consistent with the "most-favored-treatment" clause found in Section 23 of
the Public Telecommunications Policy Act of the Philippines (Rep. Act No. 7925).
Again, there is nothing novel in petitioner's contention. For sure, in Davao, this Court even
adverted to PLDT's similar argument therein, thus:
Finally, it [PLDT] argues that because Smart and Globe are exempt from the
franchise tax, it follows that it must likewise be exempt from the tax being collected
by the City of Davao because the grant of tax exemption to Smart and Globe ipso
facto extended the same exemption to it,

which argument this Court rejected in said case in the following wise:
The acceptance of petitioner's theory would result in absurd consequences. To
illustrate: In its franchise, Globe is required to pay a franchise tax of only one and
one-half percentum (1/2% [sic]) of all gross receipts from its transactions while
Smart is required to pay a tax of three percent (3%) on all gross receipts from
business transacted. Petitioner's theory would require that, to level the playing field,
any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be
extended to all telecommunications companies, including Smart. If, later, Congress
again grants a franchise to another telecommunications company imposing, say,
one percent (1%) franchise tax, then all other telecommunications franchises will
88
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

have to be adjusted to "level the playing field" so to speak. This could not have
been the intent of Congress in enacting Section 23 of Rep. Act 7925. Petitioner's
theory will leave the Government with the burden of having to keep track of all
granted telecommunications franchises, lest some companies be treated unequally.
It is different if Congress enacts a law specifically granting uniform advantages,
favor, privilege, exemption or immunity to all telecommunications entities.

On PLDT's motion for reconsideration in Davao, the Court added in its en banc Resolution
of March 25, 2003, 10 that even as it is a state policy to promote a level playing field in the
communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption
but only to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission:
. . . . The records of Congress are bereft of any discussion or even mention of tax
exemption. To the contrary, what the Chairman of the Committee on Transportation,
Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which
became R.A. No. 7925, were 'equal access clauses' in interconnection
agreements, not tax exemptions. He said:
There is also a need to promote a level playing field in the telecommunications
industry. New entities must be granted protection against dominant carriers through
the encouragement of equitable access charges and equal access clauses in
interconnection agreements and the strict policing of predatory pricing by dominant
carriers. Equal access should be granted to all operators connecting into the
interexchange network. There should be no discrimination against any carrier in
terms of priorities and/or quality of services.
Nor does the term 'exemption' in 23 of R.A. No. 7925 mean tax exemption. The
term refers to exemption from certain regulations and requirements imposed by the
National Telecommunications Commission (NTC). For instance, R.A. No. 7925,
17 provides: 'The Commission shall exempt any specific telecommunications
service from its rate or tariff regulations if the service has sufficient competition to
ensure fair and reasonable rates or tariffs.' Another exemption granted by the law in
line with its policy of deregulation is the exemption from the requirement of securing
permits from the NTC every time a telecommunications company imports
equipment. 11

PLDT's third assigned error has likewise been squarely addressed in the same en
banc Resolution, when the Court rejected PLDT's contention that the "in-lieu-of-all-taxes"
clause does not refer to "tax exemption" but to "tax exclusion" and hence, the strictissimi
juris rule does not apply. The en banc explains that these two terms actually mean the
same thing, such that the rule that tax exemption should be applied in strictissimi
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

juris against the taxpayer and liberally in favor of the government applies equally to tax
exclusions:
Indeed, both in their nature and in their effect there is no difference between tax
exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom
from a charge or burden to which others are subjected. Exclusion, on the other
hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions. Exclusion is thus also an
immunity or privilege which frees a taxpayer from a charge to which others are
subjected. Consequently, the rule that tax exemption should be applied
in strictissimi juris against the taxpayer and liberally in favor of the government
applies equally to tax exclusions. To construe otherwise the 'in lieu of all taxes'
provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23
grants tax exemption because of a similar grant to Globe and Smart. 12

As in Davao, PLDT presently faults the trial court for not giving weight to the ruling of the
BLGF which, to petitioner's mind, is an administrative agency with technical expertise and
mastery over the specialized matters assigned to it. Again, to quote from our ruling
in Davao:
To be sure, the BLGF is not an administrative agency whose findings on questions
of fact are given weight and deference in the courts. The authorities cited by
petitioner pertain to the Court of Tax Appeals, a highly specialized court which
performs judicial functions as it was created for the review of tax cases. In contrast,
the BLGF was created merely to provide consultative services and technical
assistance to local governments and the general public on local taxation, real
property assessment, and other related matters, among others. The question
raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No.
7925. There is, therefore, no basis for claiming expertise for the BLGF that
administrative agencies are said to possess in their respective fields. 13

With the reality that the arguments presently advanced by petitioner are but a mere
reiteration if not a virtual repetition of the very same arguments it has already raised
in Davao and in Bacolod, all of which arguments and submissions have been extensively
addressed and adequately passed upon by this Court in its decisions in said two (2) PLDT
cases, and noting that the instant recourse has not raised any new fresh issue to warrant a
second look, it, too, must have to fall.
WHEREFORE, and on the basis of our consistent ruling in PLDT vs. City of
Davao and PLDT vs. City of Bacolod, et al., the petition is DENIED and the assailed
decision of the trial court AFFIRMED.
With treble costs against petitioner.

IHAcCS

SO ORDERED.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Sandoval-Gutierrez, Corona and Carpio Morales, JJ., concur.


Panganiban, J., took no part. Former counsel of a party.
(PLDT CO., INC. v. PROVINCE OF LAGUNA, ET AL., G.R. No. 151899, [August 16,
2005], 504 PHIL 361-375)
|||

THIRD DIVISION
[G.R. No. 149179. July 15, 2005.]

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

PHILIPPINE
LONG
DISTANCE
TELEPHONE
COMPANY,
INC., petitioner, vs. CITY OF BACOLOD, FLORENTINO T. GUANCO, in
his capacity as the City Treasurer of Bacolod City, and ANTONIO G.
LACZI, in his capacity as the City Legal Officer of Bacolod
City, respondents.
Estelito P. Mendoza for petitioner.
Bacolod City Legal Office for respondents.
SYLLABUS
1. POLITICAL LAW; LOCAL GOVERNMENT; TAXATION; FRANCHISE TAX; REPUBLIC
ACT NO. 7925, SECTION 23 THEREOF; "MOST-FAVORED-TREATMENT" CLAUSE,
CONSTRUED. As we see it, the only question which commends itself for our resolution
is, whether or not Section 23 of Rep. Act No. 7925, also called the "most-favoredtreatment" clause, operates to exempt petitioner PLDT from the payment of franchise tax
imposed by the respondent City of Bacolod. Contrary to petitioner's claim, the issue thus
posed is not one of "first impression" insofar as this Court is concerned. In PLDT vs. City of
Davao, this Court interpreted Section 23 of Rep. Act No. 7925 as not operating to exempt
PLDT from the payment of franchise tax imposed upon it by the City of Davao: In sum, it
does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate
as a blanket tax exemption to all telecommunications entities. Applying the rule of strict
construction of laws granting tax exemptions and the rule that doubts should be resolved in
favor of municipal corporations in interpreting statutory provisions on municipal taxing
powers, we hold that 23 ofR.A. No. 7925 cannot be considered as having amended
petitioner's franchise so as to entitle it to exemption from the imposition of local franchise
taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the
amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and
that it is not entitled to a refund of taxes paid by it for the period covering the first to the
third quarter of 1998.
2. ID.; ID.; ID.; ID.; ID.; GRANT OF TAX EXEMPTION TO SMART AND GLOBE DOES
NOT IPSO FACTO APPLY TO PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
INC. As in City of Davao, supra, petitioner presently argues that because Smart
Communications, Inc. (SMART) and Globe Telecom (GLOBE) under whose respective
franchises granted after the effectivity of the Local Government Code, are exempt from
franchise tax, it follows that petitioner is likewise exempt from the franchise tax sought to be
collected by the City of Bacolod, on the reasoning that the grant of tax exemption to
SMART and GLOBE ipso facto applies to PLDT, consistent with the "most-favored92
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

treatment" clause found in Section 23 of the Public Telecommunications Policy Act of the
Philippines (Rep. Act No. 7925). Again, there is nothing novel in petitioner's contention. In
rejecting PLDT's contention, this Court ruled in City of Davao as follows: The acceptance of
petitioner's theory would result in absurd consequences. To illustrate: In its franchise,
Globe is required to pay a franchise tax of only one and one-half percentum (1/2% [sic] ) of
all gross receipts from its transactions while Smart is required to pay a tax of three percent
(3%) on all gross receipts from business transacted. Petitioner's theory would require that,
to level the playing field, any "advantage, favor, privilege, exemption, or immunity" granted
to Globe must be extended to all telecommunications companies, including Smart. If, later,
Congress again grants a franchise to another telecommunications company imposing, say,
one percent (1%) franchise tax, then all other telecommunications franchises will have to
be adjusted to "level the playing field" so to speak. This could not have been the intent of
Congress in enacting Section 23 of Rep. Act 7925. Petitioner's theory will leave the
Government with the burden of having to keep track of all granted telecommunications
franchises, lest some companies be treated unequally. It is different if Congress enacts a
law specifically granting uniform advantages, favor, privilege, exemption or immunity to all
telecommunications entities.
3. ID.; ID.; ID.; ID.; ID.; DOES NOT REFER TO TAX EXEMPTION BUT ONLY TO
EXEMPTION FROM CERTAIN REGULATIONS AND REQUIREMENTS IMPOSED BY
THE NATIONAL TELECOMMUNICATIONS COMMISSION. On PLDT's motion for
reconsideration in City of Davao, the Court added in its en banc Resolution of March 25,
2003, that even as it is a state policy to promote a level playing field in the communications
industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption but only to
exemption from certain regulations and requirements imposed by the National
Telecommunications Commission: . . . . The records of Congress are bereft of any
discussion or even mention of tax exemption. To the contrary, what the Chairman of the
Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B.
No. 14028, which became R.A. No. 7925, were 'equal access clauses' in interconnection
agreements, not tax exemptions. He said: There is also a need to promote a level playing
field in the telecommunications industry. New entities must be granted protection against
dominant carriers through the encouragement of equitable access charges and equal
access clauses in interconnection agreements and the strict policing of predatory pricing by
dominant carriers. Equal access should be granted to all operators connecting into the
interexchange network. There should be no discrimination against any carrier in terms of
priorities and/or quality of services. Nor does the term 'exemption' in 23 of R.A. No.
7925 mean tax exemption. The term refers to exemption from certain regulations and
requirements imposed by the National Telecommunications Commission (NTC). For
instance, R.A. No. 7925, 17 provides: 'The Commission shall exempt any specific
telecommunications service from its rate or tariff regulations if the service has sufficient
93
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

competition to ensure fair and reasonable rates or tariffs.' Another exemption granted by
the law in line with its policy of deregulation is the exemption from the requirement of
securing permits from the NTC every time a telecommunications company imports
equipment.
4. ID.; ID.; ID.; ID.; ID.; RULE THAT TAX EXEMPTION SHOULD BE APPLIED IN
STRICTISSIMI JURIS AGAINST THE TAXPAYER AND LIBERALLY IN FAVOR OF THE
GOVERNMENT APPLIES EQUALLY TO TAX EXCLUSIONS; TAX EXEMPTION
DISTINGUISHED FROM TAX EXCLUSION. In the same en banc Resolution, the Court
even rejected PLDT's contention that the "in-lieu-of-all-taxes" clause does not refer to "tax
exemption" but to "tax exclusion" and hence, the strictissimi juris rule does not apply,
explaining that these two terms actually mean the same thing, such that the rule that tax
exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of
the government applies equally to tax exclusions. Thus: Indeed, both in their nature and in
their effect there is no difference between tax exemption and tax exclusion. Exemption is
an immunity or privilege; it is freedom from a charge or burden to which others are
subjected. Exclusion, on the other hand, is the removal of otherwise taxable items from the
reach of taxation, e.g., exclusions from gross income and allowable deductions. Exclusion
is thus also an immunity or privilege which frees a taxpayer from a charge to which others
are subjected. Consequently, the rule that tax exemption should be applied in strictissimi
juris against the taxpayer and liberally in favor of the government applies equally to tax
exclusions. To construe otherwise the 'in lieu of all taxes' provision invoked is to be
inconsistent with the theory that R.A. No. 7925, 23 grants tax exemption because of a
similar grant to Globe and Smart.
5. ID.; ID.; ID.; ID.; ID.; THE BUREAU OF LOCAL GOVERNMENT FINANCE IS NOT AN
ADMINISTRATIVE AGENCY WHOSE FINDINGS OF FACT ARE GIVEN WEIGHT AND
DEFERENCE IN COURTS. PLDT likewise argued in said case that the RTC at Davao
City erred in not giving weight to the ruling of the BLGF which, according to petitioner, is an
administrative agency with technical expertise and mastery over the specialized matters
assigned to it. But then again, we held in Davao: To be sure, the BLGF is not an
administrative agency whose findings on questions of fact are given weight and deference
in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a
highly specialized court which performs judicial functions as it was created for the review of
tax cases. In contrast, the BLGF was created merely to provide consultative services and
technical assistance to local governments and the general public on local taxation, real
property assessment, and other related matters, among others. The question raised by
petitioner is a legal question, to wit, the interpretation of 23 of R.A. No. 7925. There is,
therefore, no basis for claiming expertise for the BLGF that administrative agencies are
said to possess in their respective fields.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

DECISION
GARCIA, J :
p

In this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of
Court, petitioner Philippine Long Distance Telephone Company (PLDT), seeks the reversal
and setting aside of the July 23, 2001 decision 1 of the Regional Trial Court at Bacolod
City, Branch 42, dismissing its petition in Civil Case No. 99-10786, an action to declare
petitioner as exempt from the payment of franchise and business taxes sought to be
imposed and collected by the respondent City of Bacolod.
The material facts are not at all disputed:
PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local
and international telecommunications services. On August 24, 1991, the terms and
conditions of its franchise were consolidated under Republic Act No. 7082, 2 Section 12 of
which embodies the so-called "in-lieu-of-all-taxes" clause, whereunder PLDT shall pay a
franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax
shall be "in lieu of all taxes". More specifically, the provision pertinently reads:
SEC. 12.. . . In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the telephone
or other telecommunications businesses transacted under this franchise by the
grantee, its successors or assigns, and the said percentage shall be in lieu of all
taxes on this franchise or earnings thereof. . . . (Italics ours).

Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local
Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof,
grants cities and other local government units the power to impose local franchise tax on
businesses enjoying a franchise, thus:
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.
xxx xxx xxx
SEC. 151.Scope of Taxing Powers. Except as otherwise provided in this Code,
the city, may levy the taxes, fees, and charges which the province or municipality
may impose: Provided, however, That the taxes, fees, and charges levied and
collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

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

By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons,
whether natural or juridical, save those expressly mentioned therein, were withdrawn,
necessarily including those taxes from which PLDT is exempted under the "in-lieu-of-alltaxes" clause in its charter. We quote Section 193:
SEC. 193.Withdrawal of Tax Exemption Privileges. Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

Aiming to level the playing field among telecommunication companies, Congress


enacted Republic Act No. 7925, otherwise known as the Public Telecommunications Policy
Act of the Philippines, which took effect on March 16, 1995. To achieve the legislative
intent, Section 23 thereof, also known as the "most-favored-treatment" clause, provides for
an equality of treatment in the telecommunications industry, thus:
SEC. 23.Equality of Treatment in the Telecommunications Industry. Any
advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of the service authorized by the franchise.

In August 1995, the City of Bacolod, invoking its authority under Section 137, in relation to
Section 151 and Section 193, supra, of the Local Government Code, made an assessment
on PLDT for the payment of franchise tax due the City.
Complying therewith, PLDT began paying the City franchise tax from the year 1994 until
the third quarter of 1998, at which time the total franchise tax it had paid the City already
amounted to P2,770, 696.37.
aTcSID

On June 2, 1998, the Department of Finance through its Bureau of Local Government
Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date
of the Public Telecommunications Policy Act of the Philippines(Rep. Act. No. 7925), PLDT,
among other telecommunication companies, became exempt from local franchise tax.
Pertinently, the BLGF ruling reads:
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

It appears that RA 7082 further amending ACT No. 3436 which granted to PLDT a
franchise to install, operate and maintain a telephone system throughout the
Philippine Islands was approved on August 3, 1991. Section 12 of said franchise,
likewise, contains the 'in lieu of all taxes' proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was approved
on March 1, 1995 provides for the equality of treatment in the telecommunications
industry:
xxx xxx xxx
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a
telecommunications franchise holder becomes automatically covered by the tax
exemption provisions of RA 7925, which took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business
taxes imposable by LGUs under Sections 137 and 143, respectively, of
the LGC [Local Government Code], upon the effectivity of RA 7925 on March 16,
1995. However, PLDT shall be liable to pay the franchise and business taxes on its
gross receipts realized from January 1, 1992 up to March 15, 1995, during which
period PLDT was not enjoying the 'most favored clause' proviso of RA 7025 [sic]. 3

Invoking the aforequoted ruling, PLDT then stopped paying local franchise and business
taxes to Bacolod City starting the fourth quarter of 1998.
The controversy came to a head-on when, sometime in 1999, PLDT applied for the
issuance of a Mayor's Permit but the City of Bacolod withheld issuance thereof pending
PLDT's payment of its franchise tax liability in the following amounts: (1) P358,258.30 for
the fourth quarter of 1998; and (b) P1,424,578.10 for the year 1999, all in the aggregate
amount of P1,782,836.40, excluding surcharges and interest, about which PLDT was duly
informed by the City Treasurervia a 5th Indorsement dated March 16, 1999 for PLDT's
"appropriate action". 4
In time, PLDT filed a protest 5 with the Office of the City Legal Officer, questioning the
assessment and at the same time asking for a refund of the local franchise taxes it paid in
1997 until the third quarter of 1998.
In a reply-letter dated March 26, 1999, 6 City Legal Officer Antonio G. Laczi denied the
protest and ordered PLDT to pay the questioned assessment.
Hence, on May 14, 1999, in the Regional Trial Court at Bacolod City, PLDT filed its
petition 7 in Civil Case No. 99-10786, therein praying for a judgment declaring it as exempt
from the payment of local franchise and business taxes; ordering the respondent City to
henceforth cease and desist from assessing and collecting said taxes; directing the City to
issue the Mayor's Permit for the year 1999; and requiring it to refund the amount of
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

P2,770,606.37, allegedly representing overpaid franchise taxes for the years 1997 and
1998 with interest until fully paid.
In time, the respondent City filed its Answer/Comment to the petition, 8 basically
maintaining that Section 137 of the Local Government Code remains as the operative law
despite the enactment of the Public Telecommunications Policy Act of the Philippines (Rep.
Act No. 7925), and accordingly prayed for the dismissal of the petition.
In the ensuing pre-trial conference, the parties manifested that they would not present any
testimonial evidence, and merely requested for time to file their respective memoranda, to
which the trial court acceded.
Eventually, in the herein assailed decision dated July 23, 2001, 9 the trial court dismissed
PLDT's petition, thus:
WHEREFORE, premises considered, the petition should be, as it is hereby
DISMISSED. No costs.
SO ORDERED.

Therefrom, PLDT came to this Court via the present recourse, imputing the following errors
on the part of the trial court:
5.01.a.THE LOWER COURT ERRED IN SUSTAINING RESPONDENTS'
POSITION THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH,
IN RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO
IMPOSE THE FRANCHISE TAX, IS APPLICABLE IN THIS CASE.
5.01.b.THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONER'S FRANCHISE (REPUBLIC ACT NO. 7082), AS AMENDED AND
EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC
TELECOMMUNICATIONS POLICY ACT), TAKING INTO ACCOUNT THE
FRANCHISES OF GLOBE TELECOM, INC., (GLOBE) (REPUBLIC ACT NO. 7229)
AND SMART COMMUNICATIONS, INC. (SMART) (REPUBLIC ACT NO. 7294),
WHICH WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT
CODE, NO FRANCHISE TAXES MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.

5.01.c.THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE RULING


OF THE DEPARTMENT OF FINANCE, THROUGH ITS BUREAU OF LOCAL
GOVERNMENT FINANCE, THAT PETITIONER IS EXEMPT FROM THE
PAYMENT OF FRANCHISE AND BUSINESS TAXES IMPOSABLE BY LOCAL
GOVERNMENT UNITS UNDER THE LOCAL GOVERNMENT CODE.
5.01.d.THE LOWER COURT ERRED IN DISMISSING THE PETITION BELOW.
98
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

As we see it, the only question which commends itself for our resolution is, whether or not
Section 23 of Rep. Act No. 7925, also called the "most-favored-treatment" clause, operates
to exempt petitioner PLDT from the payment of franchise tax imposed by the respondent
City of Bacolod.
Contrary to petitioner's claim, the issue thus posed is not one of "first impression" insofar
as this Court is concerned. For sure, this is not the first time for petitioner PLDT to invoke
the jurisdiction of this Court on the same question, albeitinvolving another city.
In PLDT vs. City of Davao, 10 this Court has had the occasion to interpret Section 23
of Rep. Act No. 7925. There, we ruled that Section 23 does not operate to exempt PLDT
from the payment of franchise tax imposed upon it by the City of Davao:
In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress
intended it to operate as a blanket tax exemption to all telecommunications entities.
Applying the rule of strict construction of laws granting tax exemptions and the rule
that doubts should be resolved in favor of municipal corporations in interpreting
statutory provisions on municipal taxing powers, we hold that 23 of R.A. No.
7925 cannot be considered as having amended petitioner's franchise so as to
entitle it to exemption from the imposition of local franchise taxes. Consequently,
we hold that petitioner is liable to pay local franchise taxes in the amount of
P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that
it is not entitled to a refund of taxes paid by it for the period covering the first to the
third quarter of 1998. 11

Explains this Court in the same case:


To begin with, tax exemptions are highly disfavored. The reason for this was
explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may
almost be said to be odious to the law. He who claims an exemption must be able
to point to some positive provision of law creating the right . . . As was said by the
Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550),
'The right of taxation is inherent in the State. It is a prerogative essential to the
perpetuity of the government; and he who claims an exemption from the common
burden must justify his claim by the clearest grant of organic or statute law.' Other
utterances equally or more emphatic come readily to hand from the highest
authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said by
Chief Justice Taney, that the right of taxation will not be held to have been
surrendered, 'unless the intention to surrender is manifested by words too plain to
be mistaken.' In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the
Supreme Court of the United States said that the surrender, when claimed, must be
shown by clear, unambiguous language, which will admit of no reasonable
construction consistent with the reservation of the power. If a doubt arises as to the
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

intent of the legislature, that doubt must be solved in favor of the State. In Erie
Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr.
Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of
the most essential power of taxation by doubtful words. 'It cannot, by ambiguous
language, be deprived of this highest attribute of sovereignty.' In Tennessee vs.
Whitworth (117 U.S., 129, 136), it was said: 'In all cases of this kind the question is
as to the intent of the legislature, the presumption always being against any
surrender of the taxing power.' In Farrington vs. Tennessee and County of
Shelby (95 U.S., 379, 686), Mr. Justice Swayne said: '. . . When exemption is
claimed, it must be shown indubitably to exist. At the outset, every presumption is
against it. A well-founded doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction that the
proposition can be supported.'
The tax exemption must be expressed in the statute in clear language that leaves
no doubt of the intention of the legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority.
xxx xxx xxx
The fact is that the term 'exemption' in 23 is too general. A cardinal rule in
statutory construction is that legislative intent must be ascertained from a
consideration of the statute as a whole and not merely of a particular provision. For,
taken in the abstract, a word or phrase might easily convey a meaning which is
different from the one actually intended. A general provision may actually have a
limited application if read together with other provisions. Hence, a consideration of
the law itself in its entirety and the proceedings of both Houses of Congress is in
order.
xxx xxx xxx
R.A. No. 7925 is thus a legislative enactment designed to set the national policy on
telecommunications and provide the structures to implement it to keep up with the
technological advances in the industry and the needs of the public. The thrust of
the law is to promote gradually the deregulation of the entry, pricing, and operations
of all public telecommunications entities and thus promote a level playing field in
the telecommunications industry. There is nothing in the language of 23 nor in the
proceedings of both the House of Representatives and the Senate in enacting R.A.
No. 7925 which shows that it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.
CTEDSI

What this Court said in Asiatic Petroleum Co. v. Llanes applies mutatis mutandis to
this case: 'When exemption is claimed, it must be shown indubitably to exist. At the
outset, every presumption is against it. A well-founded doubt is fatal to the claim. It
100
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

is only when the terms of the concession are too explicit to admit fairly of any other
construction that the proposition can be supported.' In this case, the word
'exemption' in 23 of R.A. No. 7925 could contemplate exemption from certain
regulatory or reporting requirements, bearing in mind the policy of the law. It is
noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did
not base its opinion on 23 but on the fact that the franchises granted to them after
the effectivity of the LGC exempted them from the payment of local franchise and
business taxes.

