FLORO CEMENT CORP VS HON.

BENJAMIN GOROSPE (1991)

J. Bidin | Rai Rai

Nature: Petition for review on certiorari

Floro Cement Corp corporation engaged in the manufacture and selling, including exporting, of cement (one
of the essential ingredients of it is limestone)

mining operator of mineral land/lands situated in Lugait, Misamis Oriental

as mining operator, they were granted by the Secretary of Agriculture and Natural Resources a Certificate of
Qualification for Tax Exemption, entitling them to exemption for a period of 5 years from the payment of all taxes,
except income tax

the date was later amended to May 17, 1974 to Jan 1, 1978

the Certificate of Qualification for Tax Exemption was issued pursuant to Sec 52 of PD 463
- Sec 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral Products. Any law to the contrary
notwithstanding, no province, city, municipality, barrio or municipal district shall levy and collect taxes, fees,
rentals, royalties, or charges of any kind whatsoever on mines, mining claims, mineral products, or on any
operation, process or activity connected therewith.

July 1974 Municipality of Lugait wired the Secretary of Finance, opposing the application of Floro for the
extension of its exemption from all forms of taxation, including its application for extension of its exemption
from realty taxes

the opposition was not favorably acted on by said Secretary of Finance

The municipality, pursuant to PD 231, passed Municipal Ordinance No. 5 (Municipal Revenue Code of 1974)
The municipality also passed Municipal Revenue Ordinance No. 10 (based on PD No. 426)
Pursuant to these two ordinances, the municipality demanded of Floro the payment of manufacturers and
exporters taxes including surcharge for the period of Jan 1, 1974 to Sept 30, 1975

Floro refused to pay (reasons in their answer)

Municipality
Corporation
of Lugait filed a verified complaint for collection of taxes against defendant Floro Cement

Taxes sought to be collected specifically refer to manufacturers and exporters taxes for the period from Jan
1, 1974 to Sept 30, 1975, inclusive, in the total amount of P161,875.00 plus 25% surcharge

The municipality alleged that the imposition and collection of these taxes is based on its Municipal Ordinance No. 5
and Municipal Ordinance No. 10

Floros Answer:

It is not liable to pay manufacturers and exporters taxes

- alleged that the municipalitys power to levy and collect taxes, fees, rentals, royalties or charges of any kind
whatsoever on defendant was limited or withdraw by Sec 52 of PD 463, which provides

- Sec 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral Products. Any law to the contrary
notwithstanding, no province, city, municipality, barrio or municipal district shall levy and collect taxes, fees,
rentals, royalties, or charges of any kind whatsoever on mines, mining claims, mineral products, or on any
operation, process or activity connected therewith.

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 Armative defenses (plainti here meant the municipality; these arent important)

- plainti has no legal capacity to sue

- that the complaint states no cause

- that plainti has absolutely no cause of action against defendant

- defendant was granted by the Sec of Agriculture and Natural Resources a Certificate of Qualification for Tax
Exemption, entitling him from payment of all taxes except income tax for 5 years from the first date of actual
commercial production of saleable mineral products (from May 17, 1974 to Jan 1, 1978)

- RA No. 3823, as implemented by Mines Administrative Order No. V-25 and PD No. 463 which are the basis for
the exemption granted to defendant are special laws whereas the municipal ordinances mentioned in the
complaint based on PD No. 231 and PD No. 426 are general laws and that it is axiomatic that a special law cant
be amended and/or repealed by a general law unless there is an express intent to repeal or abrogate the
provisions of the special law

TC: ordered Floro to pay the municipality

HtP

ISSUE

W/N cement is a mineral product NO

W/N Ordinances 5 and 10 of Lugait, MisOr apply to Floro Corp notwithstanding the limitation on the taxing
power of local government as provided for in Sec. 5(m) of PD 231 and Sec 52 of PD 463 YES

FLORO CORP ARGUMENTS MUNICIPALITY OF LUGAIT ARGUMENTS

Since Ordinances No. 5 and 10 were enacted pursuant to PD No. 231 The municipality admits that Floro Corp undertakes exploration,
and 426 respectively, said ordinances do not apply to its business in development and exploitation of mineral products

view of the limitation on the taxing power of local government

provided in Sec 5(m) of PD 231, which reads:

However, the taxes sought to be collected were NOT imposed on

these activities in view of the prohibition under Sec 52 of PD 463

Sec. 5 Common Limitations on the Taxing Powers of Local the taxes were levied on the corporations business of
Governments
manufacturing and exporting cement

The exercise of taxing power of provinces, cities, municipalities the business of manufacturing and exporting cement doesnt fall
and barrios shall not extend to the imposition of the following:
under exploration, development nor exploitation of mineral
(m) Taxes on mines, mining operations and mineral products and resources as defined in Sec 2 of PD 463, therefore it is outside the
their by-products when sold domestically by the operator.
scope of application of Sec 52

They contend that cement is a mineral product (relying on Cebu The municipalitys power to levy taxes on manufacturers and
Portland Cement Company vs CIR and Philippine Pipes and exporters is provided in Art 2, Sec 19 of PD 231, as amended by PD
Merchandising Corp vs CIR)
426, which provides that The municipality may impose a tax on
They also contend that the partial exemption aforementioned was business except those for which fixed taxes are provided for in this
Code:

rendered absolute by Sec 52 of PD 463 (quoted in full above)

this prohibition includes any operation, process or activity (a) On manufacturers, importers, or producers of any article of
connected with its production
commerce of whatever kind or nature, including brewers, distillers,
rectifiers, repackers and compounders of liquors, distilled spirits
the manufacture of cement is a process inherently connected with
and/or wines in accordance with the schedules

the mining operation undertaken by Floro

(a-1) On retailers, independent wholesalers and distributors in
accordance with the schedule

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HOLDING

Cement is not a mineral product.

It is not a mineral product but a manufactured product, as held consistently by the SC in a number of cases

True, it is composed of 80% minerals BUT it is not only an admixture or blending of raw materials it is the result
of a definite process: crushing of minerals, grinding, mixing, calcining, adding of retarder or raw gypsum

Before cement reaches saleable form, the minerals have already undergone a chemical change through a
manufacturing process

The cited case by Floro has already been overruled.

As to the exemption, the Court has laid down the rule that as the power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any reduction or diminution thereof with respect to its
mode or its rate, must be strictly construed and the same must be coached in clear and unmistakable terms in
order that it may be applied.

The general rule is that any claim for exemption from the tax statute should be strictly construed against the
taxpayer (Luzon Stevedoring Corp vs CA)

He who claims an exemption must be able to point out some provision of law creating the right; it cannot be
allowed to exist upon a mere vague implication or inference. It must be shown indubitably to exist, for every
presumption is against it, and a well-founded doubt is fatal to the claim.

Floro failed to meet this requirement

The exemption in Sec 52 of PD 463 refers only to machineries, equipment, tools for production etc. as provided
in Sec 53 of the same decree

The manufacture and export of cement does not fall under the said provision since cement is not a mineral
product

It isnt cement that is mined, only the mineral products composing the finished product
Also, in the parties own stipulation of facts submitted before the court, it is admitted that Floro Cement Corp is
engaged in the manufacturing and selling, including exporting of cement

Since the taxes sought to be collected were levied on these activities, they properly apply to Floro

RULING

Petition is denied.