As in City of Davao, supra, petitioner presently argues that because Smart


Communications, Inc. (SMART) and Globe Telecom (GLOBE) under whose respective
franchises granted after the effectivity of the Local Government Code, are exempt from
franchise tax, it follows that petitioner is likewise exempt from the franchise tax sought to be
collected by the City of Bacolod, on the reasoning that the grant of tax exemption to
SMART and GLOBE ipso facto applies to PLDT, consistent with the "most-favoredtreatment" clause found in Section 23 of the Public Telecommunications Policy Act of the
Philippines (Rep. Act No. 7925).
Again, there is nothing novel in petitioner's contention. In fact, this Court in City of Davao,
even adverted to PLDT's argument therein, thus:
Finally, it [PLDT] argues that because Smart and Globe are exempt from the
franchise tax, it follows that it must likewise be exempt from the tax being collected
by the City of Davao because the grant of tax exemption to Smart and Globe ipso
facto extended the same exemption to it.

In rejecting PLDT's contention, this Court ruled in City of Davao as follows:


The acceptance of petitioner's theory would result in absurd consequences. To
illustrate: In its franchise, Globe is required to pay a franchise tax of only one and
one-half percentum (1/2% [sic]) of all gross receipts from its transactions while
Smart is required to pay a tax of three percent (3%) on all gross receipts from
business transacted. Petitioner's theory would require that, to level the playing field,
any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be
extended to all telecommunications companies, including Smart. If, later, Congress
again grants a franchise to another telecommunications company imposing, say,
one percent (1%) franchise tax, then all other telecommunications franchises will
have to be adjusted to "level the playing field" so to speak. This could not have
been the intent of Congress in enacting Section 23 of Rep. Act 7925. Petitioner's
theory will leave the Government with the burden of having to keep track of all
granted telecommunications franchises, lest some companies be treated unequally.
It is different if Congress enacts a law specifically granting uniform advantages,
favor, privilege, exemption or immunity to all telecommunications entities.

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On PLDT's motion for reconsideration in Davao, the Court added in its en banc Resolution
of March 25, 2003, 12 that even as it is a state policy to promote a level playing field in the
communications industry, Section 23 of Rep. Act No. 7925 does not refer to tax exemption
but only to exemption from certain regulations and requirements imposed by the National
Telecommunications Commission:
. . . . The records of Congress are bereft of any discussion or even mention of tax
exemption. To the contrary, what the Chairman of the Committee on Transportation,
Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No. 14028, which
became R.A. No. 7925, were 'equal access clauses' in interconnection
agreements, not tax exemptions. He said:

There is also a need to promote a level playing field in the telecommunications


industry. New entities must be granted protection against dominant carriers through
the encouragement of equitable access charges and equal access clauses in
interconnection agreements and the strict policing of predatory pricing by dominant
carriers. Equal access should be granted to all operators connecting into the
interexchange network. There should be no discrimination against any carrier in
terms of priorities and/or quality of services.
Nor does the term 'exemption' in 23 of R.A. No. 7925 mean tax exemption. The
term refers to exemption from certain regulations and requirements imposed by the
National Telecommunications Commission (NTC). For instance, R.A. No. 7925, 17
provides: 'The Commission shall exempt any specific telecommunications service
from its rate or tariff regulations if the service has sufficient competition to ensure
fair and reasonable rates or tariffs.' Another exemption granted by the law in line
with its policy of deregulation is the exemption from the requirement of securing
permits from the NTC every time a telecommunications company imports
equipment. 13

In the same en banc Resolution, the Court even rejected PLDT's contention that the "inlieu-of-all-taxes" clause does not refer to "tax exemption" but to "tax exclusion" and hence,
the strictissimi juris rule does not apply, explaining that these two terms actually mean the
same thing, such that the rule that tax exemption should be applied in strictissimi
juris against the taxpayer and liberally in favor of the government applies equally to tax
exclusions. Thus:
Indeed, both in their nature and in their effect there is no difference between tax
exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom
from a charge or burden to which others are subjected. Exclusion, on the other
hand, is the removal of otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions. Exclusion is thus also an
immunity or privilege which frees a taxpayer from a charge to which others are
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

subjected. Consequently, the rule that tax exemption should be applied


in strictissimi juris against the taxpayer and liberally in favor of the government
applies equally to tax exclusions. To construe otherwise the 'in lieu of all taxes'
provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23
grants tax exemption because of a similar grant to Globe and Smart. 14

PLDT likewise argued in said case that the RTC at Davao City erred in not giving weight to
the ruling of the BLGF which, according to petitioner, is an administrative agency with
technical expertise and mastery over the specialized matters assigned to it. But then again,
we held in Davao:
To be sure, the BLGF is not an administrative agency whose findings on questions
of fact are given weight and deference in the courts. The authorities cited by
petitioner pertain to the Court of Tax Appeals, a highly specialized court which
performs judicial functions as it was created for the review of tax cases. In contrast,
the BLGF was created merely to provide consultative services and technical
assistance to local governments and the general public on local taxation, real
property assessment, and other related matters, among others. The question
raised by petitioner is a legal question, to wit, the interpretation of 23 of R.A. No.
7925. There is, therefore, no basis for claiming expertise for the BLGF that
administrative agencies are said to possess in their respective fields. 15

We note, quite interestingly, that apart from the particular local government unit involved in
the earlier case of PLDT vs. Davao, the arguments presently advanced by petitioner on the
issue herein posed are but a mere reiteration if not repetition of the very same arguments it
has already raised in Davao. For sure, the errors presently assigned are substantially the
same as those in Davao, all of which have been adequately addressed and passed upon
by this Court in its decision therein as well as in its en banc resolution in that case.
WHEREFORE, the instant petition is DENIED and the assailed decision dated July 23,
2001 of the lower court AFFIRMED.
Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona and Carpio Morales, JJ., concur.
Panganiban, J., took no part. Former counsel of a party.
|||

(PLDT Co. Inc. v. City of Bacolod, G.R. No. 149179, [July 15, 2005], 502 PHIL 100-115)

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

THIRD DIVISION
[G.R. No. 149110. April 9, 2003.]
NATIONAL
POWER
CORPORATION, petitioner, vs.
CABANATUAN, respondent.

CITY

OF

The Solicitor General for petitioner.


Edgardo G. Villarin and Trese D. Wenceslao for respondent.
SYNOPSIS
Petitioner is a government owned and controlled corporation created under Commonwealth
Act No. 120, as amended. For many years, petitioner sold electric power to the residents of
Cabanatuan City. Pursuant to a 1992 ordinance, the respondent assessed the petitioner a
franchise tax. In refusing to pay the tax assessment, petitioner argued that the respondent
had no authority to impose tax on government entities like itself and that it was a tax
exempt entity by express provisions of law. Hence, respondent filed a collection suit
demanding payment of the assessed tax due alleging that petitioner's exemption from local
taxes has been repealed. The trial court dismissed the case and ruled that the tax
exemption privileges granted to petitioner still subsists. On appeal, the Court of Appeals
reversed the trial court's order. Petitioner's motion for reconsideration was denied by the
appellate court. Hence, this petition for review filed before the Supreme Court.
The Supreme Court denied this petition and affirmed the decision of the Court of Appeals.
According to the Court, one of the most significant provisions of the Local Government
Code (LGC) is the removal of the blanket exclusion of instrumentalities and agencies of the
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

national government from the coverage of local taxation. Although as a general rule, Local
Government Units (LGU) cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e.,
when specific provisions of the LGC authorize the LGU to impose taxes, fees or charges on
the aforementioned entities. In the case at bar, Section 151 in relation to Section 137 of
the LGC clearly authorized the respondent city government to impose on the petitioner the
franchise tax in question.
SYLLABUS
1. TAXATION; TAXES AS THE LIFEBLOOD OF THE GOVERNMENT; CONSTRUED.
Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives
its source from the very existence of the state whose social contract with its citizens obliges
it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate
of promoting the general welfare and well-being of the people.
2. ID.; POWER TO TAX; LOCAL GOVERNMENT UNITS; ENJOY DIRECT AUTHORITY
TO LEVY TAXES, FEES AND OTHER CHARGES PURSUANT TO ARTICLE X, SECTION
5 OF THE CONSTITUTION; RATIONALE. In recent years, the increasing social
challenges of the times expanded the scope of state activity, and taxation has become a
tool to realize social justice and the equitable distribution of wealth, economic progress and
the protection of local industries as well as public welfare and similar objectives. Taxation
assumes even greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes, fees and other charges pursuant to
Article X, Section 5 of the 1987 Constitution, viz: "Section 5. Each Local Government
unit shall have the power to create its own sources of revenue, to levy taxes, fees and
charges subject to such guidelines and limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes, fees and charges shall accrue
exclusively to the Local Governments." This paradigm shift results from the realization that
genuine development can be achieved only by strengthening local autonomy and
promoting decentralization of governance. For a long time, the country's highly centralized
government structure has bred a culture of dependence among local government leaders
upon the national leadership. It has also "dampened the spirit of initiative, innovation and
imaginative resilience in matters of local development on the part of local government
leaders." The only way to shatter this culture of dependence is to give the LGUs a wider
role in the delivery of basic services, and confer them sufficient powers to generate their
own sources for the purpose. To achieve this goal, Section 3 of Article X of the
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

1987 Constitution mandates Congress to enact a local government code that


will, consistent with the basic policy of local autonomy, set the guidelines and limitations to
this grant of taxing powers.
3. ID.; ID.; ID.; CANNOT IMPOSE TAXES, FEES OR CHARGES OF ANY KIND ON THE
NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES AS A RULE;
EXCEPTION. Considered as the most revolutionary piece of legislation on local
autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the
tax base of LGUs to include taxes which were prohibited by previous laws such as the
imposition of taxes on forest products, forest concessionaires, mineral products, mining
operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in
accordance with their needs and capabilities. It does not prescribe graduated fixed rates
but merely specifies the minimum and maximum tax rates and leaves the determination of
the actual rates to the respective sanggunian. One of the most significant provisions of
the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the
national government from the coverage of local taxation. Although as a general rule, LGUs
cannot impose taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, this rule now admits an exception, i.e., when specific provisions of
the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned
entities, viz: "Section 133. Common Limitations on the Taxing Powers of the Local
Government Units Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following: . . . (o) Taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units."
4. MERCANTILE LAW; FRANCHISE; DEFINED AND CONSTRUED. In its general
signification, a franchise is a privilege conferred by government authority, which does not
belong to citizens of the country generally as a matter of common right. In its specific
sense, a franchise may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by virtue of duly
approved articles of incorporation, or a charter pursuant to a special law creating the
corporation. The right under a primary or general franchise is vested in the individuals who
compose the corporation and not in the corporation itself. On the other hand, the latter
refers to the right or privileges conferred upon an existing corporation such as the right to
use the streets of a municipality to lay pipes of tracks, erect poles or string wires. The rights
under a secondary or special franchise are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to dispose of its
property, except such special or secondary franchises as are charged with a public use.
ISDHcT

5. TAXATION; FRANCHISE TAX IMPOSED UNDER THE LOCAL GOVERNMENT CODE;


REQUISITES. In Section 131 (m) of the LGC, Congress unmistakably defined a
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franchise in the sense of a secondary or special franchise. This is to avoid any confusion
when the word franchise is used in the context of taxation. As commonly used, a franchise
tax is "a tax on the privilege of transacting business in the state and exercising corporate
franchises granted by the state." It is not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its exercise of the rights or privileges
granted to it by the government. Hence, a corporation need not pay franchise tax from the
time it ceased to do business and exercise its franchise. It is within this context that the
phrase "tax on businesses enjoying a franchise" in Section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the
franchise tax in question, the following requisites should concur: (1) that petitioner has a
"franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its
rights or privileges under this franchise within the territory of the respondent city
government. To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the individual stockholders.
6. ID.; TAX EXEMPTION; CONSTRUED STRONGLY AGAINST THE CLAIMANT;
APPLICATION IN CASE AT BAR. As a rule, tax exemptions are construed strongly
against the claimant. Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provisions. In the case at bar, the petitioner's sole refuge is
Section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes,
franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities." However,
Section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges
previously enjoyed by private and public corporations. Contrary to the contention of
petitioner, Section 193 of the LGC is an express, albeit general, repeal of all statutes
granting tax exemptions from local taxes. It reads: "Sec. 193. Withdrawal of Tax Exemption
Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted
to, or presently enjoyed by all persons, whether natural or juridical, including governmentowned 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." It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes
all others as expressed in the familiar maxim expressio unius est exclusio alterius. Not
being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock
and non-profit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of
the LGC that expressly grant it exemption from local taxes.

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7. POLITICAL LAW; GOVERNMENT OWNED AND CONTROLLED CORPORATION;


CONSTRUED. Section 2 of Pres. Decree No. 2029 classifies government-owned or
controlled corporations (GOCCs) into those performing governmental functions and those
performing proprietary functions, viz: "A government-owned or controlled corporation is a
stock or a non-stock corporation, whether performing governmental or proprietary
functions, which is directly chartered by special law or if organized under the general
corporation law is owned or controlled by the government directly, or indirectly through a
parent corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock . . . ." Governmental functions are those pertaining to the
administration of government, and as such, are treated as absolute obligation on the part
of the state to perform while proprietary functions are those that are undertaken only by
way of advancing the general interest of society, and are merely optional on the
government. Included in the class of GOCCs performing proprietary functions are
"business-like" entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the Government
Service Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA),
among others.
DECISION
PUNO, J :
p

This is a petition for review 1 of the Decision 2 and the Resolution 3 of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power
Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan.
CEDScA

Petitioner is a government-owned and controlled corporation created under Commonwealth


Act No. 120, as amended. 4 It is tasked to undertake the "development of hydroelectric
generations of power and the production of electricity from nuclear, geothermal and other
sources, as well as, the transmission of electric power on a nationwide
basis." 5 Concomitant to its mandated duty, petitioner has, among others, the power to
construct, operate and maintain power plants, auxiliary plants, power stations and
substations for the purpose of developing hydraulic power and supplying such power to the
inhabitants. 6
For many years now, petitioner sells electric power to the residents of Cabanatuan City,
posting a gross income of P107,814,187.96 in 1992. 7 Pursuant to Section 37 of Ordinance
No. 165-92, 8 the respondent assessed the petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year. 9
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government, 10 refused to pay the tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner also contended that as a nonprofit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees 11 in accordance with Sec. 13 of Rep. Act No. 6395, as amended, viz:
Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties,
Fees, Imposts and Other Charges by Government and Governmental
Instrumentalities. The Corporation shall be non-profit and shall devote all its
return from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and
in furtherance and effective implementation of the policy enunciated in Section one
of this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service
fees in any court or administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the
National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and projects;
and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of electric
power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City,
demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of
the amount of tax, and 2% monthly interest. 13 Respondent alleged that petitioner's
exemption from local taxes has been repealed by Section 193 of Rep. Act No.
7160, 14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code."
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that
the tax exemption privileges granted to petitioner subsist despite the passage of Rep. Act
No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not
be repealed by Rep. Act No. 7160 which is a general law; (2) Section 193 of Rep. Act No.
7160 is in the nature of an implied repeal which is not favored; and (3) local governments
have no power to tax instrumentalities of the national government. Pertinent portion of the
Order reads:
"The question of whether a particular law has been repealed or not by a
subsequent law is a matter of legislative intent. The lawmakers may expressly
repeal a law by incorporating therein repealing provisions which expressly and
specifically cite(s) the particular law or laws, and portions thereof, that are intended
to be repealed. A declaration in a statute, usually in its repealing clause, that a
particular and specific law, identified by its number or title is repealed is an express
repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160 is an implied
repealing clause because it fails to identify the act or acts that are intended to be
repealed. It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and
repugnancy for the legislative is presumed to know the existing laws on the subject
and not to have enacted inconsistent or conflicting statutes. It is also a well-settled
rule that, generally, general law does not repeal a special law unless it clearly
appears that the legislative has intended by the latter general act to modify or
repeal the earlier special law. Thus, despite the passage of R.A. No. 7160 from
which the questioned Ordinance No. 165-92 was based, the tax exemption
privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court
in the case of Basco vs. Philippine Amusement and Gaming Corporation, 197
SCRA 52, where it was held that:
'Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original charter, PD 1869. All of its shares of stocks are owned by
the National Government. . . . Being an instrumentality of the government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control by mere local
government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an
original charter and its shares of stocks owned by the National Government, is
beyond the taxing power of the Local Government. Corollary to this, it should be
noted here that in the NPC Charter's declaration of Policy, Congress declared that:
'. . . (2) the total electrification of the Philippines through the development of power
from all services to meet the needs of industrial development and dispersal and
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

needs of rural electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (emphasis supplied). To allow
plaintiff to subject defendant to its tax-ordinance would be to impede the avowed
goal of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing
power is limited to that which is provided for in its charter or other statute. Any grant
of taxing power is to be construed strictly, with doubts resolved against its
existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear
that the plaintiff could not impose the subject tax on the defendant." 16

On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that
Section 193, in relation to Sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner. 18 It ordered the petitioner to pay the respondent city
government the following: (a) the sum of P808,606.41 representing the franchise tax due
based on gross receipts for the year 1992, (b) the tax due every year thereafter based in
the gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax
due and unpaid, and (d) the sum of P10,000.00 as litigation expense. 19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's
Decision. This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments
reiterated therein that the taxing power of the province under Art. 137 (sic) of
the Local Government Code refers merely to private persons or corporations in
which category it (NPC) does not belong, and that the LGC (RA 7160) which is a
general law may not impliedly repeal the NPC Charter which is a special law
finds the answer in Section 193 of the LGC to the effect that 'tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations except local water
districts . . . are hereby withdrawn.' The repeal is direct and unequivocal, not
implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED." 20

In this petition for review, petitioner raises the following issues:


"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE
TAX AS IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES ONLY


TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY
THE PROVISION OF THE LOCAL GOVERNMENT CODE AS THE
ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW,
CANNOT BE CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT
AN EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION
SHOULD PREVAIL OVER THE LOCAL GOVERNMENT CODE." 21

It is beyond dispute that the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise,"
pursuant to Section 151 in relation to Section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth
(1/20) of one percent (1%) of the capital investment. In the succeeding calendar
year, regardless of when the business started to operate, the tax shall be based on
the gross receipts for the preceding calendar year, or any fraction thereof, as
provided herein." (emphasis supplied)
xxx xxx xxx
Sec. 151. Scope of Taxing Powers. Except as otherwise provided in this Code,
the city, may levy the taxes, fees, and charges which the province or municipality
may impose: Provided, however, That the taxes, fees and charges levied and
collected by highly urbanized and independent component cities shall accrue to
them and distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed
for the province or municipality by not more than fifty percent (50%) except the
rates of professional and amusement taxes."

Petitioner, however, submits that it is not liable to pay an annual franchise tax to the
respondent city government. It contends that Sections 137 and 151 of the LGC in relation
to Section 131, limit the taxing power of the respondent city government to private entities
that are engaged in trade or occupation for profit. 22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with
public interest which is conferred upon private persons or corporations, under such terms
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

and conditions as the government and its political subdivisions may impose in the interest
of the public welfare, security and safety." From the phraseology of this provision, the
petitioner claims that the word "private" modifies the terms "persons" and "corporations."
Hence, when theLGC uses the term "franchise," petitioner submits that it should refer
specifically to franchises granted to private natural persons and to private
corporations. 23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.
On the other hand, Section 131 (d) of the LGC defines "business" as "trade or commercial
activity regularly engaged in as means of livelihood or with a view to profit." Petitioner
claims that it is not engaged in an activity for profit, in as much as its charter specifically
provides that it is a "non-profit organization." In any case, petitioner argues that the
accumulation of profit is merely incidental to its operation; all these profits are required by
law to be channeled for expansion and improvement of its facilities and services. 24
Petitioner also alleges that it is an instrumentality of the National Government, 25 and as
such, may not be taxed by the respondent city government. It cites the doctrine in Basco
vs. Philippine Amusement and Gaming Corporation 26where this Court held that local
governments have no power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National
Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role
is governmental, which places it in the category of an agency or instrumentality of
the Government. Being an instrumentality of the Government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere local government.
'The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws enacted
by Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local
governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even seriously
burden it from accomplishment of them.' (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics supplied)
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable activities or
enterprise using the power to tax as 'a tool regulation' (U.S. v. Sanchez, 340 US
42).
The power to tax which was called by Justice Marshall as the 'power to destroy'
(Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it." 27

Petitioner contends that Section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A
special law, its charter cannot be amended or modified impliedly by the local government
code which is a general law. Consequently, petitioner claims that its exemption from all
taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored and as much as possible, effect must be given to all
enactments of the legislature. Moreover, it has to be conceded that the charter of
the NPC constitutes a special law. Republic Act No. 7160, is a general law. It is a
basic rule in statutory construction that the enactment of a later legislation which is
a general law cannot be construed to have repealed a special law. Where there is a
conflict between a general law and a special statute, the special statute should
prevail since it evinces the legislative intent more clearly than the general statute. 28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police
power, should prevail over the LGC. It alleges that the power of the local government to
impose franchise tax is subordinate to petitioner's exemption from taxation; "police power
being the most pervasive, the least limitable and most demanding of all powers, including
the power of taxation." 29
The petition is without merit.
Taxes are the lifeblood of the government, 30 for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, 31 the exercise of taxing power derives
its source from the very existence of the state whose social contract with its citizens obliges
it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; 32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well as
public welfare and similar objectives. 33 Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

taxes, fees and other


1987 Constitution, viz:

charges 34 pursuant

to

Article

X,

Section

of

the

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

This paradigm shift results from the realization that genuine development can be achieved
only by strengthening local autonomy and promoting decentralization of governance. For a
long time, the country's highly centralized government structure has bred a culture of
dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local
development on the part of local government leaders." 35 The only way to shatter this
culture of dependence is to give the LGUs a wider role in the delivery of basic services,
and confer them sufficient powers to generate their own sources for the purpose. To
achieve this goal, Section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy,
set the guidelines and limitations to this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide
for a more responsive and accountable local government structure instituted
through a system of decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local
units."

To recall, prior to the enactment of the Rep. Act No. 7160, 36 also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote local
autonomy. These include the Barrio Charter of 1959, 37 theLocal Autonomy Act of
1959, 38 the Decentralization Act of 1967 39 and the Local Government Code of
1983. 40 Despite these initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the same problems that
hamper their capabilities to participate effectively in the national development efforts,
among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources
of income, (c) limited authority to prioritize and approve development projects, (d) heavy
dependence on external sources of income, and (e) limited supervisory control over
personnel of national line agencies. 41
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Considered
as
the
most
revolutionary
piece
of
legislation
on
local
autonomy, 42 the LGC effectively deals with the fiscal constraints faced by LGUs. It widens
the tax base of LGUs to include taxes which were prohibited by previous laws such as the
imposition of taxes on forest products, forest concessionaires, mineral products, mining
operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in
accordance with their needs and capabilities. It does not prescribe graduated fixed rates
but merely specifies the minimum and maximum tax rates and leaves the determination of
the actual rates to the respective sanggunian. 43
One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local
taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any
kind on the National Government, its agencies and instrumentalities, this rule now admits
an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes,
fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the Local Government
Units. Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
xxx xxx xxx
(o) Taxes, fees, or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation 44 relied upon by the petitioner to support its claim no
longer applies. To emphasize, the Basco case was decided prior to the effectivity of
the LGC, when no law empowering the local government units to tax instrumentalities of
the National Government was in effect. However, as this Court ruled in the case of Mactan
Cebu International Airport Authority (MCIAA) vs. Marcos, 45 nothing prevents Congress
from decreeing that even instrumentalities or agencies of the government performing
governmental functions may be subject to tax. 46 In enacting the LGC, Congress exercised
its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after
reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:
"Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that
as a general rule, as laid down in Section 133, the taxing power of local
governments cannot extend to the levy of inter alia, 'taxes, fees and charges of any
kind on the national government, its agencies and instrumentalities, and local
government units'; however, pursuant to Section 232, provinces, cities and
municipalities in the Metropolitan Manila Area may impose the real property tax
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except on,inter alia, 'real property owned by the Republic of the Philippines or any
of its political subdivisions except when the beneficial use thereof has been granted
for consideration or otherwise, to a taxable person as provided in the item (a) of the
first paragraph of Section 12.'" 47

In the case at bar, Section 151 in relation to Section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.
STIEHc

In its general signification, a franchise is a privilege conferred by government authority,


which does not belong to citizens of the country generally as a matter of common
right. 48 In its specific sense, a franchise may refer to a general or primary franchise, or to a
special or secondary franchise. The former relates to the right to exist as a corporation, by
virtue of duly approved articles of incorporation, or a charter pursuant to a special law
creating the corporation. 49 The right under a primary or general franchise is vested in the
individuals who compose the corporation and not in the corporation itself. 50 On the other
hand, the latter refers to the right or privileges conferred upon an existing corporation such
as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string
wires. 51 The rights under a secondary or special franchise are vested in the corporation
and may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary franchises as are
charged with a public use. 52
In Section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of
a secondary or special franchise. This is to avoid any confusion when the word franchise is
used in the context of taxation. As commonly used, afranchise tax is "a tax on the privilege
of transacting business in the state and exercising corporate franchises granted by the
state." 53 It is not levied on the corporation simply for existing as a corporation, upon its
property 54 or its income, 55 but on its exercise of the rights or privileges granted to it by the
government. Hence, a corporation need not pay franchise tax from the time it ceased to do
business and exercise its franchise. 56 It is within this context that the phrase "tax on
businesses enjoying a franchise" in Section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is covered by the franchise tax in
question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act
No. 7395, constitutes petitioner's primary and secondary franchises. It serves as the
petitioner's charter, defining its composition, capitalization, the appointment and the
specific duties of its corporate officers, and its corporate life span. 57 As its secondary
franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following
powers which are not available to ordinary corporations, viz:
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

"xxx xxx xxx


(e) To conduct investigations and surveys for the development of water power in
any part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the
flow of waters from lands of riparian owners and from persons owning or
interested in waters which are or may be necessary for said purposes, upon
payment of just compensation therefor; to alter, straighten, obstruct or
increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof.
Provided, That just compensation shall be paid to any person or persons
whose property is, directly or indirectly, adversely affected or damaged
thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams,
reservoirs, pipes, mains, transmission lines, power stations and substations,
and other works for the purpose of developing hydraulic power from any
river, creek, lake, spring and waterfall in the Philippines and supplying such
power to the inhabitants thereof, to acquire, construct, install, maintain,
operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production
of electric power; to establish, develop, operate, maintain and administer
power and lighting systems for the transmission and utilization of its power
generation; to sell electric power in bulk to (1) industrial enterprises, (2) city,
municipal or provincial systems and other government institutions, (3)
electric cooperatives, (4) franchise holders, and (5) real estate subdivisions .
. .;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and
otherwise dispose of property incident to, or necessary, convenient or proper
to carry out the purposes for which the Corporation was created: Provided,
That in case a right of way is necessary for its transmission lines, easement
of right of way shall only be sought: Provided, however, That in case the
property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch,
flume, street, avenue, highway or railway of private and public ownership, as
the location of said works may require . . .;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner
provided by law for instituting condemnation proceedings by the national,
provincial and municipal governments;
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

xxx xxx xxx


(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the
reservoirs of plants and/or projects constructed or proposed to be
constructed by the Corporation. Upon determination by the Corporation of
the areas required for watersheds for a specific project, the Bureau of
Forestry, the Reforestation Administration and the Bureau of Lands shall,
upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing
private rights, the needs of waterworks systems, and the requirements of
domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt
measures to prevent environmental pollution and promote the conservation,
development and maximum utilization of natural resources . . ." 58

With these powers, petitioner eventually had the monopoly in the generation and
distribution of electricity. This monopoly was strengthened with the issuance of Pres.
Decree No. 40, 59 nationalizing the electric power industry. Although Exec. Order No.
215 60 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city
government's territorial jurisdiction pursuant to the powers granted to it by Commonwealth
Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner
realized a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is,
and ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government, and its charter
characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By virtue of its charter,
petitioner was created as a separate and distinct entity from the National Government. It
can sue and be sued under its own name, 61 and can exercise all the powers of a
corporation under the Corporation Code. 62
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

2029 63 classifies government-owned or controlled corporations (GOCCs) into those


performing governmental functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock
corporation, whether performing governmental or proprietary functions, which
is directly chartered by special law or if organized under the general corporation law
is owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock . . .." (emphases supplied)

Governmental functions are those pertaining to the administration of government, and as


such, are treated as absolute obligation on the part of the state to perform while proprietary
functions are those that are undertaken only by way of advancing the general interest of
society, and are merely optional on the government. 64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the National Steel
Corporation (NSC), the National Development Corporation (NDC), the Social Security
System (SSS), the Government Service Insurance System (GSIS), and the National Water
Sewerage Authority (NAWASA), 65 among others.
caHCSD

Petitioner was created to "undertake the development of hydroelectric generation of power


and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis." 66 Pursuant to this mandate,
petitioner generates power and sells electricity in bulk. Certainly, these activities do not
partake of the sovereign functions of the government. They are purely private and
commercial undertakings, albeit imbued with public interest. The public interest involved in
its activities, however, does not distract from the true nature of the petitioner as a
commercial enterprise, in the same league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply and irrigation companies, gas, coal
or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general
interest of society. 67
A closer reading of its charter reveals that even the legislature treats the character of the
petitioner's enterprise as a "business," although it limits petitioner's profits to twelve percent
(12%), viz: 68
"(n) When essential to the proper administration of its corporate affairs or
necessary for the proper transaction of its business or to carry out the
purposes for which it was organized, to contract indebtedness and issue
bonds subject to approval of the President upon recommendation of the
Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary
to carry out the business and purposes for which it was organized, or which,
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

from time to time, may be declared by the Board to be necessary, useful,


incidental or auxiliary to accomplish the said purpose . . . ."(emphasis
supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent
(60%) of its electricity requirement from the petitioner are likewise imposed the cap of
twelve percent (12%) on profits. 69 The main difference is that the petitioner is mandated to
devote "all its returns from its capital investment, as well as excess revenues from its
operation, for expansion" 70 while other franchise holders have the option to distribute their
profits to its stockholders by declaring dividends. We do not see why this fact can be a
source of difference in tax treatment. In both instances, the taxable entity is the
corporation, which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its
charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provisions. 71 In the
case at bar, the petitioner's sole refuge is Section 13 of Rep. Act No. 6395 exempting from,
among others, "all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities." However, Section 193 of the LGC withdrew, subject to limited exceptions,
the sweeping tax privileges previously enjoyed by private and public corporations. Contrary
to the contention of petitioner, Section 193 of the LGC is an express, albeit general, repeal
of all statutes granting tax exemptions from local taxes. 72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided
in this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code." (emphasis supplied)

It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio
unius est exclusio alterius. 73 Not being a local water district, a cooperative registered
under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution,
petitioner clearly does not belong to the exception. It is therefore incumbent upon the
petitioner to point to some provisions of the LGC that expressly grant it exemption from
local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs
can impose franchise tax "notwithstanding any exemption granted by any law or other
special law." This particular provision of the LGC does not admit any exception. In City
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Government of San Pablo, Laguna v. Reyes, 74 MERALCO's exemption from the payment
of franchise taxes was brought as an issue before this Court. The same issue was involved
in the subsequent case ofManila Electric Company v. Province of Laguna. 75 Ruling in favor
of the local government in both instances, we ruled that the franchise tax in question is
imposable despite any exemption enjoyed by MERALCO under special laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193
of the LGC to support their position that MERALCO's tax exemption has been
withdrawn. The explicit language of Section 137 which authorizes the province to
impose franchise tax 'notwithstanding any exemption granted by any law or other
special law' is all-encompassing and clear. The franchise tax is imposable despite
any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating
that unless otherwise provided in this Code, tax exemptions or incentives granted
to or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit
hospitals and educational institutions, are withdrawn upon the effectivity of this
code, the obvious import is to limit the exemptions to the three enumerated entities.
It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any provision of the
Code to the contrary, and we find no other provision in point, any existing tax
exemption or incentive enjoyed by MERALCO under existing law was clearly
intended to be withdrawn.
Reading together Sections 137 and 193 of the LGC, we conclude that under
the LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter
is clearly manifested by the language used on (sic) Sections 137 and 193
categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been
used." 76 (emphasis supplied).

It is worth mentioning that Section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs. 77 But in enacting
Section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

"notwithstanding any exemption granted by law or other special law," the respondent city
government clearly did not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to governmentowned or controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated
enterprises." 78 With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
are hereby AFFIRMED.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
(National Power Corporation v. City of Cabanatuan, G.R. No. 149110, [April 9, 2003], 449
PHIL 233-262)
|||

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

EN BANC
[G.R. No. L-31156. February 27, 1976.]
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiffappellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL
MAYOR, ET AL., defendants-appellees.
Sabido, Sabido & Associates for plaintiff-appellant.
Assistant Solicitor General Conrado T . Limcaoco and Solicitor Enrique M. Reyes for
defendants-appellees.
SYNOPSIS
Pepsi-Cola Bottling Company of the Philippines, Inc., filed a complaint with preliminary
injunction before the Court of First Instance of Leyte to declare Section 2 of R.A. No. 2264,
(known as the Local Autonomy Act) unconstitutional as an undue delegation of the taxing
authority and declare null and void Municipal Ordinance No. 23, which levies and collects
from soft drinks producers and manufactures a tax of 1/16 of a centavo for every bottle of
soft drinks corked, and Municipal Ordinance No. 27 which levies and collects on soft drinks
produced or manufactured within the territorial jurisdiction a tax of one centavo on each
gallon of volume capacity. The trial court dismissed the complaint and upheld the
constitutionality of Sec. 2 of R.A. No. 2264 and declared Municipal Ordinances Nos. 27
valid and constitutional. Appealed to the Court of Appeals, the case was certified to the
Supreme Court as involving pure question of law.
The Supreme Court upheld the validity of the delegation to Municipal Corporation or
authority to tax and likewise the validity of Municipal Ordinance No. 27, which repealed
Municipal Ordinance No. 23.
SYLLABUS
1. TAXATION; NATURE; NON-DELEGATION OF POWER, EXCEPTION. The power of
taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right
124
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

to every independent government, without being expressly conferred by the people. It is a


power that is purely legislative and which the central legislative body cannot delegate either
to the executive or judicial department of government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. This is sanctioned by immemorial. By
necessary implication, the legislative power to create political corporations for purpose of
local self-government carries with it the power to confer on such local government
agencies the power to tax.
2. ID.; ID.; ID.; SCOPE OF LOCAL GOVERNMENT'S POWER TO TAX. The taxing
authority conferred on local governments under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything, excepting those which are mentioned therein."
As long as the tax levied under the authority of a city or municipal ordinance is not within
the exceptions and limitations in the law, the same comes within the ambit of the general
rule, pursuant to the rules of expresio unius est exclusio alterius, and exceptio firmat
regulum in casibus non excepti. Municipalities are empowered to impose not only municipal
license taxes upon persons engaged in any business or occupation but also to levy for
public purposes, just and uniform taxes.
3. ID.; ID.; ID.; LIMITATION. Municipalities and municipal districts are prohibited to
impose "any percentage tax on sales or other in any form based thereon nor impose taxes
on articles subject to specific tax, except gasoline, under the provisions of the National
Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance
which prescribes a set of radio between the amount of the tax and the volume of sales of
the taxpayer imposes a sales tax and is null and void for being outside the power of the
municipality to enact.
4. ID.; ID.; ID.; DELEGATION OF POWER TO TAX UNDER NEW CONSTITUTION.
Under the New Constitution, local governments are granted autonomous authority to create
their own sources of revenue and to levy taxes. Section 5, Article XI Provides: "Each local
government unit shall have the power to create its sources of revenue and to levy taxes,
subject to such limitations as may be provided by law." Withal, it cannot be said that
Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
5. ID.; ID.; ID.; VALIDITY THEREOF. The plenary nature of the delegated power of local
governments under Section 2, of R.A. No. 2264 would not suffice to invalidate the law as
confiscatory and oppressive. In delegating the authority, the State is not limited to the
measure of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such
measure of power to impose and collect taxes the legislature may deem expedient. Thus,
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

municipalities may be permitted to tax subjects which for reasons of public policy the State
has not deemed wise to tax for more general purposes.
6. ID.; REQUISITES FOR LAWFUL EXERCISE OF TAXING POWER. Constitutional
injunction against deprivation of property without due process of law may not be passed
over under the guise of the taxing power, except when the taking of the property is in the
lawful exercise of the taxing power, as when, (1) the tax is for a public purpose; (2) the rule
on uniformity of taxation observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the assessment and collection of
certain kinds of taxes, notice and opportunity for hearing are provided.
7. ID.; ID.; INSTANCES WHERE DUE PROCESS IS VIOLATED. Due process is usually
violated where the tax imposed is for a private as distinguished from the public purposes; a
tax a imposed on property outside the State, i.e., extra-territorial taxation; and arbitrary or
oppressive methods are used in assessing and collecting taxes. But, a tax does not violate
the due process clause, as applied to a particular taxpayer, although the purpose of the tax
will result in an injury rather than a benefit to such taxpayer. Due process does not require
that the property subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of tax and the manner in
which it shall be apportioned are generally not necessary to due process of law.
8. ID.; DOUBLE TAXATION; GENERALLY NOT FORBIDDEN. The delegated authority
under Section 2 of the Local Autonomy Act cannot be declared unconstitutional on the
theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over local taxation may not be exercised. The reason
is that the State has exclusively reversed the same for its own prerogative. Moreover,
double taxation, in general, is not forbidden by the fundamental law, since the injunction
against double taxation found in the Constitution of the United States and some states of
the Union has not been adopted as part thereof.
9. ID.; ID.; ID.; EXCEPTION. Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by the State
and the other by the city or municipality.
10. ID.; ID.; ID.; INSTANT CASE. Where, as in the case at bar, the municipality of
Tanauan enacted Ordinance No. 27 imposing a tax of one centavo on each gallon of
volume capacity while in the previous Ordinance No. 23, it was 1/16 of a centavo for every
bottle corked, it is clear that the intention of the municipal council was to substitute
Ordinance No. 27 to that of Ordinance No. 23, repealing the latter.
11. ID.; TAX LEVIED ON PRODUCE, NOT PERCENTAGE TAX. The imposition of "a
tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on
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all soft drinks produced or manufactured under Ordinance No. 27 does not partake of a
nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is
levied on the produce (whether sold or not) and not on the sales. The volume capacity of
the taxpayer's production of soft drinks is considered solely for purposes of determining the
tax rate on the products, but there is no set ratio between the volume of sales and the
amount of tax.
12. ID.; ID.; ID.; MUNICIPALITY ALLOWED TO INCREASE TAX AS LONG AS AMOUNT
IS REASONABLE. The tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity of all soft drinks, produced or manufactured or an equivalent of 11/2 centavos per case, cannot be considered unjust and unfair. An increase in the tax
alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the rates of impossible
taxes. This is in line with the constitutional policy of according the widest possible
autonomy to local government in matters of taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973).
13. ID.; SPECIFIC TAXES; ARTICLES SUBJECT TO SPECIFIC TAX. Specific taxes are
those imposed on specified articles, such as distilled spirits, wines, fermented liquors,
products of tobacco other than cigars and cigarettes, matches, firecrackers, manufactured
oils and other fuels, coal bunker fuel oil cinematographic films, playing cards, saccharine,
opium and other habit forming drugs.
FERNANDO, J., concurring:
1. CONSTITUTIONAL LAW; TAXATION; POWER OF MUNICIPAL CORPORATION TO
TAX UNDER THE NEW CONSTITUTION. The present Constitution is quite explicit as to
the power of taxation vested in local and municipal corporations. It is therein specifically
provided: "Each local government unit shall have the power to create its own sources to
revenue and to levy taxes, subject to such limitations as may be provided by law."
2. ID.; ID.; LIMITATION ON POWER TO TAX UNDER THE 1935 CONSTITUTION. The
only limitation on the authority to tax under the 1935 Constitution was that while the
President of the Philippines was vested with the power of control over all executive
departments, bureaus, or offices, he could only "exercise general supervision over all local
governments as may be provided by law." As far as legislative power over local government
was concerned, no restriction whatsoever was placed in the Congress of the Philippines. It
would appear therefore that the extent of the taxing power was solely for the legislative
body to decide.

3. ID.; ID.; MUNICIPAL CORPORATION'S POWER TO TAX MUST BE CLEARLY SHOWN.


Although the scope of municipal taxing power had been enlarged by subsequent
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legislations, the Court, in Golden Ribbon Lumber Co. vs. City of Butuan, L-18534,
December 24, 1964, reaffirmed the traditional concept, thus: "The rule is well-settled that
municipal corporations, unlike sovereign states, are clothed with no power of taxation; that
its charter or a statute must clearly show an intent to confer that power of the municipal
corporation cannot assume and exercise it, and that any such power granted must be
construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved
against the municipality."
4. ID.; ID.; DOUBLE TAXATION. The objection to the taxation as double may be laid
down on one side. The 14th Amendment (the due process clause) no more forbids double
taxation than it does doubling the amount of a tax, short of confiscation or proceedings
unconstitutional on other grounds.
DECISION
MARTIN, J :
p

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case
No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as
involving only pure questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June
19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint with preliminary injunction before the Court of
First Instance of Leyte for that Court to declare Section 2 ofRepublic Act No.
2264, 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of
1962, of the Municipality of Tanauan, Leyte, null and void.
aisa dc

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of
which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject
matter and the production tax rates imposed therein are practically the same,
and second that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as
per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions of said Ordinance
No. 27, series of 1962.
LLpr

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
1962, levies and collects "from soft drinks producers and manufacturers a tax of onesixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of
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computing the taxes due, the person, firm, company or corporation producing soft drinks
shall submit to the Municipal Treasurer a monthly report of the total number of bottles
produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962,
levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the
person, firm, company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons produced or
manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax."
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing
the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264];
declaring Ordinances Nos. 23 and 27 valid, legal and constitutional; ordering the plaintiff to
pay the taxes due under the oft-said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act
of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory
and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as


a matter of right to every independent government, without being expressly conferred by
the people. 6 It is a power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of the government without
infringing upon the theory of separation of powers. The exception, however, lies in the case
of municipal corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. 7 This is sanctioned
by immemorial practice. 8 By necessary implication, the legislative power to create political
corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue
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and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the
power to create its sources of revenue and to levy taxes, subject to such limitations as may
be provided by law." Withal, it cannot be said that Section 2 of Republic Act No.
2264 emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's
pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In
delegating the authority, the State is not limited to the exact measure of that which is
exercised by itself. When it is said that the taxing power may be delegated to municipalities
and the like, it is meant that there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted
to tax subjects which for reasons of public policy the State has not deemed wise to tax for
more general purposes. 10 This is not to say though that the constitutional injunction
against deprivation of property without due process of law may be passed over under the
guise of the taxing power, except when the taking of the property is in the lawful exercise of
the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of
taxes notice and opportunity for hearing are provided. 11 Due process is usually violated
where the tax imposed is for a private as distinguished from a public purpose; a tax is
imposed on property outside the State, i.e., extra-territorial taxation; and arbitrary or
oppressive methods are used in assessing and collecting taxes. But, a tax does not violate
the due process clause, as applied to a particular taxpayer, although the purpose of the tax
will result in an injury rather than a benefit to such taxpayer. Due process does not require
that the property subject to the tax or the amount of tax to be raised should be determined
by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in
which it shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may
not be exercised. 13 The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental
law, since We have not adopted as part thereof the injunction against double taxation found
in the Constitution of the United States and some states of the Union. 14 Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same
governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case
where one tax is imposed by the State and the other by the city or municipality. 17

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2. The plaintiff-appellant submits that Ordinance Nos. 23 and 27 constitute double taxation,
because these two ordinances cover the same subject matter and impose practically the
same tax rate. The thesis proceeds from its assumption that both ordinances are valid and
legally enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was
approved on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked, irrespective
of the volume contents of the bottle used. When it was discovered that the producer or
manufacturer could increase the volume contents of the bottle and still pay the same tax
rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,
1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity. The difference between the two ordinances clearly lies in the tax rate of
the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle
corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance
No. 23, and operates as a repeal of the latter, even without words to that effect. 18 Plaintiffappellant in its brief admitted that defendants-appellees are only seeking to enforce
Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought to compel compliance by the plaintiffappellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned
admission shows that only Ordinance No. 27, series of 1962 is being enforced by
defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits
in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance
No. 23 as the provisions of the latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend to
almost "everything, excepting those which are mentioned therein." As long as the tax levied
under the authority of a city or municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of the general rule, pursuant to the
rules of expresio unius est exclusio alterius, and exceptio firmat regulum in casibus non
excepti. 19 The limitation applies, particularly, to the prohibition against municipalities and
municipal districts to impose "any percentage tax on sales or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax, except gasoline, under the
provisions of the National Internal Revenue Code." For purposes of this particular
limitation, a municipal ordinance which prescribes a set ratio between the amount of the
tax and the volume of sales of the taxpayer imposes a sales tax and is null and void for
being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one
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centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft
drinks produced or manufactured under Ordinance No. 27 does not partake of the nature
of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on
the produce (whether sold or not) and not on the sales. The volume capacity of the
taxpayers production of soft drinks is considered solely for purposes of determining the tax
rate on the products, but there is no set ratio between the volume of sales and the amount
of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco
other than cigars and cigarettes, matches, firecrackers, manufactured oils and other fuels,
coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium
and other habit-forming drugs. 22 Soft drink is not one of those specified.
cdphil

3. The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all soft drinks, produced or manufactured, or an equivalent of 1-1/2 centavos
per case, 23 cannot be considered unjust and unfair. 24 An increase in the tax alone would
not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the rates of imposable
taxes. 25 This is in line with the constitutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an aspect that is given
expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable. 27 Reluctance should not deter compliance with an ordinance such as
Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be
realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more
than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on
manufacturers, producers, importers and dealers of soft drinks and/or mineral waters
under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968,
of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance
No. 27. Municipalities are empowered to impose, not only municipal license taxes upon
persons engaged in any business or occupation but also to levy for public purposes, just
and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second
power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise
known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance
No. 27 of the Municipality of Tanauan, Leyte, series of 1962, repealing Municipal
Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against
petitioner-appellant.
cdta

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SO ORDERED.
Castro, C .J ., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma,
Aquino and Concepcion, Jr., JJ ., concur.

Separate Opinions
FERNANDO, J ., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and
comprehensive character. Insofar as it shows adherence to tried and tested concepts of the
law of municipal taxation, I am certainly in agreement. If I limit myself to concurrence in the
result, it is primarily because with the article on Local Autonomy found in the
present Constitution, I feel a sense of reluctance in restating doctrines that arose from a
different basic premise as to the scope of such power in accordance with the 1935 Charter.
Nonetheless, it is well-nigh unavoidable that I do so as I am unable to share fully what for
me are the nuances and implications that could arise from the approach taken by my
brethren. Likewise as to the constitutional aspect of the thorny question of double taxation,
I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and
municipal corporations. It is therein specifically provided: "Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such
limitations as may be provided by law." 2 That was not the case under the 1935 Charter.
The only limitation then on the authority, plenary in character of the national government,
was that while the President of the Philippines was vested with the power of control over all
executive departments, bureaus, or offices, he could only "exercise general supervision
over all local governments as may be provided by law . . ." 3 As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the
Congress of the Philippines. It would appear therefore that the extent of the taxing power
was solely for the legislative body to decide. It is true that in 1939, there was a statute that
enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence
was further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of
1964, five years after its enactment of the Local Autonomy Act, this Court, through Justice
Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept
in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, are clothed with no power of taxation; that its charter or a statute must clearly show
an intent to confer that power or the municipal corporation cannot assume and exercise it;
and that any such power granted must be construed strictly, any doubt or ambiguity arising
from the terms of the grant to be resolved against the municipality." 7 Taxation, according to
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Justice Paredes in the earlier case of Tan v. Municipality of Pagbilao, 8"is an attribute of
sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as
to weakness of a claim "based merely by inferences, implications and deductions [as they]
have no place in the interpretation of the power to tax of a municipal corporation." 10 As the
conclusion reached by the Court finds support in such grant of the municipal taxing power,
I concur in the result.
LLjur

2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on
the doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus "As to why
double taxation is not violative of due process, Justice Holmes made clear in this language:
'The objection to the taxation as double may be laid down on one side. . . . The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling
the amount of a tax, short of confiscation or proceedings unconstitutional on other
grounds.' With that decision rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a persuasive effect. To some, it
delivered the coup de grace to the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the United States, as with us, its
ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision,
however, we quoted with approval this excerpt from a leading American decision: 'Where,
as here, Congress has clearly expressed its intention, the statute must be sustained even
though double taxation results.'" 12
So I would view the issues in this suit and accordingly concur in the result.
(Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R. No. L31156, [February 27, 1976], 161 PHIL 591-611)
|||

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SECOND DIVISION
[G.R. No. 154993. October 25, 2005.]
LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI
CITY, petitioner, vs.
BA
LEPANTO
CONDOMINIUM
CORPORATION, respondent.
DECISION
TINGA, J :
p

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of
this Court two novel questions: one procedural, the other substantive, yet both of obvious
significance. The first pertains to the proper mode of judicial review undertaken from
decisions of the regional trial courts resolving the denial of tax protests made by local
government treasurers, pursuant to the Local Government Code. The second is whether a
local government unit can, under the Local Government Code, impel a condominium
corporation to pay business taxes. 1
While we agree with the City Treasurer's position on the first issue, there ultimately is
sufficient justification for the Court to overlook what is essentially a procedural error. We
uphold respondents on the second issue. Indeed, there are disturbing aspects in both
procedure and substance that attend the attempts by the City of Makati to flex its taxing
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

muscle. Considering that the tax imposition now in question has utterly no basis in law,
judicial relief is imperative. There are fewer indisputable causes for the exercise of judicial
review over the exercise of the taxing power than when the tax is based on whim, and not
on law.
The facts, as culled from the record, follow.
Respondent BA-Lepanto Condominium Corporation (the "Corporation") is a duly organized
condominium corporation constituted in accordance with the Condominium Act, 2 which
owns and holds title to the common and limited common areas of the BA-Lepanto
Condominium (the "Condominium"), situated in Paseo de Roxas, Makati City. Its
membership comprises the various unit owners of the Condominium. The Corporation is
authorized, under Article V of its Amended By-Laws, to collect regular assessments from
its members for operating expenses, capital expenditures on the common areas, and other
special assessments as provided for in the Master Deed with Declaration of Restrictions of
the Condominium.
On 15 December 1998, the Corporation received a Notice of Assessment dated 14
December 1998 signed by the City Treasurer. The Notice of Assessment stated that the
Corporation is "liable to pay the correct city business taxes, fees and charges," computed
as totaling P1,601,013.77 for the years 1995 to 1997. 3 The Notice of Assessment was
silent as to the statutory basis of the business taxes assessed.
ACDIcS

Through counsel, the Corporation responded with a written tax protest dated 12 February
1999, addressed to the City Treasurer. It was evident in the protest that the Corporation
was perplexed on the statutory basis of the tax assessment.
With due respect, we submit that the Assessment has no basis as the Corporation
is not liable for business taxes and surcharges and interest thereon, under the
Makati [Revenue] Code or even under the [Local Government] Code.
The Makati [Revenue] Code and the [Local Government] Code do not contain any
provisions on which the Assessment could be based. One might argue that Sec.
3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or
operators of any business not specified in the said code. We submit, however, that
this is not applicable to the Corporation as the Corporation is not an owner or
operator of any business in the contemplation of the Makati [Revenue] Code and
even the [Local Government] Code. 4

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati
Revenue Code, the Corporation proceeded to argue that under both the Makati Code and
the Local Government Code, "business" is defined as "trade or commercial activity
regularly engaged in as a means of livelihood or with a view to profit." It was submitted that
the Corporation, as a condominium corporation, was organized not for profit, but to hold
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title over the common areas of the Condominium, to manage the Condominium for the unit
owners, and to hold title to the parcels of land on which the Condominium was located.
Neither was the Corporation authorized, under its articles of incorporation or by-laws to
engage in profit-making activities. The assessments it did collect from the unit owners were
for capital expenditures and operating expenses. 5
The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted
that the collection of dues from the unit owners was effected primarily "to sustain and
maintain the expenses of the common areas, with the end in view [sic] of getting full
appreciative living values [sic] for the individual condominium occupants and to command
better marketable [sic] prices for those occupants" who would in the future sell their
respective units. 6 Thus, she concluded since the "chances of getting higher prices for wellmanaged common areas of any condominium are better and more effective that
condominiums with poor [sic] managed common areas," the corporation activity "is a profit
venture making [sic]". 7
From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court
(RTC) of Makati. 8 On 1 March 2000, the Makati RTC Branch 57 rendered
a Decision 9 dismissing the appeal for lack of merit. Accepting the premise laid by the City
Treasurer, the RTC acknowledged, in sadly risible language:
Herein appellant, to defray the improvements and beautification of the common
areas, collect [sic] assessments from its members. Its end view is to get appreciate
living rules for the unit owners [sic], to give an impression to outsides [sic] of the
quality of service the condominium offers, so as to allow present owners to
command better prices in the event of sale. 10

With this, the RTC concluded that the activities of the Corporation fell squarely under
the definition of "business" under Section 13(b) of the Local Government Code, and
thus subject to local business taxation. 11
From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of
the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed
outright 12 on the ground that only decisions of the RTC brought on appeal from a first level
court could be elevated for review under the mode of review prescribed under Rule
42. 13 However, the Corporation pointed out in its Motion for Reconsideration that under
Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of
the protest filed with the local treasurer is to appeal the denial with the court of competent
jurisdiction. 14 Persuaded by this contention, the Court of Appeals reinstated the petition. 15
On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered
the Decision 16 now assailed before this Court. The appellate court reversed the RTC and
declared that the Corporation was not liable to pay business taxes to the City of
Makati. 17 In doing so, the Court of Appeals delved into jurisprudential definitions of
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profit, 18 and concluded that the Corporation was not engaged in profit. For one, it was held
that the very statutory concept of a condominium corporation showed that it was not a
juridical entity intended to make profit, as its sole purpose was to hold title to the common
areas in the condominium and to maintain the condominium. 19
The Court of Appeals likewise cited provisions from the Corporation's Amended Articles of
Incorporation and Amended By-Laws that, to its estimation, established that the
Corporation was not engaged in business and the assessment collected from unit owners
limited to those necessary to defray the expenses in the maintenance of the common areas
and management the condominium. 20
Upon denial of her Motion for Reconsideration, 21 the City Treasurer elevated the
present Petition for Review under Rule 45. It is argued that the Corporation is engaged in
business, for the dues collected from the different unit owners is utilized towards the
beautification and maintenance of the Condominium, resulting in "full appreciative living
values" for the condominium units which would command better market prices should they
be sold in the future. The City Treasurer likewise avers that the rationale for business taxes
is not on the income received or profit earned by the business, but the privilege to engage
in business. The fact that the Corporation is empowered "to acquire, own, hold, enjoy,
lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or
personal property" allegedly qualifies "as incident to the fact of [the Corporation's] act of
engaging in business. 22
The City Treasurer also claims that the Corporation had filed the wrong mode of appeal
before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is
reasoned that the decision of the Makati RTC was rendered in the exercise of original
jurisdiction, it being the first court which took cognizance of the case. Accordingly, with the
Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to
have become final and executory.
First, we dispose of the procedural issue, which essentially boils down to whether the RTC,
in deciding an appeal taken from a denial of a protest by a local treasurer under Section
195 of the Local Government Code, exercises "original jurisdiction" or "appellate
jurisdiction." The question assumes a measure of importance to this petition, for the
adoption of the position of the City Treasurer that the mode of review of the decision taken
by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision
of the RTC would have long become final and executory by reason of the failure of the
Corporation to file a notice of appeal. 23

There are discernible conflicting views on the issue. The first, as expressed by the Court of
Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises
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appellate jurisdiction. This position is anchored on the language of Section 195 of the Local
Government Code which states that the remedy of the taxpayer whose protest is denied by
the local treasurer is "to appeal with the court of competent jurisdiction." 24 Apparently
though, the Local Government Code does not elaborate on how such "appeal" should be
undertaken.
HAIaEc

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the
RTC is original in character. This is the first time that the position has been presented to the
court for adjudication. Still, this argument does find jurisprudential mooring in our ruling
in Garcia v. De Jesus, 25 where the Court proffered the following distinction between
original jurisdiction and appellate jurisdiction: "Original jurisdiction is the power of the Court
to take judicial cognizance of a case instituted for judicial action for the first time under
conditions provided by law. Appellate jurisdiction is the authority of a Court higher in rank to
re-examine the final order or judgment of a lower Court which tried the case now elevated
for judicial review." 26
The quoted definitions were taken from the commentaries of the esteemed Justice Florenz
Regalado. With the definitions as beacon, the review taken by the RTC over the denial of
the protest by the local treasurer would fall within that court's original jurisdiction. In short,
the review is the initial judicial cognizance of the matter. Moreover, labeling the said review
as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not
the judgment or order of a lower court, but of a local government official.
The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the
1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies
and quasi-judicial tribunals or their officers whose decisions may be reviewed by the Court
of Appeals in the exercise of its appellate jurisdiction. However, the basic law of
jurisdiction, Batas Pambansa Blg. 129 (B.P. 129), 27 ineluctably confers appellate
jurisdiction on the Court of Appeals over final rulings of quasi-judicial agencies,
instrumentalities, boards or commission, by explicitly using the phrase "appellate
jurisdiction." 28 The power to create or characterize jurisdiction of courts belongs to the
legislature. While the traditional notion of appellate jurisdiction connotes judicial review over
lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth
to encompass even review of decisions of officers in the executive branches of
government.
Yet significantly, the Local Government Code, or any other statute for that matter, does not
expressly confer appellate jurisdiction on the part of regional trial courts from the denial of
a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly
delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said
appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit
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Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate
jurisdiction on Regional Trial Courts over rulings made by non-judicial entities.
From these premises, it is evident that the stance of the City Treasurer is correct as a
matter of law, and that the proper remedy of the Corporation from the RTC judgment is an
ordinary appeal under Rule 41 to the Court of Appeals. However, we make this
pronouncement subject to two important qualifications. First, in this particular case there
are nonetheless significant reasons for the Court to overlook the procedural error and
ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in
this case. Second, the doctrinal weight of the pronouncement is confined to cases and
controversies that emerged prior to the enactment of Republic Act No. 9282, the law which
expanded the jurisdiction of the Court of Tax Appeals (CTA).
Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises
exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the
Regional Trial Courts in local tax cases original decided or resolved by them in the exercise
of their originally or appellate jurisdiction. Moreover, the provision also states that the
review is triggered "by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure." 29
Republic Act No. 9282, however, would not apply to this case simply because it arose prior
to the effectivity of that law. To declare otherwise would be to institute a jurisdictional rule
derived not from express statutory grant, but from implication. The jurisdiction of a court to
take cognizance of a case should be clearly conferred and should not be deemed to exist
on mere implications, 30 and this settled rule would be needlessly emasculated should we
declare that the Corporation's position is correct in law.
Be that as it may, characteristic of all procedural rules is adherence to the precept that they
should not be enforced blindly, especially if mechanical application would defeat the higher
ends that animates our civil procedure the just, speedy and inexpensive disposition of
every action and proceeding. 31 Indeed, we have repeatedly upheld and utilized
ourselves the discretion of courts to nonetheless take cognizance of petitions raised on
an erroneous mode of appeal and instead treat these petitions in the manner as they
should have appropriately been filed. 32 The Court of Appeals could very well have treated
the Corporation's petition for review as an ordinary appeal.
cADSCT

Moreover, we recognize that the Corporation's error in elevating the RTC decision for
review via Rule 42 actually worked to the benefit of the City Treasurer. There is wider
latitude on the part of the Court of Appeals to refuse cognizance over a petition for review
under Rule 42 than it would have over an ordinary appeal under Rule 41. Under Section
13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the
transmission of the case records are when the appeal was taken out of time or when the
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docket fees were not paid. 33 On the other hand, Section 6, Rule 42 provides that in order
that the Court of Appeals may allow due course to the petition for review, it must first make
aprima facie finding that the lower court has committed an error that would warrant the
reversal or modification of the decision under review. 34 There is no similar requirement of
a prima facie determination of error in the case of ordinary appeal, which is perfected upon
the filing of the notice of appeal in due time. 35
Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of
having its petition rejected by the Court of Appeals as compared to having filed an ordinary
appeal under Rule 41. This was not an error that worked to the prejudice of the City
Treasurer.
We now proceed to the substantive issue, on whether the City of Makati may collect
business taxes on condominium corporations.
We begin with an overview of the power of a local government unit to impose business
taxes.
The power of local government units to impose taxes within its territorial jurisdiction derives
from the Constitution itself, which recognizes the power of these units "to create its own
sources of revenue and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy." 36 These guidelines and limitations as provided by Congress are in main
contained in the Local Government Codeof 1991 (the "Code"), which provides for
comprehensive instances when and how local government units may impose taxes. The
significant limitations are enumerated primarily in Section 133 of the Code, which include
among others, a prohibition on the imposition of income taxes except when levied on banks
and other financial institutions. 37 None of the other general limitations under Section 133
find application to the case at bar.
IaHCAD

The most well-known mode of local government taxation is perhaps the real property tax,
which is governed by Title II, Book II of the Code, and which bears no application in this
case. A different set of provisions, found under Title I of Book II, governs other taxes
imposable by local government units, including business taxes. Under Section 151 of the
Code, cities such as Makati are authorized to levy the same taxes fees and charges as
provinces and municipalities. It is in Article II, Title II, Book II of the Code, governing
municipal taxes, where the provisions on business taxation relevant to this petition may be
found. 38
Section 143 of the Code specifically enumerates several types of business on which
municipalities and cities may impose taxes. These include manufacturers, wholesalers,
distributors, dealers of any article of commerce of whatever nature; those engaged in the
export or commerce of essential commodities; contractors and other independent
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contractors; banks and financial institutions; and peddlers engaged in the sale of any
merchandise or article of commerce. Moreover, the local sanggunian is also authorized to
impose taxes on any other businesses not otherwise specified under Section 143 which
the sanggunian concerned may deem proper to tax.
The coverage of business taxation particular to the City of Makati is provided by the Makati
Revenue Code ("Revenue Code"), enacted through Municipal Ordinance No. 92-072. The
Revenue Code remains in effect as of this writing. Article A, Chapter III of the Revenue
Code governs business taxes in Makati, and it is quite specific as to the particular
businesses which are covered by business taxes. To give a sample of the specified
businesses under the Revenue Code which are not enumerated under the Local
Government Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt tax:

(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of


Chapter III of this Code, and on owners or operators of business establishments
rendering or offering services such as: advertising agencies; animal hospitals;
assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders;
booking officers for film exchange; booking offices for transportation on commission
basis; breeding of game cocks and other sporting animals belonging to others;
business management services; collecting agencies; escort services; feasibility
studies; consultancy services; garages; garbage disposal contractors; gold and
silversmith shops; inspection services for incoming and outgoing cargoes; interior
decorating services; janitorial services; job placement or recruitment agencies;
landscaping contractors; lathe machine shops; management consultants not
subject to professional tax; medical and dental laboratories; mercantile agencies;
messsengerial services; operators of shoe shine stands; painting shops; perma
press establishments; rent-a-plant services; polo players; school for and/or horseback riding academy; real estate appraisers; real estate brokerages; photostatic,
white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles
and/or tricycles, furniture, shoes, watches, household appliances, boats,
typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for
repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing
shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals
and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational
and other schools not regulated by the Department of Education, Culture and
Sports, (DECS), day care centers; etc. 39

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and
operators 40 , real estate dealers, and lessors of real estate 41 to business taxes.

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Should the comprehensive listing not prove encompassing enough, there is also a catch-all
provision similar to that under the Local Government Code. This is found in Section
3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business not specified above shall pay the tax
at the rate of two percent (2%) for 1993, two and one-half percent (2 1/2%) for
1994 and 1995, and three percent (3%) for 1996 and the years thereafter of the
gross receipts during the preceding year. 42

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer
rely on to make the Corporation liable for business taxes. Even at this point, there already
stands a problem with the City Treasurer's cause of action.
Our careful examination of the record reveals a highly disconcerting fact. At no point has
the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of
Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under
the Makati Revenue Code for the levying of the business tax on petitioner. We have
examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial
proceedings, as well as in this present petition, and also the communications by the City
Treasurer to the Corporation which form part of the record. Nowhere therein is there any
citation made by the City Treasurer of any provision of the Revenue Code which would
serve as the legal authority for the collection of business taxes from condominiums in
Makati.
HSDaTC

Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is
officially made aware of the pending tax liability, should be sufficiently informative to
apprise the taxpayer the legal basis of the tax. Section 195 of theLocal Government
Code does not go as far as to expressly require that the notice of assessment specifically
cite the provision of the ordinance involved but it does require that it state the nature of the
tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this
case, the notice of assessment sent to the Corporation did state that the assessment was
for business taxes, as well as the amount of the assessment. There may have been prima
facie compliance with the requirement under Section 195. However in this case, the
Revenue Code provides multiple provisions on business taxes, and at varying rates.
Hence, we could appreciate the Corporation's confusion, as expressed in its protest, as to
the exact legal basis for the tax. 43 Reference to the local tax ordinance is vital, for the
power of local government units to impose local taxes is exercised through the appropriate
ordinance enacted by thesanggunian, and not by the Local Government
Code alone. 44 What determines tax liability is the tax ordinance, the Local Government
Code being the enabling law for the local legislative body.
Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m)
seems designed as a catch-all provision, Section 3A.02(f), which provides for a different
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tax rate from that of the former provision, may be construed to be of similar import. While
Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under
the provision, the listing, while it does not include condominium-related enterprises, ends
with the abbreviation "etc.", or "et cetera".
We do note our discomfort with the unlimited breadth and the dangerous uncertainty which
are the twin hallmarks of the words "et cetera." Certainly, we cannot be disposed to uphold
any tax imposition that derives its authority from enigmatic and uncertain words such as "et
cetera." Yet we cannot even say with definiteness whether the tax imposed on the
Corporation in this case is based on "et cetera," or on Section 3A.02(m), or on any other
provision of the Revenue Code. Assuming that the assessment made on the Corporation is
on a provision other than Section 3A.02(m), the main legal issue takes on a different
complexion. For example, if it is based on "et cetera" under Section 3A.02(f), we would
have to examine whether the Corporation faces analogous comparison with the other
businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all
through out as to the exact basis for the tax imposition which she wishes that this Court
uphold. Indeed, there is only one thing that prevents this Court from ruling that there has
been a due process violation on account of the City Treasurer's failure to disclose on paper
the statutory basis of the tax that the Corporation itself does not allege injury arising
from such failure on the part of the City Treasurer.
We do not know why the Corporation chose not to put this issue into litigation, though we
can ultimately presume that no injury was sustained because the City Treasurer failed to
cite the specific statutory basis of the tax. What is essential though is that the local
treasurer be required to explain to the taxpayer with sufficient particularity the basis of the
tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved.
In this case, the Corporation seems confident enough in litigating despite the failure of the
City Treasurer to admit on what exact provision of the Revenue Code the tax liability
ensued. This is perhaps because the Corporation has anchored its central argument on
the position that the Local Government Code itself does not sanction the imposition of
business taxes against it. This position was sustained by the Court of Appeals, and now
merits our analysis.
As stated earlier, local tax on businesses is authorized under Section 143 of the Local
Government Code. The word "business" itself is defined under Section 131(d) of the Code
as "trade or commercial activity regularly engaged in as a means of livelihood or with a
view to profit." 45 This definition of "business" takes on importance, since Section 143
allows local government units to impose local taxes on businesses other than those
specified under the provision. Moreover, even those business activities specifically named
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in Section 143 are themselves susceptible to broad interpretation. For example, Section
143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers
in any article of commerce of whatever kind or nature.
IAcDET

It is thus imperative that in order that the Corporation may be subjected to business taxes,
its activities must fall within the definition of business as provided in the Local Government
Code. And to hold that they do is to ignore the very statutory nature of a condominium
corporation.
The creation of the condominium corporation is sanctioned by Republic Act No. 4726,
otherwise known as the Condominium Act. Under the law, a condominium is an interest in
real property consisting of a separate interest in a unit in a residential, industrial or
commercial building and an undivided interest in common, directly or indirectly, in the land
on which it is located and in other common areas of the building. 46 To enable the orderly
administration over these common areas which are jointly owned by the various unit
owners, the Condominium Act permits the creation of a condominium corporation, which is
specially formed for the purpose of holding title to the common area, in which the holders
of separate interests shall automatically be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest of their respective units. 47 The necessity of
a condominium corporation has not gained widespread acceptance 48 , and even is merely
permissible under the Condominium Act. 49 Nonetheless, the condominium corporation has
been resorted to by many condominium projects, such as the Corporation in this case.
In line with the authority of the condominium corporation to manage the condominium
project, it may be authorized, in the deed of restrictions, "to make reasonable assessments
to meet authorized expenditures, each condominium unit to be assessed separately for its
share of such expenses in proportion (unless otherwise provided) to its owner's fractional
interest in any common areas." 50 It is the collection of these assessments from unit owners
that form the basis of the City Treasurer's claim that the Corporation is doing business.
The Condominium Act imposes several limitations on the condominium corporation that
prove crucial to the disposition of this case. Under Section 10 of the law, the corporate
purposes of a condominium corporation are limited to the holding of the common areas,
either in ownership or any other interest in real property recognized by law; to the
management of the project; and to such other purposes as may be necessary, incidental or
convenient to the accomplishment of such purpose. 51 Further, the same provision prohibits
the articles of incorporation or by-laws of the condominium corporation from containing any
provisions which are contrary to the provisions of the Condominium Act, the enabling or
master deed, or the declaration of restrictions of the condominium project. 52
We can elicit from the Condominium Act that a condominium corporation is precluded by
statute from engaging in corporate activities other than the holding of the common areas,
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the administration of the condominium project, and other acts necessary, incidental or
convenient to the accomplishment of such purposes. Neither the maintenance of livelihood,
nor the procurement of profit, fall within the scope of permissible corporate purposes of a
condominium corporation under the Condominium Act.
The Court has examined the particular Articles of Incorporation and By-Laws of the
Corporation, and these documents unmistakably hew to the limitations contained in
the Condominium Act. Per the Articles of Incorporation, the Corporation's corporate
purposes are limited to: (a) owning and holding title to the common and limited common
areas in the Condominium Project; (b) adopting such necessary measures for the
protection and safeguard of the unit owners and their property, including the power to
contract for security services and for insurance coverage on the entire project; (c) making
and adopting needful rules and regulations concerning the use, enjoyment and occupancy
of the units and common areas, including the power to fix penalties and assessments for
violation of such rules; (d) to provide for the maintenance, repair, sanitation, and
cleanliness of the common and limited common areas; (e) to provide and contract for
public utilities and other services to the common areas; (f) to contract for the services of
persons or firms to assist in the management and operation of the Condominium Project;
(g) to discharge any lien or encumbrances upon the Condominium Project; (h) to enforce
the terms contained in the Master Deed with Declaration of Restrictions of the Project; (i) to
levy and collect those assessments as provided in the Master Deed, in order to defray the
costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy, lease
operate and maintain, and to convey, sell transfer, mortgage or otherwise dispose of real or
personal property in connection with the purposes and activities of the corporation; and (k)
to exercise and perform such other powers reasonably necessary, incidental or convenient
to accomplish the foregoing purposes. 53
Obviously, none of these stated corporate purposes are geared towards maintaining a
livelihood or the obtention of profit. Even though the Corporation is empowered to levy
assessments or dues from the unit owners, these amounts collected are not intended for
the incurrence of profit by the Corporation or its members, but to shoulder the multitude of
necessary expenses that arise from the maintenance of the Condominium Project. Just as
much is confirmed by Section 1, Article V of the Amended By-Laws, which enumerate the
particular expenses to be defrayed by the regular assessments collected from the unit
owners. These would include the salaries of the employees of the Corporation, and the
cost of maintenance and ordinary repairs of the common areas. 54
The City Treasurer nonetheless contends that the collection of these assessments and
dues are "with the end view of getting full appreciative living values" for the condominium
units, and as a result, profit is obtained once these units are sold at higher prices. The
Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting
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this contention. First, if any profit is obtained by the sale of the units, it accrues not to the
corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale
of the corporation, the owner is already required to pay capital gains tax on the appreciated
value of the condominium unit. 55
Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every
Makati City car owner may be considered as being engaged in business, since the repairs
or improvements on the car may be deemed oriented towards appreciating the value of the
car upon resale. There is an evident distinction between persons who spend on repairs
and improvements on their personal and real property for the purpose of increasing its
resale value, and those who defray such expenses for the purpose of preserving the
property. The vast majority of persons fall under the second category, and it would be
highly specious to subject these persons to local business taxes. The profit motive in such
cases is hardly the driving factor behind such improvements, if it were contemplated at all.
Any profit that would be derived under such circumstances would merely be incidental, if
not accidental.
Besides, we shudder at the thought of upholding tax liability on the basis of the standard of
"full appreciative living values", a phrase that defies statutory explication, commonsensical
meaning, the English language, or even definition from Google. The exercise of the power
of taxation constitutes a deprivation of property under the due process clause, 56 and the
taxpayer's right to due process is violated when arbitrary or oppressive methods are used
in assessing and collecting taxes. 57 The fact that the Corporation did not fall within the
enumerated classes of taxable businesses under either the Local Government Code or the
Makati Revenue Code already forewarns that a clear demonstration is essential on the part
of the City Treasurer on why the Corporation should be taxed anyway. "Full appreciative
living values" is nothing but blather in search of meaning, and to impose a tax hinged on
that standard is both arbitrary and oppressive.
The City Treasurer also contends that the fact that the Corporation is engaged in business
is evinced by the Articles of Incorporation, which specifically empowers the Corporation "to
acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer
mortgage or otherwise dispose of real or personal property." 58 What the City Treasurer
fails to add is that every corporation organized under the Corporation Code 59 is so
specifically empowered. Section 36(7) of the Corporation Code states that every
corporation incorporated under the Code has the power and capacity "to purchase,
receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property . . . as the transaction of the lawful business of the
corporation may reasonably and necessarily require . . ." 60 Without this power,
corporations, as juridical persons, would be deprived of the capacity to engage in most
meaningful legal relations.
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Again, whatever capacity the Corporation may have pursuant to its power to exercise acts
of ownership over personal and real property is limited by its stated corporate purposes,
which are by themselves further limited by theCondominium Act. A condominium
corporation, while enjoying such powers of ownership, is prohibited by law from transacting
its properties for the purpose of gainful profit.
HSDIaC

Accordingly, and with a significant degree of comfort, we hold that condominium


corporations are generally exempt from local business taxation under the Local
Government Code, irrespective of any local ordinance that seeks to declare otherwise.
Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners
of a condominium would band together to engage in activities for profit under the shelter of
the condominium corporation. 61 Such activity would be prohibited under the Condominium
Act, but if the fact is established, we see no reason why the condominium corporation may
be made liable by the local government unit for business taxes. Even though such activities
would be considered as ultra vires, since they are engaged in beyond the legal capacity of
the condominium corporation 62 , the principle of estoppel would preclude the corporation
or its officers and members from invoking the void nature of its undertakings for profit as a
means of acquitting itself of tax liability.
Still, the City Treasurer has not posited the claim that the Corporation is engaged in
business activities beyond the statutory purposes of a condominium corporation. The
assessment appears to be based solely on the Corporation's collection of assessments
from unit owners, such assessments being utilized to defray the necessary expenses for
the Condominium Project and the common areas. There is no contemplation of business,
no orientation towards profit in this case. Hence, the assailed tax assessment has no basis
under the Local Government Code or the Makati Revenue Code, and the insistence of the
city in its collection of the void tax constitutes an attempt at deprivation of property without
due process of law.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
Puno, Austria-Martinez and Callejo, Sr., JJ., concur.
Chico-Nazario, J., is on leave.
(Yamane v. BA Lepanto Condominium Corp., G.R. No. 154993, [October 25, 2005], 510
PHIL 750-779)
|||

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THIRD DIVISION
[G.R. No. L-36081. April 24, 1989.]
PROGRESSIVE DEVELOPMENT CORPORATION, petitioner, vs. QUEZON
CITY, respondent.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.
SYLLABUS
1.TAXATION: REPUBLIC ACT No. 2264 (LOCAL AUTONOMY ACT); LOCAL
GOVERNMENT UNITS; GRANTED BROAD TAXING POWERS. It is now settled
that Republic Act No. 2264 confers upon local governments broad taxing authority
extending to almost "everything, excepting those which are mentioned therein," provided
that the tax levied is "for public purposes, just and uniform," does not transgress any
constitutional provision and is not repugnant to a controlling statute.
2.ID.; ID.; ID.; CHARTERED CITIES AND MUNICIPALITIES GRANTED POWER TO
IMPOSE TAXES AND LICENSE FEES. The scope of legislative authority conferred
upon the Quezon City Council in respect of businesses like that of the petitioner, is
comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but
also "to tax." Section 2 of Republic Act No. 2264, as amended, otherwise known as
the Local Autonomy Act, provides that: "Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and municipal districts shall have
authority to impose municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licenses at rates fixed by the municipal
board or city council of the city, the municipal council of the municipality, or the municipal
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

district council of the municipal district; to collect fees and charges for service rendered by
the city, municipality or municipal district; to regulate and impose reasonable fees for
services rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise to levy for public
purposes just and uniform taxes licenses or fees: . . ."
3.ID.; ID.; ID.; TAX IMPOSED UNDER CITY ORDINANCE NO. 9236, NOT A TAX ON
INCOME BUT A LICENSE FEE FOR REGULATION OF BUSINESS. The "Farmers
Market & Shopping Center" was built by virtue of Resolution No. 7350 passed on 30
January 1967 by respondents' local legislative body authorizing petitioner to establish and
operate a market with a permit to sell fresh meat, fish, poultry and other foodstuffs. The
same resolution imposed upon petitioner, as a condition for continuous operation, the
obligation to "abide by and comply with the ordinances, rules and regulations prescribed for
the establishment, operation and maintenance of markets in Quezon City." The "Farmers'
Market and Shopping Center" being a public market in the sense of a market open to and
inviting the patronage of the general public, even though privately owned, petitioner's
operation thereof required a license issued by the respondent City, the issuance of which,
applying the standards set forth above, was done principally in the exercise of the
respondent's police power. The operation of a privately owned market is, as correctly noted
by the Solicitor General, equivalent to or quite the same as the operation of a governmentowned market; both are established for the rendition of service to the general public, which
warrants close supervision and control by the respondent City, for the protection of the
health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in
the market, compliance of all food stuffs sold therein with applicable food and drug and
related standards, for the prevention of fraud and imposition upon the buying public, and so
forth. We believe and so hold that the five percent (5%) tax imposed in Ordinance No.
9236 constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the
regulation of the business in which the petitioner is engaged.
4.ID.; ID.; ID.; TAX ORDINANCE PRESUMED REASONABLE AND VALID. While it is
true that the amount imposed by the questioned ordinances may be considered in
determining whether the exaction is really one for revenue or prohibition, instead of one of
regulation under the police power, it nevertheless will be presumed to be reasonable. Local
governments are allowed wide discretion in determining the rates of imposable license fees
even in cases of purely police power measures, in the absence of proof as to particular
municipal conditions and the nature of the business being taxed as well as other detailed
factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates.
Thus: "[A]n ordinance carries with it the presumption of validity. The question of
reasonableness though is open to judicial inquiry. Much should be left thus to the discretion
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

of municipal authorities Courts will go slow in writing off an ordinance as unreasonable


unless the amount is so excessive as to be prohibitory, arbitrary, unreasonable, oppressive,
or confiscatory. A rule which has gained acceptance is that factors relevant to such an
inquiry are the municipal conditions as a whole and the nature of the business made
subject to imposition." Petitioner has not shown that the rate of the gross receipts tax is so
unreasonably large and excessive and so grossly disproportionate to the costs of the
regulatory service being performed by the respondent as to compel the Court to
characterize the imposition as a revenue measure exclusively. The lower court correctly
held that the gross receipts from stall rentals have been used only as a basis for computing
the fees or taxes due respondent to cover the latter's administrative expenses, i.e., for
regulation and supervision of the sale of foodstuffs to the public. The use of the gross
amount of stall rentals as basis for determining the collectible amount of license tax, does
not by itself, upon the one hand, convert or render the license tax into a prohibited city tax
on income. Upon the other hand, it has not been suggested that such basis has no
reasonable relationship to the probable costs of regulation and supervision of the
petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the
higher the aggregate volume of foodstuffs and related items sold in petitioner's privately
owned market; and the higher the volume of goods sold in such private market, the greater
the extent and frequency of inspection and supervision that may be reasonably required in
the interest of the buying public. Moreover, what we started with should be recalled here:
the authority conferred upon the respondent's City Council is not merely "to regulate" but
also embraces the power "to tax" the petitioner's business.
5.ID.; LICENSE FEE, AND TAX DISTINGUISHED. The term "tax" frequently applies to
all kinds of exactions of monies which become public funds. It is often loosely used to
include levies for revenue as well as levies for regulatory purposes such that license fees
are frequently called taxes although license fee is a legal concept distinguishable from tax:
the former is imposed in the exercise of police power primarily for purposes of regulation,
while the latter is imposed under the taxing power primarily for purposes of raising
revenues. Thus, if the generating of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact
that incidentally revenue is also obtained does not make the imposition a tax. To be
considered a license fee, the imposition questioned must relate to an occupation or activity
that so engages the public interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest; the imposition must also
bear a reasonable relation to the probable expenses of regulation, taking into account not
only the costs of direct regulation but also its incidental consequences as well. When an
activity, occupation or profession is of such a character that inspection or supervision by
public officials is reasonably necessary for the safeguarding and furtherance of public
health, morals and safety, or the general welfare, the legislature may provide that such
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

inspection or supervision or other form of regulation shall be carried out at the expense of
the persons engaged in such occupation or performing such activity, and that no one shall
engage in the occupation or carry out the activity until a fee or charge sufficient to cover
the cost of the inspection or supervision has been paid. Accordingly, a charge of a fixed
sum which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of the police power.
6.ID.; LOCAL GOVERNMENT UNITS; NO INHERENT POWER TO TAX. As a general
rule, there must be a statutory grant for a local government unit to impose lawfully a gross
receipts tax, that unit not having the inherent power of taxation. The rule, however, finds no
application in the instant case where what is involved is an exercise of, principally, the
regulatory power of the respondent City and where that regulatory power is expressly
accompanied by the taxing power.
DECISION
FELICIANO, J :
p

On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance
No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section 3
of which provided:
"Sec. 3.Supervision Fee. Privately owned and operated public markets shall
submit monthly to the Treasurer's Office, a certified list of stallholders showing the
amount of stall fees or rentals paid daily by each stallholder, . . . and shall pay 10%
of the gross receipts from stall rentals to the City, . . ., as supervision fee. Failure to
submit said list and to pay the corresponding amount within the period herein
prescribed shall subject the operator to the penalties provided in this Code . . .
including revocation of permit to operate. . . ." 1

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23
March 1972, which reads:
SECTION 1.There is hereby imposed a five percent (5%) tax on gross receipts on
rentals or lease of space in privately-owned public markets in Quezon City.
cdasia

xxx xxx xxx


SECTION 3.For the effective implementation of this Ordinance, owners of privately
owned public markets shall submit . . . a monthly certified list of stallholders of
lessees of space in their markets showing . . .:
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

a.name of stallholder or lessee;


b.amount of rental;
c.period of lease, indicating therein whether the same is on a daily, monthly or
yearly basis.
xxx xxx xxx
SECTION 4.. . . In case of consistent failure to pay the percentage tax for three (3)
consecutive months, the City shall revoke the permit of the privately-owned market
to operate and/or take any other appropriate action or remedy allowed by law for
the collection of the overdue percentage tax and surcharge.
xxx xxx xxx" 2

On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a


public market known as the "Farmers Market & Shopping Center" filed a Petition for
Prohibition with Preliminary Injunction against respondent before the then Court of First
Instance of Rizal on the ground that the supervision fee or license tax imposed by the
above-mentioned ordinances is in reality a tax on income which respondent may not
impose, the same being expressly prohibited by Republic Act No. 2264, as amended.
cda

In its Answer, respondent, through the City Fiscal, contended that it had authority to enact
the questioned ordinances, maintaining that the tax on gross receipts imposed therein is
not a tax on income. The Solicitor General also filed an Answer arguing that petitioner, not
having paid the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had
no personality to question, and was estopped from questioning, its validity; that the tax on
gross receipts was not a tax on income but one imposed for the enjoyment of the privilege
to engage in a particular trade or business which was within the power of respondent to
impose.
LLpr

In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under
protest the five percent (5%) tax under Ordinance No. 9236 for the months of June to
September 1972. Two (2) days later, on 25 September 1972, petitioner moved for judgment
on the pleadings, alleging that the material facts had been admitted by the parties.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned
imposition is not a tax on income, but rather a privilege tax or license fee which local
governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the
present Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross
receipts of stall rentals is properly characterized as partaking of the nature of an income
tax or, alternatively, of a license fee.
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We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known
as the Revised Charter of Quezon City, authorizes the City Council:
"xxx xxx xxx
(b)To provide for the levy and collection of taxes and other city revenues and apply
the same to the payment of city expenses in accordance with appropriations.
(c)To tax, fix the license fee, and regulate the business of the following:
. . . preparation and sale of meat, poultry, fish, game, butter, cheese, lard,
vegetables, bread and other provisions." 4

The scope of legislative authority conferred upon the Quezon City Council in respect of
businesses like that of the petitioner, is comprehensive: the grant of authority is not
only" [to] regulate" and "fix the license fee," but also "to tax." 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:
"Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts by
requiring them to secure licenses at rates fixed by the municipal board or city
council of the city, the municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for service rendered by
the city, municipality or municipal district; to regulate and impose reasonable fees
for services rendered in connection with any business, profession or occupation
being conducted within the city, municipality or municipal district and otherwise to
levy for public purposes just and uniform taxes licenses or fees: . . ." 6

It is now settled that Republic Act No. 2264 confers upon local governments broad taxing
authority extending to almost "everything, excepting those which are mentioned therein,"
provided that the tax levied is "for public purposes, just and uniform," does not transgress
any constitutional provision and is not repugnant to a controlling statute. 7 Both the Local
Autonomy Act and the Charter of respondent clearly show that respondent is authorized to
fix the license fee collectible from and regulate the business of petitioner as operator of a
privately-owned public market.
LexLib

Petitioner, however, insists that the "supervision fee" collected from rentals, being a return
from capital invested in the construction of the Farmers Market, practically operates as a
tax on income, one of those expressly excepted from respondent's taxing authority, and
thus beyond the latter's competence. Petitioner cites the same Section 2 of the Local
Autonomy Act which goes on to state: 8

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". . . Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:
xxx xxx xxx
(g)Taxes on income of any kind whatsoever;'"

The term "tax" frequently applies to all kinds of exactions of monies which become public
funds. It is often loosely used to include levies for revenue as well as levies for regulatory
purposes such that license fees are frequently called taxes although license fee is a legal
concept distinguishable from tax: the former is imposed in the exercise of police power
primarily for purposes of regulation, while the latter is imposed under the taxing power
primarily for purposes of raising revenues. 9 Thus, if the generating of revenue is the
primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that incidentally revenue is also obtained does not make
the imposition a tax. 10
To be considered a license fee, the imposition questioned must relate to an occupation or
activity that so engages the public interest in health, morals, safety and development as to
require regulation for the protection and promotion of such public interest; the imposition
must also bear a reasonable relation to the probable expenses of regulation, taking into
account not only the costs of direct regulation but also its incidental consequences as
well. 11 When an activity, occupation or profession is of such a character that inspection or
supervision by public officials is reasonably necessary for the safeguarding and
furtherance of public health, morals and safety, or the general welfare, the legislature may
provide that such inspection or supervision or other form of regulation shall be carried out
at the expense of the persons engaged in such occupation or performing such activity, and
that no one shall engage in the occupation or carry out the activity until a fee or charge
sufficient to cover the cost of the inspection or supervision has been paid. 13
In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of
Resolution No. 7350 passed on 30 January 1967 by respondents' local legislative body
authorizing petitioner to establish and operate a market with a permit to sell fresh meat,
fish, poultry and other foodstuffs. 14 The same resolution imposed upon petitioner, as a
condition for continuous operation, the obligation to "abide by and comply with the
ordinances, rules and regulations prescribed for the establishment, operation and
maintenance of markets in Quezon City." 15
The "Farmers' Market and Shopping Center" being a public market in the sense of a
market open to and inviting the patronage of the general public, even though privately
owned, petitioner's operation thereof required a license issued by the respondent City, the
issuance of which, applying the standards set forth above, was done principally in the
exercise of the respondent's police power. 16 The operation of a privately owned market is,
157
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

as correctly noted by the Solicitor General, equivalent to or quite the same as the operation
of a government-owned market; both are established for the rendition of service to the
general public, which warrants close supervision and control by the respondent City, 17 for
the protection of the health of the public by insuring, e.g., the maintenance of sanitary and
hygienic conditions in the market, compliance of all food stuffs sold therein with applicable
food and drug and related standards, for the prevention of fraud and imposition upon the
buying public, and so forth.
prcd

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the
regulation of the business in which the petitioner is engaged. While it is true that the
amount imposed by the questioned ordinances may be considered in determining whether
the exaction is really one for revenue or prohibition, instead of one of regulation under the
police power, 18 it nevertheless will be presumed to be reasonable. Local governments are
allowed wide discretion in determining the rates of imposable license fees even in cases of
purely police power measures, in the absence of proof as to particular municipal conditions
and the nature of the business being taxed as well as other detailed factors relevant to the
issue of arbitrariness or unreasonableness of the questioned rates. 19 Thus:

"[A]n ordinance carries with it the presumption of validity. The question of


reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be prohibitory, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is
that factors relevant to such an inquiry are the municipal conditions as a whole and
the nature of the business made subject to imposition." 20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large
and excessive and so grossly disproportionate to the costs of the regulatory service being
performed by the respondent as to compel the Court to characterize the imposition as a
revenue measure exclusively. The lower court correctly held that the gross receipts from
stall rentals have been used only as a basis for computing the fees or taxes due
respondent to cover the latter's administrative expenses, i.e., for regulation and supervision
of the sale of foodstuffs to the public. The use of the gross amount of stall rentals as basis
for determining the collectible amount of license tax, does not by itself, upon the one hand,
convert or render the license tax into a prohibited city tax on income. Upon the other hand,
it has not been suggested that such basis has no reasonable relationship to the probable
costs of regulation and supervision of the petitioner's kind of business. For, ordinarily, the
158
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and
related items sold in petitioner's privately owned market; and the higher the volume of
goods sold in such private market, the greater the extent and frequency of inspection and
supervision that may be reasonably required in the interest of the buying public. Moreover,
what we started with should be recalled here: the authority conferred upon the
respondent's City Council is not merely "to regulate" but also embraces the power "to tax"
the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax
for revenue purposes absent an express grant from the national government. As a general
rule, there must be a statutory grant for a local government unit to impose lawfully a gross
receipts tax, that unit not having the inherent power of taxation. 21 The rule, however, finds
no application in the instant case where what is involved is an exercise of, principally, the
regulatory power of the respondent City and where that regulatory power is expressly
accompanied by the taxing power.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of
merit.
SO ORDERED.
Fernan, C .J ., Gutierrez, Jr., Bidin and Cortes, JJ ., concur.
(Progressive Development Corp. v. Quezon City, G.R. No. L-36081, [April 24, 1989], 254
PHIL 635-647)
|||

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EN BANC
[G.R. No. 118233. December 10, 1999.]
ANTONIO Z. REYES, ELISEO P. OCAMPO and EDITHA ARCIAGASANTOS, petitioners, vs. COURT OF APPEALS, HON. SECRETARY OF
JUSTICE FRANKLIN DRILON and MAYOR JINGGOY ESTRADA (JOSE
EJERCITO) OF THE MUNICIPALITY OF SAN JUAN, METRO
MANILA, respondents.
Ocampo, Arciaga-Santos & Associates for petitioners.
The Solicitor General for respondents.
SYNOPSIS
The Sangguniang Bayan of San Juan, Metro Manila implemented Tax Ordinance Nos. 87,
91, 95, 100 and 101. On May 21, 1993 petitioners filed an appeal with the Department of
Justice assailing the constitutionality of these tax ordinances allegedly because they were
promulgated without previous public hearings thereby constituting deprivation of property
without due process of law. On June 10, 1993, respondent Secretary of Justice dismissed
the appeal for having been filed out of time. Undaunted, petitioners filed with the Court of
Appeals a petition for certiorari and prohibition, but respondent court affirmed the decision
of the Secretary. On December 8, 1994, the motion for reconsideration filed by petitioners
was denied for lack of merit. Hence this petition for review.
TECcHA

The Supreme Court found the petition devoid of merit. The Court ruled that the failure of
petitioners to appeal to the Secretary of Justice within 30 days as required by Section 187
of R.A. 7160 was fatal to their cause because the period stated therein is mandatory.
Petitioners had not proved that the Sangguniang Bayan of San Juan failed to conduct the
required public hearings before the enactment of the tax ordinances. For failing to
discharge the burden of proof, their petition was properly dismissed. Accordingly, the
present petition was dismissed for lack of merit and the assailed decision of the Court of
Appeals was affirmed.
SYLLABUS
1. TAXATION; TAX ORDINANCE; THE LAW REQUIRES THAT A DISSATISFIED
TAXPAYER WHO QUESTIONS THE VALIDITY OR LEGALITY OF A TAX ORDINANCE
MUST FILE HIS APPEAL TO THE SECRETARY OF JUSTICE WITHIN 30 DAYS FROM
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

EFFECTIVITY THEREOF. The law requires that the dissatisfied taxpayer who questions
the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice,
within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period
also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does
not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in
court. These three separate periods are clearly given for compliance as a prerequisite
before seeking redress in a competent court. Such statutory periods are set to prevent
delays as well as enhance the orderly and speedy discharge of judicial functions. For this
reason the courts construe these provisions of statutes as mandatory. A municipal tax
ordinance empowers a local government unit to impose taxes. The power to tax is the most
effective instrument to raise needed revenues to finance and support the myriad activities
of local government units for the delivery of basic services essential to the promotion of the
general welfare and enhancement of peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures would be to the detriment of the
public. It is for this reason that protests over tax ordinances are required to be done within
certain time frames. In the instant case, it is our view that the failure of petitioners to appeal
to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to
their cause.
2. REMEDIAL LAW; EVIDENCE; DISPUTABLE PRESUMPTIONS; PRESUMPTION OF
REGULARITY OF OFFICIAL CONDUCT; REGULARITY OF THE ENACTMENT OF AN
OFFICIALLY PROMULGATED STATUTE OR ORDINANCE MAY NOT BE IMPEACHED BY
PAROL EVIDENCE OR ORAL TESTIMONY EITHER OF INDIVIDUAL OFFICERS OR
MEMBERS OR OF STRANGERS WHO MAY BE INTERESTED IN NULLIFYING
LEGISLATIVE ACTION. We find Figuerres instructive. Petitioners have not proved in the
case before us that the Sangguniang Bayan of San Juan failed to conduct the required
public hearings before the enactment of Ordinance Nos. 87, 91, 95, 100 and 101. Although
the Sanggunian had the control of records or the better means of proof regarding the facts
alleged, petitioners are not relieved from the burden of proving their averments. Proof that
public hearings were not held falls on petitioners' shoulders. For failing to discharge that
burden, their petition was properly dismissed. In any event, for the purpose of securing
certainty where doubt would be intolerable, it is a general rule that the regularity of the
enactment of an officially promulgated statute or ordinance may not be impeached by parol
evidence or oral testimony either of individual officers and members, or of strangers who
may be interested in nullifying legislative action. This rule supplements the presumption in
favor of the regularity of official conduct which we have upheld repeatedly, absent a clear
showing to the contrary.
cIaCTS

RESOLUTION
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QUISUMBING, J :
p

For review is the decision 1 of the Court of Appeals, dated August 3, 1994 and its
resolution 2 dated December 8, 1994 in CA-G.R. SP No. 32473. Said decision dismissed
the prohibition case brought by the petitioners against respondent officials of the
Municipality of San Juan to stop the enforcement of Tax Ordinance Nos. 87, 91, 95, 100
and 101.
cdll

The factual antecedents are as follows:


The Sangguniang Bayan of San Juan, Metro Manila implemented several tax ordinances
as follows:
Ordinance
No. Title
87 An ordinance imposing a municipal tax of fifty percent (50%) of
one percent (1%) of the gross receipt on business of printing
and publication
91 An ordinance imposing a transfer tax equivalent to fifty percent
(50%) of one percent (1%) of the total consideration on the
sale, donation, barter or any other mode of transferring
ownership or title of real property situated in San Juan, Metro
Manila, or its fair market value, whichever is higher
95 An ordinance imposing fifty percent (50%) of one percent of (1%)
for social housing tax on the assessed value of all real estate
property in San Juan, Metro Manila in excess of P50,000.00
value as provided in the New Urban Land Reform Law, also
known as R.A. 7279.
100 An ordinance imposing new rates of business taxes of the
Municipality of San Juan Metro Manila
101 An ordinance levying an annual "Ad Valorem" tax on real
property and an additional tax accruing to the special
education fund (SEF)

On May 21, 1993, petitioners filed an appeal with the Department of Justice assailing the
constitutionality of these tax ordinances allegedly because they were promulgated without
previous public hearings thereby constituting deprivation of property without due process of
law.
On June 10, 1993, respondent Secretary of Justice dismissed the appeal for having been
filed out of time. Citing Section 187, R.A. No. 7160, he said:

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"It appears that the tax ordinances in question took effect on September 24, 1992,
in the case of Tax Ordinance No. 87, until October 22, 1992, in the case of Tax
Ordinance Nos. 91 and 95, and until October 29, 1992, in the case of Tax
Ordinance Nos. 100 and 101, or more than thirty (30) days from the effectivity
thereof when the appeal was filed and received by this Department on May 21,
1993 and therefore not in accordance with the requirements provided for under
Section 187 of the Local Government Code of 1991.
cdll

WHEREFORE, the instant appeal, having been filed out of time, is hereby
DISMISSED." 3

Undaunted, petitioners filed with the Court of Appeals a petition for certiorari and
prohibition (CA-G.R. SP No. 32473). But respondent court affirmed the decision of the
Secretary. On December 8, 1994, the motion for reconsideration filed by the petitioners
was denied for lack of merit.
Hence, the present petition for review, raising the following questions:
"1. Whether or not the questioned tax ordinances are violative of the Constitution,
considering the undisputed fact that no public hearings were ever held on
the ordinances before they were passed and approved as required by
the Local Government Code of 1991, thereby constituting as they do a
deprivation of property without due process;
"2. Whether or not the wording of the law under Section 187 of the Local
Government Code of 1991 that "any question on the constitutionality . . . of
tax ordinance . . . may be raised on appeal within thirty (30) days from the
effectivity thereof . . ." is a reductio ad absurdum, since if the tax ordinance
is found to be unconstitutional, it will be considered as never having become
effective at all from the very beginning, for which reason the thirty-day
appeal period cannot be reckoned and cannot be enforced;
"3. Whether or not the constitutionality of a tax ordinance, or any law for that matter,
can be questioned at any time despite the prescription of a limited period
within which to question it, as in the case at bar; and
"4. Whether or not the constitutionality of an ordinance or a law may be questioned
even if the question of constitutionality may not have been originally or
initially raised, or is not the lis mota of the case, if it appears that a
determination of the question of constitutionality is necessary to a decision
of the case." 4

In our view, the pertinent issues for our resolution now are:
1. Whether or not the Court of Appeals erred in affirming the decision of the
Secretary of Justice who dismissed the prohibition suit, on the ground
that it was filed out of time?
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2. Whether or not lack of mandatory public hearings prior to enacting


Municipal Ordinance Nos. 87, 91, 95, 100 and 101 render them void
on the ground of deprivation of property without due process?
llcd

3. Whether or not the constitutional validity of Sec. 187 of the Local


Government Code could be raised for the first time on appeal?
According to petitioners, respondent Secretary erred in declaring that they failed to file their
appeal on time. Also, they assail Municipal Ordinance Nos. 87, 91, 95, 100 and 101, for
alleged failure of the Municipal Council of San Juan to conduct mandatory public hearings.
Because of this, they claim the ordinances are inoperative, as though they were never
passed. Consequently, no prescriptive thirty-day period to question the validity of the
ordinance could toll to bar their appeal to the Department of Justice.

Sec. 187 of R.A. 7160, cited by respondent Secretary, provides as follows:


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

Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality
of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from
effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is
allowed for an aggrieved party to go to court. But if the Secretary does not act thereon,
after the lapse of 60 days, a party could already proceed to seek relief in court. These
three separate periods are clearly given for compliance as a prerequisite before seeking
redress in a competent court. Such statutory periods are set to prevent delays as well as
enhance the orderly and speedy discharge of judicial functions. 5 For this reason the courts
construe these provisions of statutes as mandatory. 6
A municipal tax ordinance empowers a local government unit to impose taxes. The power
to tax is the most effective instrument to raise needed revenues to finance and support the
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

myriad activities of local government units for the delivery of basic services essential to the
promotion of the general welfare and enhancement of peace, progress, and prosperity of
the people. 7 Consequently, any delay in implementing tax measures would be to the
detriment of the public. It is for this reason that protests over tax ordinances are required to
be done within certain time frames. In the instant case, it is our view that the failure of
petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187
of R.A. 7160 is fatal to their cause.
On the second issue, petitioners allege that the Sangguniang Bayan of San Juan did not
comply with the prescribed procedure for enacting an ordinance because they failed to
conduct public hearings.
cda

In Figuerres vs. Court of Appeals, 8 where the municipality failed to conduct public hearings
prior to enacting the revisions on the schedule of fair market values and assessment level
of classes of real estate properties, the Court said:
"Petitioner is right in contending that public hearings are required to be conducted
prior to the enactment of an ordinance imposing real property taxes. R.A. No. 7160,
Sec. 186, provides that an ordinance levying taxes, fees, or charges 'shall not be
enacted without any prior public hearing conducted for the purpose.'
However, it is noteworthy that apart from her bare assertions, petitioner Figuerres
has not presented any evidence to show that no public hearings were conducted
prior to the enactment of the ordinances in question. On the other hand, the
Municipality of Mandaluyong claims that public hearings were indeed conducted
before the subject ordinances were adopted, although it likewise failed to submit
any evidence to establish this allegation. However, in accordance with the
presumption of validity in favor of an ordinance, their constitutionality or legality
should be upheld in the absence of evidences showing that procedure prescribed
by law was not observed in their enactment. . . .
Furthermore, the lack of a public hearing is a negative allegation essential to
petitioner's cause of action in the present case. Hence, as petitioner is the party
asserting it, she has the burden of proof. Since petitioner failed to rebut the
presumption of validity in favor of the subject ordinances and to discharge the
burden of proving that no public hearings were conducted prior to the enactment
thereof, we are constrained to uphold their constitutionality or legality." 9

We find Figuerres instructive. Petitioners have not proved in the case before us that
the Sangguniang Bayan of San Juan failed to conduct the required public hearings before
the enactment of Ordinance Nos. 87, 91, 95, 100 and 101. Although the Sanggunian had
the control of records or the better means of proof regarding the facts alleged, petitioners
are not relieved from the burden of proving their averments. 10 Proof that public hearings

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

were not held falls on petitioners' shoulders. For failing to discharge that burden, their
petition was properly dismissed.
cdphil

In any event, for the purpose of securing certainty where doubt would be intolerable, it is a
general rule that the regularity of the enactment of an officially promulgated statute or
ordinance may not be impeached by parol evidence or oral testimony either of individual
officers and members, or of strangers who may be interested in nullifying legislative
action. 11 This rule supplements the presumption in favor of the regularity of official conduct
which we have upheld repeatedly, absent a clear showing to the contrary.
Finally, on the validity of Section 187 of R.A. 7160, the Local Government Code, we must
stress that the constitutionality of an act of Congress will not be passed upon by the Court
unless at the first opportunity that question is properly raised and presented in an
appropriate case, and is necessary to a determination of the case, particularly where the
issue of constitutionality is the very lis mota presented. 12 The constitutional validity of a
statutory provision should not be entertained by the Court where it was not specifically
raised below, insisted upon, and adequately argued. 13 Moreover, given the circumstances
in this case, we find no genuine necessity to dwell on the issue of constitutional invalidity of
Section 187 in relation to issue of valid enactment of the subject ordinances, as shown in
the foregoing discussion. Suffice it now to say that, having resolved the first and second
issues, we find no grave abuse of discretion nor reversible error in the decision of the
respondent appellate court. Further constitutional scrutiny of Section 187 is unwarranted.
WHEREFORE, the present petition is DISMISSED for lack of merit and the assailed
decision of the Court of Appeals is AFFIRMED. No pronouncement as to costs.
LLpr

SO ORDERED.
Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Purisima,
Pardo, Buena, Gonzaga-Reyes, Ynares-Santiago and De Leon, Jr., JJ., concur.
(Reyes v. Court of Appeals, G.R. No. 118233 (Resolution), [December 10, 1999], 378
PHIL 232-240)
|||

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SECOND DIVISION
[G.R. No. 118900. February 27, 2003.]
JARDINE DAVIES INSURANCE BROKERS, INC., petitioner, vs. HON.
ERNA ALIPOSA, in her capacity as Presiding Judge of Branch 150 of
the Makati Regional Trial Court, CITY (previously Municipality) OF
MAKATI and ROLANDO M. CARLOS, in his capacity as Acting
Treasurer of Makati, respondents.
Juanito C. Castaeda, Jr., Felipe T. Dumpit & Jose Emmanuel C. Academia for petitioner.
Valero Defante & Nery for private respondents.
SYNOPSIS
On July 5, 1993, the Department of Justice (DOJ), on petition of the Philippine
Racing Club, Inc., declared null and void Municipal Ordinance No. 922-072, otherwise
known as the Makati Revenue Code, which provides, inter alia, for the schedule of real
estate, business and franchise taxes in the Municipality of Makati at rates higher than
those in the Metro Manila Revenue Code. Pending resolution of its motion for
reconsideration of the Resolution of the DOJ, the respondent Makati filed a petition ad
cautelam with the Regional Trial Court of Makati alleging validity of the Ordinance. In
the meantime, respondent Makati continued to implement the ordinance. Petitioner was
assessed and billed by the respondents for taxes, fees and charges under the
ordinance for the second, third, and fourth quarters of 1993. Petitioner paid its quarterly
168
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

business taxes without protest. On January 30, 1994, petitioner requested the
respondent Makati to compute its business tax liabilities in accordance with the Metro
Manila Revenue Code and not under the ordinance considering that it was already
declared by the DOJ null and void. Petitioner asked that it be credited for the amount it
overpaid or to refund its overpayment. When the respondent Makati denied the request,
petitioner filed a complaint with the Regional Trial Court of Makati. The RTC dismissed
the complaint on ground of prescription, holding that petitioner failed to file an
opposition or protest within 60 days from the notice of assessment. Petitioner moved for
reconsideration alleging that it was not required to first file a protest with the respondent
Makati before instituting its action for a refund of its overpayment or for it to be credited
for said overpayments. The motion for reconsideration was, however, denied by the trial
court. Hence, petitioner brought the matter before the Supreme Court.
The Court agreed with the petitioner that as a general precept, a taxpayer may
file a complaint assailing the validity of the ordinance and praying for a refund of its
perceived overpayments without first filing a protest to the payment of taxes due under
the ordinance. However, it held that the petitioner was proscribed from filing its
complaint with the trial court for the reason that petitioner failed to appeal to the
Secretary of Justice within 30 days from the effectivity date of the ordinance as
mandated by Section 187 of the Local Government Code. In Reyes v. Court of Appeals,
the Court ruled that failure of a taxpayer to interpose the requisite appeal to the
Secretary of Justice is fatal to its complaint for a refund. The Court, therefore, denied
the petition.
SYLLABUS
1. POLITICAL LAW; LOCAL GOVERNMENT CODE; LOCAL TAXATION; TAX
ORDINANCE; A TAXPAYER MAY FILE A COMPLAINT ASSAILING THE VALIDITY
THEREOF AND PRAYING FOR A REFUND OF ITS PERCEIVED OVERPAYMENTS
WITHOUT FIRST FILING A PROTEST. The Court agrees with petitioner that as a
general precept, a taxpayer may file a complaint assailing the validity of the ordinance and
praying for a refund of its perceived overpayments without first filing a protest to the
payment of taxes due under the ordinance. This was our ruling in Ty v. Judge Trampe: . . .
Hence, if a taxpayer disputes the reasonableness of an increase in a real estate tax
assessment, he is required to "first pay the tax" under protest. Otherwise, the city or
municipal treasurer will not act on his protest. In the case at bench, however, the petitioners
are questioning the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect the tax. These are
not questions merely of amounts of the increase in the tax but attacks on the very validity
of any increase.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

2. ID.; ID.; ID.; ID.; ANY QUESTION AS TO CONSTITUTIONALITY OR LEGALITY


THEREOF MUST BE RAISED ON APPEAL TO THE SECRETARY OF JUSTICE WITHIN
THIRTY DAYS FROM EFFECTIVITY DATE THEREOF. In this case, petitioner, relying
on the resolution of the Secretary of Justice in The Philippine Racing Club, Inc. v.
Municipality of Makati case, posited in its complaint that the ordinance which was the basis
of respondent Makati for the collection of taxes from petitioner was null and void. However,
the Court agrees with the contention of respondents that petitioner was proscribed from
filing its complaint with the RTC of Makati for the reason that petitioner failed to appeal to
the Secretary of Justice within 30 days from the effectivity date of the ordinance as
mandated by Section 187 of the Local Government Code which reads: Sec. 187
Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. The procedure for approval of local tax ordinances and
revenue measures shall be in accordance with the provisions of this Code: Provided, That
public hearings shall be conducted for the purpose prior to the enactment
thereof: Provided further, That any question on the constitutionality or legality of tax
ordinances or revenue measures may be raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60)
days from the date of receipt of the appeal: Provided, however, That such appeal shall not
have the effect of suspending the effectivity of the ordinance and the accrual and payment
of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice
acting upon the appeal, the aggrieved party may file appropriate proceedings with a court
of competent jurisdiction.
3. ID.; ID.; ID.; ID.; ID.; FAILURE OF A TAXPAYER TO INTERPOSE THE REQUISITE
APPEAL TO THE SECRETARY OF JUSTICE IS FATAL TO ITS COMPLAINT FOR A
REFUND. In Reyes v. Court of Appeals, we ruled that failure of a taxpayer to interpose
the requisite appeal to the Secretary of Justice is fatal to its complaint for a refund: Clearly,
the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax
ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for
an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse
of 60 days, a party could already proceed to seek relief in court. These three separate
periods are clearly given for compliance as a prerequisite before seeking redress in a
competent court. Such statutory periods are set to prevent delays as well as enhance the
orderly and speedy discharge of judicial functions. For this reason the courts construe
these provisions of statutes as mandatory. A municipal tax ordinance empowers a local
government unit to impose taxes. The power to tax is the most effective instrument to raise
needed revenues to finance and support the myriad activities of local government units for
the delivery of basic services essential to the promotion of the general welfare and
170
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

enhancement of peace, progress, and prosperity of the people. Consequently, any delay in
implementing tax measures would be to the detriment of the public. It is for this reason that
protests over tax ordinances are required to be done within certain time frames. In the
instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice
within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.
HEDSIc

DECISION
CALLEJO, SR., J :
p

Pursuant to Republic Act No. 7160, otherwise known as the Local Government Code of
1991, the then Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072,
otherwise known as the Makati Revenue Code, which provides,inter alia, for the schedule
of real estate, business and franchise taxes in the Municipality of Makati at rates higher
than those in the Metro Manila Revenue Code.
On May 10, 1993, the Philippine Racing Club, Inc. ("PRCI" for brevity), a taxpayer of
Makati, appealed to the Department of Justice ("DOJ" for brevity) for the nullification of said
ordinance, alleging that it was approved without previous public hearings, in violation of
the Local Government Code and Article 276 of its Implementing Rules, and that some of
the ordinance's provisions were unconstitutional:
(2) "The 'in-lieu-of-all-taxes' clause of the franchise of the Philippine Racing Club,
Inc. exempts it from payment of the real property tax, annual business tax and
other new taxes imposed by the ordinance here in question. To withdraw the
exemption would impair the obligation of contract in violation of its constitutional
right as franchise holder.
(3) "The imposition of the franchise tax is not within the scope of the taxing powers
of the Municipality of Makati (Sections 134, 137 and 142 of Republic Act No.
7160 and Articles 223, 226 and 231 of Rule XXX of the Implementing Rules and
Regulations of the Local Government Code of 1991), and
(4) "The Municipality of Makati already shares 5 of the 25% franchise tax provided
for in Section 8 of the franchise of the Philippine Racing Club, Inc. To allow the said
municipality to impose another franchise tax and to base the tax on the gross
annual receipts, as it does in the ordinance, would certainly be unjust, excessive,
oppressive or confiscatory (Section 130 of Republic Act No. 7160 and Article 219
of Rule XXX of the Implementing Rules and Regulations). 1

Although required by the DOJ to comment on the appeal, respondent Makati failed to do
so.
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

On July 5, 1993, the DOJ came out with a resolution 2 declaring "null and void and without
legal effect" the said ordinance for having been enacted in contravention of Section 187 of
the Local Government Code of 1991 and its implementing rules and regulations. 3
On August 19, 1993, respondent Makati sought a reconsideration of the ruling of the DOJ.
Pending resolution of its motion, said respondent filed a petition ad cautelam 4 with the
Regional Trial Court (RTC) of Makati, entitled Hon. Jejomar C. Binay and the Municipality
of Makati, Petitioners, v. Hon. Franklin M. Drilon, Department of Justice and Philippine
Racing Club, Inc., Respondents, and docketed as Case No. 93-2844. The case was raffled
to Branch 148 of the Makati RTC. Respondent Makati alleged, inter alia, that public
hearings were conducted before the approval of the ordinance and hence the ordinance
was valid. It prayed that after due proceedings judgment be rendered in its favor, thus:
TaCSAD

WHEREFORE, petitioners respectfully pray that this Honorable Court promulgate


judgment:
(a) declaring null and void the DOJ Decision dated July 5,
1993; and
(b) allowing the full implementation of Makati Municipal
Ordinance No. 92-072.
Petitioners pray for such further or other reliefs as this Honorable Court may deem
just and equitable. 5

In the meantime, respondent Makati continued to implement the ordinance. Petitioner


Jardine Davies Insurance Brokers, Inc., a duly-organized corporation with principal place of
business at No. 222 Sen. Gil J. Puyat Avenue, Makati, Metro Manila, was assessed and
billed by Makati the amount of P63,822.47 for taxes, fees and charges under the ordinance
for the second quarter of 1993. It was again billed by respondent Makati the same amount
for the third quarter of 1993 and the same amount for the fourth quarter of 1993. Petitioner
did not protest the assessment for its quarterly business taxes for the second, third and
fourth quarters of 1993 based on said ordinance effective April 1, 1993. Petitioner, in fact,
paid the said amounts on April 26, 1993 (for the second quarter), July 12, 1993 (for the
third quarter) and October 19, 1993 (for the fourth quarter), respectively, without any
protest. Respondent Makati issued the corresponding receipts in favor of petitioner. 6
On January 30, 1994, petitioner wrote the municipal treasurer of Makati requesting that
respondent Makati compute its business tax liabilities in accordance with the Metro Manila
Revenue Code and not under the ordinance considering that said ordinance was already
declared by the DOJ null and void. Petitioner likewise requested that respondent Makati
credit the overpayment in the total amount of P27,854.91 for the second to fourth quarters
172
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

of 1993 against its 1994 liabilities for 1994, or in the alternative, for Makati to refund the
said amount to petitioner.
In a Letter 7 dated February 4, 1994, respondent Makati, through Maximo L. Paulino Jr.,
Acting Chief of its Municipal License Division, denied the request of petitioner for tax
credit/refund. Respondent Makati insisted that the questioned ordinance code was valid
and enforceable pending the final outcome of its petition ad cautelam with the Regional
Trial Court of Makati.
In the meantime, on October 26, 1993, the RTC rendered judgment in Case No. 93-2844
granting the petition of Makati and declaring the ordinance valid. On November 9, 1993,
the DOJ issued a memorandum to the Chief State Counsel directing the latter to refrain
from accepting any appeal or to act on pending appeals on the validity/constitutionality of
the ordinance until the same shall have been finally resolved by courts of competent
jurisdiction.
When informed of the denial by respondent Makati of its letter-request, petitioner filed a
complaint on March 7, 1994 with the RTC of Makati against respondents Makati and its
Acting Municipal Treasurer. The case was raffled to Branch 150 of said court. Petitioner
alleged in its complaint that in view of the resolution of the DOJ declaring the Makati
Revenue Code "null and void and without legal effect," the provisions of the Metro Manila
Revenue Code continued to remain in full force and effect; however, petitioner was
assessed and billed by respondent Makati for taxes, fees and charges for second, third and
fourth quarters for 1993 beginning on April 4, 1993 up to October 14, 1994 at rates fixed in
the ordinance despite the nullity thereof. Petitioner prayed that after due proceedings
judgment be rendered as follows:
1. Declaring as NULL AND VOID Municipal Ordinance No. 92-072, (Makati
Revenue Code) of the Municipality of Makati and ordering Defendants to
refund or issue as tax credit in favor of Plaintiff the sum of P27,854.91 plus
interest.
2. Assuming without admitting that the Municipal Ordinance No. 92-072 (Makati
Revenue Code) is valid, declaring that the rates imposed by said ordinance
accrue only on July 1, 1993 and ordering Defendants to refund or issue as
tax credit in favor of Plaintiff the sum of P9,284.97. 8

On May 18, 1994, respondents Makati and its Acting Municipal Treasurer filed a motion to
dismiss 9 the complaint on the ground of prematurity. They argued that petitioner's cause of
action was predicated on the appealed resolution of the DOJ, and unless and until nullified
by final judgment of a competent court, the ordinance remained in full force and effect.
On May 26, 1994, petitioner opposed the motion to dismiss of respondents, contending
that its complaint was not predicated solely on the invalidity and unconstitutionality of the
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

ordinance but also on its claim that the ordinance took effect only on July 1, 1993 but
Makati applied the ordinance effective April 1, 1993. Petitioner further averred that
under Section 166 of the Local Government Code, new taxes, fees or charges or charges
provided for in the ordinance shall accrue on the first day of the quarter following the
effectivity of the new ordinance. Hence, assuming that the tax ordinance was valid, the
same should have been enforced only from the "first (1st) day of the quarter following next
the effectivity of the ordinance imposing such new levies or rates" as provided for in
Section 166 of the Local Government Code.
On August 29, 1994, the RTC issued an order granting the motion to dismiss of respondent
and ordering the dismissal of the complaint. The trial court ruled that plaintiff's cause of
action, if any, had prescribed. Citing Sections 187 and 195 of the Local Government
Code of 1991, the trial court ratiocinated that petitioner failed to file an opposition or protest
to the written notice of assessment of Makati for taxes, fees and charges at rates provided
for in the ordinance within 60 days from the notice of said assessment as required
by Section 195 of the Local Government Code. Hence, petitioner was barred from
demanding a refund of its payment or that it be credited for said amounts.
Petitioner received a copy of said order on October 7, 1994. On October 13, 1994,
petitioner filed with the trial court a motion for reconsideration 10 of the order of dismissal,
arguing that the trial court erred in applying Section 195 of theLocal Government Code of
1991 as its complaint did not involve an assessment for deficiency taxes but one for
refund/tax credit. Petitioner further claimed that it was never served with any notice of
assessment from respondents and hence there was no need for petitioner to protest.
Petitioner argued that what was applicable was Section 196 of the Local Government
Code in conjunction with Article 286 of its Implementing Rules and Regulations, both of
which simply require the filing of a written claim for refund or tax credit within two years
from the date of payment.
DTSaIc

On December 28, 1994, the trial court issued an order 11 denying the motion for
reconsideration of petitioner, a copy of which was served on petitioner on February 13,
1995. The trial court declared that Section 195 of the Local Government Code covers all
kinds of assessments and not merely deficiency assessments for taxes, fees or charges.
The trial court further ruled that the issue of the validity and constitutionality of the
ordinance was still pending resolution by Branch 148 of the RTC in Civil Case No. 93-2844
and until declared null and void, otherwise by final judgment, the ordinance remained valid.
Petitioner filed on February 20, 1995 a petition for review on certiorari under Rule 45 of the
Rules of Court, contending that:
RESPONDENT JUDGE ERRED IN HOLDING THAT THE INSTANT CASE IS NOT
A CLAIM FOR REFUND UNDER SECTION 196 OF THE LGC IN RELATION TO
ARTICLE 286 OF ITS IMPLEMENTING RULES, BUT A DEFICIENCY
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

ASSESSMENT THAT HAS TO BE PROTESTED UNDER SECTION 195 OF THE


SAME CODE.
RESPONDENT JUDGE ERRED IN DISMISSING THE CASE ON THE GROUND
OF PENDENCY OF ANOTHER ACTION CONTESTING THE LEGALITY OR
CONSTITUTIONALITY OF THE MAKATI REVENUE CODE IS STILL BEING
DETERMINED IN BRANCH 148 OF THE REGIONAL TRIAL COURT OF
MAKATI. 12

Anent the first assignment of errors, petitioner avers that its action in the RTC was one for
a refund of its overpayments governed by Article 196 of the Local Government
Code implemented by Article 286 of the Implementing Rules and Regulations of the Code
and not one involving an assessment for deficiency taxes governed by Section 195 of the
said Code. Petitioner contends that it was not mandated to first file a protest with
respondents before instituting its action for a refund of its overpayments or for it to be
credited for said overpayments. For its part, respondent Makati avers that petitioner was
proscribed from filing its complaint with the RTC and for a refund of its alleged
overpayment, petitioner having paid without any protest the taxes due to respondent Makati
under the ordinance. It is further asserted by respondent Makati that until declared null and
void by a competent court, the ordinance was valid and should be enforced.

The petition has no merit.


The Court agrees with petitioner that as a general precept, a taxpayer may file a complaint
assailing the validity of the ordinance and praying for a refund of its perceived
overpayments without first filing a protest to the payment of taxes due under the ordinance.
This was our ruling in Ty v. Judge Trampe: 13
. . . Hence, if a taxpayer disputes the reasonableness of an increase in a real estate
tax assessment, he is required to "first pay the tax" under protest. Otherwise, the
city or municipal treasurer will not act on his protest. In the case at bench, however,
the petitioners are questioning the very authority and power of the assessor, acting
solely and independently, to impose the assessment and of the treasurer to collect
the tax. These are not questions merely of amounts of the increase in the tax but
attacks on the very validity of any increase.

In this case, petitioner, relying on the resolution of the Secretary of Justice in The
Philippine Racing Club, Inc. v. Municipality of Makati case, posited in its complaint that the
ordinance which was the basis of respondent Makati for the collection of taxes from
petitioner was null and void. However, the Court agrees with the contention of respondents
that petitioner was proscribed from filing its complaint with the RTC of Makati for the reason
that petitioner failed to appeal to the Secretary of Justice within 30 days from the effectivity
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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

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

In Reyes v. Court of Appeals, 14 we ruled that failure of a taxpayer to interpose the requisite
appeal to the Secretary of Justice is fatal to its complaint for a refund:
Clearly, the law requires that the dissatisfied taxpayer who questions the validity or
legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30
days from effectivity thereof. In case the Secretary decides the appeal, a period
also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary
does not act thereon, after the lapse of 60 days, a party could already proceed to
seek relief in court. These three separate periods are clearly given for compliance
as a prerequisite before seeking redress in a competent court. Such statutory
periods are set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe these provisions
of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to impose taxes. The
power to tax is the most effective instrument to raise needed revenues to finance
and support the myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and enhancement of
peace, progress, and prosperity of the people. Consequently, any delay in
implementing tax measures would be to the detriment of the public. It is for this
reason that protests over tax ordinances are required to be done within certain time
frames. In the instant case, it is our view that the failure of petitioners to appeal to
the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160is fatal
to their cause.

176
LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

Moreover, petitioner even paid without any protest the amounts of taxes assessed by
respondents Makati and Acting Treasurer as provided for in the ordinance. Evidently, the
complaint of petitioner with the Regional Trial Court was merely an afterthought.
CDTHSI

In view of our foregoing disquisitions, the Court no longer deems it necessary to resolve
other issues posed by petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The order of the Regional
Trial Court dismissing the complaint of petitioner is AFFIRMED.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Austria-Martinez, JJ., concur.
(Jardine Davies Insurance Brokers Inc. v. Aliposa, G.R. No. 118900, [February 27, 2003],
446 PHIL 243-255)
|||

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LAW ON PUBLIC CORPORATION (MUNICIPAL FINANCE)

FIRST DIVISION
[G.R. No. 16254. February 21, 1922.]
G. A. CUUNJIENG, plaintiff-appellee, vs. FRED L. PATSTONE, engineer of
the city of Manila, defendant-appellant.
City Fiscal Diaz for appellant.
Gabriel La O for appellee.
SYLLABUS
1. CIVIL PROCEDURE; MANDAMUS. The question of the constitutionality of a
statute may be raised by the petitioner in mandamus proceedings, but the respondent
will not, as a general rule, be permitted to question the validity of a statute which has not
been judicially declared unconstitutional.
2. MUNICIPAL CORPORATIONS; POWERS. The city of Manila has no power
to compel property holders to lease the portions of the public sidewalks which adjoin
their lands.
3. ID.; ID.; LICENSE FEES; USEFUL OCCUPATIONS OR ENTERPRISES. In
the absence of special authority to impose a license fee or tax for revenue, the fee for
licenses for the regulation of useful occupations or enterprises may only be of a
sufficient amount to include the expense of issuing the license and the cost of the
necessary inspection and police surveillance, taking into account not only the expense
of direct regulation but also incidental consequences.
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4. ID.; ID.; ID.; NON-USEFUL OCCUPATIONS. In fixing fees for licenses for
non-useful occupations, a municipal corporation is allowed a wider discretion than in
regard to license fees for useful occupations, and aside from applying the legal principle
that municipal ordinances must not be unreasonable, oppressive, or tyrannical, the
courts have generally declined to interfere with such discretion.
5. ID.; ID.; ID.; FOR REVENUE. License fees for revenue rest upon the taxing
power as distinguished from the police power, and the power of the municipality to exact
such fees must be expressly granted by charter or statute and is not to be implied from
the conferred power to license and regulate merely.
6. ID.; ID.; ID. Section 2507 of the Administrative Code authorizes the
Municipal Board of the city of Manila to establish fire limits, determine the kinds of
buildings or structures that may be erected within said limits, regulate the manner of
constructing and repairing the same, and fix the fees for permits for the construction,
repair, or demolition of buildings and structures. Under this provision the Municipal
Board passed an ordinance requiring land owners desiring to erect buildings upon their
property along certain streets to build arcades over the portions of the sidewalks
adjoining their lands, and to pay therefor by way of license fees one-half of the
assessed value of the city land located within the arcades. Held: That this is a license
fee for revenue not authorized under existing statutes.
DECISION
OSTRAND, J :
p

This is a petition for a writ of mandamus to compel the city engineer of Manila to
issue a building permit. There is no dispute as to the facts. The plaintiff desires to erect
a warehouse on Azcarraga Street but is denied a building permit until he shall have
made provision for the construction of an arcade over the sidewalk in front of the
building and until he shall have further complied with section 1 of Ordinance No. 301 of
the city of Manila, which reads as follows:
"Whenever the owner, person in charge, or any other person or entity having
a right in any property located on the principal streets and avenues of the city of
Manila, such as Legarda, R. Hidalgo, Carriedo, Echague, Moriones, Azcarraga,
Rizal, Taft, San Miguel, and others which may, by ordinance, hereafter be
designated by the Municipal Board, desires to erect or reconstruct a building or any
other construction on said property, the same shall pay, once the plan of the work
has been approved by the city engineer, one-half of the assessed value of the city
land located within the arcades of said building or construction, as a license fee for
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the use and occupation of said land: Provided, That the construction of arcades on
streets having a width of twenty or more meters, not hereinbefore mentioned in this
section, shall not be carried out,. until after the plan of the work has been approved
by the city engineer, and half of the assessed value of the city land located within
said arcades has been paid for by the owner, person in charge or any other person
or entity having a right in the building which is to be erected or constructed, as a
license fee for the use and occupation of said land."

The plaintiff refuses to construct the arcade and to comply with the ordinance in
question on the grounds that the arcade is unnecessary and unsuitable for his
warehouse and that the city has no power to require its construction; and that the
ordinance in exacting the payment of a fee of one-half of the assessed value of the city
land covered by the arcade is in excess of the legislative powers of the Municipal Board
and, therefore, unconstitutional. It seems, however, to be conceded that under the
climatic conditions here existing, arcades are both useful and desirable from the
standpoint of public convenience and that the Municipal Board, under its general
powers to regulate the construction of buildings and their alignment with the streets, and
also under the general welfare of the city charter, has power to provide for the
construction of arcades on certain streets. In any event, the question has not been
raised by assignment of error and the discussion may, therefore, properly be limited to
two points: First, whether the question of the constitutionality of statutes or city
ordinances may be raised in mandamus proceedings and second, whether under its
charter, the city of Manila may, under the guise of a license fee and as a prerequisite for
the issuance of a building permit, exact the payment of one-half of the assessed value
of the portion of the sidewalk covered by the arcade.
Upon the first point the authorities are not entirely in harmony, but in modern
practice it has been generally held that the writ will lie where, as in the present case the
question of constitutionality is raised by the petitioner. (SeeState ex rel., Fooshe vs.
Burley, 16 L. R. A. [N. 3.], 266, with its case note.) The rule is different where the
respondent relies on the unconstitutionality of a statute as a defense in mandamus
proceedings. In such cases the courts have generally declined to consider questions of
constitutionality. (See State ex rel., New Orleans Canal & Banking Co. vs. Heard, 47 L.
R. A., 512, and the case note thereto.) The reason for this is obvious: It might seriously
hinder the transaction of public business if ministerial officers were to be permitted in all
cases to question the constitutionality of statutes and ordinances imposing duties upon
them and which have not judicially been declared unconstitutional. The same reasons
do not exist where the validity of the statutes is attacked by the petitioner.
There being no other adequate remedy and there appearing to be no reason in
principle why we should not consider the validity of the city ordinance here in question
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in mandamus proceedings, we are of the opinion, and so hold, that the present action
has been properly brought.
The second point above-mentioned merits a more extended consideration. In
discussing it we must bear in mind that legislative powers in regard to taxes and
licenses are not inherent in municipal corporations but must be granted by statute either
expressly or by necessary implication. Like other delegated powers, they are subject to
strict construction.
That the city does not possess such an extraordinary power as that of compelling
property holders to lease the portions of the public sidewalks which adjoin their lands
requires no argument. The charge of one-half of the assessed value imposed on
applicants for building permits can, therefore, not be considered as rent, and to be valid
must either be a tax or a license fee. The legislative powers of the city in regard to taxes
and license fees are enumerated in the following subsections of section 2444 of the
Administrative Code, as amended by section 8 of Act No. 2774, and in section 2507 of
the Administrative Code:
"SEC. 2444. General powers and duties of the Board. Except as
otherwise provided by law, and subject to the conditions and limitations thereof, the
Municipal Board shall have the following legislative powers:
"(a) To provide for the levy and collection of taxes for general and special
purposes in accordance with law.
"(b) To fix the tariff of fees and charges for all services rendered by the city
or any of its departments, branches, or officials.
xxx xxx xxx
"(h) To establish fire limits, determine the kinds of buildings or structures that
may be erected within said limits, regulate the manner of constructing and repairing
the same, and fix the fees for permits for the construction, repair, or demolition of
buildings and structures.
xxx xxx xxx
"(j) To regulate the use of lights in stables, shops, and other buildings and
places, and to regulate and restrict the issuance of permits for the building of
bonfires and the use of firecrackers, fireworks, torpedoes, candles, sky- rockets,
and other pyrotechnic displays, and to fix the fees for such permits.
xxx xxx xxx
"(l) To regulate and fix the amount of the license fees for the following:
Hawkers, peddlers, hucksters, not including hucksters or peddlers who sell only
native vegetables, fruits, or foods, personally carried by the hucksters or peddlers;
auctioneers, plumbers, barbers, embalmers, collecting agencies, mercantile
agencies, shipping and intelligence offices, private detective agencies, advertising
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agencies, massagists, tattooers, jugglers, acrobats, hotels, clubs, restaurants,


cafes, lodging houses, boarding houses, livery garages, livery stables, boarding
stables, dealers in large cattle, public billiard tables, laundries, cleaning and dyeing
establishments, public warehouses, dance halls, cabarets, circus and other similar
parades, public vehicles, race tracks, horse races, bowling alleys, shooting
galleries, slot machines, merry-go-rounds, pawnshops, dealers in second-hand
merchandise, junk dealers, brewers, distillers, rectifiers, money changers and
brokers, public ferries, theaters, theatrical performances, cinematographs, public
exhibitions, circuses and all other performances, and places of amusement, and
the keeping, preparation, and sale of meat, poultry, fish, game, butter, cheese, lard,
vegetables, bread, and other provisions.
"(m) To tax, fix the license fee for, regulate the business, and fix the location
of match factories, blacksmith shops, foundries, steam boilers, lumber yards, ship
yards, the storage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline,
benzine, turpentine, hemp, cotton, nitroglycerin, petroleum, or any of the products
thereof, and of all other highly combustible or explosive materials, and other
establishments likely to endanger the public safety or give rise to conflagrations, or
explosions, and, subject to the provisions of ordinances issued by the Philippine
Health Service in accordance with law, tanneries, renderies, tallow chandleries,
bone factories, and soap factories. "(n) To tax motor and other vehicles and draft
animals not paying the public vehicles license fee or any other Insular tax.
"(o) To regulate the method of using steam engines and boilers, other than
marine or belonging to the Federal or Insular Governments; to provide for the
inspection thereof, and for a reasonable fee for such inspection, and to regulate
and fix the fees for the licenses of the engineers engaged in operating the same.
xxx xxx xxx
"(q) To prohibit, or regulate and fix the license fees or, the keeping of dogs,
and to authorize their impounding and destruction when running at large contrary to
ordinances, and to tax and regulate the keeping or training of fighting cocks.
xxx xxx xxx
"(u) Subject to the provisions of sections nineteen hundred and four and
nineteen hundred and five of this Code, to provide for the laying out, construction,
and improvement, and to regulate the use, of streets, avenues, alleys, sidewalks,
wharves, piers, parks, cemeteries, and other public places; to provide for lighting,
cleaning, and sprinkling of streets and public places; to regulate, fix license fees for,
and prohibit the use of the same for processions, signs, signposts, awnings,
awning posts, the carrying or displaying of banners, placards, advertisements, or
hand bills, or the flying of signs, flags, or banners, whether along, across, over, or
from buildings along the same; to prohibit the placing, throwing, depositing, or
leaving of obstacles of any kind, offal, garbage, refuse, or other offensive matter or
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matter liable to cause damage, in the streets and other public places, and to
provide for the collection and disposition thereof; to provide for the inspection of, fix
the license fees for, and regulate the openings in the same for the laying of gas,
water, sewer, and other pipes, the building and repair of tunnels, sewers, and
drains, and all structures in and under the same, and the erecting of poles and the
stringing of wires therein; to provide for and regulate crosswalks, curbs, and gutters
therein; to name streets without a name and provide for and regulate the
numbering of houses and lots fronting thereon or in the interior of the blocks; to
regulate traffic and sales upon the streets and other public places; to provide for the
abatement of nuisances in the same and punish the authors or owners thereof; to
provide for the construction and maintenance, and regulate the use, of bridges,
viaducts, and culverts; to prohibit and regulate ball playing, kite flying, hoop rolling,
and other amusements which may annoy persons using the streets and public
places, or frighten horses or other animals; to regulate the speed of horses and
other animals, motor and other vehicles, cars, and locomotives within the limits of
the city; to regulate the lights used on all such vehicles, cars, and locomotives; to
regulate the locating, constructing and laying of the track of horse, electric, and
other forms of railroad in the streets or other public places of the city authorized by
law; to provide for and change the location, grade, and crossings of railroads, and
to compel any such railroad to raise or lower its tracks to conform to such
provisions or changes; and to require railroad companies to fence their property, or
any part thereof, to provide suitable protection against injury to persons or property,
and to construct and repair ditches, drains, sewers, and culverts along and under
their tracks, so that the natural drainage of the streets and adjacent property shall
not be obstructed.
xxx xxx xxx
"(w) To fix the charges to be paid by all water craft landing at or using public
wharves, docks, levees, or landing places: Provided, That the provisions of this
subsection shall not apply to the public wharves, docks, levees, or landing places
constructed within the breakwater, on the banks of the canal connecting the Pasig
River with the inner basin, and on both sides of said river below the Jones Bridge.
xxx xxx xxx
"(z) Subject to the provisions of ordinances issued by the Philippine Health
Service in accordance with law, to provide for the establishment and maintenance
and fix the fees for the use of, and regulate public stables, laundries, and baths,
and public markets and slaughterhouses, and prohibit the establishment or
operation within the city limits of public markets and slaughterhouses by any
person, entity, association, or corporation other than the city.
"(aa) To regulate, inspect, and provide measures preventing any
discrimination or the exclusion of any race or races in or from any institution,
establishment, or service open to the public within the city limits, or in the sale and
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supply of gas or electricity, or in the telephone and street-railway service; to fix and
regulate charges therefor where the same have not been fixed by Act of Congress
or of the Philippine Legislature; to regulate and provide for the inspection of all gas,
electric, telephone, and street-railway conduits, mains, meters, and other
apparatus, and provide for the condemnation, substitution or removal of the same
when defective or dangerous.
xxx xxx xxx
"(ee) To enact all ordinances it may deem necessary and proper for the
sanitation and safety, the furtherance of the prosperity, and the promotion of the
morality, peace, good order, comfort, convenience, and general welfare of the city
and its inhabitants, and such others as may be necessary to carry into effect and
discharge the powers and duties conferred by this chapter; and to fix penalties for
the violation of ordinances which shall not exceed a two hundred peso fine or six
months' imprisonment, or both such fine and imprisonment, for a single offense."
"SEC. 2507. Power to levy special assessments f or certain purposes.
The Municipal Board may, by ordinance duly approved, provide for the levying and
collection, by special assessments of the real estate comprised within the district or
section of the city especially benefited, of a part not to exceed sixty per centum of
the cost of laying out, opening, constructing, straightening, widening, extending,
grading, paving, curbing, walling, deepening, or otherwise establishing, repairing,
enlarging, or improving public avenues, roads, streets, alleys, sidewalks, parks,
plazas, bridges, landing places, wharves, piers, docks, levees, reservoirs,
waterworks, water mains, water courses, esteros, canals, drains, and sewers,
including the cost of acquiring the necessary land. Within the meaning of this
article, all real estate comprised within the district benefited, except lands or
buildings owned by the United States of America, the Government of the Philippine
Islands, or the city of Manila, shall be subject to the payment of the special
assessment, based upon the valuation of such real estate as shown by the books
of the city assessor and collector, or its present value as fixed by said officer in the
first instance if the property does not appear of record in his books according to the
valuation whereof the special tax has to be made, computed, and assessed."

Conceivably, there may be other instances where the police power to regulate
carries with it impliedly the power to prescribe fees, but they have no relation to the
issues here involved.
Examining the provisions quoted, it is clear that the only one which can possibly
be applied to the present case is subsection (h) of section 2444 authorizing the fixing of
fees for building permits and that if the charge in question possesses any validity
whatever it must be as a license fee under that subsection.
The allowable amount of a license fee or tax depends so much on the special
circumstances of each particular case that it is difficult to harmonize the numerous
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decisions on the subject and to formulate definite rules; but, generally speaking, the
adjudications appear to recognize three classes of licenses, each with its distinct
characteristic, which have been taken into consideration in determining the
reasonableness of the license fee: First, licenses for the regulation of useful
occupations or enterprises; secondly, licenses for the regulation or restriction of nonuseful occupations or enterprises, and thirdly, licenses for revenue only.
(1) The first two of these classes is based on the exercise of the police power
and, though there is some conflict of authority on this point, the better rule seems to be
that the conferred power to regulate and to issue such licenses carries with it the right to
fix a license fee. It is well settled that in the absence of special authority to impose a tax
for revenue the fee for this class of licenses may only be of a sufficient amount to
include the expense of issuing the license and the cost of the necessary inspection or
police surveillance, taking into account not only the expense of direct regulation but also
incidental consequences.
Cooley on Constitutional Limitations, 6th ed., at page 242, says:
"A right to license an employment does not imply a right to charge a license
fee therefor with a view to revenue, unless such seems to be the manifest purpose
of the power; but the authority of the corporation will be limited to such a charge for
the license as will cover the necessary expenses of issuing it, and the additional
labor of officers and other expenses thereby imposed. (Davis vs. Petrinovich, 112
Ala., 654; 21 So., 344; 36 L. R. A., 615; Ft. Smith vs. Hunt, 72 Ark., 556; 82 S. W.,
163; 105 A. S. R., 51; 66 L. R. A., 238; Waters-Pierce Oil Co. vs. Hot Springs, 85
Ark., 509; 109 S. W., 293; 16 L. R. A. [N. S.], 1035; Ex parte Dickey, 144 Cal., 234;
77 Pac., 924; 103 A. S. R., 82; 1 Ann. Cas., 428 and note; 66 L. R. A., 928;
Mortonvs. Macon, 111 Ga., 162; 36 S. E., 627; 50 L. R. A., 485; State vs.
Ashbrook, 154 Mo., 375; 55 S. W., 627; 77 A. S. R., 765; 48 L. R. A., 265; St.
Louis vs. Grafeman Dairy Co., 190 Mo., 492; 89 S. W., 617; 1 L. R. A. [N. S.], 936;
Johnson vs. Great Falls, 38 Mont., 369; 99 Pac., 1059; 16 Ann. Cas., 974;
Rosenbloom vs. State, 64 Neb., 342; 89 N. W., 1053; 57 L. R. A., 922; State vs.
Boyd, 63 Neb., 829; 89 N. W., 417; 58 L. R. A., 108; Hughes vs. Snell, 28 Okla.,
828; 115 Pac., 1105, Ann. Cas. [1912D] 374; 34 L. R. A. [N. S.], 1133; Ellis vs.
Frazier, 38 Ore., 462; 63 Pac., 642; 53 L. R. A. 454; Laurens vs. Anderson, 75 S.
C., 62; 55 S. E., 136; 117 A. S. R., 885; 9 Ann. Cas., 1003; Seattle vs. Dencker, 58
Wash., 501; 108 Pac., 1086; 137 A. S. R., 1076; 28 L. R. A. [N. S.], 446.)"

(2) Licenses for non-useful occupations are also incidental to the police power
and the right to exact a fee may be implied from the power to license and regulate, but
in fixing the amount of the license fees the municipal corporations are allowed a much
wider discretion in this class of cases than in the former, and aside from applying the
well-known legal principle that municipal ordinances must not be unreasonable,
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oppressive, or tyrannical, courts have, as a general rule, declined to interfere with such
discretion. The desirability of imposing restraint upon the number of persons who might
otherwise engage in non-useful enterprises is, of course, generally an important factor
in the determination of the amount of this kind of license fee. Hence license fees clearly
in the nature of privilege taxes for revenue have frequently been upheld, especially in
cases of licenses for the sale of liquors. In fact, in the latter cases the fees have rarely
been declared unreasonable. (Swarth vs. People, 109 Ill., 621; Dennehy vs. City of
Chicago, 120 Ill., 627; 12 N. E., 227; United States Distilling Co. vs. City of Chicago,
112 Ill., 19; Drew County vs. Bennett, 43 Ark., 364; Merced County vs. Fleming, 111
Cal., 46; 43 Pac., 392; Williams vs. City Council of West Point, 68 Ga., 816; Cheny vs.
Shellbyville, 19 Ind., 84; Wiley vs. Owens, 39 Ind., 429; Sweet vs. City of Wabash, 41
Ind., 7; Jones vs. Grady, 25 La. Ann., 586; Goldsmith vs. City of New Orleans, 31 La.
Ann., 646; People ex rel., Cramer vs. Medberry, 39 N. Y. S., 207; 17 Misc. Rep., 8;
McGuigan vs. Town of Belmont, 89 Wis., 637; 62 N. W., 421; Ex parte Burnett, 30 Ala.,
461; Craig vs. Burnett, 32 Ala., 728, and Muhlenbrinck vs. Long Branch
Commissioners, 42 N. J. L., 364; 36 Am. Rep., 518.)
(3) The fee in the third class of cases, those for revenue purposes, is, perhaps,
not a license fee properly speaking but is generally so termed. It rests upon the taxing
power as distinguished from the police power, and the power of the municipality to exact
such fees must be expressly granted by charter or statute and is not to be implied from
the conferred power to license and regulate merely. Judge Cooley, citing numerous
authorities, says:
"A license is issued under the police power; but the exaction of a license fee
with a view to revenue would be an exercise of the power of taxation; and the
charter must plainly show an intent to confer that power, or the municipal
corporation cannot assume it." (Cooley, Constitutional Limitations, 6th ed., pp. 242
243. See also Mayor vs. Beasly, 34 Am. Dec., 646, and Kip vs. City of Paterson, 26
N. J. L., 298.)

License taxes for revenue on useful occupations fall within this class.
When the power to license for revenue has been clearly granted, the rule as to
the amount of the tax or fee laid down in Fire Department vs. Stanton (159 N. Y., 225),
is applicable to the municipality as much as to the state:
"The legislature of the state is not without power to impose a tax on a
business in the form of a license fee, when it deems such to be warranted by
considerations of public interest and for the general welfare, and the only limitation
upon its exercise of power, in that respect, is that there shall be no discrimination or
oppression, and that the burden shall be equally charged upon all persons in
similar circumstances."
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Applying the legal principles above stated to the case at bar, we are constrained
to hold that in imposing a fee equal to one-half of the assessed value of the portion of
the sidewalk covered by the arcade in question, the Municipal Board of the city of
Manila exceeded its powers. The construction of buildings is a useful enterprise and the
amount of the license fee should therefore be limited to the cost of licensing, regulating,
and surveillance. It appears that without the arcade the normal fee for the building
permit would have been about P31, with the arcade the fee exacted is P525.60. It does
not appear that the cost of licensing, regulating, and surveillance would be materially
increased through the construction of the arcade, and it is therefore clear that the
excess fee is imposed for the purpose of revenue.
There is nothing in the charter of the city of Manila indicating an intention on the
part of the Legislature to confer lower on the Municipal Board to impose a license tax for
revenue on the construction of buildings. The power conferred in relation to such
construction is considered merely as police power from which, as we have seen, taxing
power is not inferred. Under the circumstances, to hold the fee in this case valid would
amount to judicial legislation, particularly undesirable in the present instance where the
Legislature, upon its attention being called to the matter, would no doubt willingly grant
as much power as could wisely be placed in the hands of the municipality.
The judgment of the Court of First Instance holding that the city of Manila has the
power to require the construction of arcades in certain circumstances but that the
license fee prescribed by city Ordinance No. 301 is illegal, is therefore hereby affirmed.
No costs will be allowed. So ordered.
Street, Avancea, Johns, and Romualdez, JJ., concur.
Araullo, C.J., did not take part.

Separate Opinions
MALCOLM, J., with whom concurs VILLAMOR, J., dissenting:
It is to be regretted that the court has not seen fit to follow in the same road which
was so well cleared of encumbering rubbish in the pioneer decision of this court known
as the Billboard Case (Churchill and Tait vs. Rafferty [1915], 32 Phil., 580), and to
resolve such doubt as exists in favor of the validity of Ordinance No. 301 of the city of
Manila.
The question in which I am interested in this case is as above indicated, and
relates to the determination of whether or not Ordinance No. 301 of the city of Manila is
valid. For purposes of reference, and without burdening this dissent with the facts and
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the provisions of law which appear in the majority decision, I copy this ordinance,
reading as follows:
"Whenever the owner, person in charge, or any other person or entity having
a right in any property located on the principal streets and avenues of the city of
Manila, such as Legarda, R. Hidalgo, Carriedo, Echague. Moriones. Azcarraga,
Rizal, Taft, San Miguel, and others which may, by ordinance, hereafter be
designated by the Municipal Board, desires to erect or reconstruct a building or any
other construction on said property, the same shall pay, once the plan of the work
has been approved by the city engineer, one-half of the assessed value of the city
land located within the arcades of said building or construction, as a license fee for
the use and occupation of said land: Provided, That the construction of arcades on
streets having a width of twenty or more meters, not hereinbefore mentioned in this
section, shall not be carried out, until after the plan of the work has been approved
by the city engineer, and half of the assessed value of the city land located within
said arcades has been paid for by the owner, person in charge or any other person
or entity having a right in the building which is to be erected or constructed, as a
license fee for the use and occupation of said land."

No one would seriously contend that the construction of arcades in the city of
Manila is not for the public good. Under the conditions as they actually exist in the
metropolis, the congestion on the narrow public streets is relieved and the health of
pedestrians is protected, by walking beneath covered ways. The beautification of the
city is effected by requiring the construction of uniform projections beyond the first
stories above the public streets. One has only to walk down Rizal Avenue in this city to
realize the great benefit derived from arcades. To assist the municipal authorities in
making of Manila a better and more beautiful city, should consequently be our purpose.
It must be frankly admitted that in its effort to accomplish a good purpose, the
Municipal Board has complicated matters by making use of a nearly impossible
procedure. It is, however, not for the courts to condemn legislative action, but rather to
look behind the verbiage to the intent, and then to enforce this intent. Awkward as are
the expressions used in the ordinance, yet, having in mind the apparent purpose, which
is to advance the public welfare, it should not be so difficult as the majority decision
would make it appear, to validate the ordinance.
Where, in my opinion, the majority decision makes a mistake is in dismissing the
real issue of the case with this observation: "That the city does not possess such an
extraordinary power as that of compelling property holders to lease the portions of the
public sidewalks which adjoin their lands requires no argument." If the proposition so
disdainfully dismissed were modified slightly, I would unhesitatingly advocate the
affirmative. In other words, conceded that the construction of arcades over portions of
the public streets is for the public good, the question in reality reduces itself to one of
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the power of the city authorities to require the adjoining property owner who desires to
build, to pay a portion of the expenses of constructing the arcade in front of his property.
It is common knowledge that abutting owners cannot ordinarily erect and maintain
permanent structures encroaching on the street, such as awnings, bay windows,
stairways, porches, and arcades, without municipal permission which is in effect a
license. Ordinances authorizing or regulating or prohibiting such structures have been
held valid.
It is also common knowledge that under varying procedure contiguous property
owners have been compelled to bear the expense of paving the street in front of their
lots, in the construction of sidewalks along the line of their property, and otherwise to
pay large sums of money, which to an extent benefit the property of the owner, but
which to a greater extent benefit the public. That in this instance the city has
denominated the method by which the property owners are to be relieved of a sum
equal to one-half of the assessed value of the city land located within the arcades as a
license fee for the use and occupation of the land, does not change the nature of the
case.
It is true both under the civil law and the common law, that public property such
as streets are held in trust for the use of the public and, on principle, that such trust
property cannot be disposed of by the municipality. On the other hand, it would be
preposterous to suppose that a municipality could not require the payment of money in
the nature of rental for the use of public streets by benefited property owners.
In conclusion, attention is earnestly invited to a decision of the United States
Supreme Court (City of St. Louis vs. Western Union Telegraph Co. [1892], 148 U. S.,
92), which seems to the writer of this opinion to be conclusive. If, as against the
authority of the decision of the higher court it be argued that the ordinance therein in
question related to a public service corporation, let the answer be that no difference can
be seen in the requirement of an ordinance that a public service corporation shall pay
the city for the use of the street and that an abutting owner shall pay the city for such
use.
In the cited case it appears that on February 25, 1881, the City of Saint Louis
passed an ordinance known as Ordinance No. 11604, authorizing any telegraph or
telephone company duly incorporated according to law, doing business or desiring to do
business in the City of Saint Louis, to set its poles and other fixtures along and across
any of the public streets of the city, subject to certain prescribed regulations. On March
22, 1884, another ordinance, known as Ordinance No. 12733, was passed. This
ordinance amended Ordinance No. 11604 by providing that thereafter all telegraph and
telephone companies which are not by ordinance taxed on their gross income for city
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purposes, shall pay to the City of Saint Louis for the privilege of using the streets, the
sum of 5 dollars per annum for each and every telegraph or telephone pole erected or
used by them in the streets in said city. The ordinance was incorporated into the
Revised Ordinances of the City of Saint Louis as section 671.
The Western Union Telegraph Co., one of the companies designated in section
671, having failed to pay the sum of 6 dollars per annum for each telegraph pole, a suit
was instituted to recover from the telegraph company the sum of $22,635. The company
denied the validity of the ordinance and the authority of the city to pass it. The case was
tried by the Federal Court and a judgment was entered in favor of the defendant. On
appeal to the United States Supreme Court, this judgment was reversed in a decision
delivered by Mr. Justice Brewer, with Mr. Justice Brown dissenting. Pertinent portions of
the majority decision are as follows:
"And, first, with reference to the ruling that this charge was a privilege or
license tax. To determine this question, we must refer to the language of the
ordinance itself, and by that we find that the charge is imposed for the privilege of
using the streets, alleys, and public places, and is graduated by the amount of such
use. Clearly, this is no privilege or license tax. The amount to be paid is not
graduated by the amount of the business, nor is it a sum fixed for the privilege of
doing business. It is more in the nature of a charge for the use of property
belonging to the city that which may properly be called rental. 'A tax is a demand
of sovereignty; a toll is a demand of proprietorship.' (Philadelphia & R. R. Co. vs.
Pennsylvania [State Freight Tax Case] 82 U. S., ; 15 Wall., 232, 278.) If, instead
of occupying the streets and public places with its telegraph poles, the company
should do what it may rightfully do, purchase ground in the various blocks from
private individuals, and to such ground remove its poles, the section would no
longer have any application to it. That by it the city receives something which it may
use as revenue, does not determine the character of the charge or make it a tax.
The revenues of a municipality may come from rentals as legitimately and as
properly as from taxes. Supposing the City of St. Louis should find its city hall too
small for its purposes, or too far removed from the center of business, and should
purchase or build another more satisfactory in this respect; it would not thereafter
be forced to let the old remain vacant or to immediately sell it, but might derive
revenue by renting its various rooms. Would an ordinance fixing the price at which
those rooms could be occupied be in any sense one imposing a tax? Nor is the
character of the charge changed by reason of the fact that it is not imposed upon
such telegraph companies as by ordinance are taxed on their gross income for city
purposes. In the illustration just made in respect to a city hall, suppose that the city,
in its ordinance fixing a price for the use of rooms, should permit persons who pay
a certain amount of taxes to occupy a portion of the building free of rent, that would
not make the charge upon others for their use of rooms a tax. Whatever the
reasons may have been for exempting certain classes of companies from this
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charge, such exemption does not change the character of the charge, or make that
a tax which would otherwise be a matter of rental. Whether the city has power to
collect rental for the use of streets and public places, or whether, if it has, the
charge as here made is excessive, are questions entirely distinct. That this is not a
tax upon the property of the corporation, or upon its business, or for the privilege of
doing business, is thus disclosed by the very terms of the section. The city has
attempted to make the telegraph company pay for appropriating to its own and sole
use a part of the streets and public places of the city. It is seeking to collect rent.
While we think that the Circuit Court erred in its conclusions as to the character of
this charge, it does not follow therefrom that the judgment should be reversed, and
a judgment entered in favor of the city. Other questions are presented which
compel examination.
"Has the city a right to charge this defendant for the use of its streets and
public places? And here, first, it may be well to consider the nature of the use which
is made by the defendant of the streets, and the general power of the public to
exact compensation for the use of streets and roads. The use which the defendant
makes of the streets is an exclusive and permanent one, and not one temporary,
shifting and in common with the general public. The ordinary traveller, whether on
foot or in a vehicle, passes to and fro along the streets, and his use and occupation
thereof are temporary and shifting. The space he occupies one moment he
abandons the next to be occupied by any other traveller. This use is common to all
members of the public, and it is a use open equally to citizens of other States with
those of the State in which the street is situate But the use made by the telegraph
company is, in respect to so much of the space as it occupies with its poles,
permanent and exclusive. It as effectually and permanently dispossesses the
general public as if it had destroyed that amount of ground. Whatever benefit the
public may receive in the way of transportation of messages, that space is, so far
as respects its actual use for purposes of a highway and personal travel, wholly lost
to the public. By sufficient multiplication of telegraph and telephone companies the
whole space of the highway might be occupied, and that which was designed for
general use for purposes of travel entirely appropriated to the separate use of
companies and for the transportation of messages.
"We do not mean to be understood as questioning the right of municipalities
to permit such occupation of the streets by telegraph and telephone companies,
nor is there involved here the question whether such use is a new servitude or
burden placed upon the easement, entitling the adjacent lot owners to additional
compensation. All that we desire or need to notice is the fact that this use is an
absolute, permanent and exclusive appropriation of that space in the streets which
is occupied by the telegraph poles. To that extent it is a use different in kind and
extent from that enjoyed by the general public. Now, when there is this permanent
and exclusive appropriation of a part of the highway, is there in the nature of things
anything to inhibit the public from exacting rental for the space thus occupied?
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Obviously not. Suppose a municipality permits one to occupy space in a public


park, for the erection of a booth in which to sell fruit and other articles; who would
question the right of the city to charge for the use of the ground thus occupied, or
call such charge a tax, or anything else except rental? So, in like manner, while
permission to a telegraph company to occupy the streets is not technically a lease,
and does not in terms create the relation of landlord and tenant, yet it is the giving
of the exclusive use of real estate, for which the giver has a right to exact
compensation, which is in the nature of rental. We do not understand it to be
questioned by counsel for the defendant that, under the constitution and laws of
Missouri, the City of St. Louis has the full control of its streets, and in this respect
represents the public in relation thereto."

Ordinance No. 301 of the city of Manila should be held to be valid and the
judgment should be reversed.

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(Cuunjieng v. Patstone, G.R. No. 16254, [February 21, 1922], 42 PHIL 818-839)

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